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(Kitco News) - Geopolitics, inflation, technology and de-dollarization all occurring at the same time are creating a flywheel effect that is leading to an imminent and fundamental change in global economies, wrote Ronald-Peter Stöferle, managing partner at Incrementum AG and author of In Gold We Trust report, which was released today.
The theme of this year's report was "showdown."
"In our opinion, the term showdown is an apt description of the current situation, in which economic, political and social developments are on the brink of a fundamental change of course," writes the report's authors. "The global pandemic, the inflation crisis, increasing political polarization, technological breakthroughs such as artificial intelligence – which, by the way, we used to create the cover of this In Gold We Trust report – but also the impending geopolitical realignment are changing our lives in ways that were unimaginable to many of us just a few years ago."
All these factors occurring at the same time have a compounding effect, write the authors.
"The current situation is...unique because we are not dealing with a singular showdown. Multiple escalations are occurring simultaneously and have the potential to further inflame each other."
Debt-induced growth is unsustainable, write the authors. In each decade, the volume of credit has roughly doubled over the past 50 years. The exorbitant level of debt is ultimately the main reason behind the pressure on central banks not to raise interest rates further, or even to lower them again.
"This impressive illustration of the exponential growth of debt and money supply shows two things: on the one hand, the systemic unsustainability of the monetary system and, on the other hand, the impossibility of not leaving economic skid marks by a cold withdrawal of the drug credit. The exorbitant level of debt is ultimately the main reason why the pressure on central banks not to raise interest rates further, or even to lower them again soon, is increasing with each passing day."
Regarding inflation, the authors see predominantly disinflationary trends in the months ahead. But a second wave of inflation will become all the more likely as the restrictive monetary policy is abandoned.
"The originally stated monetary policy goal of managing monetary tightening and pushing inflation below 2% without triggering a recession is unrealistic. We believe that an abundance of economic malaise is being revealed before us as a result of the full-throttle monetary policy stance," the authors said.
"Monetarily induced booms always mask a multitude of financial sins and encourage herd behavior, false risk awareness, recklessness, and a 'this time is different' mentality."
Regarding Bitcoin versus gold, the authors say that Bitcoin's network effect is clearly visible through the increasing number of users and wallets. As Bitcoin becomes more widespread and adopted, it becomes more attractive and increases its utility.
"Through its independence from government control and its cross-border transaction capability, Bitcoin would indeed offer an alternative to traditional currencies. We do not see such widespread adoption – aka "Hyperbitcoinization" – at the nation-state level immediately. In the long term, however, such a breakthrough in the acceptance of Bitcoin cannot be ruled out and would probably cause an enormous stir – also with regard to the price."
