By Sean Kelly
From time to time we have written about the Federal Reserve’s “money-printing” as a cause of less valuable dollars and higher gold and silver prices. See for example our piece in May, Money Printing Goes Stratospheric, in which we wrote, “All that new money, those new US dollars created with a keystroke, dilute the purchasing power of every other dollar. Including the dollars you own.”
If the topic of money printing seems complex and daunting, let us ask what would happen to the price of oranges if California, Arizona, and Florida all had big, huge bumper crops of oranges next year? It is self-evident that if the supply of oranges suddenly doubled, the price of oranges, their value as compared to other goods and services, would go down.
It is the same with money printing: the more they print, they less it is worth. The Federal Reserve has printed (digitally, of course!) an additional and unprecedented $3 trillion just this year. Will future dollars, now made more plentiful, buy as much?
And while the whole world is busy doing the same thing, printing more currency – euros, pounds, yen, yuan – the purchasing power of those currencies falls as well.
Sometimes people who aren’t paying close attention to the details will say that the dollar is up, or the dollar is strong. But all they major currencies are losing purchasing power, so when one says the dollar is up one day, they are only saying it isn’t losing value that day as fast as other currencies. No one would say the Titanic was up if it were simply sinking more slowing than some other ship like the Bismarck or the Lusitania.
By the way, nobody, even confused people, are saying much about the dollar being strong these days. This is a chart of the Dollar Index that goes back to the COVID shutdown in March. It compares the value of the dollar to a basket of a half dozen other major currencies. It is not a pretty picture.
By now you probably know where this little discourse is going. Is there a universal monetary unit that has outlasted countless governments and their mismanaged monetary schemes? A global currency that has been proven through millennia? One that doesn’t depend on the promises or the integrity of some reckless issuer?
Of course, there is. It is gold. That is why, when Bank of America raised its target for gold prices to $3,000 earlier this year, it titled the report, ““The Fed Can’t Print Gold!”
By the way, we noted that the government of Venezuela, where the inflation rate last year was 137,000 percent, recently ordered 71 tons of new paper money currency stock from an Italian company. Not only is it planning on printing tons of new money, it will make sure the new paper money has a lot of zeroes on the end.
Meanwhile, the Federal Reserve is quietly making plans to do away with all paper currency and go 100 percent digital. It’s not just that money printing with security bank paper stock and ink is all that cumbersome, but the digital currency they envision will allow the Fed to both enforce negative interest rates on Americans, even as they will be able to track everything the people do.
They are setting up a showdown between unbacked money – paper or digital – and gold.
Gold always wins.