Boston Consulting Group (BCG), the omnipresent US-consulting company, and Google, the global data miner, issued a joint report in July 2016 on the “$500 bn Pot of Gold”, which is the Indian digital payment market. Even though the authors deny it, the report gives much reason to suspect that the authors knew that something radical was imminent from the Indian government. The report is remarkably honest about the aims of the whole exercise.

When we had a problem in 1987 – some of you may be old enough, long enough in the business to remember that, – the answer was, ‘print the money’. And when we had a problem in 1990 and 1991, the answer was, ‘print the money’. And when we had the difficulties in South East Asia and LTCM in 1997 and 1998, the answer was, ‘print the money’. And in 2001, when the economy tanked, the answer was, ‘print the money’. I think that has given money, and the associated increase in credit and debt, a ver y important and dangerous role which it is playing out even as we speak.

We think the markets have it fundamentally wrong. US investors are anticipating a cyclical shift towards economic expansion via new tax incentives, business de-regulation and Keynesian government spending that promise to increase output, demand and asset prices. However, there is a far more influential driver of future asset prices – a structural shift that has begun but has yet to be acknowledged by economic and political authorities, and, judging by financial asset markets, by most investors. We expect weak equity markets and a strong treasury market beginning in 2017.

The U.S. dollar index touched a near 14-year high on Wednesday

The dollar has surged in the past week, tracking Treasury yields higher on the expectation that increased U.S government spending could trigger higher inflation and force the Federal Reserve to tighten monetary policy more quickly than expected.

The jewellery industry on Tuesday welcomed the government's decision to ban old Rs 500 and Rs 1,000 notes, saying gold demand will rise as people will have more faith in the precious metal than the currency notes.

At 225 percent of world GDP, the global debt of the nonfinancial sector, comprising the general government, households, and nonfinancial firms, is currently at an all-time high of $152 trillion.

Add financial debt and you will need a far bigger chart.

The U.S. national debt is one of those numbers. It currently sits at $19.5 trillion, which is actually such a large number that it is truly difficult for the average person to comprehend. How big is the U.S. National Debt?

45 years ago today, on August 15, 1971, President Richard Nixon officially closed the gold window. While US citizens had been forbidden from owning gold or from redeeming their gold certificates for gold coins since the early 1930s, foreign governments still had the privilege of redeeming their dollars for gold. Due to the Federal Reserve’s inflationary monetary policy during the 1960s, foreign governments began to redeem more and more dollars for gold. Attempts to encourage other governments (especially France) not to redeem their dollar holdings were unsuccessful, and there was a very real threat that US gold holdings might eventually be exhausted. So President Nixon decided to close the gold window, thus severing the final link between the US dollar and gold. The removal of the restraint of gold redemption freed the Federal Reserve to engage in more inflationary monetary policy than ever. The effects of that on money supply and official price inflation figures are readily apparent.

As Konstam puts it, "the status quo could continue for several years yet – if nothing “breaks” in the system" but "without an external economic shock it is hard to see policymakers being prepared to take dramatic, fiscal action to jumpstart the global economy and bounce it out of a financial repression defined by low and falling real yields to one that at least initially is defined by rising nominal yields through higher inflation expectations."

As for the conclusion, or why a financial shock is long overdue, Konstam says that "ironically the shock that is needed would require a collapse in risk assets for policymakers to then really panic and attempt dramatic fiscal stimulus. "

This is critical - and inevitable - as only a shock can lead to an "unwind of the falling yield/rising equity market where all financial assets trade badly."

Why real rates matter & gold is rising..