The Federal Reserve Is Openly Telling You to Buy Gold and Silver

(DailyWealth)At the end of last year, I began writing about what I saw happening as the Federal Reserve started assuming the liabilities of the investment banks and the federal government began deficit spending at an unprecedented pace.

I've been calling these changes the "End of America" because I believe the fiscal policies of the U.S. will result in a massive devaluation of the dollar and the end of the U.S. dollar as the world's reserve currency.

To get an idea of why I'm concerned, have a look at a chart James Bullard, president of the Federal Reserve Bank of St. Louis, included in a recent presentation to the National Association for Business Economics.


What you see here is Bullard's estimate of the future growth of Federal Reserve assets.

A lot of people seem to have forgotten something that is very much on Bullard's mind: The growth of the Fed's balance sheet isn't nearly finished. In fact, the Fed has only completed purchasing about half of the $1.75 trillion worth of assets it has promised to buy. The assets are mostly mortgages and mortgage-related securities.

Even though these direct purchases are unprecedented, that's only about 10% of the story. Since the beginning of the crisis, the Fed has lent, spent, or guaranteed $11.6 trillion.

That includes providing a backstop on the entire system of mortgage finance in the United States, a system that currently shows nearly a $1 trillion loss.

Since the expansion of its balance sheet got started in earnest last fall, the trade-weighed value of the dollar has fallen 15%. Keep in mind, the Fed's assets form the base of our monetary system. The more it grows, the more money and credit become available to the banking system. And the faster the money supply grows, the more likely the value of the dollar will continue to fall.

As Bullard points out, a doubling of the monetary base won't necessarily cause an immediate doubling of inflation... But suppose it takes 10 years? The average inflation rate would still be 7% a year. If inflation does grow to this average level, at least a few of those years will see inflation running at or near double digits.

Nothing in our financial markets is prepared for this kind of inflation. Inflation at these rates would cause the average multiple of earnings for equities to fall by at least 50%. Likewise, we would see high-yield corporate bonds yielding at least 20% – double what they are now. And U.S. Treasuries would probably see their yields triple. The destruction of wealth in the bond markets would be unprecedented in modern finance.

It's going to happen. I guarantee it.
By: Porter Stansbury
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