How it effects your portfolio
During times such as these, it seems that Gold and Silver are the only legitimate investment vehicles to be relied upon. Over the last 30 days, Gold and Silver have held their gains and look to be building a nice base to grow from with Gold in the $1770 level and Silver around the $34 level.
Judging from past performance, we expect the next leg up in both Gold and Silver to be explosive and quick. Since each new leg up in Gold and Silver prices over the last decade has proven to be bigger than the one before it, we see this current scenario as a perfect opportunity to add more Gold and Silver before higher prices become a reality.
In this report, you will learn the effects of Quantitative Easing on Precious Metals prices, you will see how Governments have historically used inflation as a hidden tax on its populations and you will learn why our current politicians, including both presidential contenders, are clearly not addressing the economic issues at hand.
Quantitative Easing and its History of Terror
While the term Quantitative Easing is a rather new term to our vocabulary, we aren’t the first nation to put it to use. In fact, the idea of central economic planning via government stimulus isn’t a new one. Post World War I Germany, aka the Weimar Republic, experimented with Quantitative Easing as well. The results were disastrous.
Wikipedia, the online encyclopedia’s version of the Weimar Republics history of Quantitative Easing, reads like yesterday’s version of the New York Times, except that it isn’t 2012 USA its 1920s Germany:
“With its gold depleted, the German Government attempted to buy foreign currency with German currency, but this caused the German Mark to fall rapidly in value, which greatly increased the number of Marks needed to buy more foreign currency. This caused German prices of goods to rise rapidly which increased the cost of operating the German Government which could not be financed by raising taxes. The resulting budget deficit increased rapidly and was financed by the Central Bank creating more money. When the German people realized that their money was rapidly losing value, they tried to spend it quickly. This increase in monetary velocity caused still more rapid increases in prices which created a vicious cycle. This placed the government and banks between two unacceptable alternatives: if they stopped the inflation this would cause immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection and revolution. If they continued inflation they would default on their foreign debt. The attempts to avoid both unemployment and insolvency ultimately failed when Germany had both.”
Sound familiar?
The resulting atmosphere, economically and politically, led the way to Adolph Hitler being elected furor. His Reign of Terror is a history lesson that we should all learn from.
Quantitative Easing and Its Effect on Precious Metals
When people look at countries that have experienced hyperinflation, the Weimar Republic is usually the topic of conversation. Although other countries like Hungary and Zimbabwe experienced higher levels of hyperinflation than the Weimar Republic, Germany’s hyperinflation is well documented and is looked to as a case study of “what not to do” during economic disasters.
There are stories of people having wheelbarrows full of Marks being more concerned about the wheel barrow being stolen than the Marks. There are famous photos of Germans using Marks as wall paper and it is said that people burnt Marks to fuel their fires since it was cheaper than using the Marks to buy firewood. Most importantly though is the effect on Weimar Republics Quantitative Easing Programs on Precious Metals Prices:
In Weimar Republic Germany, the price of Gold increased from 80 Marks per ounce in 1920 to more than 1,000,000,000,000 marks to buy the same ounce of Gold in 1923, just three years later. This represented a gain of 124,999,999,900%
Fast forward to today in the United States, and, unfortunately, there aren’t many differences. We have a Government that believes that it is the duty of the Federal Reserve to keep unemployment low while also trying to spur inflation through central planning via quantitative easing and bailing out banks.
When our politicians and bankers began this failed experiment with TARP, aka QE 1, in September of 2008 the price of Gold was $771 per ounce and Silver was just $9.22 per ounce. By the time QE 3 was announced last month the price of Gold had risen by 120% while the price of Silver had risen by more than 240%! If you were to compare this price action to the chart above, 1918-1921 looks eerily familiar to the Gold chart from 2008-2012.
If Gold and Silver repeated the gains over the next four years that it has seen in the last four, it would put Gold over $3,800 per ounce and Silver would surpass $79 per ounce. One thing that we know for certain is that this most recent round of Quantitative Easing is open ended, meaning it could be larger than even the first two combined. Another thing that we know for certain is that interest rates will be 0% until at least 2015. Since interest rates are a reflection of the value of money, what does that tell you about the direction of the U.S. dollar? All of these things combined lead us to believe that the best is yet to come with Gold and Silver prices.
Inflation: The Hidden Tax
When someone describes the economic philosophy of our current policymakers, they are normally compared to John Maynard Keynes, the person that best describes the economic conventional wisdom adhered to by most of our politicians. However, even John Maynard Keynes knew the problems with inflationary policies. In a rare bout of clear understanding regarding the debasement of currency, John Maynard Keynes, in 1921, talked about the insidious nature of inflation:
“By a continuing process of inflation, Governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some…Those to whom the system brings windfalls…become profiteers who are the object of the hatred…the process of wealth-getting degenerates into a gamble and a lottery…Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose” —John Maynard Keynes, 1921.
Unfortunately, even the Federal Reserve President for the Federal Reserve Bank of Philadelphia, Charles Plosser agrees, stating:
“Inflation is going to occur when excess reserves of this huge balance sheet begin to flow outside into the real economy. I can’t tell you when that’s going to happen….When that does begin, if we don’t engage in a fairly aggressive and effective policy of preventing that from happening, there’s no question in my mind that that will lead to lots of inflation.”
So even the Federal Reserve’s own minions admit to the fact that inflation is on the way. However, as John Maynard Keynes pointed out, not one man in a million is able to diagnose inflation as it is occurring. We shouldn’t have to tell you that this doesn’t bode well for our current or future economic well-being.
Our Politicians are Sidestepping the Real Issues
While there are plenty of valid arguments for changing course politically, those that are holding out hope that a different administration will change things economically are due for a rude awakening. Nowhere was this more on display than during the recent presidential debates between Barack Obama and Mitt Romney. If anything, this debate proved that both parties are out of touch when it comes for a solution to our languishing economy.
As Michael Snyder of the Economic Collapse Blog succinctly points out, in an hour and a half Presidential debate about the economy:
1 – The Federal Reserve was not mentioned a single time.
2 – Ben Bernanke was not mentioned a single time.
3 – Quantitative Easing was not mentioned a single time.
4 – The term “derivatives” was not used a single time.
5- The fact that the rest of the world is beginning to reject the U.S. dollar as a reserve currency was not mentioned a single time.
6 – The financial meltdown in Europe was basically totally ignored.
7 – There was no mention of TARP (which they both supported at the time).
8 – There was no mention of the economic stimulus packages (which they both supported at the time).
9 – Neither candidate talked about the fact that most of the jobs our economy is producing now are low income jobs.
10- Neither candidate mentioned that more than 100 million Americans are enrolled in at least one welfare program run by the federal government or that more than half of all Americans are now at least partially financially dependent on the government.
And this is just a portion of the list compiled.
It is becoming painfully obvious that regardless of the road that we take in November, Super Man himself couldn’t solve the problems we face. Judging from the debate about the economy and both candidates lack of understanding of what led us here, those that think that the economy is going to improve because of the man in the White House are going to be mistaken. Just look at the last $500 Billion that the Federal Reserve injected into the economy – they didn’t go to Congress for approval and they didn’t go to the White House – they made the decision independently and without oversight.
Take Action Now
Quantitative Easing is not a new phenomenon, it’s been tried before and its effects are almost always disastrous, just look at the Weimar Republic where Gold increased by 124,999,999,900%. Inflation is on its way, the chickens are coming home to roost – even the Philadelphia Fed President Agrees. Unbelievably, even our Presidential Candidates aren’t talking about the most important problems that our economy faces.
We would urge all of you to take a look at your current financial situation. Do you own anything that has increased in value over 120% over the last four years? Gold has. Do you own anything that has increased in value 240% over the last four years? Silver has. The major benefactor of Quantitative Easing is demonstrably Gold and Silver.
Going back even further, over the last decade, Gold is up over 400% and Silver is up over 500%. Is there anything on your financial horizon that has done any better? If not, then why aren’t you accumulating Gold and Silver at a faster pace? Central Bankers are. Financial Institutions are. Those that are in the know are. We think that you should be too.
Austin Rare Coins is devoted to providing you with the most up to date and timely information that will help guide you through the decision making process. Put our years of experience and excellent customer service to work for you today. Give us a call today – you will be glad that you did. (800) 928-6468.
NOV 29, 2012
STEP ONE
