From yesterday’s lows to today’s highs (as this is written), in less than twenty-four hours, price of gold climbed $65 and the price of silver $1.20. Considering yesterday’s announcement by the Fed, one has to wonder why the moves were not bigger. Here’s a snippet from a Bloomberg release:
To provide greater support to mortgage lending and housing markets, the committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage- backed securities, the Federal Open Market Committee said in a statement in Washington today. Moreover, to help improve conditions in private credit markets, the committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.
When the Fed says it is going to “increase the size” of its balance sheet, that means it is going to print money, plain and simple. If things go as the Fed said, in about six months there will be an additional $1,050,000,000 in circulation. And, that’s from this announcement alone. It does not necessarily take into consideration other spending associated with the ongoing bailouts and already committed to fiscal “stimulus plans.”
Meanwhile, other central banks are following the Fed’s lead. From the Bloomberg release:
The Bank of England is buying government bonds and corporate debt, the Bank of Japan is snapping up government notes and making subordinated loans to banks, and the Swiss National Bank is intervening to weaken the franc.
The world’s central banks have just taken giant steps toward hyperinflation, which I’ve commented on several times since starting this blog. See the following posts.
Is hyperinflation a possibility for the US?
The sad history of paper money
For still another discussion about the printing of paper money and inflation, see my March 2005 article Abandoned Gold Standard Guarantees Inflation.