Central Banks Launch Full Assault on the World's Trees

by: The Prudent Investor posted on: March 12, 2008 | about stocks: DBV / FXE / GLD / IAU / OIL / SLV / UDN / USO / UUP    
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In another probably vain effort to stabilize markets reeling from too much leverage, six central banks have committed themselves to printing unlimited money (more or less) into the foreseeable future. The Federal Reserve's announcement to now also accept MBS from private investors as collateral with a volume of up to 200 billion Federal Reserve Notes (FRN's) dwarfs the liquidity measures of the ECB, the Bank of England, the Bank of Japan, the Swiss National Bank, the Swedish Rijksbank and the Bank of Canada.

Their statements collectively said that they would provide basically as much freshly digitized money as commercial banks would require in order to try to iron out the mess they created in the first place with their lowered credit standards.

Markets are brimming with rumors that the Fed may again cut the Fed Funds rate before the regular meeting on March 18.


GRAPH: The gold/oil ratio shows that gold is again fairly cheap in comparison to crude oil. Chart courtesy of stockcharts.com.

Bundesbank president Axel Weber said on German Bloomberg TV that inflation risks would not allow a rate cut, sending FRN's to a new low of 1.55 for one Euro. IMHO these liquidity actions are just another inflationary nail in the coffing that has always gobbled up all unbacked fiat currencies in history. Who will ever take the political responsibility for the coming inflationary death of the Euro and the Fed currency?

While gold and silver took another breather on Tuesday after the recent run-up, oil markets immediately identified the new Tsunami of monetary inflation correctly and propelled crude to the new record close of $108.75/bbl.

Gold corrected to $965 but again held the support, possibly already creating the launch pad for the next take off. Gold is again way too cheap.

This constellation looks like a good opportunity to switch from oil into gold as both instruments are now bought for their inflation-proof qualities.

Investors who act accordingly may be in for another strong upleg in gold.

As all other commodities are rallying it will be only a matter of time before gold pierces the $1,000 mark - and may zoom to more than $1,150 by late April/May. Gold has held steady close to its record high of $992, never giving up more than 3% of its gains.

Silver's moves may be even more brutal as there is definitely more demand than supply and a very tight market in general. A low gearing should see investors through the current correction without giving up the next surprise move on the upside. It will come like the amen in a prayer. Foolish central banks will guarantee it.

This article has 5 comments! Add yours below...
The Prudent Investor

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This article has 5 comments:

  •  
    Swede
    Mar 12 09:41 AM
    FYI, it would be the Swedish Riksbank, not Rijksbank, as your spelling is Dutch...:-)
  •  
    Reinko
    Mar 12 06:27 PM
    That's true, it is the Riksbank (I am a Dutch guy) and it was only today that I learned that when you are rich in Sweden you are rik...

    But serious: There is still far too much money in the system and this is the blame of weirdo Greenspan. When you look at the speed of climbing commodity prices it is very likely that the conclusion in the above article is justified, quote:

    these liquidity actions are just another inflationary nail in the coffing that has always gobbled up all unbacked fiat currencies in history

    It is a pity that it has to be this way because when you have a rigid central banker there really is not much of a problem. But weirdo's like Alan that defend the 1% interst rate while at the same time allow M3 money run completely out of hand only get what they deserve.
  •  
    Kunst
    Mar 13 12:37 AM
    It is interesting that virtually no real issues are being discussed in the US presidential campaign. Iraq to a degree, but not the economic impact it's having on the country. Government deficits and debt, nope. The collapse of the dollar, nope. The true cost of government obligations, not even.

    It would be interesting to ask each of the 3 remaining candidates: "What kind of a job do you think Ben Bernanke is doing? Would you ask him to resign if you were President?"
  •  
    jt
    Mar 13 09:12 AM
    Kunst...you are right...Harry, Curly, and Moe. The only candidate that had a plan for even trying to get us out of this mess ("trying" only b/c I think it's alread too late) by getting rid of the Fed, the IRS, our "wars" and our stationing of 10's of thousands of our troops at well over a 100 sites around the world and taking care of our problems here. That was Ron Paul...and he was blacklisted and not even allowed into "fair and balanced" (they've lost ALL my respect now...the blowhards) FOX channel. Now it doesn't matter who gets in...none of them will fix anything...being "liberal" (with other people's money) they will likely simply continue spending non-existent money to support their voter base. We're going down...got your lifeboats ready? jt
  •  
    frflyer
    Mar 13 01:32 PM
    What is most overlooked is how the disparity in wealth is the real cause of the housing mortgage mess. It's the cause of many of our economic problems. When most Americans can't afford to own a home, while a few percent at the top get wealthy at unprecedented rates, there is an obvious problem. But it isn't politically correct to mention this, especially on FOX. When Huckabee had the temerity to mention this inequity at a Republican debate, he was practically laughed off the stage. Working class people are not making it and are being left out the prosperity that is making others rich.
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