The Market Report: Should the Fed End Its Money Printing Scheme?

Is the economy addicted to stimulus? How can we protect ourselves from government policies and market volatility with gold? The Federal Reserve is preparing to end its third round of bond buying next week. Listen to this edition of the Market Report with Precious Metal Specialists Will Hart and Jake Kennedy discussing Quantitative Easing, inflation, dollar devaluation, and gold as a safe haven asset.

Transcript:

Mark Alyn: This is the Market Report from the Birch Gold Group. Hi, I’m Mark Alyn. I’m joined in studio with Will Hart and Jake Kennedy, both from the Birch Gold Group. Gentlemen welcome back to the studio and to the show.

Will Hart: Thank you Mark. Thanks for having me again.

Jake Kennedy: Thanks Mark.

Mark Alyn: We are looking at a big meeting coming up with the Fed. They are gonna be meeting and the assumption is that they are going to end QE3. Explain what that means.

Will Hart: QE is Quantitative Easing and basically that’s the printing of money. So as the government finds themselves short on dollars and lack of taxes coming in to run this country because it’s expensive, well, they just make up the difference by printing additional money out of thin air. 

Mark Alyn: Which of course means that the value of the dollar drops.

Will Hart: Correct. So if you look over the last 10 years the dollar’s lost approximately 40 percent of its buying power, due to the fact that the government just keeps on devaluating the dollar.

Mark Alyn: And they do it by printing more and more money.

Will Hart: Print, print, print, print.

Mark Alyn: Print, print, print. Jake, what do you think? Do you think that the Fed will drop QE3?

Jake Kennedy: I think they should and that’s what they say they gonna do. I think it’s a very good case to do it. If you think about it, there’s 4 trillion dollars they’ve spent on bonds and mortgage-related assets in the last a few years. If they keep doing what they are doing, the balance sheet will be so large and there will be so much inherited risk to them, and plus of course [it] adds to our deficit because the government is issuing these bonds that they are buying and so adds to our government debt. It’s gonna become a real issue that will cripple this country if they keep printing money basically or creating debt out of thin air. So, they say they are gonna do it. There is a good chance they will. They’ve been tapering to the point when now the economy on paper seems like it’s getting stronger, so chances are they can easily do this.

Mark Alyn: And at the same time some economists like Peter Schiff say, “Get ready for the Fed’s QE4”
What do you think?

Will Hart: I agree. I think that it’s gonna be QE4, QE5, QE6. I think we’ve dug ourselves in such a hole that there is no stopping. They can’t afford to just stop. When you’ve been using your credit card, as an example, you’ve been living on your credit card and asking the bank to continue to raise the credit card and use the cash out of that credit card to pay your minimum payment, and you are just gonna say, “I’m not gonna ask the bank to raise my credit limit?” Well, how are you gonna pay that? I can’t imagine and I have to agree with Peter Schiff. He predicted the 2008 crash. This guy is definitely in touch with the economy. I have to agree. I think they are just gonna keep printing.

Mark Alyn: You said something Jake. You said that at least on paper, the economy seems to be strong. Is it strong or is it “fake” strong?

Jake Kennedy: It’s a big psychological game in many respects. It’s a confidence game. The dollar is a fiat currency. It’s all based on confidence in the US dollar. Same with the economy. I guess in many ways the government in the past they’ve been trying to instill confidence into the people to get them to spend again, because 70% of our GDP is based on spending consumption. So, you know, Peter Schiff even says, “How can we have a strong economy if nobody is spending right now?” So they try to let people know that unemployment’s coming down, that GDP is OK, it’s strong, the markets are at all time high, people are feeling, you know, better about things, we’re at the beginning of a recovery, and you know time to do your duty and spend, spend, spend. And hopefully, they’ll turn the economy around. It’s almost like it becomes a self-fulfilling prophecy. People in power start saying things like Peter Schiff, “Oh, we are in trouble. This is gonna end badly.” People just suddenly would put their money back in their pockets, and it will become a self-fulfilling prophecy. So they have to go on record and say these things otherwise it [spending] can actually go lower than it actually is.

Mark Alyn: Gold has been fairly stationary in price. As we go into the ending of QE3 and possibly going into QE4, how do you think this is going to affect the price of gold?

Will Hart: If they do in fact shut down the money printing, which we’re gonna see [that] the market is not gonna be injected with these fake dollars. So, I think you’re gonna see a turn in the market. I think you gonna see the market start to take major, major hits. And again, it’s a teeter-totter: when the market goes down gold goes up. So yeah, we’ve watched gold come down recently, but we’ve already started to see the gains because of the repercussions in the market. So I think as the shockwaves start to hit the market, I think you’re gonna definitely see an increase in metals.

Mark Alyn: And at the same time we have to talk about interest rates, because interest rates which are right now just about at all time low, near zero interest. It’s assumed that the Fed sometime in next year in 2015 will increase slowly the interest rates and let them rise.

Will Hart: They have to. You can’t keep the interest rates…I mean money has to be made. Money makes money and you can’t give away free money. So you know, when there is not enough money coming in taxes, there has to be something being done. So that’s why I believe that they’re just gonna keep printing. And again, what is that really doing? It’s taking away form you, me, and everybody out there who has a greenback in their personal wallet. They are losing a little bit, little tiny bit. They are not getting hit you know, square in the nose, but they’re getting nibbled away at their dollars, and it’s just an easier way – it’s like cooking a frog; you put them [frogs] into the cold water and you slowly heat the water.

Jake Kennedy: Anyway, what you’re saying, is very interesting. What they’re doing by all this printing instead of going and taking the kind of unpopular move and massively raising taxes to raise $4 trillion, what they’ve done is they’ve done stealth taxes effectively. And they’ve said, “OK, we’re not gonna go and put a 10 percent tax on every goods, products, and service” – like they have in Australia or in England and other countries to raise let’s say $3 or $4 trillion to make up for the shortfall. They’ve said, “OK, well we don’t’ wanna do that because it’s very unpopular. It’s not gonna win any votes, so let’s get $3 or $4 trillion a different way and tax people without them really knowing that they’ve been taxed, and that is by printing the money.” And then they have this $4 trillion, but ultimately that is, as Will says, it’s gonna devalue everybody’s money in their pockets so they get taxed via inflation without really understanding it. So, well the government hasn’t raised my taxes but what they are really doing is picking my back pockets.

Will Hart: That’s exactly right.

Jake Kennedy: So that’s why you know people who buy gold understand that and they say, “OK, I don’t wanna lose my buying power through inflation, so I’m gonna put a chunk of my money into precious metals, into gold, into silver.”

Will Hart: Remember when you say inflation, you also have to add devaluation. Inflation and devaluation together, so when you move into precious metals – and I agree with Jake 100 percent here – when you move into metals, you are protecting from a further devaluation and inflation on your dollars.

Mark Alyn: And what we’ve said, what you two have said to us on the Market Report in past episodes, is that buying gold is not necessarily to make money but to preserve wealth.

Will Hart: That’s exactly correct. It’s there as a hedge against inflation; it’s a way to store wealth. Those are the key words I’d like to use: store wealth, [hedge against inflation].

Jake Kennedy: And in this environment if people like Peter Schiff is right, if we do have let’s say a massive market correction, a collapse of the dollar, and all these things that really could actually play out in some shape of form, then the gold is not only gonna act as a great hedge against inflation and rises as the currency loses value, loses buying power and everything gets more expensive. But if you are moving money out of the markets, out of bonds, and these bubbles burst too, then guess what? You’re already on high ground, you are on safe ground [with precious metals], and gold is gonna work 2-3 times as hard protecting your portfolio than if you didn’t have it at all.

Mark Alyn: During World War II everybody was buying war bonds. Is it a good investment to consider bonds at this time because the Fed apparently are going to unleash a whole new series of bonds?

Jake Kennedy: Think about what a bond is. Ok, this is how I think about it – maybe I’m little jaded – but a bond is simply a government debt. So you’re buying government debt, and you’re getting paid on it. Let’s say it’s 2 percent rate. Now if you listen to people like John Williams from Shadowstats.com, he says, “Well, real inflation right now is not 1.7 percent – it’s really about 8 or 9 percent.” If you measure inflation the way it was measured in the 70s and in the early 80s when it ran up to 18-19 percent because obviously they’ve taken out all volatile elements of the economy, gas, food…

Mark Alyn: All the important things…

Jake Kennedy: Medication, healthcare – so that doesn’t count? It’s not getting more expensive, it doesn’t really count because it’s volatile. So really, actually you need to be earning about 8 or 9 percent right now just to be maintaining the value of your investments and your money, so a bond at 2 percent is realistically not keeping up with the real cost of living. So to me, 2 percent bond not only it is a paper asset, not only it is a government debt which is questionable at the very least. If there is a currency crisis or a fiat currency crisis, loss of confidence in the dollar – those things just fall by the way. Bond bubbles have burst in the past – it happened in the 80s [and] I’m not too sure about but I understand that’s happened before in this country so people forget about that. But it’s just a piece of paper [a bond], backed by the full faith and confidence in the U.S. government. And quite honestly that is not the right place to have your money right now.

Mark Alyn: And you mentioned at the top of the show – confidence is what counts here.

Jake Kennedy: Right, so they try to keep confidence high, but when you have people like Peter Schiff and all these other global experts pointing the facts out, you gotta question it. So I’m thinking, I’m hoping we can reduce this deficit and reduce spending, and that’s good because if things go wrong and play out like some of these guys are saying it’s not gonna be good for everybody.

Mark Alyn: If you have a portfolio in the market and there is a correction…Recently there was a drop of what? 300 points in one day! So it happens the volatility of the marketplace is all over the place. One day it’s up, one day it’s down, but gold seems to hold its own.

Jake Kennedy: This volatility in all assets right now is kind of a new playing field that we have seen. But what I tell clients is, “Look, I don’t know where the next $100 in gold is, but I’m pretty confident where the next $1000 in gold is and how long its gonna take to do that”. But you gotta bypass short-term volatility, and you gotta think about the bigger picture here about: Do you wanna ride that volatility if you think that bad things are gonna happened? Do you wanna stay in the market? Do you wanna be in bonds or do you wanna be in an asset that you own 100 percent, that is tangible, that is out of paper, that is out of the dollar and that is proven itself for 5000 years as a great hedge against inflation and other financial crises, and other things out there?

Will Hart: Yeah, again, I agree 100 percent. The way the dollar looks again is all perception. So as our dollar in the world looks weaker and weaker, people have to start saying to themselves, “What would be better for me to protect legacy dollars or just dollars so that I can live?” And right now the dollar, which again is backed by nothing other than perception, is under attack. It’s under attack by our own government. Our government is just weakening and weakening the perception of what that dollar stands for, what it stood for. So, a nice alternative certainly is physical metals, which run opposite the paper.

Mark Alyn: And right now is a good time to purchase gold?

Will Hart: Absolutely. If we can go back in time, sure, let’s take a time machine and go back 10 years, 15-20 years, but we don’t have that ability, so to buy now with the expectation that the dollar is gonna continue to weaken, then yeah, you wanna get on board as soon as possible.

Mark Alyn: And it’s easy to do.

Will Hart: Extremely.

Mark Alyn: Explain it very quickly.

Will Hart: Sure. Our clients simply calls us up. They tell us what form of payment [they’ll use], if they are doing an IRA rollover or if they are purchasing with cash. And then they’ll tell us exactly what type of metals they want. We’ll go over the pros and cons with the various forms of precious metals, bars, coins, American Eagles, Kruggerands, whatever they are looking for. And then we lock it in at whatever the price of metals are at that moment, and then we ship the metals. If it’s an IRA we ship it to a depository; if it is a cash buy, we ship it to their home.

Mark Alyn: It’s very, very simple. Gentlemen, thank you very much. This has been the Market Report from the Birch Gold Group. If you have any questions, you can visit us at www.birchgold.com, and there is an info kit that you can get too. If you call (800) 355-2116, you can actually speak to a Gold Specialist right then and talk about your needs, your particular needs with a Gold Specialist from the Birch Gold Group. You can always e-mail us at info@www.birchgold.com. I am Mark Alyn, for Will Hart and Jake Kennedy from the Birch Gold Group. Thanks for listening, we’ll see you on the next show.

Featured, inflation, qe3, quantitative easing, the dollar, the fed