By choosing the path of money printing (instead of austerity like the UK), the Fed has decidedly placed the US on a very risky course. I see the outcomes are almost binary: either this works or it doesn't.
If this gamble works, business will pick up, unemployment will drop, tax revenues will flow again to the states and federal government, the sun will continue to rise in the east and roses will bloom in the spring.
If the gamble fails? There we can envision an enormous devaluation event for the US dollar and the Fed having to choose between defending the dollar (via rising interest rates) or preventing the federal government from a fiscal emergency brought about as a consequence of rising interest rates. And by "fiscal emergency" I mean being forced to slash expenditures by as much as 50% in order to service rapidly escalating interest carrying costs on the short term portion of the fiscal debt load. But that's a death spiral because cutting government spending is the same as cutting GDP (it's practically 1:1) and every cut to GDP leads to lower revenues which will necessitate more expenditure cutting, etc. and so forth until 'the bottom' is reached.
I wish there was some sort of middle ground on this one, but I can't quite see it. Either the Fed's efforts work or they don't. Let's hope for success.
In truth, I‘ve long predicted that the day would arrive when the Fed would monetize government debt, but I hoped that it would never come. Because hope alone is a terrible investment strategy, I prepared for this event years ago by accumulating gold and silver as the core of my portfolio.
But now the rules have changed again, we are on a slippery slope, and gold and silver were always meant to be my "transition elements" put there to help shepherd my wealth through the transition period as the world's fascination shifted from "paper" to "things."
Join us on our
Share this page with your friends
on your favorite social network: