By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..
After the latest Federal Open Market Committee meeting ended September 18 with an announcement that the Federal Reserve would continue inflating the US money supply (masked by calling it “quantitative easing”) by $85 billion per month, initial media reports carried astonishing statements.
For instance, in the AP and Reuters story by Ryan Vlastelica, the first sentence reads, “U.S. stocks rallied to record highs on Wednesday after the Federal Reserve surprised investors and decided against trimming its bond-buying program, which has fueled Wall Street’s rally of more than 20% this year.”
In the story posted on MSNBC.com authored by Patrick Rizzo and Jeff Cox, the second and third paragraphs read, “The move surprised many who thought the central bank would cut back on its $85 billion a month priming of the economy . . . . Markets have been expecting the Fed to ‘taper’ ever since its policy-setting Open Markets (sp) Committee began dropping hints about the gradual decrease of monthly asset purchases . . . .”
Other stories on the FOMC announcement similarly included the tone that what was announced was different from what was expected.
I don’t understand how investors or markets could be surprised. It has long been obvious to a lot of people, including me, that the Federal Reserve has been trapped by its own actions into damaging the US economy no matter what steps it takes or chooses not to take.
In the July 1 issue of my company’s newsletter, Liberty’s Outlook, I wrote, “On June 19, the Federal Open Market Committee issued a statement that pretty much mirrored what it said at the conclusion of its May meeting. Shortly afterwards, Federal Reserve Chair Ben Bernanke held a news conference at which he said IF the economic recovery continued, then it might be possible to reduce quantitative easing later in 2013 and eliminate it completely in 2014. Never mind that the Fed will never let this happen . . . .”
Last week, in the September 11 issue of Liberty’s Outlook, I wrote, “At one point, the Federal Open Market Committee hinted that it might start tapering as early as the conclusion of its September meeting which ends one week from today! . . . If the FOMC is suicidal enough to actually announce any reduction in quantitative easing next week, . . . .”
In other words, by studying what is really going on in US and global economies and financial markets, I had a high degree of certainty that the FOMC would not taper quantitative easing after its September meeting. The actual FOMC announcement merely confirmed my expectations.
What kind of factors led me to this conclusion? There are too many to list. However, I think a few points might give you the idea. One of the targets the FOMC cited as being necessary before reducing quantitative easing is that the US unemployment rate would have to decline to 6.5%. Well, the September jobs and unemployment report from the Bureau of Labor Statistics indicated this rate was 7.3%. However, the same BLS report also revealed that the percentage of working-age Americans who actually held a job had fallen to its lowest level since 1978! Then you have the former head of the BLS, who left last year, stating that the BLS unemployment figure is too low and correctly should state that the unemployment rate is over 10%!
Another FOMC target is that short term and long term consumer price increases should be no more than 2.5%. The FOMC claims that this target has been achieved without explaining how 30-year mortgage interest rates are up about 50% in just the past few months!
Further, the main reason for continuing to inflate the money supply by more than $1 trillion per year is that this money is mostly being plowed into the housing market and paper assets such as stocks and bonds. After the FOMC announcement September 18, the financial headlines reported that the Dow Jones Industrial Average and the Standard & Poors 500 Index hit all-time record highs. Therefore, even though the US economy is actually sinking right now, the public is being misled by such headlines into thinking that a recovery is occurring.
Physical inventories of gold and silver are now so sparse that any announcement of a reduction in quantitative easing could easily spark an explosion for precious metals prices. This would occur as people fled stocks and bonds for “safe haven” assets. Alternatively, the tightness of the gold and silver physical markets (for instance, COMEX registered gold inventories have dropped about 78% since early 2013!) could lead to soaring prices whether or not the FOMC ever gets around to reducing the inflation of the money supply.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster ( under “News & Articles) and at CoinInfo. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com. He is also the financier and executive producer of the forthcoming movie “Alongside Night” (trailer posted at http://www.youtube.com/watch?v=sTZ8vn45Cds).