There has been no shortage of news regarding libertarianism, investments, and the economy this week. I will continue to comment on some of the latest news into next week.
On Tuesday, the Fed released the minutes from its previous FOMC meeting. It stated that some of the members said that additional monetary policy accommodation would be appropriate if inflation is low and unemployment stays high. In other words, the Fed is hinting at a possibility of QE3 (a third round of digital money printing) and investors will start to expect it.
This news sent gold to all-time highs (in nominal terms). As of this writing, gold is near $1,600 per ounce. It seems hard to believe that the price was around $300 just a decade ago.
The Fed is desperate and doesn’t know what to do. The Keynesian policies of the Fed, and the federal government in general, are a total failure. The Fed has tripled the adjusted monetary base in less than three years. The government is running deficits of over $1.5 trillion. This has all made the economy worse. They refuse to allow a liquidation of the bad debts and bad investments. They refuse to allow the market to re-allocate resources to their appropriate use. They continue to cause a misallocation of resources that will only make the inevitable crash that much worse.
This is why we must invest a good portion of our investment portfolio in gold, gold related investments, and other commodities. Bernanke and the Fed are determined to print their way out of this. Bernanke is not nicknamed Helicopter Ben for nothing. We may see him up in a helicopter dropping money before this is all over. Right now he is dropping it on the banks, which refuse to lend. The new money is piling up as excess reserves at the banks, waiting for a trigger.
I don’t think it is likely that the Fed will go into hyperinflation mode. I differ with some libertarians on this point. I don’t think the Fed is that stupid to destroy themselves. If you truly think there is going to be hyperinflation in the United States, then you better think about leaving or becoming self sufficient. If there is not an alternative money ready to be used, then hyperinflation means that the trucks stop running and the grocery stores and gas stations will be closed for business. I don’t see it coming to this.
The more likely scenario is high price inflation. This might mean 10% or 30%. This will be good (or at least less bad on a relative basis) for people who own gold and gold related investments. At some point, the Fed will be faced with hyperinflation and I think they will stop buying U.S. debt. Then we will see a great depression. The length and depth of the depression will depend on how much the government tries to interfere at that point.
Things don’t look good for the next few years. Beyond that, it will depend on the American people. If Americans withdraw their consent from the federal government and demand to be left alone, then liberty will prevail and things will improve quickly. If the American people keep looking for a free lunch (like many of the Greeks), then the pain will continue.