Written by Chris Marcus for the Miles Franklin blog
Last Wednesday the Federal Reserve released the minutes of it’s most recent policy meeting. And some of the comments were rather interesting. Primarily because they offer valuable clues about what’s to come next in the financial markets.
The main headline was that the Fed is concerned that “letting inflation run too hot could lead to a significant economic downturn.”
Federal Reserve officials worry that letting the U.S. economy run too strong could cause major problems down the road if left unchecked, according to minutes from the most recent central bank meeting.
Some members expressed “concern that a prolonged period in which the economy operated beyond potential could give rise to heightened inflationary pressures or to financial imbalances that could lead eventually to a significant economic downturn,” the meeting summary released Thursday stated.
As a result, almost all officials at the central bank believe they should continue to raise interest rates on a regular basis. That comes even amid substantial worry that current tensions between the U.S. and its trading partners could thwart the growth the economy has seen this year.
That inflation could lead to an economic downturn is indeed a legitimate concern. Although perhaps far more importantly, the Fed seems to miss the bigger picture of what’s really going on.
Because from an Austrian Economics perspective, if the Federal Reserve was really concerned about inflation getting out of control, I would suggest they shouldn’t have expanded the balance sheet from $800 billion dollars to over $4 trillion in the past decade.
(chart courtesy of the St. Louis Federal Reserve)
Certainly, continuing to print money would indeed lead to an economic downturn. Although unfortunately for the Fed, raising interest rates is also going to collapse the bubbles that the Fed inflated in the stock, bond, and real estate markets. With widespread evidence of that already emerging.
Which is again why it’s never wise to print money in the first place. Precisely because you end up in this scenario where there is no easy way out. Although fortunately, while I used to be quite concerned about the collapse of the dollar, now I wonder if it might not be a true blessing in disguise.
Keep in mind that we are talking about a currency that has lost about 99% of its value since the Fed’s inception back in 1913. So if we’re in a system where the banking cartel eats almost the entire pie, is it that much of a stretch that any sort of even remotely competent replacement would be far better for the people?
Which is one of the reasons why I’ve been so excited about gold and silver over the past decade. Because they are far more than just a competent replacement, but have a track record of serving as money for thousands of years. And as the transition out of the dollar continues, I expect gold and silver to be a big part of the replacement system.
Otherwise, why else are so many of the elites and foreign central banks that control the current system buying such large amounts of precious metals?
Perhaps if China and Russia were just throwing their gold into the ocean that would suggest a different distribution of outcomes. However that’s not the case, as nations are reducing their U.S. Treasury holdings and increasingly turning to gold.
The result is that the current dollar based financial system as we know it is coming to an end. At this point, that’s a mathematical certainty.
Perhaps it takes longer to occur then I might personally expect. But I still cannot find a way that the imbalances get resolved without some sort of significant market adjustment and repricing. With gold and silver being highly sought-after, regardless of how the paper currencies crumble.
So if the Fed does continue raising interest rates, perhaps the simplest way I can put it is that the more rates go up, the more likely the bubbles are to pop, and the sooner that is to happen.
Based on my research, I also believe that the more interest rates go up, the closer we get to the point where the manipulation in the precious metals markets is overwhelmed. With the result being significantly higher prices of both gold and silver.
–Chris Marcus
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