We expect global monetary authorities to protect the dollar as long as they can and we expect them to fail. Stocks and bonds will react violently; stocks and weak credits falling, treasuries prices rising (at first). That failure will lead to hyperinflation – not driven by demand, but rather by central bank money printing. A new global monetary understanding will then emerge.
Gold is collateral of last resort as it is near-universally accepted. Repo fails indicate, very strongly, collateral shortage. Put the two together and you get yet more evidence that central bankers really don’t know what they are doing. And, also like in Bagehot’s day, the repercussions are global.
As all experience from the past clearly demonstrates, it is a mistake to believe that the gold price is set solely by dollar interest rates, or its relative strength in other currencies. This being the case, the current weakness of the gold price is simply a reflection of temporary dollar shortages, and nothing more.
Most financial journalists are not good, and in fact are wedded to a pro-Fed, pro-state ideology that subconsciously permeates everything they write. They are hopelessly unobjective, the naive products of their education and training. The world needs real diversity of thought and opinion, not the fake kind being discussed at the Fed.
One of the burning questions troubling Wall Street this morning is whether president elect Donald Trump plans on reshuffling the Fed, eliminating its so-called "independent" and perhaps going so far as firing or "requesting" Janet Yellen's resignation. to answer the question whether or not Yellen's role is in jeopardy, we went to the two most authoritative sources available: JPM and Goldman.
"Our current debt may be manageable at a time of unprecedentedly low interest rates. But if we let our debt grow, and interest rates normalize, the interest burden alone would choke our budget and squeeze out other essential spending. There would be no room for the infrastructure programs and the defense rebuilding that today have wide support."
"I am concerned that the appointment for Treasury Secretary offers either a great opportunity or a lost one or in one case would create a future problem. The latter, obviously, is Larry Summers who is... arrogantly unpleasant to his subordinates, dismissive to his equals and pandering to his superiors."
President Obama’s High Command at the Fed has had the luck which Napoleon looked for in his generals. The exercise of two Yellen puts seems to have delayed the late dangerous stage of asset price inflation to beyond 2016 Election Day.
The Great Recession was a result of a massive monetary policy error. The Fed kept rates too low for too long, which - when coupled with lax or no regulation in the mortgage markets - resulted in a housing bubble and a crash. This then bled over to global markets. We are again suffering the effects of a massive monetary policy error. The error has already been committed, but we have just begun to endure the consequences.
The Bank of England’s inept monetary policies under Mark Carney’s governorship seem certain to expose the fragility of fiat sterling to wider public attention and skepticism. If the consequences weren’t so serious, we might thank him for unwittingly toppling the status quo. But the inevitable crisis, many times worse than that faced in 1975, cannot be embraced even by the most extreme financial masochist. This is why people in Britain and America will increasingly find solace in gold.
"The hubris of central bankers who somehow believe they will know the precise time to alter easy money policies in order to prevent a monetary disaster is only exceeded by the foolishness of Congressional oversight in granting that authority."