Bernanke = Inflation

March 20, 2009 Inflation, Physical Gold, Politics No Comments

Fed Chairman “Helicopter Ben” Bernanke has unleashed the dogs of inflation and your only protection is to buy gold and gold stocks. Buying gold and gold stocks will be your only safe haven as printing presses debase the value of the dollar.

It’s Friday and time for a pause and a little consolidation of the gold move. The DOW is up 8 at 7,408, the NAS is down 5 at 1,478, the dollar is having a little bounce back after falling off the cliff on Wednesday, up .69 (.89%) at 83.78 while gold is pausing for a little profit taking, down $4.40 at $954.60. TGIF! I think we all could use a little break after the all the mid week excitement.

The Fed Chairman, Ben Bernanke pushed the panic button and indicated he is willing to put as much money into the economy as needed to end the current financial crisis. The Fed announced that they will buy as much as $300 billion of long-term Treasuries and more than double mortgage-debt purchases to $1.45 trillion. The hope is that this latest acceleration of the printing presses will unlock the the lending amongst the banks. They also indicated that they would keep the interest rate between zero and 1/4% for an extended time, if needed.

Richard Hoey, chief economist at the Bank of New York Mellon Corp., said

“This is a very powerful and aggressive move. One of the reasons I’ve been arguing we won’t have a depression is we’ve got a Fed chairman who understands the problem and is going to come with the right diagnosis and the right medicine.”

I could not disagree more. This is the wrong man with the wrong medicine and we will pay a heavy price for these actions down the road.

Bernanke Action Figure Bernanke = Inflation

The Fed's New Action Figure!

The Federal Open Market Committee’s decision was unanimous. The decision takes the guess work out of how the Fed will expand it’s balance sheet. These are direct purchases of debt with the intent of lowering the cost of borrowing. The Fed’s balance sheet will more than double by September, going from $1.9 trillion to $4.5 trillion.

These numbers are staggering and guarantee that the dollar is going to proceed down with lower lows and lower highs. Gold will be the beneficiary of this policy. This is no longer a matter of investing in gold as profit making strategy, but rather the need for gold is becoming a survival strategy. By the time this financial crisis has run it’s course, the $100 bill will buy what the $1 bill currently buys!

In a February 09′ Senate hearing, Bernanke said,

Our objective is to improve the functioning of private credit markets so that people can borrow for all kinds of purposes. We are prepared, and we want to keep the option open to buy Treasury securities if we think that is the best way to improve the functioning or reduce interest rates in private markets.

The treasury yields fell, but it is yet to be determined whether the lower rates will move into other rates. At this point, the specifics are not really that important. What is important is the size of the of the liquidity that is being printed out of thin air and the inflation that it will spawn. Make no mistake, despite what the Fed says, they will not be able to get the liquidity out of the system quickly enough to stop the runaway inflation that is coming.

We have learned how volatile the moves in gold can be in the last two days. Accumulation is the order of the day. Every pullback is a buying opportunity that must not be wasted. Buy gold and gold stocks on these pullbacks.

Till next time, good luck and good trading!