For many months I have taken the position that the Federal Reserve would not taper any time soon. Mr. Bernanke did not disappoint on September 18th when he announced his foot is firmly on the gas pedal of printing and pumping.
The Fed doesn’t actually print money. It merely creates it. Add a few blips to a computer screen and $85 billion magically appears on the books. Then those blips are used to purchase $40 billion in mortgage-backed securities and $45 billion in Treasury bills. Isn’t that easy? No muss, no fuss, and no bother.
Unless of course one works for, saves, and plans for retirement in those dollars.
Bernanke has never once used the word “taper”. The pundits and talking heads have, but not the Fed chairman. He has only hinted at reducing the purchases. But for everyone else? Taper is the name of the game. And for good reason. Bernanke is a very smart man and should not be underestimated.
Lowell Ponte and I, in our book The Inflation Deception, put a hot air balloon on the cover with a label that said, “QE27”. It was our tongue-in-cheek way of saying there will be creation of money as far as the eye can see because our leaders refuse to deal with the real problems we have in our economy. These problems are not monetary in nature. They are fiscal problems. Simply put, we spend more than we earn.
We are experiencing the greatest transfer of wealth the world has seen. Redistribution from the middle and lower classes to the investor class. And we are doing so at a time when it has become fashionable to become dependent on government handouts. I remember a time when citizens were embarrassed to receive government assistance. Now, in many cases, it earns bragging rights.
Working class people don’t own stocks and gold. Investors do. Sure, the middle class may have a 401(k) or an IRA, but they are not traditional, hardcore investors. What the Fed is doing is making the Warren Buffets of the world even richer.
I am all for people making money. I love free markets. However, we do not have free markets when Bernanke can levitate them with a simple 400-word Fed statement; 400 words with the power to instantly diminish the value of the very dollar for which every hard working American labors.
According to Egon Von Greyerz, the G-7 countries’ debt is exploding. It currently takes $7 in debt to produce $1 in global GDP. The G-7 countries represent 50% of world GDP totaling $35 trillion dollars and combined currently have $140 trillion debt and growing.
In essence, the G-7 are bankrupt. In order to keep these bankrupt countries going, someone has to produce the debt necessary to create growth in GDP. While carrying that level of debt, a mere 1% increase in interest rates would blow a staggering hole in the deficit spending of nations like America; the nations who refuse to address the short and long term fiscal challenges that have been kicked down the road for years.
The whole purpose behind QE and Fed programs like Operation Twist are to keep interest rates artificially low. More commonly referred to as “financial repression” in that interest rates are paying less than the rate of inflation. The difference between the two goes right into the coffers of the government and the large investors who can reap the rewards of investing in bubble markets, no different than the dot com or housing bubbles of years past.
Suffice to say anyone with an IQ larger than their waist size knows this scenario is extremely untenable. When it does finally break under the weight of enormous debt and accruing interest, it will be ugly.
When Gold soars $65, the DOW increases 150 points, and the U.S. Dollar takes a huge single day drop in value simply because the Fed Chairman spoke, we are guaranteed a very unhappy ending.
This is why I have pleaded with the American public, regardless of their economic status, to place a portion of their savings in gold. The more one has saved in declining dollars, the more one should move into gold. This house of cards, built solely on paper, will collapse. Those holding physical gold have true money. Money that has passed a 5,000 year test of value against dying currencies.
Through wars, famines, depressions, recessions, stagflations, and bubbles, gold remains to this day the safest haven for a world dependent on increasing debt created out of thin air to survive.
Craig R. Smith is Chairman of Swiss America Trading Corporation, a respected investment firm. Mr. Smith is an expert in tangible assets. He’s a student of history and author of five books, The Great Debasement: The 100-Year Dying of the Dollar and How to Get America’s Money Back (11/12), The Inflation Deception: Six Ways Government Tricks Us… And Seven Ways to Stop It! (7/11), Crashing the Dollar: How to Survive a Global Currency Collapse (10/10), Black Gold Stranglehold (11/05) and Rediscovering Gold in the 21st Century (8/01).