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One Reason Gold is Soaring: The Fed is Recklessly Fueling Future Inflation

Gold has shot up to a record high. Silver has also gone parabolic in price, rising to $24.85 (a 7-year high), doubling since March 18 (at $12.42) and thereby falling under an 80-to-1 gold/silver ratio, which we had predicted a few months ago. Part of the rise of both metals is due to a falling U.S. dollar. The Dollar Index is down 4% in July alone and down nearly 9% in the last four months, due in large part to the massive printing of fiat paper money.

The Federal Reserve and the U.S. Treasury – with the aid of the spendthrift U.S. Congress – are throwing unprecedented amounts of fiat money (unbacked paper currency) at the coronavirus problem, in a series of four (going on five) multi-trillion dollar stimulus packages to keep the American economy afloat. The Federal Reserve is fighting recession and deflation by fueling the economy with excess liquidity and is thereby sowing the seeds of future inflation – which came about prematurely, as the Labor Department recently said the Consumer Price Index soared 0.6% in June (a 7.2% annual rate).

 

A new book, “The Deficit Myth” by economist Stephanie Kelton, uses Modern Monetary Theory (MMT) to say that the most fiscally responsible way to fight the current COVID crisis is with “higher deficit spending.” At the current spending pace, multi-trillion-dollar deficits will likely be common in the 2020s.

In an amazing surrender to Modern Monetary Theory, the two most recent Federal Reserve Chairs, Janet Yellen and Ben Bernanke, said in testimony to Congress on July 17 that they favored turning loose the monetary spigots without limit, saying that they “would further increase the already record-level federal budget deficit.” In their testimony, they did admit that “at some point, we will have to think through how to ensure the long-run sustainability of federal finances,” but not now, since the crisis is too severe.

In addition, budget deficits are soaring. The U.S. federal deficit ballooned by $864 billion in June alone – more than the entire ANNUAL fiscal 2019 budget deficit, bringing the nine-month total to $2.74 trillion, and the full year (ending September 30) estimate to $4 trillion, or three times the previous worst, in 2009. 

MMT says that we don’t even need taxes from Americans, we just print more money UNLESS inflation returns. But what then? Then, we raise taxes. But inflation has risen after every massive infusion of new fiat money in history. When inflation returns, gold could take off even higher, as it did in the 1979-1980 inflationary peak when many new gold and silver buyers entered the market. That was also the time when rare coins had their most historically powerful surge rising 1,195%, according to the CU3000 Index.

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