The already white-hot metal is breaking out to new multi-decade highs on the heels of the Federal Reserve Board’s latest currency-debasement program. Silver prices gained nearly 6% on the day following the Fed’s “QE2” announcement, breaking through both $25 and $26 per ounce!
Silver is moving on well-placed fears of massive inflation to come. This week, the Federal Reserve made a jarring announcement that it will create $75 billion in new money each month through the second quarter of 2011 and use it to buy government bonds. $600 billion is how much new money the Federal Reserve publicly admits it plans to print in the next 8 months alone! (But the REAL amount could even be higher.)
“The Federal Reserve is making a high-stakes bet,” reported the Associated Press matter-of-factly. In addition:
Fed Head Ditches Basic Principles
of Economics in Favor of Insulting Mind Games
Ben Bernanke himself penned an op-ed in The Washington Post to try to sell QE2. In it, the Fed head lauded his own efforts to artificially inflate stock prices. Yet at the same time that Bernanke revealed (in not so many words) that he is manipulating the stock market, he also revealed a shocking disregard for basic economics.
The nation’s unelected, unaccountable, de-facto central planner for the economy wrote: “Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
Bernanke has it completely backwards! Rising stock prices don’t cause corporate profits or national wealth to grow. Stock price appreciation is the effect. But by his powers to intervene and artificially inflate asset prices, Bernanke thinks he can trick the public into exhibiting “confidence” in the economy and reverse cause-and-effect.
It’s not a “virtuous circle” he’s jump-starting. It’s quite literally a con game.
Fed Fosters Vicious Circle of Excess
Government Spending and Borrowing
The Fed isn’t saving the economy at all. It is saving the political class from the pain of having to live within its means.
Although some incoming Republicans seem to be sincerely committed to reining in spending, the reality is that the GOP leadership consists of the same politicians who dramatically expanded government the last time Republicans were in charge of the House of Representatives. They don’t want to lose access to the Fed’s monetary spigot and be forced to make hard decisions on programs and entitlements any more than the Democrats do.
When the Fed buys up government bonds, it effectively monetizes the government’s excess spending. Of course, all these bonds require interest to be paid on them. So the government will have to keep borrowing more and more money from the Fed just to service previously issued debt in a vicious circle that leads to the destruction of the currency.
How to Position Yourself for the Unfolding Inflationary Ruin
Which leads us back to silver – and to gold and other hard assets. Hopefully, you’re already in them!
If you’re not, or if you’ve been looking to add to your positions, perhaps you’ll be fortunate enough to be able to buy on a pullback in the days ahead. Most technical analysts believe we’re overdue for one in the metals, in stocks, and in a host of other assets that are running up largely on central bank “stimulus.” But if we’re heading straight into a highly inflationary or even hyperinflationary environment, then conventional gauges of “overbought” markets have to be thrown out the window.
I suspect that the really severe inflation, and the corresponding mania phase in precious metals, won’t hit for at least a couple more years. But in case I’m wrong and an interceding pullback of some significance never materializes, my advice is to buy at least some precious metals now if you don’t own any – and to hang on to them if you already do!