The Fed Is Being Held Hostage
Last week’s Federal Open Market Committee (FOMC) meeting made it clear that the Federal Reserve has caved to pressure to bring its gradual tightening of monetary policy to an early and unplanned halt. Between pressure from President Trump and pressure from markets who want to see the stock market bull run continue for several more years, the Fed’s decision-making is being held hostage. That’s not good for the economy, nor is it good for investors.
With comments stating that it is “prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate,” the Fed is making it clear that not only is it bringing its balance sheet reduction to an end, it may actually increase its balance sheet by engaging in more quantitative easing if it feels that will be necessary. In other words, if stock markets start to drop we won’t have to worry any more about the Plunge Protection Team working behind the scenes to support stock prices. The Fed has all but announced that it will work out in the open, creating billions and trillions more dollars to keep stocks elevated.
Stock market bulls loved that news, and markets reacted accordingly. But easy money can only go so far to cover up lousy economic fundamentals. It can’t provide real investment, it won’t help businesses create goods or accumulate capital, and it won’t provide more jobs and higher real wages for workers. All it will do is keep asset prices artificially elevated and lower the standard of living for average Americans.
We’ve seen a foretaste of this in Japan’s monetary policy. The Bank of Japan now has a balance sheet larger than the entire country’s GDP while the government has a debt load that’s more than double GDP. The central bank has engaged in so much quantitative easing that it even started to buy stocks in order to keep the stock market booming. And what has all that easing done for Japan? It has kept prices elevated and resulted in an economy that has basically been at a standstill for the past two decades. Is that really what we want in the United States?
Too many people, even those who should know better, confuse money with wealth. They think that we can print our way to prosperity. Despite numerous examples of the failure of fiat currencies, those beliefs have yet to die. Savers and investors are the ones to suffer, unless they take the right steps to protect their assets.
There’s a reason gold was always used as money, and why investors today flock to gold during times of economic turmoil. Gold’s ability to maintain its value in the face of recession and inflation, and its ability to protect the wealth of investors, are what makes it the most highly-desired safe haven asset in the world. Gold demand has increased significantly this year as investors are starting to prepare for a recession that is all but inevitable now that the Fed has signaled its willingness to keep printing money. Don’t miss out on the opportunity to protect your hard-earned savings by investing in gold.