He made this kind of controversial assertion that is, in effect, some sort of promise in order to engage within yet much more cash printing further down the road, in spite of the reality that including the seriously manipulated CPI amount involving inflation is currently over 3% as well as shows absolutely no indications of dropping back again.
Do not believe that those of us within the United kingdom tend to be resistant to this type of monetary repression either just as Bank of England Governor, Sir Mervyn King, appears more than pleased to be able to follow exactly where Bernanke points.
What ought to truly interest traders such as all of us though will be the reaction in the marketplaces instantly following Bernanke's statement. There had been 2 essential developments: the united states dollar tanked upon the foreign exchanges (in spite of the issues within the Eurozone) and also silver and gold increased.
At this point as far as the impact for the dollar is actually concerned I am certain in which Bernanke as well as other people within the United states government were extremely delighted to see this fall within the dollar. Actually, I am certain that had been precisely the designed effect just as United states policymakers aim to acquire competitive advantage for their own exports and also stem increasing domestic lack of employment through a weakened currency.
Nevertheless, I'd advise Bernanke and business to become cautious what they wish for because it looks to me as although the US dollar, which has served because the world's reserve currency for more than 60 years now, is close to a important tipping point.
More than the final couple of years, the widely followed dollar index, which measures the worth in the dollar against a basket (or ought to I say a basket case) of other paper currencies like the euro, yen and pound, has attempted, and failed, to break via the 82 level on 3 separate occasions. Following the most recent failed try final week, the dollar has because sunk rapidly to a degree of 78.83 on the index, breaking important technical levels, as investors all of a sudden woke up inside a cold sweat towards the reality that their US dollar holdings are about to become quickly devalued by an overspending and out of manage government.
These investors could, at a pinch, turn a blind eye to CPI at 3% simply because (dollar-denominated) US treasury bonds have hitherto been regarded because the safest location on the planet to park your money. This perceived safety provided a degree of compensation for the slightly unfavorable actual returns following inflation.
As soon as you get to CPI at 5%, 6% or perhaps greater, nevertheless, as well as your five year US treasury bonds yield no over 0.75%, issues begin to obtain a little scary - extremely scary actually, and that is why some investors (those with any sense a minimum of) began to dump their dollar holdings inside a mini-panic following Bernanke's speech.
India and China Get Smart
However the dominance in the US dollar is not just below threat from house grown economic saboteurs within the US government - foreign governments who're obtaining fed up with America's growing willingness to cheapen its currency at their expense are beginning to knock chunks out in the world's reserve currency too.
Just lately, India signed an agreement with Iran to spend for its oil imports inside a mixture of rupees and gold - sidestepping use in the US dollar altogether.
Rather ominously, China has been massively growing gold imports more than the final couple of months. In November alone, the nation imported 102 tons, whereas only five months ago imports ran at just 20 tons per month. Just to put that into context, globally gold production runs at no over 200 tons per month. What could this mean? Could China be preparing to adhere to in India's footsteps and spend for its personal oil imports from Iran (15% of its total specifications) with gold? Perhaps China sees the day coming when its vast stash of US dollar holdings will no longer be acceptable payment for oil.
Furthermore, we've been seeing numerous nations abandoning the dollar altogether more than the past year and setting up bilateral trade agreements utilizing their very own nearby currencies. The much more of these bilateral arrangements which spring up, the much less demand there's for US dollars. The much less demand there's for US dollars, the lower it falls on the foreign exchanges and also the greater US cost inflation goes. The greater US cost inflation goes the much less appealing a 0.75% yield on five year US treasuries becomes and also the much less demand there's for US dollars... The US government could attempt boosting demand for US dollars by growing rates of interest, but that would give investors in US treasuries (who fund all US government spending) an instant capital loss, therefore resulting in capital flight and, you have guessed it, much less demand for the US dollar... Do you see exactly where I am going with this? US economic policy makers have now painted themselves in to the tightest of corners - and there is no way out.
Gold and Silver - the Fuse is Lit
The reaction of gold and silver to Bernanke's statement was electric: he'd barely had time to finish speaking prior to gold was up three.85% and silver by four.3%. Each metals have now clearly broken out of their current downtrends and appear prepared for a substantial run-up in cost more than the subsequent couple of months.
Why ought to the valuable metals react in this way? What is so unique about them? Are not they just a "barbarous relic" like some well-known economists would have you think? Or are not they just an additional asset bubble about to burst as some other misguided investors happen to be telling you for the final ten years (whilst they've been missing out on the earnings)? My answer to those doubters is the fact that gold and silver are not just an additional asset class and they are not useless lumps of metal - they are cash plain and easy, the only correct cash available actually. Their rise this past week merely signifies a response by investors to Bernanke's newest act of US dollar debasement.
To illustrate the point additional, a colleague of mine who's a bit sceptical concerning the investment story on valuable metals put this argument to me: he explained that all of the gold within the globe would purchase me 6 Exxon Mobils and all of the agricultural land within the Usa, so which would I rather have, the gold or the land and oil?
My response was to ask him what he'd rather have - a lump of gold or perhaps a Zimbabwean trillion dollar note. My point right here is the fact that you purchase gold as protection against government abuse of paper cash as gold has usually performed this function perfectly via 5000 years of human civilisation (plus you cannot put oil and land inside your pocket whenever you have to do the weekly shop).
Perhaps you are thinking that Zimbabwe is not the US or the UK and "it could not occur right here." I think that Ben Bernanke's actions final week and also the responses of India, China and US dollar investors gave us a powerful hint that it just may.
If I am correct, and also the beginning gun on the 2012 collapse in the US dollar has just been fired, then exactly where can hapless investors visit discover a secure haven for their wealth? Following all, the US Treasury marketplace has been the greatest, most liquid investment marketplace on the planet - and as much as now has also been perceived because the safest. If that secure haven status is now open to question, exactly where else can investors appear for wealth protection?
To answer this question, I really feel we are able to do no much better than defer to among the world's foremost gold and silver investors, Mr. Doug Casey, of Casey Study. He believes that when the panic out in the US dollar begins in earnest, the only secure haven left will probably be gold.
The difficulty is, the gold marketplace is minuscule in comparison with the size in the US bond marketplace. Based on the Securities Business and Monetary Markets Association, as in the 2nd Quarter of 2011 the quantity of cash held within the US bond marketplace amounted towards the unimaginable sum of $32.three trillion. Keep in mind, we're only talking about US government paper right here and haven't even regarded as the additional trillions of debt issued by other governments.
Evaluate that towards the present worth of all of the gold ever mined in human background, which at a present cost of $1739 per oz equals only $8 trillion dollars. The vast bulk of that 8 trillion is currently in powerful hands and not accessible for sale at anyplace close to present costs (I know my share definitely is not) - which only leaves a tiny fraction accessible to new investors, perhaps as small as 5%. Doug Casey addresses this issue using the following observation: he believes that when the panic out in the US dollar begins and tries to flood in to the tiny gold marketplace, it'll be like attempting to get "Niagara Falls via a hosepipe".
The evidence in the final couple of days suggests that Ben Bernanke's statement final week brought us a great deal closer to that "Niagara" moment - the moment when the dollar dies and valuable metals are re-established within the globe monetary method, regaining their function as cash - and cash, as all of us know, is not an optional asset like a share, a bond or perhaps a property investment - it is some thing you cannot reside with out.
When that tipping point arrives, the demand for gold and silver will probably be such which you will not have the ability to purchase them at any cost. So the point would be to shield your self by obtaining in early and purchasing it whilst you nonetheless can. It is nonetheless not too late and you are able to discover out how you can get your share rapidly and safely by checking out your nearby coin dealer or by performing a Google search for among the numerous low-cost bullion vaulting solutions. But do not leave it too lengthy - following all, you do not wish to be certainly one of those left standing below Niagara Falls holding a limp hosepipe, do you? Perish the believed...
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