The gold market is crouched in the starting blocks waiting only for the crack of the pistol. Posted by James Randolph on June 08, 2011
Ride out the storm with strong gold investment.
June 08, 2011 – The gold market is crouched in the starting blocks waiting only for the crack of the pistol. And Bernanke’s feeble pleas to call off the race are now falling on deaf ears.
The Fed’s meddling in the markets has been a classic example of the Austrian business cycle theory, resulting in a series of boom-bust cycles over several decades and creating several notable bubbles. Although each bust was worse than the last, lowering interest rates below market value always succeeded in sparking the next boom. So why isn’t it working this time?
Free Market Economics attributes the failure to the buildup of debt load encouraged by repeated cycles of artificially low interest rates. Today “the Fed cannot ignite another bubble [because] the burden of massive debt overhang is too much to overcome.” In absence of another false boom there is no money left to service the debt, leading to “massive defaults at all levels of society including individuals, corporations, municipalities, states and finally the Federal government itself.”
Unquestionably the progression is well under way, and time is quickly running out for the states. When they start defaulting, the Federal government won’t be far behind. The Fed will ultimately be forced to choose between just two means of default.
The first is the one most often chosen in the private sector – simply not paying back the debt. This direct approach is always painful, but it allows recovery to begin immediately and things gradually improve over time. If the Fed were to take that route “we get a vicious but not endless period of deflationary debt collapse where all the bad decisions of the past Fed induced business cycles are finally accounted for.”
Most likely, however, the Fed will opt to keep bailing out everyone who comes to it with hat in hand, cranking up its magic presses to pay for it all. “This would eviscerate the dollar on the foreign exchange market and send prices soaring to the moon in a hyperinflationary depression.” How long it would last is anybody’s guess.
In the end whichever path the Fed chooses is immaterial. All that will matter is whether it elects to cease meddling and let a truly free market take its course.
Fortunately we individuals need not go down with the ship. We have the option to ride out the storm buoyed by strong gold investment.
Senior Staff Writer – Certified Gold Exchange