No one will argue that our economy was in danger of a massive meltdown when Ben Bernanke and the members of the Fed embarked on a policy that would eventually inject trillions of dollars into the nation’s monetary system. With local and regional banks going belly-up by the hundreds, the Fed saw fit to funnel hundreds of millions of dollars to the biggest banks in America. While the thought was to provide liquidity so banks would lend money and stimulate the economy, the opposite actually happened. During the dark days of the crisis, it became very hard, or even impossible to qualify for a business loan or a mortgage.
Fed policy
Quantitative easing, a program where the Fed purchased billions of dollars of Treasury notes and mortgage-backed securities of questionable worth, added more money into the economy, but did not reach the small guy on Main Street. The Fed began the program (QE1) in November of 2008 (right about the time Barack Obama was elected president) and continued on with QE2 and QE3, up until the end of 2013. Beginning in 2014, as Ben Bernanke was stepping down and Janet Yellen was taking her post as the head of the Fed, the policy of “tapering” began. Current Fed policy is to reduce the amount spent each month on buying treasury notes and mortgage-backed securities until sometime around September of 2014, the stimulus will stop.
Good intentions but bad results
While the intentions of the Fed, an independent body from both the President and Congress, may have been noble, the results of their policies over the last five years have not resulted in a robust economic recovery. Yes, the stock market has hit all time highs from its low-point back in 2009, but the wealth on Wall Street has not come close to finding its way to Main Street. Too many people are out of work and too many people are struggling just to buy the basic necessities of life. The policies of he Fed are responsible for creating an even greater divide between the “haves” and the “have-nots.”
Many critics
Former presidential candidate Ron Paul, Euro Pacific Capital’s Peter Schiff, and many other financial experts are all in the same camp. They believe that the policies of former Fed Chairman, Ben Bernanke, and current Chairwoman, Janet Yellin, are bad for the economy. What is it about the actions of the Fed that the critics are suggesting have the economy traveling down the wrong path? Why do so many believe that the policies of the Fed make gold a very attractive investment?
Many problems with the Fed policy
The Fed has artificially held down interest rates and created an environment where money has flowed out of bonds and safer investments and into more speculative stocks. A sure sign that a big bubble is forming is the valuations being placed on high-flying stocks such as Tesla, Amazon, Netflix and Priceline. That bubble will eventually burst, whether it is in a few months from now, or in a few years from now. The Fed has helped to create massive debt, currently somewhere north of $17 trillion. Not only is that debt mortgaging our children’s future, but it will lead to inflation. As any first-year economics student will tell you, when you increase the money supply, the dollar is worth less and it will cost more to buy everything (inflation).
Doom and gloom or a real opportunity?
No one wants to see the American people suffer and the economy take a turn for the worse, but Fed policy is making it hard to see any other outcome. Investing in gold and silver may be one of the best ways to protect your hard-earned dollars. Precious metals stand the test of time no matter who is in charge of monetary policy.