As I’m sure you’re aware, starting in July 2007, the financial markets entered one of the most severe crises in history. In response to this, the Feds (Federal Reserve, Treasury Department, etc.) have tried to prop up the financial system with numerous interventions. A brief recap of their moves are as follows:

The Federal Reserve cutting interest rates from 5.25-0.25% (Sept ’07-today)
The Bear Stearns deal/ Fed taking on $30 billion in junk mortgages (March ’08)
The Fed opens up various lending windows to investment banks (March ’08)
The SEC proposes banning short-selling on financial stocks (July ’08)
Hank Paulson gets a blank check for Fannie/Freddie but promises not to use it (July ’08)
Hank Paulson uses the blank check with Fannie/ Freddie spending $400 billion in the process (Sept ’08).
The Fed takes over insurance company AIG (Sept ’08) for $85 billion.
The Fed doles out $25 billion for the auto makers (Sept ’08)
The Feds kick off the $700 billion Troubled Assets Relief Program (TARP) with the Government taking stakes in private banks (Oct ’08)
The Fed offers to buy commercial paper (non-bank debt) from non-financial firms (Oct ’08)
The Fed offers $540 billion to backstop money market funds (Oct ’08)
The Feds agree to back up to $280 billion of Citigroup’s liabilities (Oct ’08).
$40 billion more to AIG (Nov ’08)
Feds agree to back up $140 billion of Bank of America’s liabilities (Jan ’09)
Obama’s $787 Billion Stimulus (Jan ’09)

And that’s a BRIEF recap.

All of these moves fall under one basic category: loose money. And of course, it was loose money (easy access to credit) that got us into this mess in the first place. Former Fed Chairman, Alan Greenspan kept the printing presses rolling and interest rates below the rate of inflation, resulting in one of the largest debt bubbles in history. His successor, Ben Bernanke, is not trying to fix that debt bubble by issuing more debt. All he’s doing is cooking up an inflationary holocaust that will erase 401ks, savings, IRAs and the like.

Don’t believe me? Have a look at the Federal Reserve’s Adjusted Monetary Base:

To give this chart some perspective, in Feb. 2008, the Federal Reserve pumped $30 billion into the financial system to prop up Bear Stearns. Compared to the Fed’s printing orgy of the last 8+ months, that $30 billion is now a microscopic bump (see the slight ripple above “2008-02” on the chart above).

Put another way, the Fed is pumping its brains out, having more than doubled the US monetary base in the last two years. Most worrisome is the fact that the Fed recently starting running the printing presses overtime AGAIN in March ‘09… even though they claim the economy and financial markets are improving.

They’re lying. Things are not getting better. If they were, the Feds wouldn’t be running the printing presses both night and day. No, the financial markets are heading for another crisis. And with the Feds feeding the debt bubble with trillions of dollars, one thing is certain:

BIG inflation is coming.

At some point (it may have already started), the money printing and bailouts will result in a horrific wave of inflation similar to the one this country saw in the early ‘80s. No central bank in the history of mankind has ever been able to print money ad nauseum without devaluing its currency. And the US central bank is currently producing TRILLIONS of dollars to aid their friends on Wall Street.

So it’s no surprise that the smart money (investing legends like Jim Rogers, David Winters, and even Warren Buffett) have been preparing in advance buying inflation hedges and companies that profit during periods of high inflation.

And nothing protects against inflation like GOLD.

You know what to do.

Good investing!

By Paul Learton

http://gainspainscapital.com

PS. I’ve put together a FREE Special Report on a backdoor way into buying gold at $188 an ounce. To get your FREE copy go to www.gainspainscapital.com

Paul is Chief Investment Strategist for OmniSans Research, an independent financial research firm based in Charlottesville, VA.

Paul focuses exclusively on timing major trends between asset classes and financial markets. He's not looking for temporary bottoms or momentum plays, rather, he's looking for seismic shifts in capital flows and consumer behavior, measuring profits and market moves in terms of years if not decades. Paul's long-term horizon and voluminous knowledge of historic trends and economic data shape all of OmniSans Research's investment strategies.

Previously Paul worked as a wealth manager for several private clients.

© 2009 Copyright Paul Learton - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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