In this case, we’re seeing gold sniff out what the result of all the Federal money-printing and backstopping in response to the current collapse will eventually result in: An “inflationary holocaust,” as Jim Rogers put it.
There are consequences for every action taken by governments and central banks when they meddle in the markets; in this case, the consequence will be massive inflation going forward.
It may sound a little counterintuitive, since the Fed is responding to “deflationary” forces resulting from the housing bust and the ensuing credit crunch. But at the end of the day, money printing always results in inflation, just as it did following Greenspan’s printathon in response to the stock bubble bursting back in 2000 (which was also “deflationary” at the time, but didn’t turn out that way due to the Fed’s printing).
Let’s not forget that crude oil was $20 back in 2000 and would rally fourfold (to $80) over the next 7 years, before Gentle Ben began running his presses back in 2007. That set crude on another run to $140 in under a year. If that sounds like a parabola, that’s because it is one.
It took the Fed from its inception in 1913 until 1997 to grow its balance sheet the first $500 billion. It then took another 10 years to grow it an additional $500 billion. In the past 3 weeks, the Fed has now grown its balance sheet another $700 billion in an attempt to force the credit markets to unfreeze by the brute force of massive inflation.
This is a classic description of a parabolic money printing, and it sets the stage for an inflationary tsunami going forward.
Click to enlarge
Buckle up. It’s going to be a wild ride. We always knew how the Fed would respond to this crisis, because it’s how the Fed always responds to financial problems: More money printing.
And it’s going to have a very predictable result too.
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