Worthless Paper Money

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August 27, 2020

  • Fed “backstops” everything
  • Salvation for Big City, USA?
  • Jay Powell’s Zoom call (and inflation)
  • Robert Kiyosaki on modern money’s velocity
  • Nasdaq blows off some steam
  • TikTok CEO: We hardly knew ye
  • Telltale signs of inflation
  • Pegasi or pegasuses?

New drinking game! Take a shot every time Fed chair Powell says the word “backstop”…

If you lingered for Powell’s Q&A session after his Zoom call (or the erstwhile Jackson Hole symposium speech 2020), you heard Powell defend the Fed’s backstopping pretty much everything…


One of Powell’s more animated moments…

Something that grabbed our attention was Powell’s assertion the Fed would backstop the municipal bond market… a market we featured at The 5 yesterday. Question: Was Powell signaling salvation for Big City, USA? Jeremiah, could you give me an anchor link at the 3:00 mark? Thank you!

Indeed, the Fed’s Municipal Liquidity Facility (MLF) — established under the CARES Act — is meant to “provide a liquidity backstop” for approved muni bonds issuers, according to the N.Y. Fed.

The catch? An article at Barron’s says: The MLF “can directly buy up to $500 billion in municipal bonds from states, cities with more than 1 million people and counties with more than 2 million people.

“That means the program isn’t open to most local governments” because “there are only 10 cities and 16 counties” in the U.S. that fit the criteria.

Guess our top three most debt-plagued cities — NYC, Chicago and San Francisco — fit the bill…

For our purposes this morning, we’re most interested in what Powell had to say about the Fed and inflation…

Powell and company got a brand-new bag: “The Fed’s new approach could be viewed as a flexible form of average inflation targeting, allowing inflation to run moderately above or below the Fed’s 2% target for some time,” Trading Economics reports.

“This means that interest rates could be left lower for a longer period despite a rise in inflation.

“The Federal Reserve has left the target range for its federal funds rate unchanged at 0–0.25%… but opened the door for further monetary easing to support the world’s largest economy through the pandemic.”

Oy… further monetary easing. Sometimes you gotta wonder if Powell — who is a lawyer, and not an economist — understands how this whole money thing works.

For that, we turn to Robert Kiyosaki, bestselling author of Rich Dad Poor Dad

“Modern money is simply an idea backed by the faith and trust of a government,” Robert says.

“Paper money is worthless in and of itself,” he continues. “It is a representation of the faith economies have in a country’s economy rather than something of value like gold.

“The value of this ‘fake money’ always goes to zero relative to real money, like gold,” Robert reminds us. “This is partially because governments can print as much as they want since it is tied to nothing of value… it is just paper.”

(Ahem, further monetary easing… and inflation.)

“Today’s money is a currency,” Robert says. “Like a current, today’s money must keep moving in order to survive. The rich understand this, so they always keep their money moving into things with tangible value: assets.

“The rich invest their money in assets that produce more money in the form of cash flow, which they can use to invest in more assets,” says Robert. “This is the velocity of money, and it is the reason why some people are rich and most others are poor.

“Here’s the formula for using money to get rich:

  • Invest my money into an asset
  • Get my money back
  • Keep control of the asset
  • Move my money into a new asset
  • Repeat the process.

The way Robert sees it: “If you know how to use money to get rich, it’s basically a license to legally print your own money. The way you can do this, legally, is via… a return on investment (ROI).

“I always look to have an infinite return on my investments,” Robert says.

An infinite return? “When you get all your money back from an investment in a cash-flowing asset, you still own that asset and you enjoy cash flow month in and month out.

“This brings [up] a key point,” Robert says, “using other people’s money (OPM) to achieve infinite returns quickly.”

Other people’s money — or good debt — can be leveraged “to purchase assets that put cash in your pocket each month. Good debt is things like a loan for an investment property, venture capital, etc.

“You need financial intelligence to use [good debt] appropriately,” Robert says, “but when you do, you get to printing money that much faster.”

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Gilder: “This Reboot Could Make You Rich

Internet Rebootwealth revolution is coming.

And it could make you very… very… rich.

That’s the latest forecast from the man they call “America’s #1 futurist”… “Wall Street’s most influential technology trader”… and “a true American genius.”

How so?

“We’re headed for a potential $16.8 trillion reboot,” he says. “Nobody will remain untouched. And a few early investors could walk away with millions.”

Click this link to find out more…

Analyst Greg Guenthner says: “Facebook was the big winner Wednesday, blasting higher by more than 8% to help lead the Nasdaq to a gain of 1.75%.

“The moves we have seen in these ‘FANG+’ stocks are absolutely incredible,” Greg continues. Incredible, yes. But… “I still think the market (especially the Nasdaq) will need to blow off steam sooner rather than later.”

Not to say the tech-heavy index doesn’t have some legroom. “Here’s an interesting stat from market technician John Krinsky: The NDX is 28% above its 200-day moving average. That’s its widest spread since 2000.

“The kicker,” Greg says, is “the NASDAQ-100 made it to 60% above the 200-day moving average at its peak.

“So can it go higher before correcting? Absolutely! But we are getting into some nosebleed levels here…

“Bottom line” — especially when it comes to the Nasdaq — “We have to be prepared for a spike in volatility in the near future,” says Greg.

To the market on this lazy summer afternoon, where the Nasdaq is blowing off steam… down — meh — just 15 points to 11,650. Meanwhile, the Big Board’s surged 250 points to 28,580 and the S&P 500 is up 13 points to 3,490.

Commodities have taken a hit today: Oil’s down 1.15% to $42.89 for a barrel of WTI and gold’s lost $15.10 to $1,937.40 per ounce.

And this just in: “Kevin Mayer has quit TikTok just months after becoming chief executive of the Chinese video app accused by the Trump administration of threatening national security,” the Financial Times reports.

In a letter to employees, Mr. Mayer said: “In recent weeks… the political environment has sharply changed… Against this backdrop, and as we expect to reach a resolution very soon, it is with a heavy heart that I wanted to let you all know that I have decided to leave the company.”

The “resolution” — or the sale of TikTok’s U.S. business — is still up in the air. And Walmart’s entered the bidding war alongside Oracle and Microsoft…

For our weekly update on unemployment, the chart is kinda moving in the right direction…

Diminishing Horrors

Courtesy of the wonks at the Bureau of Labor Statistics, we learn the number of Americans filing for unemployment last week dropped from the week before.

Celebrate good times? Not really. That number’s still above the 1 million mark, and above analysts’ best estimate. It also means weekly initial claims have been above 1 million for 22 out of 23 weeks.

Four more weeks and that equals stratospheric unemployment for half of 2020…

For Election 2020 coverage, Jim Rickards says: “The Biden campaign is already measuring the windows in the Oval Office for new drapes.” But that might be premature…

A CNN poll conducted Aug. 12–15 — of registered voters living in 15 “battleground” states — shows Trump with 48% of the vote and Biden with 49%. The margin of error? Plus or minus 5.4%.

Does this signal Trump’s gaining some traction? “Things have been moving steadily in Trump’s direction for about two weeks,” Jim says, who claims the president’s gotten a boost recently from dwindling coronavirus fatalities and record highs at the stock market.

“We still have about 70 days to go and the race will be tight,” says Jim. “But Trump is finally getting some good news.”

For some bad news…

“Inflation is [already] beginning to appear throughout the financial system,” says Graham Summers at Money & Crisis.

First, the Fed’s “monetary policies have been much more aggressive than they were in response to the 2008 crisis.” Let this sink in: $15 trillion in six months versus $12 trillion in eight years.

Another telltale sign of inflation, according to Graham, is the “breakdown” of the U.S. dollar. “The USD has lost 4% of its value… this year,” he says. “However, that number is somewhat misleading since the USD spiked during the March COVID-19 crisis.

“Peak to trough, the USD is down a whopping 12%…

Smaller Dollar

Graham says: “During weak USD/higher inflation regimes, real assets outperform. So it’s no surprise that inflation hedges are breaking out to the upside,” he says. “Gold was the first. Now copper is joining in. Energy might be next.

“In simple terms, higher inflation will mean real assets soar.”

Finally today, a reader finds a flaw in my unicorn/pegasus argument Wednesday: “Well, as you probably know, the unicorn is a mythical species, whereas Pegasus is a singular mythical flying horse.

“There can only be one Pegasus, just as there’s only one Emily Clancy, while there are many unicorns or editors (although few as witty and adept).

“Similarly, we may never see even one Pegasus company, if we mean this in the same sense as ‘unicorns,’ because a unicorn is a billion-dollar private company.

“By extension, a pegasus would have to be a trillion-dollar company that has not gone public… and that would be rarer than, oh, a flying horse.”

The 5: Touché. Our reader makes an astute observation regarding privately held companies. I overlooked that distinction.

My bad.

But… since Pegasus is a creature of myth, can’t we replicate it ad infinitum? If not, why do most standard dictionaries include the plural form pegasi? (We even saw the unwieldy pegasuses.)

Fantasy World

And don’t get us started on if the word should be capitalized or not…

Best regards,

Emily Clancy
The 5 Min. Forecast

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I have been marketing online for 30 years helping people do it right with education, and list building tools and procedures.