With investors globally wondering what central planners are up to next and how it will impact gold, today the Godfather of newsletter writers, Richard Russell, was discussing this very subject: “A few months ago I wrote a piece about avoiding pain in the economy. How do we do it? We do it by turning away from austerity and embracing inflation. And the question — will the inflationary method of avoiding economic pain kill our economy, just as the drug (taking drugs) way of avoiding pain has killed so many talented musicians? I think the results will be the same.”
Richard Russell continues:
“The world has drunk at the punch-bowl of good times and debt ever since World War II. The world has avoided the discipline of pay-as-you-go and austerity for decades. But sooner or later the piper must be paid. Up to now, the piper has been ‘paid’ with vast amounts of fiat paper.
The politicians want to make the people happy. The Fed is beholden to the politicians. The voters want it all, and they don’t like pain. The Fed and the politicians want to make the voting public fat and happy causing as little pain as possible.
Examples: courtesy of Bill Gary’s great publication, ‘Price Perceptions.’
Last week the Fed announced that they were extending the current near-zero interest rates out to the end of 2014.
The European central bank gave in and finally reduced interest rates to 1%.
The Bank of England is meeting next week to decide on another round of QE. (money printing).
This week the Bank of Australia will decide on whether to reduce rates again.
The Swiss National Bank placed a currency floor of 1.2 francs per euro in September to prevent further strengthening of the franc.
Japan has been printing for years in an effort to keep the yen cheap and competitive against other currencies.
Every nation wants a cheap and export-friendly currency. The result is a blizzard of (fiat) paper money blowing across the face of the earth.
Inflation is the central banks’ method of avoiding the pain of austerity. Inflation is the current economic narcotic that is used by modern nations. It’s the old ‘beggar thy neighbor’ system, and it will ultimately result either in all out hyperinflation and a collapse of the fiat currency system or a corrective deflationary crash. Either way, the last currency standing will be gold.”
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