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Message: FED UP
| Februray 9, 2012 | |
| Latest from Brien Lundin | |
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Fed Up The Federal Reserve believes it is riding to the rescue of the U.S. economy by extending its ultra-easy monetary policies and considering another round of quantitative easing. But in reality, their efforts will be like trying to douse a fire with gasoline. This is how economic overreach, and its inflationary repercussions, are born.
Despite the fact that economic data have been getting incrementally better, Bernanke left little doubt that the Fed is losing patience with slow economic growth and persistently high unemployment. He may also be worrying about the prospect of a Republican president who might be unwilling to reconfirm him as Fed chairman. So, he wanted to assure the markets that interest rates will remain near zero for much longer than most were expecting..."at least through late 2014"...and that his trigger finger is itching in regard to firing off another round of quantitative easing. That was all it took to launch gold. Since he first opened his mouth, gold has been running higher. At this point, it has essentially regained everything it lost in December's correction, and is poised to attack its previous record highs. This rally is for real. And none other than Chairman Bernanke has told us that it has a lot of room to run. |
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A Grain Of Truth Germinates I think that monetary historians will look back to this latest Fed meeting as the point where Bernanke and Co. lost it. I know what you're thinking — what should I expect from "Helicopter Ben?" Now, I've always maintained that this nickname was a simple caricature of Bernanke, and one that should never form the foundation of any investment strategy. How could anyone believe a Fed Chairman would just print money willy-nilly, without any regard for the inflationary consequences? But every caricature carries some element of reality, and I believe we're seeing this come to the fore with Bernanke. Consider this: Bernanke gained his infamous nickname thanks to his writings before assuming the Fed chairmanship, when he recognized the Fed's ability to forestall any deflationary decline by simply ramping up the printing press. As he put it in a 2002 speech, "The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." Of course, Bernanke wasn't advocating this as anything but a policy of last resort. But by the same token, he certainly didn't exhibit the respect, or fear, of such a policy that central bankers of previous generations had always held. The key here is that Bernanke has always believed that — despite the lessons of history — he alone would know when to pull back the punch bowl. He would not make the same mistakes that every single monetary authority had made before him. But the record is clear: Throughout human history, every currency not backed by gold has eventually collapsed. Every person entrusted to maintain a fiat currency's value has succumbed to temptation, overreach and hubris.The latest example is unfolding right before us. I believe that economic historians will look back at January 25 as the day that Bernanke's overreach was born. The Fork In The Road: Profit...Or Ruin Of course, monetary inflation means that gold, as the other side of the see-saw, will rise as the values of fiat currencies fall. Thus, as we see massive money-printing emerge as the "solution" to the debt crisis in Europe...as the Fed tells us it will keep the spigots wide open for years to come...the stage has been set for another great rally in gold. It's happening right now, as gold is soaring again...but with a key difference. This time, we're also seeing the mining stocks, from the major producers to the junior exploration/development companies, begin to wake up as well. There are tremendous profits ahead in specific companies. |
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