Sunday, November 24, 2013
The Race That Will Not End Well
22 November, 2013: Central banks around the global economy are involved in a race that will not end well. Of course, I’m talking about the race to the bottom of currency devaluation, which is being achieved through the printing of more and more paper money backed by nothing.
Almost weekly, I hear news about different central banks in the global economy cranking up the speed of their printing presses; they are fixated on printing money because these central banks believe they can solve their economic problems by printing. They are wrong!
Our own Federal Reserve is creating $85.0 billion a month in money with the hopes of bringing economic growth to the U.S. economy. But this strategy is failing the masses in America. Those who have benefited the most from this exercise have been big banks, Wall Street, and the rich. The poor and middle-class are in a worse situation now than in 2007!
But it’s not just the Federal Reserve that’s printing massive amounts of new money. Other central banks are doing the same under a fancy phrase: “quantitative easing.”
In its most recent monetary policy statement, the Bank of Japan reiterated it’s take on printing. It said the central bank will continue to work towards increasing the monetary base in the country by 60 trillion to 70 trillion yen per annum. The central bank will buy Japanese government bonds, exchange-traded funds (ETFs), and real estate investment trusts with the freshly printed money. (Source: Bank of Japan, November 21, 2013.) (Yes, the Bank of Japan is buying securities that trade on the stock market. As our next American financial crisis approaches, I wouldn’t be surprised to see the Fed do the same thing.)
The European Central Bank (ECB) just lowered its benchmark interest rate again and has hinted it might be taking its own quantitative easing action. (Only if eurozone member Germany would consent!)
We have seen the central bank of Switzerland and the Bank of England both participate in quantitative easing, and the central banks of emerging markets are doing the same!
The central bank of India’s M1 money supply (total paper money notes and coins in circulation) has gone up 402% between the years 2000 and 2012. (Source: Federal Reserve Bank of St. Louis web site, last accessed November 21, 2013.)
And the governor of the Reserve Bank of Australia, Glenn Stevens, said this week that “It [quantitative easing] remains part of the toolkit.” (Source: “RBA not ruling out intervention on $A,” The Australian, November 22, 2013.)
But despite this unprecedented world central bank race to create more paper money out of thin air, gold bullion prices decline. How can that be? Dear reader, my “job” in these pages is not to present a boring economic analysis on the “why,” but rather, my focus is on the “opportunities.” And when I see gold nearing $1,000 per ounce (after the Federal Reserve has created about $3.0 trillion in new money and continues to print more), I see gold as a bargain.
Yes, I’ve heard the talk about deflation hurting gold prices. But right now we are seeing a vast amount of monetary inflation (the creation of new money with no backing). Going back throughout history, I’ve never seen a time when monetary inflation hasn’t eventually caused price inflation.