For those of you wondering about gold – and it seems these days, no one owns it but everyone is worried about it – today’s unemployment numbers are just what Helicopter Ben Bernanke needed to step up the printing press.
Let’s recap the recent past shall we?
Here’s what I think has been happening with Fed policy. Uncle Ben knows that everyone thinks he’s a money printer – and I think he knows that the economy is very weak. But he didn’t want to engage in any more “quantitative easing” (description below) without “proof” in order to avoid scrutiny.
In other words, Ben wants to print, and in the way he thinks about how to stimulate an economy, he needs to print. But if he kept printing, he would be attacked and especially when the Audit the Fed bill was circulating strongly, his actions would likely have led to a higher chance of a full audit.
Now however, with “proof” that the economy is weakening, in the form of disappointing jobs data today, Bernanke has th green light to print. How will he do this? First off, let me share why I think this is coming soon. Various Federal Reserve officials have dropped hints over the past month or two saying something along the lines of (and I’ll sum up all their comments collectively) “we stand ready to take additional measures if necessary to stimulate.” Specifically, Janet Yellin, the new Vice Chair of the MoneyPrinting Reserve Bank (Fed) said that she would make interest rates “negative” if she could.
Folks this is reckless talk. I understand that it requires deeper economic understanding to interpret the risks of inflating our money supply and keeping interest rates at zero, but please take time to understand it. It could mean your net worth in the balance.
What Bernanke et al. will do with quantitative easing is they will buy more assets. For example, if they buy more treasury bonds, they keep rates low in the market so that mortgage rates, business lending rates, student loan rates stay low. They may also, if ‘forced to” by a very bad economic situation, buy other assets – even if it is against the Fed charter because, what the heck, no one follows the law anymore and no one will hold them accountable – so they will likely buy non government bonds, stock, or even directly fund banks all in hopes of spurring lending.
Most importantly, they will likely accelerate the monetization of the US national debt by putting the treasury bond purchase program into hyperdrive. Once they do this, they will further cement the idea in the other holders of treasury bonds that the US will not pay them back (too much debt). This will begin the exit plans of foreign governments and such who own our bonds. Rates will rise in spite of the Fed’s efforts and the dollar will fall. The result is you will pay much more for any good you buy that could be sold globally (since sellers could get more money for it elsewhere, they will either charge more here or sell it there) and interest rates you pay will be much higher.
Bottom line – in purchasing power terms, you will be much poorer. The only ways to protect yourself, and I have said this many times:
1. own real assets – gold/silver, no/low debt burdened real estate, land.
2. control your expenses – likely, your REGULAR bills will rise – gas/oil, water, electricity. get off the grid with renewable or independent sources of these things – this could save you hundreds per month.
3. food – grow some of your own to offset the cost of food to your house.
The green light has been shown…there is no chance that I see that the Fed stops printing or the US government stops spending. Both activities weaken the dollar and put more of a foundation in place for gold.