Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Federal Reserve Notes Are Now “Backed” by Junk Bonds

Interest-Rates / US Bonds Apr 11, 2020 - 05:09 PM GMT

By: MoneyMetals

Interest-Rates

Wild price action and unprecedented interventions once again characterized this holiday-shortened trading week. 

Oil prices whipsawed lower Thursday on concerns about expected oil production cuts from Russia and Saudi Arabia.  But the general trend for most other assets, including metals and equities, was up – way up.

Stocks finished out the week with the major averages posting their biggest weekly gains in decades in the space of just four trading days.  Investors went on a buying spree based on hopes that we will soon see a definitive peak in coronavirus cases and begin the process of restarting the economy. 


The stock market also got another boost from the Federal Reserve.  Yesterday, the Fed rolled out a $2.3 trillion loan package for local governments and businesses struggling with the current economic freeze. 

Since they have a money printing press, Jerome Powell and company have an unlimited budget to loan out and spend -- and they’re now adding junk bonds, of all things, to their shopping list.  More on that later. 

Despite suffering a setback during last month’s panic selling of all assets, gold has now recouped ALL of those losses.  In so doing, gold has proven the doubters and naysayers wrong yet again – particularly those in the deflation camp who tout U.S. dollar cash as the ultimate safe haven. 

During mass liquidation episodes like we experienced a few weeks ago, cash is king.  But such status is temporary and fleeting – lasting only as long as it takes the Fed to implement novel and previously unimaginable schemes to print and depreciate the currency.  In the long run under our monetary system, cash is something to avoid like the plague.

That’s what the founder of the world’s largest hedge fund believes.  In January, billionaire hedge fund king Ray Dalio made a strong declaration about paper money in a CNBC interview.

Ray Dalio: What do you jump into when you jump off the train? And the issue is you can't jump into cash. Cash is trash, because they're going to print money. What do you do? You get out.

CNBC Interviewer #1: So what do you do?

Ray Dalio: So what you have to do is you have to have a well-diversified portfolio. I think that you have to have a certain amount of gold in your portfolio, or you have to have something that's hard. I know I'm going to come out of here (and everyone will be) like “Ray Dalio's wild on gold.”

CNBC Interviewer #2: I'm going to say “cash is trash” is your headline.

Ray Dalio: But cash is trash.

Admittedly, Dalio’s call on cash looked terrible during the depths of last month’s market crash.  But a mere two weeks into April, his call on gold looks brilliant. Gold is outperforming all forms of paper cash this year and is now up double digits versus the U.S. dollar.

The Federal Reserve is now adding junk bonds – the riskiest, lowest quality corporate debt instruments – to its balance sheet.   Such a move by the custodian of the world’s reserve currency would have previously been unthinkable.  It may even be illegal, but the central bank has long since strayed from its original Congressional mandate and nobody in Washington seems to care.

Previously in our history, the U.S. dollar was backed by gold and silver and could not be inflated to serve any purpose, let alone to bail out banks and private corporations.  Then after the Federal Reserve was created in 1913 and President Richard Nixon closed the international gold window in 1971, fiat Federal Reserve notes were backed only by the full faith and credit of the United States.

After 2008, the era of Quantitative Easing began as the Fed ballooned its balance sheet with Treasury and agency bonds.  In 2020, we are entering a new monetary era – the era of Unlimited Easing, the era of Federal Reserve Notes attaining the status of junk. 

How rapidly the downgrading of the U.S. dollar translates into real losses of purchasing power remains to be seen.

But we could certainly see price spikes across an array of raw materials and consumer goods once economic lockdowns are lifted and pent-up demand is released with trillions of newly created junk dollars circulating in the financial system.

By Mike Gleason

MoneyMetals.com

Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2020 Mike Gleason - 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