Federal Reserve Building--Creative Commons
After two record-breaking attempts to jump start the economy through with no signs of success, the Federal Reserve is now debating a third round of quantitative easing.
QE 3, as it will be called, won’t work. But, beyond that, this is a reckless and unethical way to subvert the traditional role of the board. This continual monetization of debt and debasement of the currency could lead to a super bubble–and a resulting pop that will make 2008 look like a slight recession.
Let’s look at why the Fed is considering a third round of easing. It’s simple: the election year is coming up. A sitting president who is facing high unemployment and a weak economy will not get re-elected. Like a giant campaign kitty, the Fed is going to kick in hundreds of billions to make sure the president gets reelected. This isn’t a Democrat or Republican thing either, folks. Both sides do it.
pic by king89 @ Flickr
I got you, didn’t I?
This headline is a classic propaganda technique. The Nazis called it the “big lie.”
Extreme predictions are more widely accepted. It seems counter-intuitive, but the more outrageous the prediction, especially financial predictions, the more likely it is that these predictions will be accepted.
There are a few reasons for this.
Gold Price chart from goldprice.org
The price of gold–once pretty much unstoppable–seems to be getting some resistance.
It nose-dived last week and has struggled cracking new highs.
According to David Morgan, founder of Silver-Investor.com, there are downturn pressures on the price of gold now. It’s a bit surprising since gold seems to have been on an unstoppable run.
What’s with the price swing?
There are a few reasons for this volatility, according to Morgan and a few other commodities experts.
After watching the gold market for the last few months, I noticed something pretty interesting about the current rally, that started on March 25, about 2 weeks ago. It has been a very strong, smooth rally with almost no retracement. It has been very similar to the last big rally, that set the all time high (in nominal terms) at $1.215.
Is Gold Making a New High?
How can we tell if gold is making a new high?
Price bubbles have been going on since the invention of markets by humans thousands of years ago. However, most people are completely oblivious to how they work, and how to profit from them.
Price of Crude Oil Jan 2004 - Feb 2010
Bubbles are simply the expression of widespread desire to own an asset, regardless of price. As the price goes up, more people find out about it and buy. This pushes the price up further, and still more people find out about it. It is a virtuous cycle.
Everyone remembers how things were so cheap once upon a time. “I remember when ice cream only cost 15 cents a scoop.” How often have you heard that sort of comment? The surprising thing is that since inflation happens slowly, we don’t notice the effect until a large amount of time has passed.
One detail that most financial advisors fail to mention is that inflation will destroy your savings. Most financial advisors will tell you that if you can get 8% return on your savings, you can retire in 40 years. I wouldn’t really trust that they can help me get 8% per year return. But even if they could, it would not be enough to retire on.
Why? Because a scoop of ice cream will cost $1,000. Right now, many experts are predicting that we will go into a period of massive inflation. This is because America is printing more money than ever. The rate of inflation is directly related to the amount of money that we print. Therefore, inflation is likely to increase in the near future.
The need to print money is largely fueled by the massive budget deficit. America doesn’t have the money to pay, so it just prints more. The bigger the deficit, the more it prints. And, it looks like we’ll be printing at record rates for the next few years.
It’s important to be aware of inflation, because it directly affects our finances. In just a few years the cost of housing and gasoline doubled. The same thing will happen again. If we do not double our income in that time, we will become much poorer. And our savings will drop in value by half.
This is the eighth post in a series entitled Secrets the Financial Industry doesn’t Want you to Know.
Sign up for our RSS Feed to get automatic updates for every new post in this series.