(Kitco News) – Politicians and central banks offer many reasons for the sticky inflation seen in recent years, pointing to things like the COVID-19 pandemic and supply chain hiccups as the primary culprits, all the while ignoring the fact that non-stop debt issuance plays the biggest role as the global money supply surges.
According to economic commentary provider The Kobeissi Letter, the total money supply in the U.S., the Euro Area, Japan, and China recently hit a new record of $89.7 trillion, with $7.3 trillion of that added in just the past year.
“This marks the largest increase in 3 years and a similar jump to the initial pandemic response seen in the first half of 2020,” analysts at The Kobeissi Letter said. “In the US alone, the amount of money in circulation has surged $410 billion year-over-year, to $21.2 trillion.”
To help put these figures in perspective, the analysts noted that “at the beginning of 2020 the US money supply was 27% below current levels,” which points to one thing: “Global money printing is back.”
“Since the pandemic, global money supply has skyrocketed,” they said in a follow-up post. “In fact, the US Dollar has lost 25% of its purchasing power over the last 4 years alone. Clearly, inflation was not ‘transitory.’”
And with the U.S. pledging financial support for multiple conflicts around the globe while also dealing with a failing infrastructure at home and unsustainable interest payments on its debt, the upward trajectory of M2 and debt show no signs of slowing.
“US public debt has jumped $345 billion over the last 3 days hitting another record of $35.7 trillion,” The Kobeissi Letter stated on Thursday. “Since June 2023, federal debt has surged by a MASSIVE $4 trillion, or 14%.”
“Over the same time period, US GDP is up just $1.5 trillion, or ~6%,” they noted. “In other words, the national debt has outpaced the economic growth by 2.7 TIMES over the last 16 months. Outside of the pandemic crisis, US federal debt has never grown so rapidly.”
“Imagine running your household like the US runs its debt… You’d be bankrupt by lunch and still buying lobster for dinner. But hey, let’s keep pretending GDP will save the day,” responded financial analyst Jon Markman.
As for the primary culprit, Global Markets Investor pointed squarely at the U.S. government, which has been spending billions of dollars beyond its means since 2009.
‼️US GOVERNMENT SPENDING HAS EXCEEDED REVENUES FOR THE PAST 15 YEARS STRAIGHT‼️
The US government has been spending above its means since 2009 with no signs of stopping.
"The definition of insanity is doing the same thing over and over again and expecting a different result." pic.twitter.com/wT22gMQFDi— Global Markets Investor (@GlobalMktObserv) October 4, 2024
And it's not just the U.S. that is stacking its debt, as Visual Capitalist reports that following an increase of $1.3 trillion in Q1 2024, global debt hit a new record high of $315 trillion, of which mature markets account for $209.7 trillion, or two-thirds of the global total.
With all this happening in the background, it becomes more understandable why gold has been on an absolute tear since October 2022, appreciating by 64% amid rampant demand from central banks and retail traders.
After experiencing months of outflows from gold ETFs, July saw the trend reverse, and since then, demand has skyrocketed. According to The Kobeissi Letter, “Cumulative gold ETF inflows including gold miners ETFs are now at $3.3 billion since August.”
“The most popular gold ETF, $GLD, has recorded $644 million cumulative inflows year-to-date,” they added. “Historically high demand has put gold on track for its best annual return since 1979, up 28% year-to-date. At the same time, gold miners ETFs, $GDX and $GDXJ, are up over 30% and on track for their best year since 2020. Gold continues to trade like we are in a crisis.”
As a result of the surging demand, gold is the “best performing major asset class” year-to-date, according to Global Markets Investor, and is “also on track for the best annual return SINCE 1979.”
Gold Performance by Year: Source: Zerohedge
“Gold is just relentless: another day, another record high (4th in row), up 30% on the year to $2662,” ZeroHedge tweeted on Sept. 24. “This is gold's best YTD performance this century!”
While cryptocurrencies and Bitcoin (BTC) are not included in Global Markets Investor’s definition of a major asset class, they have also climbed higher in 2024. While gold has risen around 30% since the start of the year, Bitcoin is up more than 40%, even as it trades more than 15% below the record high set in March.
And with Bitcoin showing a history of rising alongside M2 money supply, with a lag of 75 to 90 days, most analysts are expecting a healthy rally for BTC as 2024 closes out despite any headwinds that may be influencing economic conditions.
The Global M2 money supply by a 10 week lead is exploding to the upside.
It is just a matter of time before #Bitcoin follows? pic.twitter.com/SB2TwCG1eZ— Bitcoinsensus (@Bitcoinsensus) September 25, 2024
According to market analyst Joe Consorti, the M2 trend suggests that Bitcoin could hit a price of $90,000 by the end of 2024.
If bitcoin continues following the trajectory of global M2 money supply, it's heading to $90,000 before the end of the year. pic.twitter.com/Kd3YlDT12H
— Joe Consorti ⚡️ (@JoeConsorti) September 30, 2024
As for gold versus M2, the yellow metal has underperformed in the past, but analysts widely expect it to continue to rally higher as the money supply increases.
US M2/Gold Ratio. Source: In Gold We Trust
“As you can see on the chart above, gold bull markets tend to correlate with large increases in the ratio (1971-1980, 2000-2011),” said analysts at Vaulted. “However, the most recent bull market, which began in 2016, is different. Gold has been rising in parallel with M2 money supply, so the ratio has traded sideways since 2016.”
“This indicates that gold could have much further to climb during this bull market,” they concluded. “Gold bull markets tend to vastly outperform money supply growth, which we have not yet seen. Even a reversion to the historical mean would constitute a huge increase in the price of gold.”
