Monday, July 4, 2016

What if instead of buying bonds, the Fed and other central banks monetized gold?

The only individuals who actually believe that zero percent interest rates, massive money printing (quantitative easing), and bond buying have worked since the Credit Crisis of 2008 are the mainstream stock hawkers on CNBC, and the central banks who have placed their reputations on the line in support of their monetary policies.  But for economic and financial analysts who look at the real data, and not on broken models used to support their already believed failed premises, central bank interventions have harmed the overall economy far more than it has helped in the long run.

So following the Brexit vote, the potential breakup of the EU, and financial institutions in Italy and Germany teetering on collapse, it should come as no surprise that the Fed and the ECB are rushing in the discuss the creation of new and even bigger money printing schemes, and the same bond buying that accomplished little more than siphoning the wealth of their countries into the hands of the few.

But what if the Fed and ECB did something different this time?  Back in April, an analyst with the world's largest Bond insurer proposed that instead of buying bonds this next time, the central banks chose to buy and monetize gold, and at a price so high that it would actually be beneficial to sovereign nations who own the precious metal, and of course to the smart people who have been accumulating it over the past decade.

Bassman says that the Fed should "emulate a past success by making a public offer to purchase a significantly large quantity of gold bullion at a substantially greater price than today’s free-market level, perhaps $5,000 an ounce? It would be operationally simple as holders could transact directly at regional Federal offices or via authorized precious metal assayers." 
What would the outcome of such as "QE for the goldbugs" look like? His summary assessment: 
A massive Fed gold purchase program would differ from past efforts at monetary expansion. Via QE, the transmission mechanism was wholly contained within the financial system; fiat currency was used to buy fiat assets which then settled on bank balance sheets. Since QE is arcane to most people outside of Wall Street, and NIRP seems just bizarre to most non-academics, these policies have had little impact on inflationary expectations. Global consumers are more familiar with gold than the banking system, thus this avenue of monetary expansion might finally lift the anchor on inflationary expectations and their associated spending habits. 
The USD may initially weaken versus fiat currencies, but other central banks could soon buy gold as well, similar to the paths of QE and NIRP. The impactful twist of a gold purchase program is that it increases the price of a widely recognized “store of value,” a view little diminished despite the fact the U.S. relinquished the gold standard in 1971. This is a vivid contrast to the relatively invisible inflation of financial assets with its perverse side effect of widening the income gap. - Zerohedge
Besides allowing central banks with gold to receive funds to help payoff debt obligations, it would also allow countries who got rid of their gold decades before to start accumulating it once again, perhaps in preparation for a return to the gold standard in their currencies when the Great Reset eventually happens in the global monetary system.

Either way, all signals are pointing towards ownership of gold, both in the hands of individuals and in the hands of sovereign nations and central banks.  And the only obstacle will be how likely are central bankers to be willing to admit their failures in the current credit based Keynesian system, and if they are willing to really do everything that is necessary to escape the monetary crisis that is now upon us, rather than whitewashing it with more debt as they did in 2011.


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