Spiffy response as always
I think it’s crystal clear what the Fed is after here; in my opinion, it is trying to avert deflation (i.e. it is trying to avert a liquidity trap and with the same token, allow banks to earn some sort of a ‘risk-less’ interest gain on reserves by putting a floor on rates, at least in money markets) at all costs while keeping the illusion of inflation alive but contained. Contained in the sense that it wants people to think that there is inflation in the economy, but contain it insofar as avoiding an asset bubble of sorts that would undoubtedly put the U.S economy on the verge of a deflationary slump that will last decades, not years to play itself out. Put differently, the Fed is trying to make it seem as inflationary forces are outweighing deflationary forces in an effort to keep the economy churning until consumer demand miraculously picks up. Of course, this in my opinion will not work even with rates at zero for two big reasons – a) this is not an affordability (i.e. rate) issue, but a money (i.e. income) issue, and b) it doesn’t want consumer to enter to a saving binge (despite the zero rate policy) that would automatically cause capital destruction and send the economy, well, into a long and painful depression, not recession.
Note: This is why all of these claims of massive or a stage of hyperinflation will soon ensure is completely false, simply because all of this money is being kept at banks or with the Federal Reserve, and whatever little money has been dished into the economy by the way of ‘stimulus’, has not caused a direct increase in prices. With consumer deleveraging on the credit end of spectrum, hedging themselves with the inflationary commodity that gold is, the economy will experience modest inflation (2 %– 3%) at best over the next few years (again, driven by expectations not actual inflation). Both forces (inflation and deflation) are present in an economy at all times; it just so happens to be that deflation is feared to soon have the upper hand if this country enters a period of capital destruction.
That’s at least my general understanding of the Fed’s goals, but there are of course other key factors in play. As far as inflating the price of gold, who do you think is really pulling the strings on all of these increases in margin requirements? It’s not the minions working over at the CME that merely perform the task, I’m sorry. It’s the feds trying to put a cap on the price of gold. I couldn’t agree more when you wrote – ‘did they (it; the Fed) dodge a bullet?’ – my answer is yes, but they are playing this one close, very close. In the future, if these margin increases do little to contain the spike in prices, look for countries like India and China to begin dumping some gold in the market; they too have a vested interest here.
Of course, this type of commentary will never be discussed over at CNBC (operated by goldmanites); these asinine clowns are there to bash the likes of Germany and France, which need I remind them are in far better shape than the U.S. At least France still has their AAA rating, and Germany, well they at least have economy that has far less inefficiencies than the U.S with a robust export market that is backed by the strong Euro (at least compared to the U.S), and that they can depend on to grow. The truth of the matter is that both of these countries, alongside some other European countries, are in better condition than the U.S believe it or not. The reason CNBC is engaging in these scare tactics is to try to attract capital into U.S equities (i.e. try to get moms and pops and foreign investors back into U.S equities). Sorry to say, it hasn’t worked and will not work. People have to realize that the U.S is no longer the best play to invest. It's hard for many to understand and accept, but it’s just a fact. No country ever stood as the supreme ruler of the world for ever. I'm afraid the U.S has passed on its battalion to former powers - Russia, Germany, France and to some degree China.
Mr. Sono, thanks for the post and videos.