Harry Dent has been predicting a massive deflationary crash for years, but it is yet to manifest. In a deflationary crash, he says, the price of gold will fall significantly, to around $700. A scary fall indeed for investors in the gold market.
He bases his analysis primarily on demographics and the coming exodus in stock market sales as the baby boomers hit retirement and need to sell their stocks in search of capital and income. The theory is a sound one and although Dent has been wrong about the S&P 500 turning over in 2016, it still feels like global markets are overdue a fall of historic proportions. We have the retail sector falling apart, personal debts reaching unsustainable levels and extremely slow job growth (using government statistics, if we use shadow stats we would see that there is no job growth).
The problem with Dent's forecasts is that he has not anticipated the level of government and bank intervention in the markets. Billions are being pumped into the markets to prop them up, while at the same time suppressing gold. Derivatives and High Frequency Trading AI are also used to manipulate prices and the mainstream media continually tells the population that we are in recovery, despite the real facts. It is no wonder that markets continue to reach new highs when the truth is obscured from view. At some point Dent's prediction for a massive market fall and a deflationary collapse will come true, but in the meantime governments have no choice but to prop the markets up.
The main problem with a deflationary collapse is that it would very quickly escalate into a total collapse, governments know this and they prefer the spectre of inflation, where they can continue to maintain some level of normality. The super wealthy continue to benefit while the rest of us have our wealth eroded. Money and debt will therefore continue to expand until it cannot.
Should a deflationary collapse occur we would immediately see individuals and businesses in negative equity on property, vehicles and other assets, the stock market would wipe out billions in personal wealth and debt defaults would reach record highs. In a world of Fiat currency, debt based money supply, debt defaults and falling stock markets would reverse the wealth effect pulling money out of the economy. With virtually no tools left in the bag, bar helicopter money and negative interest rates, governments would soon collapse as tax receipts would be unable to cover debt repayments, let alone maintain any public services.
We are already seeing hints that a deflationary collapse is on the horizon. Historically low interest rates and loose monetary policy in the US has been reversed which will more than likely create enough damage to initiate a recession. That will be the start of much looser monetary policy and much higher inflation in an attempt to try and stave off the inevitable deflation that Dent has been calling for.
However there is a problem. Government implementation of loose monetary policy will only create inflation, a la Venezuela, Argentina, Zimbabwe. They know this and they cannot risk western societies collapsing in the same way, because this would mean global catastrophe. The only solution is to create a global debt jubilee and introduce some element of gold backed currency. This would reduce burdensome government debts and allow individuals to pay down their debt in a new gold backed currency. It would alleviate societal collapse, even if enormous losses were experienced by banks and other financial institutions. This is where Dent is both right and wrong. Gold, in a gold backed currency would be worth many times it's current value. Everything else valued in gold would be worth considerably less. We would see a massive deflationary collapse in everything BUT gold, as gold again takes over the role of the incoming global currency.
I expect that Dent will eventually realise this and adjust his forecasts accordingly.
This is a theory not a certainty, but gold has always protected people in times of collapse, so no matter what happens, it may pay to have a little gold.
Sources:
http://www.goldcore.com/us/gold-blog/the-greatest-crash-of-your-life-is-just-ahead-harry-dent-warns/
http://www.zerohedge.com/news/2017-01-31/harry-dent-stocks-will-fall-70-90-within-3-years
chart http://www.livecharts.co.uk
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