Exclusive interview with Russell Napier

Fundamental changes

In recent decades, Russell Napier has become well known for predicting deflation, but recent developments have caused him to change his mind. It is well worth noting, that his reasons for this change do not stem from the amount of stimulus that has been injected into the economy, or other short-term factors. Rather, Russell sees more fundamental structural change in the way the global political and financial system works.

One of the changes Russell points to is that governments are providing credit guaranties to commercial banks. In short, through the power of regulation, governments have taken control of the commercial banking system. Therefore, he expects broad money supply growth to be much higher than it has been in recent decades. Central banks are being increasingly tasked with supporting political agendas such as tackling climate change and reducing inequality. This will further shift their focus away from controlling inflation. Russell sees a profound change in policy in terms of how, and on what grounds, credit is created. For these reasons, and many more, he predicts higher inflation is here to stay.

A new cold war

Another big driver for inflation is the new cold war we are currently witnessing between China and the United States. It might still be in its infancy, but Russell believes the writing is on the wall. Containing China will be another big factor driving inflation in the coming years, if not decades. On the one hand, protectionism could shut off China’s huge market to the world. On the other, the goods that China no longer supplies to the global market will instead need to be produced domestically in the countries China currently exports to. With the cold war developing, investment into China from the West may increasingly be viewed as “funding the enemy”.

Inflating the problem away

The current mission western nations are embarking upon is that of inflating away their burgeoning debts. To achieve this, yields will have to remain low and inflation will have to rise. It is precisely this trend that we are seeing right now. The ECB has recently announced that it won’t let yields rise beyond a certain level. As we at Incrementum previously predicted, yield curve control now appears to be a reality (see Ronnie Stöferle interview on the topic here). It is through the combination of higher inflation and supressed interest rates that governments have, in the past, inflated away the debt which they had accumulated. Napier sees yield curve control as one of the biggest blunders ever executed by a Western central bank. He believes that the course is set to further suspend the free market and bring about a transition to a command economy.

Closing the loopholes

A big problem with this plan of inflating away debt, is that there are currently several loopholes open to people looking to escape hidden taxation via inflation, for example investment in real assets, especially gold. Also worth noting is Bitcoin (for more, see Incrementum’s Physical and Digital Gold Fund page) and the huge emphasis its followers have on escaping the repressive financial system. All of these loopholes will have to be closed as much as possible for this plan to work. Financial repression will be one of the big topics of the coming years. More drastic measures will have to be undertaken in the future to secure the existing financial system.

Are Central Bank Digital Currencies the way to go?

The rise of rhetoric surrounding the introduction of Central Bank Digital Currencies (CBDCs) has been one of the big developments of the last year. Central banks seem to be quite interested in the subject, and they have good reasons to be. As pointed out when we mentioned Bitcoin, private cryptocurrencies are very dangerous for the financial system, as they undermine the system’s credibility and provide loopholes to those looking to escape repression. For those reasons, and for the ability they provide to control money on a level never seen before, we predict that CBDCs will indeed become a reality.

Russell’s case for gold

So far we have touched on gold only briefly, so let us change that. Recently, the gold price has been hit by rising yields, which has prompted many people to worry. But as we at Incrementum have pointed out, the introduction of yield curve control changes the whole picture. Yield curve control, as well as negative interest rates, will be one of the big drivers of the coming rise we expect in gold’s price.

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Source: https://youtu.be/PmlORdi-8bU