Why the QE monster will still prove very positive for gold and silver prices soon

Sunday, November 2, 2014
By Paul Martin

By Peter Cooper
Sunday, 2 November 2014

The ending of QE3 money printing by the Federal Reserve and the announcement of QE9 by the Bank of Japan knocked the price of gold and silver back to levels not seen for four years last week, a logical reaction if you genuinely think US interest rates are now on the way back up.

That’s the official position, of course. The US bond market is still saying that this is going to be impossible. America is stuck in a deflationary slump and low interest rates will persist. It is therefore only a matter of time before QE4 to counter this deflation and prevent a debt deflation trap.

Commodity prices slump

Interestingly the commodities’ market agrees with the bond market. Oil prices have fallen as low as $79 a barrel. The US shale producers are closing down capacity and close to bankruptcies. Copper and iron ore prices are on the floor. The Russian ruble and Australian dollar are imploding. Why do you think Japan is doing QE9? This is not a global economic recovery speaking. It’s a slump.

History will not judge QE3 kindly. The Fed’s balance sheet has more than tripled in just over five years to $3.7 trillion, six times larger than QE1. It’s created massive inequality by bailing out the one per cent and condemning 47 million Americans to living on food stamps, the modern equivalent of the soup kitchens of the Great Depression. Savers and pensioners have been impoverished and the real unemployed taken off the register.

Is the Fed wrong to judge the US economy strong enough to stop QE3? Almost certainly. Consumer spending figures for last month already confirm that the 3.5 per cent GDP hike in the third quarter was a passing aberration due to unrepeatable increases in defense spending. The two per cent fall in GDP originally reported for the first quarter should not be so quickly forgotten.

If you want to know what the future holds then look to the land of the rising sun. Japan first got itself deep into a financial mess back in 1990 and fell into a hole that it is still trying to exit. They’ve had nine successive rounds of QE and they are still at it.

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