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Still more money creation

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.

3 Responses to “Still more money creation”

  1. Thomas Avery Blair, EA

    “This has been said many time, 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.”

    Mr. Bill Haynes hit the nail precisely on the head, and I cannot say it better than he did; however, I would point out to my fellow Americans this simple point as well: When the fiat dollar/Federal Reserve Notes fail, the debt enumerated and shackled to those failed dollars also become worthless (except for a few items like most bank-held mortgages which today require repayment in “current U.S. tender” but does not state U.S. (fiat paper) greenbacks).

    For example, if I borrowed $16 trillion today and spent them immediately for gold and silver, and all those funds are all Federal Reserve Notes, and next Monday “the Fed” filed bankruptcy (as all corporations can do, by the way), then I could (or perhaps would) go to landfills a few weeks thereafter, gather those tons and tons of strangely-colored toilet paper and pay back those $16 trillions I owe with now-worthless “fiat” paper greenbacks just as the “promissory notes” required … and I walk away debt free … with all the gold and I silver I bought with those now-worthless greenbacks. At least food for thought, is it not? 🙂

  2. Aaron Martin

    I’m addicted to buying silver, gold and a little platinum. But now I’m see investment grade .999 copper rounds and bars becoming more and more popular. Would it be wise to add copper, .999 purity? Do you think it would be worth something, especially when paper becomes worthless?

    If you had money to invest, would it be in silver or gold. So, yea or nay on picking up pure.999 copper?

    • Bill Haynes

      Copper is a poor alternative to silver or gold. Too much weight and bulk to make it an effective hedge. Although copper is a much sought-after scrap metal, there is not an active secondary market for copper rounds and bars. I say nay to copper, certainly at this time.


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