Why the Fed can't Possibly End QE and Gold's Not Dead

It’s the economy stupid! The US economic recovery is so weak and the global economic backdrop could hardly be worse. The current flirtation with higher interest rates will end in tears very soon.

Who bought the $2 trillion in AAA bonds issued around the world over the past year? Why the central banks bought them all to keep interest rates down. If they stop doing that the bond markets will crash and mayhem will rip through global financial markets.

Solid economic data?!

Besides Ben Bernanke himself said any winding down in bond buying will depend on solid economic data. For all the talk of a US housing recovery, house starts are still 60 per cent down on pre-crisis levels. That’s a depression not a recession in housing.

The jobs recovery is a fake too. Just look at the 47 million US citizens on food stamps, twice the pre-crisis total. That’s a depression, not a recession for 16 per cent of the US population, not the 7.8 per cent officially classified as unemployed, and that figure also hides an inconvenient truth.

Wake up and smell the coffee: the number of Americans on nonfarm payrolls totaled 135 million in April, the same level as in late 2005.

A depressed US economy just cannot handle the deflationary shock of an end to QE. And don’t rely on the emerging markets led by China to bail the global economy out this time. China has its own massive debt crisis to worry about, probably the largest in history.

ArabianMoney is presently in Italy where a leading bank now says the country is just six months away from asking the EU for a bailout. Spain, Greece and Portugal are also falling deeper into recession.

At least the Bank of England now has a born again money printer at the helm now in new Governor Mark Carney from Canada. He’s accepted a mission impossible and we can only warn him that the UK Government will deny all knowledge of his mission when he fails. A foreign scapegoat, what could be better to shift the blame?

Gold is money

Against this backdrop the money printing by central banks can only accelerate and those abandoning gold now will live to regret it. Goldman Sachs knows that and is doubtless buying for its own book while telling everybody else the gold price is going to hell.

Its specious argument about the US recovery gaining speed will soon be exposed for the fraud it is, and if you care to look at the true state of the US economy the depression has hardly shifted except in asset price inflation for stocks and to a limited extent in housing.

Gold’s not dead because money printing is far from over and the US economic recovery is in deep dodo. That’s why investors we respect like Marc Faber and Jim Rogers are buying gold now!

Peter Cooper

www.arabianmoney.net

Freelance journalist & author

Dubai Media City

Dubai, United Arab Emirates