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Quantitative easing; everybody is doing it like the Bank of England, Japan and even Switzerland. Quantitative easing is a tool of monetary policy. The effect is an increase in the quantity of currency without regard to maintaining its quality. Quantitative is relating to, measuring, or measured by the quantity of something rather than its quality. On 18 March 2009 Bloomberg reported that the Federal Reserve announced the intent to purchase $300B of longer-term Treasuries. Predictably, the Federal Reserve has decided to exacerbate the quantitative easing party. This has an effective on quantitative finance.
What is really going on is the great credit contraction. The system does not collapse but evaporate. As the evaporation has continued and intensified capital, both real and fictitious, has sought safer and more liquid assets by moving down the liquidity pyramid. A significant, but still miniscule amount, of capital has already evaporated over the past year. This is basic economic law being asserted. A predictable consequence has been for Treasury rates to near 0% because they are considered among the safest and most liquid assets.
But the United States Treasury bubble is the biggest of all and there are reasons how and why the Treasury bubble will burst.
At all times and in all circumstances gold remains money. Gold is the ultimate form of payment and is always accepted. Gold is the safest and most liquid asset. As I surgically explained, the ETFs GLD and SLV are NOT gold or silver. The question then becomes: Will capital move up or down the liquidity pyramid?
How did gold perform in reaction to Bernanke’s announcement? A monstrous and almost immediate rise of about $60 per ounce. The gold cartel GATA has shined a light on must of had its hands full today. This is all the more ominous because gold is not just a commodity or portfolio asset but a currency which, through tools like GoldMoney, can be used in ordinary daily transactions. Because silver is also money; the chronic silver backwardation is equally if not more ominous.
I have long asserted that the FRN$ will be the last major fiat currency to evaporate in the great credit contraction and that gold will still be there when the next credit expansion begins. This misguided action by Mr. Bernanke will only hasten the rate of evaporation. The great credit contraction has just begun and in the aggregate capital will continue moving down, not up, the liquidity pyramid.
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{ 12 comments… read them below or add one }
As long as the Fed intervenes in stocks and currency I refuse to play the game and will stick with gold and silver on the sideline. Not gonna play games any more.
Great article Trace. I agree completely. The Fed will not be able to soak up all of the dollars it prints and inflation will ensue. Today was a big day.
Wow! Whee! Graphically terrifying.
Nice graph – it would be appropriate to be more transparent on your estimates though.
Gt!
whats under gold? Lead, depleted Ur.
Caves. Barter. Mad Maxxxx….
good times for gold and silver but not for me for my son he is 4 and he need some thing a littel more than green back so silver and gold is the way to go
One of your article read silver would go to 24 an oz and I would assume gold would go down also. Can you give more direction as to when this will occur and the cause?
Thank You,
John Risser
Hi John,
I think you may be referencing an older article about silver which may no longer be relevant because of the price action that has happened since it was written probably about 18 months ago. Be sure to check dates at the top of each article. Articles on Run To Gold tend to be a mix between information that relevant on either time or not. There is a lot of helpful content that does not change and helps provide a solid understanding of monetary science while at the same time showing its predictive power.
I do not know the exact date but I HAVE NOT received Run to Gold for more than a month. Please refresh and reply if possible. This request is about a drop in Silver price to 24.
Trace:
The first time I saw your powerful homily: “The system does not collapse but evaporate.” I was taken aback by its lack of subject and verb agreement. The singular noun ‘system’ takes a plural verb ‘evaporates’ to satisfy the subject and verb agreement rule; as in: “The system does not collapse but evaporates.” I hate to see a statement with such impact suffer and perhaps fail to impress certain critical readers because of this small error in English grammar.
Ron, what do you think ‘the system’ refers to and is that plural? I had the same problems when I crafted it and was not really sure how to resolve it.
Trace:
I would suspect you are referring to the contraction of the “Credit System” in your inverted pyramid, and your graphic presentation implies there is only one totally unworkable and vulnerable system that could evaporate. If the graphic had more than one pyramid, and you referenced two or more of them in the title, then the singular verb would apply under the rule.
I shouldn’t be too concerned with grammar though; your presentation’s substantive elements got my attention.
The allegory of life teetering on a razor’s edge comes to mind when viewing your inverted pyramid. One small shift in thinking or a fiscal mistake in Cyprus or the Euro could split that graphic edifice in two or more chunks. Then dénouement. That is why I “ran to gold back” in 1971 and never looked back.
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