Soft landing is a farce: Super QE and U.S. dollar debasement coming as Fed pivots – Matthew Piepenburg

(Kitco, Wed. Jan. 10th, 2024) – As markets attempt to guess the timing and the number of rate cuts the Federal Reserve is likely to introduce this year, investors should be prepared to see massive quantitative easing that will have a major impact on the U.S. dollar, according to Matthew Piepenburg, Partner at Matterhorn Asset Management.

Piepenburg dismissed the narrative of a soft landing for this year. “The idea of a soft landing or no landing to me is farcical when the evidence is that the fuselage is on fire, the luggage is over the runway, and the engine’s somewhere in the grass behind the plane, and the passengers are screaming,” he told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News.

The real America is already in a recession, with Main Street and Wall Street indicators both supporting that thesis. “You still have an inverted yield curve that’s starting to straighten. That’s actually a negative sign,” Piepenburg pointed out.

There is also the M2 money supply, which is at a 4% decline. “There have only been four times in the history of our country where we’ve seen a decline in the M2 money supply. The fact that there is a decline always indicates deflation, which indicates a recession or even a depression, as we saw in the 30s,” he noted.

For more worrisome economic indicators, including the highest number of bankruptcies and how soon they’ll hit the U.S. economy, watch the video above.

After raising rates 11 times in just a year and a half and bringing the key federal funds rate to a target range of 5.25-5.5%, the Federal Reserve has left itself no options but to pivot in 2024, Piepenburg added.

“If Powell keeps rates high without cutting them, a lot of those zombie companies on the S&P that are just living off a tailwind of cheap debt get crushed. And then the S&P goes down, tax receipts go down, and then we have a faster recession as measured by the stock market,” Piepenburg said.

Rate cuts will be necessary in 2024. Otherwise, there will be “a bloodbath in the market,” he described.

“There’ll be a deeper deficit and a ripple effect from debt. It affects the currency, the bond market, the rate market, geopolitics, crypto, and risk assets,” Piepenburg explained.

On top of that, the U.S. debt level matters on a global scale, especially when it comes to demand for U.S. Treasuries and the U.S. dollar.

“The world is stepping away from U.S. Treasuries. If America’s printing out $20 trillion over the next ten years in U.S. Treasuries, and there are no buyers for it outside of the U.S. or outside of the Fed, what are they going to do to keep yields from going too high for Uncle Sam to pay for?” Piepenburg asked.

The result is the same – more money printing. “They’re going to have to have super QE to pay for those IOUs. That ultimately debases the dollar,” he said. “IOUs that are unwanted by the rest of the world are going to have to be bought and paid for by the Fed, which is going to require some type of backdoor or direct liquidity or QE, which will kill the currency in the name of saving the system, which I think is inevitable. But in the meantime, before we go to super QE, we’re going to pause and then cut.”

Saudi Arabia’s non-USD oil deals to have a massive impact on gold price 

Any changes to which currencies Saudi Arabia accepts for oil, especially a significant shift away from using the dollar, will have a major impact on gold prices next year and beyond, Piepenburg forecasted.

The petrodollar system originated in the mid-1970s when the United States and Saudi Arabia reached an agreement that ensured that Riyadh would sell its oil only in U.S. dollars. In return, the U.S. would provide military protection and support.

This has had a major impact on the U.S. dollar as the global reserve currency as countries had to maintain substantial reserves of U.S. dollars to buy oil.

“Saudi Arabia is doing more trade with China than it does with the U.S. and the European Union combined,” Piepenburg stated. “If at some point in 2024 … we see a radical move in how Saudi Arabia sells oil, that will have a dramatic impact on the gold price. I’m not saying the petrodollar ends tomorrow, but these are seismic shifts.”

JPMorgan Chase estimated that about 20% of the world’s oil has been bought and sold in other currencies in 2023. According to the bank, 12 major commodities contracts settled in nondollar currencies were announced last year, which is high compared to seven announced in 2022 and just two in 2015 through 2021.

Piepenburg added that once Saudi Arabia shifts to selling vast amounts of oil in other currencies, that will be devastating to the dollar and very good for gold.

Piepenburg also weighed in on how soon this could happen and what could be the trigger. Watch the video above for insights. 

There is a major shift in global monetary policy that is coming, Piepenburg said, noting the inevitable shift away from the U.S. dollar and the tumultuous journey ahead.

“We’re going into a multipolar world, which is multi-dysfunctional…It won’t be smooth, it will be very volatile,” he said. “We’re going to see pause, pivot, QE, excuses, Bretton Woods 2.0, massive failure of accountability, massive failure of responsibility, and finger-pointing.”

What would Bretton Woods 2.0 mean for the U.S. and global monetary system? Watch the interview above for details. 

Watch Part 2 of the interview here.

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com