Collectivism, Higher Interest Rates, and the Collapse
by Anthony Wile
LewRockwell.com
June 17, 2013
Daily Bell: Thanks for sitting down with us again, Richard. What is going on with gold and silver? The markets seem to be diverging between paper and physical.
Richard Ebeling: In the long run, gold and silver remain the historically important hedges against inflation and government confiscation of wealth through depreciation of paper currencies. The decline in the prices of gold and silver, especially since the beginning of this year, are partly indicative of the short-run fluctuations that always affect commodities because of day-to-day and month-by-month changes in supply and demand conditions.
It is also indicative of the fact that markets are hesitant and uncertain about the future course of central bank monetary policy. The Federal Reserve, the US central bank, has been sending out mixed signals about the course of monetary policy over the remainder of this year and into next.
At the end of last year, the Fed announced that it would continue for an indefinite period its policy of “monetary easing,” with planned purchases of US Treasuries and home mortgages at an average amount of $85 billion per month – which would amount to over $1 trillion in the current year – for as long as the government-measured unemployment rate remained above 6.5 percent and CPI-measured price inflation remained no higher than 2 percent at an annual rate.
Yet over the last couple of months, the Fed has been sending out new signals that it may possibly step back from its “cheap money” policy during the second half of the year, even though the unemployment rate is still around 7.5 percent and the latest CPI-measured price inflation was not much above 1 percent.
If the Fed reduces its purchases of Treasuries and mortgages, interest rates will no doubt start rising from their artificially low levels. As estimated by the St. Louis Federal Reserve Bank, the discount rate and the one-year Treasury bills, when adjusted for price inflation, for a long time have been in the negative range. That is, expansionary monetary policy has resulted in banks being awash in loanable funds such that they are lending money nearly for free to credit-worthy borrowers in the private sector.
This has fed the stock market and bond market booms. But with the uncertainty whether “free money” will continue to be available into next year, people are wondering how much price inflation may or may not pick up in the US.
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