Signs of economic chaos abound. Just this morning, Bank of America confirms, simultaneously, that 10-year bond yields, now 1.5 percent, are going lower – and that you should buy bonds. And who can quarrel with this given that bond yields for the euro, the yen, and soon the British pound, are negative.
Ponder for a moment what low and negative yields mean. They tell us no one has confidence in investing in real things. Investors would rather lose money over a 10-year horizon than invest in building dams, repairing pipes, creating better grids. Trading in nearly worthless paper has replaced belief in the future.
We’ve been talking mostly about the West, but China and the East fear the infectious nature of Western chaos. Party tussles are old hat to China and even a U.S. aircraft carrier in the South China Sea wouldn’t wreck its plans. But a crumbling, chaotic West could. Although China’s massive hoard of gold offers some insurance, on its own it’s not a ticket to growth. Western markets are still essential.
That means a new monetary order must replace the existing one as soon as possible. It will be one that China is determined to dominate, not for the sake of hegemony but to ensure long-term growth. And it will involve gold – which will become not just an insurance policy but a ticket to growth.