No Way Out

by Peter Schiff - Europac   By upping the ante once again in its gamble to revive the lethargic economy through monetary action, the Federal Reserve's Open Market Committee is now compelling the rest of us to buy into a game that we may not be able to afford. At his press conference this week, Fed Chairman Bernanke explained how the easiest policy stance in Fed history has just gotten that much easier. First it gave us zero interest rates, then QEs I and II, Operation Twist, and finally "unlimited" QE3. Now that those moves have failed to deliver economic health, the Fed has doubled the size of its open-ended money printing and has announced a program of data flexibility that virtually insures that they will never bump into limitations, until it's too late. Although their new policies will create numerous long-term challenges for the economy, the biggest near-term challenge for the Fed will be how to keep the momentum going by upping the ante even higher their next meeting.

QE 4: Folks, This Ain't Normal

by Chris Martenson

 
Okay, the Fed's recent decision to boost its monetary stimulus (a.k.a. "money printing," "quantitative easing," or simply "QE") by another $45 billion a month to a combined $85 billion per month demonstrates an almost complete departure from what a normal person might consider sensible.
To borrow a phrase from Joel Salatin: Folks, this ain't normal. To this I will add ...and it will end badly.
If you had stopped me on the street a few years ago and asked me what I thought would have happened in the stock, bond, foreign currency, and commodity markets on the day the Fed announced an $85 billion per month thin-air money printing program directed at government bonds, I never would have predicted what has actually come to pass.
I would have predicted soaring stock prices on the expectation that all this money would have to end up in the stock market eventually. I would have predicted the dollar to fall because who in their right mind would want to hold the currency of a country that is borrowing 46 cents (!) out of every dollar that it is spending while its central bank monetizes 100% of that craziness?
Further, I would have expected additional strength in the government bond market, because $85 billion pretty much covers all of the expected new issuance going forward, plus many entities still need to buy U.S. bonds for a variety of fiduciary reasons. With little product for sale and lots of bids by various players, one of which – the Fed – has a magic printing press and is not just price insensitive but actually seeking to drive prices higher (and yields lower), that's a recipe for rising prices.

A History of Central Banking In the United States

Extraordinary Popular Delusions And The Madness Of Markets

Whether its new-fangled Japanese stocks, hi-tech internet company valuations, multi-colored flowers, or mansions made affordable by criminally lax lending standards, Grant Williams notes that a bubble is a bubble is a bubble; and citing Stein's Law: "If something cannot go on forever; it will stop." In this excellent summary of all things currently (and historically) bubblicious - whether greed-driven or fear-driven - Williams concludes it is never different this time as he addresses the four phases of the classic bubble-wave: smart-money, awareness, mania, blow-off (or crash) and explains how government bonds are set to burst and gold is only just about to enter its mania phase. This far-reaching and entirely accessible presentation is stunning in its clarity and as he notes, while bubbles are always easy to spot ex-ante, understanding how they come about and why they are popped gives the few an opportunity to profit at the expense of the madness of crowds. From tulips to tech-wrecks, and from inflation to insatiable stimulus, the bubble in 'safe-haven flows' that currently exists has all the characteristics of a popular delusion.

by www.zerohedge.com

Currency Wars Simulation

This short video presents a variety of hypothetical scenarios which would have significant effects on currencies and commodities. See how a geopolitical or black-swan event could give real asset investors a tremendous advantage

Gold to $10,000 - Never say never

 by  Lawrence Williams
source :  www.mineweb.co.za
 
A remark on another website by Mark O'Byrne caught my eye - "Longer term, respected analysts are calling for gold prices above $5,000/oz and much higher forecasted prices such as between $5,000 and $10,000 per ounce are not raising eyebrows as much as they have in the past." Indeed with even many of the ultra-conservative bank and fund analysts suggesting that gold will reach $2,000 or even higher within the next year, or even the next few months, certainly $5,000 or even $10,000 should not seem out of sight in some unspecified timeframe." www.goldcore.com
If one tracks the price of gold during its current bull run it has risen around 600 percent in 13 years - at the same pace of increase it could thus reach $12,250 in another 13 years - or by some time in 2025! Thus is it ridiculous to suggest that this huge valuation on an ounce of gold is achievable? Never say never! When I started managing and writing for Mineweb back in 2006 even $1,000 looked completely out of sight and people like Rob McEwen who then were predicting that level were perhaps considered at the extreme end of the spectrum. Yet within 3 years the $1,000 level was achieved and now it is a further 75% higher than that a further three years on. Nowadays, McEwen is predicting $5,000 gold - should that still be considered over extreme?

Two Reasons Why the Gold Market is Under Pressure

 by Michael Pento - Pento Portfolio Strategies

 

There are two reasons why the price of gold has been under pressure in the last few days. One of them is legitimate; while the other is completely without grounds.

1. The U.S. Labor Department announced on Thursday that Initial Jobless Claims fell 30k for the week ending October 6th. The plunge took first-time claims for unemployment insurance to a four-year low. Despite the fact that this drop was mainly produced by one large state not properly reporting additional quarterly claims, the gold market took the data as a sign interest rates may soon have to rise. So I thought it would be a good time to explain that rising interest rates would not negatively affect the price of gold, as long as it is a market-based reaction to inflation; rather than the work of the central bank pushing rates positive in real terms.
2.  

The price of gold increased from $100 an ounce in 1976, to $850 an ounce by 1980. During that same time period the Ten year note yield increased from 7% to 12.5%. The reason why gold increased, despite the fact that nominal interest rates were rising, is because real interest rates were falling throughout that time frame. Bureau of Labor statistics shows that inflation as measured by the Consumer Price Index jumped from 6% in 1976 to 14% by early 1980. In addition, the Fed, under Arthur Burns and G. William Miller, kept the Funds rate far below inflation throughout their tenure; increasing the interbank lending rate from 5% in 1976, to just 10.5% by late '79--just before Chairman Volcker took the helm.

Extreme Symptoms & Hidden Menace

by Jim Willie CB - Hat Trick Letter

Some competent analysts claim the United States and Western nations are stuck in the eye of the hurricane. Maybe so, but the internal stresses are so great that they will move beyond the eye into a zone of clearly apparent destruction soon. Some aware analysts believe the bond monetization plans will lift the financial markets. Maybe so, but the ensuing and continuing damage to the economies is profound from rising cost structures. Some awakening analysts no longer look to the USFed as a source of solutions. They see the central bank as increasingly desperate, pushing the same levers that accomplished nothing in the past. In fact, the failing central bank franchise system is visible in the open for all to see, with the embarrassment noticeable when the good chairman speaks as high priest of hollow dogma. New money backed by nothing swims around, financing the USGovt deficits, redeeming toxic bonds, adding nothing to the capital base. In the background is a pernicious effect, having come full circle. The Chinese industrial expansion since year 2000 came largely at the expense of the Western economies. They forfeited thousands of factories in the mindless pursuit of lower costs, while overlooking the abandoned wealth engines that produced legitimate income. In the last couple years, the Western economies have served as weakened customers for the Chinese production. The effect finally has slammed China, which complains of weaker US and European demand. Any trip through Spain will demonstrate that smaller Spanish factories and mills are shut down, with Chinese imports in replacement, as local shops stock mainly Chinese products.

We are on the road to serfdom

By Detlev Schlichter

We are now five years into the Great Fiat Money Endgame and our freedom is increasingly under attack from the state, liberty’s eternal enemy. It is true that by any realistic measure most states today are heading for bankruptcy. But it would be wrong to assume that ‘austerity’ policies must now lead to a diminishing of government influence and a shrinking of state power. The opposite is true: The state asserts itself more forcefully in the economy, and the political class feels licensed by the crisis to abandon whatever restraint it may have adhered to in the past. Ever more prices in financial markets are manipulated by the central banks, either directly or indirectly; and through legislation, regulation, and taxation the state takes more control of the employment of scarce means. An anti-wealth rhetoric is seeping back into political discourse everywhere and is setting the stage for more confiscation of wealth and income in the future.

War is the health of the state, and so is financial crisis, ironically even a crisis in government finances. As the democratic masses sense that their living standards are threatened, they authorize their governments to do “whatever it takes” to arrest the collapse, prop up asset prices, and to enforce some form of stability. The state is a gigantic hammer, and at times of uncertainty the public wants nothing more than seeing everything nailed to the floor. Saving the status quo and spreading the pain are the dominant political postulates today, and they will shape policy for years to come.

Unlimited fiat money is a political tool

A free society requires hard and apolitical money. But the reality today is that money is merely a political tool. Central banks around the world are getting ever bolder in using it to rig markets and manipulate asset prices. The results are evident: Equities are trading not far from historic highs, the bonds of reckless and clueless governments are trading at record low interest rates, and corporate debt is priced for perfection. While in the real economy the risks remain palpable and the financial sector on life support from the central banks, my friends in money management tell me that the biggest risk they have faced of late was the risk of not being bullish enough and missing the rallies. Welcome to Planet QE.

Jim Rogers : Finance has failed several times in history

Jim Rogers : when i went to Wall Street in the sixties mostly it was backward nobody went to Wall Street , in the fifties sixties and seventies Wall Street was not important then we had a long bull market for thirty years it became extremely important , everybody got an MBA and everybody wanted top go to finance but that happens anytime in history for the first years of the twentieth century finance they were kings then we had the collapse of the thirties it became disastrous again until the eighties but it always worked this way , finance has failed several times in history , many times in history but everything has failed , everything goes to excess and collapses has a long period of bad period then it starts over , like agriculture ......

Gold And Silver Capped Until After U.S. Election?

 
by Mark O'Byrne - Goldcore
source : 24hgold.com 

Today’s AM fix was USD 1,767.00, EUR 1,362.80, and GBP 1,101.35 per ounce.
Yesterday’s AM fix was USD 1,767.25, EUR 1,371.45 and GBP 1,103.29 per ounce.
Silver is trading at $33.96/oz, €26.27/oz and £21.21/oz. Platinum is trading at $1,679.50/oz, palladium at $648.80/oz and rhodium at $1,205/oz.
Gold edged up $4.60 or 0.26% in New York yesterday which saw gold close at $1,767.50. Silver climbed to a high of $34.33 and then fell off and finished with a marginal loss of 0.12%.
Gold has seen volatile and choppy trading overnight in Asia and in Europe this morning with the price being capped at $1,772/oz and in a tight range between $1,767 and $1,772/oz.


Cross Currency Table – (Bloomberg)

Unthinkable Iceberg for Europe's Unsinkable Ship

by Adrian Ash
source : 24hgold.com

BACK in 2009 when Barack Obama received the Nobel Peace Prize just nine months after becoming US president, he said he felt "surprised" and "deeply humbled".

No such shock and awe today for the European Union's unelected leaders, of course. Self-assurance and pride are now the EU's hallmarks, at least at the executive level. But its shiny new Nobel Peace Prize risks just the same historical irony.

"Mr. Obama decimated Al Qaeda's leadership," as Peter L.Bergen noted in the New York Times this spring. "He overthrew the Libyan dictator. He ramped up drone attacks in Pakistan, waged effective covert wars in Yemen and Somalia and authorized a threefold increase in the number of American troops in Afghanistan. He became the first president to authorize the assassination of a United States citizen, Anwar al-Awlaki...And, of course, Mr. Obama ordered and oversaw the Navy SEAL raid that killed Osama bin Laden."

QE Unlimited, China, and Depression 2.0

by Andy Sutton - Sutton & Associates
source : 24hgold.com 

With the pop from the USFed’s latest attempt at financial shock and awe already seeping from lackluster markets, and the teleprompter news networks losing steam over their promotion of the same, it is time to take a look back at the decisions made on 9/13/2012 and set the record straight on some things.

QE_unlimited is not going to save the US Economy.

Perhaps one of the biggest misconceptions about all this easing is that it is somehow going to help the economy. To stimulate it. To bring it out of recession (yes, we’re still in recession). None of these things happened with the first two, but there are some very good reasons it won’t happen with the third. And the truth is there is a much more gruesome component to this latest scam.

As I’ve outlined many times before in these pages, what happens when the USGovt or banks buy up toxic mortgage securities is that they’re buying the note on your house – along with thousands of other notes since they’ve all been bundled up. You signed on the dotted line with Bank of America for example, but now maybe the Chinese own your house. Or the Japanese. Or European bankers. Or the USGovt. So the fed creating another $40 billion (that they’re willing to admit) each month to buy more mortgages ought to be a pretty scary thing. Will they foreclose on you if you can’t make your payments?

The ECB-Driven Toxic Debt Loop At The Heart Of Europe's Misery

by Tyler Durden 
source : www.zerohedge.com


Just as we will not tire of pointing out the unintended consequence of the Fed's central-planning efforts, so it is time, courtesy of the IMF's latest missive, to point out the vicious circle that the ECB has created and encouraged in Europe. The unintended consequence of the ECB's intervention - as both perpetual backstop and lender of last resort - has created an ever-increasing fragmentation between the core and the periphery (exactly the supposed 'issue' Draghi is attempting to fix with his OMT). The toxic-debt-loop as capital leaves the periphery for the core, pressuring peripheral bond yields/spreads, and forcing private sector borrowing to be replaced by public-sector not only clouds the true picture for real-money investors or depositors (risk-based pricing has been destroyed) but encourages front-running fast-money flows which do nothing but provide short-term cover for banks/sovereigns to delay the inevitable (and potential market-clearing) deleveraging/restructuring that is required. Because the fundamental issue is one of solvency - not liquidity - the ECB's continued artifice of plugging liquidity shortfalls does nothing but lessen the confidence in the system and reduce any faith in price levels as without addressing the real insolvency, trust will never return.

Europe's ECB-Driven Toxic Debt Loop...

No Currencies Will Survive What Lies Ahead, But That’s OK

by Robert Fitzwilson
source : kingworldnews.com 

October 19, 1987 was a shocking day as the U.S. stock market declined by a stomach churning 23 percent in that one session. It is impossible to convey the sense of desperation, on that day, felt by anyone whose savings or livelihood was dependent upon the equity markets.

Most of the financial disasters since the early 1980s were caused by well meaning professors espousing new insights derived from their research. In the case of ’87, institutions were convinced to take a much higher allocation to equities. The research showed that if a problem ensued, the institutions could simply sell a futures contract, thereby immunizing their portfolio’s exposure to the effects of any subsequent decline. It worked great in their computer simulations.

 The markets began to roll over on the preceding Friday....

“It started with Hong Kong. In those days, Hong Kong was seen as a source of emergency liquidity by institutions, and their stock market was hit very hard. As the declines reverberated around the world, the losses arrived in New York on Monday.

Unfortunately, futures traders are a smart lot. When the institutions implemented the protection phase of the professor’s plan and went to sell the futures contract, the traders on those exchanges balked. This was the fatal flaw in the hedging plan put forward by the academics. A computer would always buy the futures contract. The brokers would not.

What ensued was full-scale panic. Prices for the bluest of blue chip stocks plummeted. Orders could not be filled as the exchanges were swamped.

Being a specialist at the NYSE was a very good thing. Seats on the Exchange were often passed down from generation to generation. One of the obligations, however, was to provide temporary liquidity to the issues for which you were responsible if you could not immediately match a trade with a specific buyer and seller. That was the safety valve at the Exchange.

Ultimately, the specialist’s ability to buffer significant declines was backed up by bank loans. As the panic unfolded, the banks pulled the loans. What saved the day was Alan Greenspan telling the banks that they would make whatever loans were necessary to maintain the solvency of the specialists, and therefore the Exchange itself. It worked.

Was the government engaged in intervention and manipulation? Absolutely. Was there anyone who was not thrilled at having our money, savings and careers bailed out? Not a one.

For the next 13 years, the government stepped in time and time again to bail out markets which were once again corrupted with the professor’s well intended, but completely devoid of reality, schemes. The last one of the 1990’s was the Long-Term Capital debacle that probably could have brought down the global financial system a decade before the sub-prime mess.

Central bankers had become the financial fire department. Up until the early 2000’s, it was seen as a good thing. Alan Greenspan became a personality, not the head of the Federal Reserve. Investors and the government officials celebrated each and every word he spoke at his periodic testimonies. Taking excessive risk was not a problem. The Fed would make everything right.

The chart below juxtaposes the various forms of quantitative easing, known as QE, since the current crisis became out of control in late 2008.

As you can see, QE1 was more of the 1987 type. Wall Street, the politicians and the professors had once again gotten us into a monumental mess. While few were happy with the implication for deficits due the printing of fiat money, the $20+ trillion in global spending was seen as being rescued, akin to the 1987 experience. Cash came out of Treasuries and markets correctly anticipated the inflationary effects of spending and printing such sums and interest rates rose.

At the end of QE1, fear returned that we were headed to a severe recession. Interest rates declined as expected. People were looking for what traditionally was a safe haven, Treasury bonds. When QE2 was announced, a side effect was rising rates, as markets anticipated higher inflation and money was shifted out of Treasuries and into equities.

Europe then imploded. China began to weaken. More ‘stimulus’ and printing was needed we were told. However, a curious thing happened, interest rates have since plummeted. To an extent, it was a flight to perceived safety. Operation Twist and now QE3 are about wrestling interest rates to the ground. This is what has happened. The key function of price discovery through free markets no longer exists. Government policy now chooses winners and losers, at least for the time being.

Somewhere along the line, central banks transitioned from being safety nets to market manipulation. The central banks are taking us into waters that are unchartered in our lifetimes. But I would remind KWN readers that others have done this in the past with unpleasant endings.

We can only hope for the best. At the same time, it is imperative to switch out of paper-based assets into real assets such as gold, silver and well-located real estate. Along the way, various currencies will become the safe haven of the day, but none will survive what lies ahead. We are living in an Entitlement Bubble along the lines of the Dutch Tulip Bubble in the 1600s. No amount of printing or economic growth can prevent our destiny of currency destruction and entitlement collapse.”

Global Debt Over $200 Trillion, Gold Demand Surges

 by Today Egon von Greyerz 
 source : kingworldnews.com

 US deficits are set to continue to rise, no matter who wins the election. This means a great deal more money printing. Right now the US has $40 billion per month of QE in the form of buying mortgage-backed securities, and with ‘Twist’ another $45 billion. But you have to also add the $145 billion monthly budget deficit.”
“Right now the US deficit is running at roughly $1.5 trillion per year. So in total, the US is already printing $200 billion each month, and that will of course increase. The US debt is up $10 trillion in ten years. As revenues decline and expenditures increase, the pressures on the US economy will be enormous, and the deficit will increase substantially.
In a couple of years time, we will have $20 trillion, at least, of US debt....
“$20 trillion of US debt, think about that for a moment. US tax revenue is now around $2.3 trillion. If you examine $20 trillion of debt, and factor in a dramatic increase in interest rates in coming years, as money is printed and inflation enters the picture, an interest rate of 12% is very likely.
Take 12% of $20 trillion and you get $2.4 trillion per year just in interest. That figure is more than the current tax revenue of $2.3 trillion. So the US will reach a point, in the not too distant future, where the total debt servicing will be equal to the total tax revenue. That is of course unsustainable.
If you look at global debt, in the last ten years it is up from $80 trillion, to $200 trillion. These are figures which are hard to comprehend. Global debt has increased $120 trillion in just ten years. So when you look at the so-called prosperity of the world, it is all based on debt. So it is all an illusion.
Central bank balance sheets are also exploding. They have increased 16%, compounded, per annum. What are the central banks doing? Just like the Fed, they are buying toxic debt which has zero value. What are they doing to buy that? They are printing worthless pieces of paper, they call it ‘money,’ and with that ‘money’ they are buying another worthless piece of paper which they call an ‘asset.’
So it is the most massive Ponzi scheme the world has ever seen, and this will clearly end in total disaster. It will end with the implosion of debt and the implosion of assets. But before that, we will have hyperinflation. As governments continue to print, we will have hyperinflation.
Hyperinflation comes from a collapsing currency. Take Iran, that is a good example. Iran’s currency is now down 70%, and inflation is now estimated to be running at 50% per month. This is what we will see all over the Western world in coming years. I’m absolutely certain about that.”
Greyerz had this to say regarding gold: “So we are holding gold to preserve wealth because gold is the ultimate way of protecting your assets from total destruction as a result of the money printing. Because the financial system is bankrupt and governments are bankrupt, any asset that you hold within that system is at risk.
This is why you have to have physical gold and you must store it outside of the banking system. Eric Sprott came out with a superb report detailing the official figures we are seeing regarding production and purchases of gold. His conclusion, quite correctly, was that they are not telling the truth in those official reports being published.
He (Sprott) is looking at an annual deficit of 2,500 to 2,600 tons of gold. I have talked about this many times, and Eric puts it superbly in his report, that the 30,000 tons which central banks are holding in gold reserves, with the Western central banks holding about 23,000 tons of that gold, are probably not there.
When that becomes apparent, there will be panic in the gold market because nobody will hold paper gold anymore. It means that Western governments do not have adequate amounts of gold to back their money.”
Greyerz also added: “I would also note, Eric, that some of the refiners we are talking to, they are seeing business strongly increasing now, and in this environment they are actually increasing their margins and prices. So there is clearly an increase in short-term demand. This is why, up to now, the paper shorts in the gold market have been struggling to bring the price down.”

The Destruction Of Currency And Rise Of Gold

  
by Nick Barisheff 
source : goldsilverworlds.com

Today’s discussion is based on the primary trend that started at the beginning of this millennium. The fundamental shift that has been taking place since then was the creation of value through paper assets shifting in a gradual way to hard assets, primarily (but not only) gold and silver. Part of the current ongoing dollar devaluation is caused by this disparity between financial assets and gold. Nick Barisheff gave with these rounded numbers to create a high level picture of the scale of the paper asset market versus gold. The market for financial assets should be worth approximately $250 trillion. It includes mortgage bonds, equities, treasury bills and related financial instruments. It contains pure paper assets and does not include real estate or derivatives. Against that $250 trillion stands a nominal value of the gold market of around $4 trillion.

Determining the value of gold

Author: James Turk

source : www.goldmoney.com

When considering whether gold is a value investment, one needs to first recognise that gold does not have a balance sheet, management team, price-earnings ratio or any of the other things one needs to analyse before making an investment. Also, gold does not generate any cash flow, so it does not pay a dividend. We can therefore conclude from these observations that gold is not an investment. Indeed, it is something different, which means that normal investment analytical techniques cannot be used to determine gold’s value.

Value of course arises from an item’s usefulness, and gold is useful because it is money. Though only used as currency these days in a few places like Turkey and Vietnam, gold is still useful in economic calculation, or in other words, measuring the price of goods and services.

For example, when the Maastricht Treaty was signed in February 1992, one barrel of crude oil cost $19.00, €15.95 (Dm 31.30) or 1.67 goldgrams. Now it costs $91.79, €71.27 or 1.61 goldgrams, which makes clear that not only is gold useful in communicating prices, it preserves purchasing power. Gold has been useful in these ways for over 5,000 years, so it is logical to assume that gold will remain useful for the foreseeable future.

Have you seen Robert Triffin?

 By Joe Yasinski and Dan Flynn 

source : bullioninternational

"It was the outcome of an unbelievable collective mistake, which, when people become aware of it, will be viewed by history as an object of astonishment and scandal"  - Jaques Reuff 1972 .

The obscure Belgian economist Robert Triffin is not only very dead he also isn't exactly a household name, yet. Triffin, who died in 1993 studied at Harvard, taught at Yale, worked at the Federal Reserve, the IMF, and was a key contributor to the formation of the European monetary system. Triffin exposed serious flaws in the Bretton Woods monetary system and perfectly predicted it's inevitable demise yet his work remains largely ignored and unstudied by today's mainstream economists. This "flaw" became known as the Triffin dilemma, and many believe Triffin's dilemma has as serious implications today as it did 50 years ago. In short, Triffin proposed that when one nations currency also becomes the worlds reserve asset, eventually domestic and international monetary objectives diverge. Have you ever wondered how it's possible that the USA has run a trade deficit for 37 consecutive years? Have you ever considered the consequences on the value of your Dollar denominated assets if it eventually becomes an unacceptable form of payment to our trading partners? Thankfully for those of us trying to navigate the current financial morass, Robert Triffin did. Prior to the 1944 Bretton Woods agreement, central banks used gold as the asset to back their currencies. By the end of World War II, the United States had established itself as the world's creditor and largest holders of gold. Under the 1944 Bretton Woods agreement, the US Dollar was fully backed by gold at a fixed value of 1/35th an ounce per dollar, and foreign Central Banks could use US Dollar assets as reserves backing their currency, in lieu of gold. This agreement avoided the inevitable deflationary pressure a return to pre-war gold/currency ratios would have forced just as Europe was beginning to rebuild, and allowed US debt held abroad to be used as an asset by central banks against their local currencies.

The Fed Plays All Its Cards

by Peter Schiff - Europac

There never really could be much doubt that the current experiment in competitive global currency debasement would end in anything less than a total war. There was always a chance that one or more of the principal players would snap out of it, change course and save their citizenry from a never ending cycle of devaluation. But developments since September 13, when the U.S. Federal Reserve finally laid all its cards on the table and went "all in" on permanent quantitative easing, indicate that the brainwashing is widely established and will be difficult to break. The vast majority of the world's leading central bankers seem content to walk in lock step down the path of money creation as a means to economic salvation. Never mind that the path will prevent real growth and may ultimately lead off a cliff. The herd is moving. And if it can't be turned, the only thing that one can do is attempt to get out of its way.

The details of the Fed's new plan (which I christened Operation Screw in last week's commentary) are not nearly as important as the philosophy it reveals. The Federal Reserve has already unleashed two huge waves of quantitative easing (purchases of either government securities or mortgage-backed securities) in order to stimulate consumer spending and ignite business activity. But the economy has not responded as hoped. GDP growth has languished below trend, the unemployment rate has stayed north of 8%, and the labor participation rate has fallen to all-time lows. In the meantime, America's fiscal position has grown significantly worse with government debt climbing to unimaginable territory. Despite the lack of results, the conclusion at the Federal Reserve is that the programs were too small and too incremental to be effective. They have determined that something larger, and potentially permanent, would be more likely to do the trick.

However, in making its new plan public, the Fed made a startling admission. At his press conference, Ben Bernanke backed away from previous assertions that printed money would be effective in directly pushing up business activity. Instead he explained how the new stimulus would be focused directly at the housing market through purchases of mortgage backed securities. He made clear that this strategy is intended to spark a surge in home prices that will in turn pull up the broader economy. Such a belief requires a dangerous amnesia to the events of the last decade. Despite x²the calamity that followed the bursting of our last housing bubble, economists feel this to be a wise strategy, proving that a poor memory is a prerequisite for the profession.

But now that the Fed is thus committed, the focus has shifted to foreign capitals. Not surprisingly, the dollar came under immediate pressure as soon as the plan was announced. In the 24 hours following the announcement, the Greenback was down 2.2% against the euro, 1.6% against the Australian Dollar, and 1.1% against the Canadian Dollar. A week after the Fed's move, the Mexican Peso had appreciated 2.7% against the US dollar. Many currency watchers noted that more dollar declines would be likely if foreign central banks failed to match the Fed in their commitments to print money. On cue, the foreign bankers responded.

It is seen as gospel in our current "through the looking glass" economic world that a weak currency is something to be desired and a strong currency is something to be disdained. Weak currencies are supposed to offer advantages to exporters and are seen as an easy way to boost GDP. In reality, weak currencies simply create the illusion of growth while eroding real purchasing power. Strong currencies confer greater wealth and potency to an economy. But in today's world,no central banker is prepared to stand idly by while their currency appreciates. As a result, foreign central banks are rolling out their own heavy artillery to combat the Fed.

Perhaps anticipating the Fed's actions, on September 6th the European Central Bank announced its own plan of unlimited buying of debt of troubled EU nations (however, the plan did come with important concessions to the German point of view - see John Browne's commentary). On September 17th, the Brazilian central bank auctioned $2.17 billion of reverse swap contracts to help push down the Brazilian Real. The next day, Peru and Turkey cut rates more than expected. On September 19th, the Bank of Japan increased its asset purchase program from 70 trillion yen to 80 trillion and extended the program by six months. It's clear we are seeing a central banking domino effect that is not likely to end in the foreseeable future.

Although the Fed is directing its fire towards the housing market, the needle they are actually hoping to move is not home prices, but the unemployment rate. Until that rate falls to the desired levels (some at the Fed have suggested 5.5%), then we can be fairly certain that these injections will continue. This will place permanent pressure on banks around the world to follow suit.

All of this simultaneous money creation will likely be a boon for nominal stock and real estate prices. But in real terms such gains will likely not keep pace with dollar depreciation. Inflation pushes up prices for just about everything, so stocks and real estate are not likely to prove to be exceptions. Even bond prices can rise in the short term, but their real values are the most vulnerable to decline. In fact, even nominal bond prices will ultimately fall, as inflation eventually sends interest rates climbing. But prices for hard assets, precious metals, commodities, and even those few remaining relatively hard currencies should be on the leading edge of the upward trend in prices.

While I believe the Fed's plan will be a disaster for the economy, the silver lining is that it provides investors with a road map. As the policy of the Fed is to debase the currency, those holding dollar based assets may seek alternatives in hard assets and in the currencies of the few remaining countries whose bankers have not drunken so freely from the Keynesian Kool-Aid. We believe that such opportunities do exist. Some broad ideas are outlined in the latest edition of my Global Investor Newsletter, which became available for download this week. I encourage those looking for ways to distance their wealth from the policies of Ben Bernanke to start their search today.

Peter Schiff is CEO of Euro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.