By Patrick Heller - Liberty Coin Service
Broadcast 10/12/2011 on WILS-1320 AM
As economic data deteriorates and markets decline, governments and multinational agencies are facing an immediate dilemma. They can do nothing and risk a global depression. Or, they can intervene with more inflation of the money supply. The decision on which direction we are headed has already been made.
A tidal wave of inflation of the global money supply is on its way—soon. It will be on a massive scale never before seen.
Here is why we are facing a tsunami of quantitative easing.
A September 22 announcement from the G-20 Group of Nations said they are committed “to taking all necessary actions to preserve the stability of banking systems and financial markets” and that they are also “committed to a strong and coordinated international response to address the renewed challenges facing the global economy, notably heightened downside risks from sovereign stresses, financial system fragility, market turbulence, weak economic growth, and unacceptably high unemployment.”
At the annual meeting of the IMF and the World Bank on September 24, Treasury Secretary Geithner warned that a failure to manage Greece’s financial problems could lead to “cascading default, bank runs, and catastrophic risk.” On top of that the British Chancellor of the Exchequer, George Osborne, stated, “We’ve got weeks not months” to sort out the financial problems of the nations using the Euro.
John Williams, a respected analyst, predicted, “The Fed and the U.S. government still will provide whatever guarantees are needed, whatever money has to be created, spent, or loaned out, in order to prevent systemic failure. This includes any sovereign or non-U.S. bank bailouts required to prevent systemic collapse. The costs of such actions remain inflation or U.S. dollar debasement. They can continue only so long as the global markets allow them, until the U.S. dollar comes under massive, sustained selling pressure.”
Here are the nuts and bolts of specific quantitative easing programs in the works.
There are plans to increase the size of the Eurozone bailout fund and the European Financial Stability Facility by almost $2 trillion.
Last week the British government announced a new stimulus program of $115 billion.
The Federal Reserve may inflate the US money supply by another $2 trillion within the next year to help President Obama’s prospects for reelection.
Japan and China are also looking to new rounds of inflation of their money supplies.
In total, the world’s money supply over the next year may grow as much as $6 trillion, about 10% of worldwide Gross Domestic Product. Inflation on such a scale would cripple the value of currencies just about everywhere.
Beware of false impressions. On Monday, French President Sarkozy and German Chancellor Merkel made a joint announcement. They claim that by the end of October they will reach an agreement on a comprehensive package of measures to stabilize the Eurozone, which would include recapitalization of European banks. The US stock market rose almost 3% on Monday on this news.
Don’t believe one word of this announcement!
The Germans and the French are far apart on their approaches to managing the crises. The French claim that their insolvent major banks do not need recapitalization and are advocating a course of action that will allow the French government to maintain its AAA credit rating. To accomplish this goal, Greek government debt must be bailed out with only governments taking losses on Greek debt.
The Germans are prepared to let Greece default on its debt, advocating that all Greek government bondholders suffer a 60% loss, including all of the European and US banks holding this debt. Another major difference is on how European banks’ capital needs will be met.
There is a good reason that Sarkozy and Merkel did not go into any details of the agreement they claim they will announce within three weeks—and that is that there is no agreement!
I think there will be no immediate resolution of the Greek government’s problems. Therefore, Merkel and Sarkozy will not be able to submit comprehensive proposals at the summit meeting of European Union governments on October 17-18. At the most, they will throw out bits and pieces. As a result, the two European leaders will not be able to honestly make their promised final announcement just before the November 3 meeting of the G-20 Group of Nations.
The financial catastrophes could explode as early as the European Union meeting next Monday. Or a major collapse could hold off until November 3. Whatever happens, the value of paper currencies and bonds are likely to fall. Expect stock, commodity, and precious metals prices to rise as people abandon currencies and bonds.
At the most optimistic, the tidal wave of inflation might be postponed for a few months. But, there could literally be only days left to acquire gold and silver at current price levels.
Patrick A Heller is the owner and General Manager of Liberty Coin Service, Michigan's largest rare coin and precious metals dealer since 1971. Mr Heller is the editor of the Liberty's Outlook Newsletter, and gold market commentator for Numismaster. In addition he is a columnist for The Greater Lansing Business Monthly, and has a radio show on WILS-AM 1320.