China is the latest to join the money printing binge, this time printing the equivalent of $81 billion. The goal: to fillip an economy that grew in August at “only a 6.9 percent” annualized rate. If the US economy were growing at 6.9 percent, the Dow would be at 25,000.
The world’s central bankers are true believers when it comes to Keynesian economics. The Chinese are no different. However, at least the Chinese government implemented programs that encourage the Chinese people to buy gold and silver, something not seen in any other country.
It is clear that while employing the Keynesian policy of creating money “out of thin air,” the Chinese leaders seemingly know that doing so is fraught with dangers and those dangers may be alleviated by hoards of gold and silver being in the hands of the people.
On the news of the $81 billion infusion, Hong Kong-listed “H shares” rose 1 percent and China’s “onshore A shares” rose by less than half a percent. Investors viewed the money printing positively.
Meanwhile, the Fed, citing little change in economic activity in the US, announced it will “stay to course” and keep interest rates low “for a considerable time,” which probably means until there is improvement in the economy. Or, unless inflation rears its ugly head.
Stocks in the US responded positively, with the Dow Jones Industrials climbing to all-time highs. Seems that stock investors–also true believers in Keynesian economics–see freshly-printed money as the solution to all economic problems.
Gold and silver, which are universally accepted hedges against inflation, fell. And, forecasts of still lower prices abound.
Jumping to the Eurozone, the ECB is about to enter, as noted in Whatever it takes, into a huge money creation program to stimulate economic activity.
In that post, I noted Frank Shostak’s work where he showed that all the money creation since 2008 has not resulted in growth rising above pre-2008 levels. Yet, the Keynesian true believers plow ahead, printing more and more money, in quantities that thirty years ago we would never have imagined.
So, when will gold and silver prices rise, as they should, in this inflationary climate? When enough investors recognize that inflation–and inflation in a big way–is coming. Now is not the time to abandon the metals because of weak prices. It is a time to buy more.
This has been said many times, but it is gold and silver that have survived thousands of years, not paper money. History has shown that when a country–now nearly the whole world–begins a money printing binge, it does not stop until that money is worthless.
Just how long will it take this time? No one knows, but when the smoke clears gold and silver will still be standing.