Will the value of wealth in dollars suffer from significant quantitative easing?
*Dow Theory Letters, by Richard Russell, May 31, 2011:
''Ben Bernanke, our expert on the Great Depression of the 1930s, has
staked his reputation on loading the banks with money as per QE1 and
QE2. Bernanke's theory -- if the banks are choking on money, they will
lend and consumers will come, and they will borrow, and they will
buy. But alas, the best laid plans . . . . .
The paragraph below is from the front page of today's Wall Street
Journal ---
"The US economy might be on a slower path to full health as
manufacturing cools, the housing market struggles, and consumers keep a
close eye on spending. An increasing number of economists are
lowering forecasts for second quarter growth."
In view of the above, will Bernanke give up on quantitative
easing? Hardly, if first you don't succeed, try, try again. Which
is exactly what the stock market is thinking. With the US economy
still sluggish, expect Bernanke to keep trying with a third session of
quantitative easing, but he may not have the nerve to call it
QE3. At any rate, QE3 is what the rising stock market is
discounting.
Good money must have seven characteristics.
(1) It must be durable, which is why we don't use wheat or corn or
rice.
(2) It must be divisible, which is why we don't use art work.
(3) It must be convenient, which is why we don't use lead or copper.
(4) It must be consistent, which is why we don't use real estate.
(5) It must possess value in itself, which is why we don't use paper.
(6) It must be limited in the quantity that is available, which is why
we don't use aluminum or iron.
(7) It should have a long history of acceptance, which is why we don't
use molybdenum or rhodium.
Only gold fits all seven characteristics.
Federal Reserve notes (now erroneously called 'dollars') are issued by
the Federal Reserve. They are created without sweat, ingenuity or
risk by the Federal Reserve. The Fed is a creature of Congress
and therefore, it can be pressured by the will of Congress.
Congressional men and women are elected by the voters. The voters
desire constant prosperity and tend to 'vote their pocketbooks.'
Thus, the quantity of Federal Reserve notes can be a result of the
desires of an impatient and often greedy electorate.
The quantity of Federal Reserve notes tends to be influenced by the
wishes of impatient voters -- plus obedient politicians who value their
jobs.
Unlike Federal Reserve notes, gold is fixed as to quantity. Gold
is a currency that is not beholden to politicians or to any
government. Politicians cannot increase or decrease the quantity
of gold at will. When a currency is backed by gold, the quantity
of that currency is out of the hands of politicians. This is the
reason why politicians detest the gold standard. The gold
standard leaves politicians helpless at a time when they wish to
inflate or over-spend.''
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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