Will the Fed have to print money?
*Barron's, By Sandra Ward and Ray Dalio, February 9, 2009:
''Where is the U.S. and the rest of the world going to keep getting
money to pay for these stimulus packages?
The Federal Reserve is going to have to print money. The deficits will
be greater than the savings. So you will see the Federal Reserve buy
long-term Treasury bonds, as it did in the Great Depression. We are in
a position where that will eventually create a problem for currencies
and drive assets to gold.
Are you a fan of gold?
Yes.
Have you always been?
No. Gold is horrible sometimes and great other times. But like any
other asset class, everybody always should have a piece of it in their
portfolio.
What about bonds? The conventional wisdom has it that bonds are the
most overbought and most dangerous asset class right now.
Everything is timing. You print a lot of money, and then you have
currency devaluation. The currency devaluation happens before bonds
fall. Not much in the way of inflation is produced, because what you
are doing actually is negating deflation. So, the first wave of
currency depreciation will be very much like England in 1992, with its
currency realignment, or the United States during the Great Depression,
when they printed money and devalued the dollar a lot. Gold went up a
whole lot and the bond market had a hiccup, and then long-term rates
continued to decline because people still needed safety and liquidity.
While the dollar is bad, it doesn't mean necessarily that the bond
market is bad.
I can easily imagine at some point I'm going to hate bonds and want to
be short bonds, but, for now, a portfolio that is a mixture of Treasury
bonds and gold is going to be a very good portfolio, because I imagine
gold could go up a whole lot and Treasury bonds won't go down a whole
lot, at first."
*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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