Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

Markets Turning Against QE, What About the Gold Price?

Stock-Markets / Quantitative Easing Jul 18, 2012 - 06:21 AM GMT

By: Jan_Skoyles

Stock-Markets

Best Financial Markets Analysis ArticleFor many months now we have been writing about Quantitative Easing (QE) and disregarding it pretty quickly. As with the gold price manipulation debate, few people were eager to join us on our side of the sound money fence.

However, it now seems that we no longer have to use basic economic theory and continuous arguments to explain why QE is so useless and dangerous. People and organisations are working it out for themselves. Several reports and studies have been released of late reiterating our beliefs with solid evidence. Even better, we are now seeing an interesting change in the mainstream media. I note that many British journalists this weekend were less than impressed with recent decisions to inject a further £50bn into the UK economy.


As Louisa Bojesen wrote earlier this week, markets are now reacting very little to various policy announcements from central banks. In recent weeks three central banks, the ECB, the Bank of England and the PBC each announced further stimulus and monetary policy changes. ‘What did the markets do?’ asks Ms Bojesen, ‘Nothing’.

In its most recent annual report, the BIS expressed its concern over the effects of these on-going monetary policy moves. They report, ‘Failing to appreciate the limits of monetary policy can lead to central banks being overburdened, with potentially serious adverse consequences. Prolonged and aggressive monetary accommodation has side effects that may delay the return to a self-sustaining recovery and may create risks for financial and price stability globally.’

Credit Suisse released a report last week which found that QE1 in the US was more effective than QE2. They also note that negative effects from the unconventional monetary policies currently being implemented had ’received scant attention’ in research literature and ‘are not well understood’.

In early July, the WSJ Europe, presented the results of a reader poll which asked ‘will the ECB’s rate cut help restore confidence in the bloc’s economy? 81 per cent of readers answered ‘no’ whilst 19 per cent said ‘yes’.

So, if the markets have no confidence, the media have no confidence and the public have no confidence, then what is it all for?

Even the journalists are worried
David Smith of the Sunday Times, a long time measure of my perception of the mainstream media, has long supported the first round of QE which took place between March 2009 and November 2009; a series of asset-purchases totalling £200bn, but does not agree with the further rounds, ‘The economy was falling off a cliff…stopping the slide was essential. There was a genuine fear that prolonged deflation – falling prices was a serious risk. The second round [in October 2011] was different.’

Back in 2009, Sir Mervyn King, told Radio 4 that the first scheme of QE was designed purely to boost the economy’s money supply. Yet people continue to think that this and the most recent injections of cash were to boost lending in the economy. But Mr King, the money supply, measured in M4 will not increase if the cash stays with the banks and is not lent out. Worryingly there is now talk of the governor flexing his muscles and forcing banks lend money. And why wouldn’t he? Such muscles were shown in the Bob Diamond debacle.

The (fiat) drugs don’t work
The BIS write in their most recent annual report they are concerned Central Banks are (as also written by David Smith) ‘getting hooked on the drug of printing money’ Pretty worrying , as this was exactly what led previous economies to their downfall, with a big bang of hyperinflation.

Most mainstream economists believe that the first round of QE was necessary. This is a monetarist approach. Milton Friedman, the modern father of Monetarism, was an advocate of money injections BUT TO A POINT.

And it seems that public opinion is that we have reached that point, in fact we have gone past that point, and this is now a cause for concern.

Friedman’s most famous contribution showed that an increase in the supply of money, in order to increase output, would only work up to a certain point. The situation after this point would hold inflationary consequences, i.e. any nominal gains would be inflationary, not real. Whilst a central bank can print money to produce real growth, there is a limit to how much can be produced from this excess cash.

Friedman also showed that the negative effects of an increase in the money supply, i.e. inflation, would be derogatory on the economy. He believed this could be controlled if the velocity of money was able to be kept constant. But this is not something which can be fine-tuned and controlled according to a federal policy. As Jim Rickards writes ‘Velocity is a behavioural phenomenon, and a powerful one.’

It seems that the central bankers and policy makers have forgotten what Milton Friedman found; that quantitative easing is for emergencies only and is not to be used as an everyday monetary policy instrument.

Yet, yesterday Bernanke seemed to delay QE3 once again, saying he remained guarded over deploying further rounds of stimulus. He acknowledged that ‘economists differ on how effective the tools have been.’ Yet as the eurozone crisis pushes on, the markets still believe that Helicopter Ben and his Federal Reserve will implement further stimulus later on in the year.

The QE addicts also seem to have forgotten that both Friedman and Keynesian theories in regard to QE and stimulus spending are thought to only work when the economy is already in possession of a balanced budget. The impact of Keynesian stimulus cannot be gauged when the deficit is the starting point.

What about the gold price?
It seems that as the markets began to react less aggressively upon each announcement of QE, the gold price is also reacting less and less positively.

This gives the likes of Krugman much cause for mocking and laughter in regard to the gold investment experts and the gold bugs.

However they are most certainly the ones with eggs on the faces. What is the one thing which keeps fiat money strong? Confidence. What has the market demonstrated as the months and years of QE have dragged on? That it is losing confidence in the money men, who controls the fiat system. As Detlev Schlichter wrote earlier this week ‘printing money will not make people more confident.’

In his 2012 ‘In Gold We Trust Report’, Ronald Stoerferle explains that real interest rates, since 2011, have been negative for 51% of the time. Thanks to growing inflation levels from various loose monetary policies across the Western world, this trend is expected to continue. According to Stoerferle ‘this constitutes an optimal environment for gold.’

Any form of intervention, whether medical intervention, parental intervention or physical intervention will come with a range of unintended consequences: perhaps addiction, a lost fractured relationship with a loved one, perhaps a broken nose. The injection of money and the easing of monetary policy in an economy is no different. This economy is on its way to a fiat printing addiction which will end up more disjointed and broken than before the addiction was fuelled.

Want to invest in gold as an insurance against central banks’ money printing? Invest in gold like a professional in minutes…

Jan Skoyles contributes to the The Real Asset Co research desk. Jan has recently graduated with a First in International Business and Economics. In her final year she developed a keen interest in Austrian economics, Libertarianism and particularly precious metals.  

The Real Asset Co. is a secure and efficient way to invest precious metals. Clients typically use our platform to build a long position and are using gold and silver bullion as a savings mechanism in the face on currency debasement and devaluations. The Real Asset Co. holds a distinctly Austrian world view and was launched to help savers and investors secure and protect their wealth and purchasing power.

© 2012 Copyright Jan Skoyles - 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.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules