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No way out for central banks

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Published : February 23rd, 2013
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( 5 votes, 4.4/5 ) , 4 commentaries
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24hGold - No way out for centr...Gold took a beating on Wednesday, amid media chatter about the mythical notion of tighter monetary policy from the Federal Reserve. Evidence for this appears no more convincing than at anytime since the start of the Fed’s QE programmes back in 2009, but that hasn’t stopped the speculation, with one trader telling WSJ that Wednesday’s Fed minutes were “concerning for commodities across the board.”

He might have added that it was concerning for equities as well, given the sell-off we saw in stock markets and the spike in the Volatility Index (VIX). The euro also fell – a sure sign of “risk off” trading – while the Dollar Index moved above 81.00 and Treasury yields fell. News out this morning that the European Commission has downgraded its forecast for French and German GDP growth this year (to just 0.1% and 0.5% respectively) hasn’t helped the optimists.

The simple fact remains: central banks cannot normalise interest rates, because over-indebted economies won’t be able to handle higher rates without crashing. Real rates will remain negative for a long time to come. As hedge fund legend Stanley Druckenmiller points out in the CNBC interview below: “If you normalise interest rates – I'm not talking about a spike, just normalise where they were before QE and took them to 5.7% federal funding costs of the debt, that's $500 billion a year in interest expense that goes out door. We're having a heart attack over an $85 billion sequester when we can lose $500 billion just if you normalise. The way markets work if and when that were to happen, you don't normalise, you keep going because the market figures out that you now have a credit problem which is exactly what's happened in the foreign nations” (such as Greece).

Or as the Telegraph’s Ambrose Evans-Pritchard says: “We remain in a 1930s slump. Until this is overcome it is a fair bet that the Anglo-Saxon central banks and their OECD allies (basically everybody except Frankfurt) will stay uber-loose to mitigate the damage... so [regarding gold] hold your nerve. The reality is that we have been moving for several years to an informal Gold Standard in which gold takes its place once again as a central store of value – a currency of sorts – in the mix of sovereign reserves.”

The fundamental case for holding precious metals remains sound.

Thanks to Goldmoney from www.goldmoney.com
Companies Mentionned : Gold | Metals X |
Data and Statistics for these countries : Greece | All
Gold and Silver Prices for these countries : Greece | All
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I am so VERY DAMN TIRED of these elite bas---ds calling my Social Security an entitlement. SOCIAL SECURITY IS NOT AN ENTITLEMENT. That money was taken out of my check every week ~ even when I had NO MONEY to live on, no money to get my car fixed, no mon  Read more
Gypsy - 2/25/2013 at 2:04 AM GMT
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I am so VERY DAMN TIRED of these elite bas---ds calling my Social Security an entitlement. SOCIAL SECURITY IS NOT AN ENTITLEMENT. That money was taken out of my check every week ~ even when I had NO MONEY to live on, no money to get my car fixed, no money to for my kids clothes, no money for even food. EVERY WEEK the Social Security Money was taken from my check. That's MY MONEY ~ FINALLY ~ coming back to me.

You want to make some Budget Cuts ~ you cut the Stupid Sh-t the government wastes. Cut the 87 Billion spent on mercenaries in Iraq, Afghanistan, Libya, Syria, and Mali. Then cut the TRILLION spent on their Wars-of-Choice. Then cut the 44 Billion spent on having the TSA Snapshot-and-Grope us. Cut the 477 Billion on that worthless F-35. Cut the 18 Billion spent on Torture Chambers the world over. Get a copy of the budget in front of EVERY VOTER in America and let's see where we all choose to play Make-The-Cut.
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Perhaps there are alot of tricks up the sleeves of banksters and politicians that will enable them to push their toxic cart down the road a bit further. The politicians could bypass the Fed and have the money they need printed with no borrowing cost, or the IMF could take over for a while, etc..... Yes, get out the dollar and stay out. Buy gold, silver, real things. Sadly this farce could continue on for quite some time.
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Neither of your solutions seems feasible. The first one would result in no nation accepting the new currency as payment. The second is completely unrealistic in that the IMF does not have the requisite funds to bail out Yankeedoodlestan. Heck, they hardly have the resources to bail out Cyprus.

As for bailing on the U.S. dollar, that time is coming, but it is not here yet. What must be understood is capital flows. Before Amerika goes down the tubes, Europe and Japan will crumble and you can be certain that a good deal of that wealth will be exchanged for U.S. dineros as the hammer comes down on them. When that happens, regardless the ZIRP, Amerika will be unable to meet the interest payments on its debt, having to pay with very expensive dollars. That will be the time to exit the dollar.

This is not to say that one should not be looking to add to ones' hard assets at this time. Owning real things is always a good idea. i'm just saying that the U.S. dollar is going to rise in value before it finally breathes its last breath.
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