In attempting to stimulate risk appetite by taking “safe” assets out of the market, the Fed has actually achieved precisely the opposite of stimulating productive investment. First, it has turned bond markets into a race to the bottom as bond flippers end up piling into the very assets that the Fed is trying to discourage ownership of — because who cares about low yields when the Fed will jump in at an even lower price floor, thus assuring the bond flippers a profit? Second it has energised other safe asset markets (such as gold) as longer term investors look for alternatives to preserve their purchasing power in the context of a global economic depression.
The Fed is firing at the wrong target; the real problem — the thing that is causing investors to scramble for safe assets — is an economic depression brought on by (among other non-monetary causes) the deleveraging costs of an unsustainable debt bubble. Without addressing the problem of excess total debt — and quantitative easing aims to increase lending — recovery remains distant.
However, there seems little prospect that the Fed will listen to those like Steve Keen who actually predicted the crisis. The likelihood is that the Fed will continue to attempt to take safe assets out of the market to “stimulate risk appetite”. And after treasuries, what is there left for Fed try to take out of the market?
Izabella Kaminska writes in FT Alphaville:
Fed purchases are the equivalent of hoarding the system’s supply of safe assets on the Fed’s own balance sheet, and in so doing preventing private investors — especially money market investors – from investing in the assets on favourable terms.
While this is mostly the point of QE — the idea, after all, is to stimulate risk appetite and cause investors to change their portfolios — a continued lack of risk appetite means the money created, rather than flowing into risky securities as hoped, is only crowding out the last remaining safe securities in the market instead. The consequences are negative rates and principal destruction — a lethal combination that is arguably far more dangerous and deflationary than no QE at all.
The idea that the Treasury could once again become the gold buyer of last resort, in exchange for liquidity, is interesting to say the least. Not only would such a strategy ease the squeeze in the Treasury market, it would do so without compromising the liquidity effects of QE.
What’s more it could help to support and stabilize the gold price, while taking zero-yielding safe assets out of the system in favour of yield bearing ones — giving money markets a fighting chance for survival in terms of yields.
While gold purchases have never been communicated as official central bank policy, there’s no denying that a shift in this direction is taking place. Be that wittingly or unwittingly.
A little behind the curve.
Bernanke has already heavily targeted yields on treasuries which have absorbed liquidity that has departed from productive ventures. But in recent years gold has offered a significantly increased return over treasuries.
So what’s a central banker who wants to force investors into productive ventures to do? You can’t print gold — but you can buy it, and take it out of the marketplace.
And as the price of gold (in fiat) continues to rise, buying gold is exactly what Western central bankers may do.
Just as Roosevelt went out of his way to remove gold from the marketplace, the central bankers of today may eventually determine to do the same thing.
The main question if such an event were to occur is just how compulsory such purchases might be…
If the fed bought gold how would the big banks get their (our) money???
Channel the gold purchases through the primary dealers; they buy the gold at market rate, the Fed buys it at higher.
http://www.youtube.com/watch?v=Xi6gM1THMYU this isn’t going to go down the way those who think the governemnt is gonig tot ake our gold and silver think it is. Keep buying.
Pingback: A Step Toward Gold Confiscation? « Silver For The People – The Blog
Central Banks can get “money” (fiat currency) at the lowest rate possible, i.e., free money. Thus they can pay whatever paper price they want for real gold and silver.
Banks can also buy gold behind the scenes with Credit Derivative Swaps. The action will be buried on an annual report somewhere, but the result is a military escort transporting gold bars from central bank to central bank. The public will never know.
I don’t think any large-scale Western central bank gold-buying program has started yet.
Gold Coin, Gold Bullion, Gold Certificates. This is an order for MONEY. Not collectables.
Does not mention nuggets. Gold nuggets are very rare and unique. I bet the wealthy Chinese would pay a pretty premium for unusually shaped nuggets.
Nice hyperbole John. I am learning something from you.
Yes “confiscation” is very hyperbolic. “QE Gold” would be more accurate. But I believe in clickbait…
Remember, we are dealing with the penultimate group gangsters. Why wouldn’t they buy all of the hard assets they could prior to the collapse of fiat. They are probably doing this as we write.
Pingback: Fabian4Liberty » Guest Post: A Step Towards Gold Confiscation
Pingback: Guest Post: A Step Towards Gold Confiscation | allfiredupmedia.com
Pingback: A Step Towards Gold Confiscation » Philosophers stone | Philosophers stone
Trying to push people to buy certain assets is no the way to run the economy. In fact I would argue that is down right dangerous. Participants need to be allocating resources as they see fit and through examination of the fundamentals. Other wise you will get chaos and a very screwed up system. Consumer preference is what guides capitalism. Why does the fed assume that the housing market is depressed? They don’t know what the real demand and supply is. Only the market knows that. Younger people are foregoing buying homes because or risk. The government can’t force them to borrow. The fed is run by a bunch of ivy league retards who have no capability of understanding what we will and won’t need it the future
The interesting thing about the monetary system and all the financial non-sense going on is that it exposes the system for what it is, something that few can really cope with on anything but a superficial level [despite the glaring transparency at significant depths].
When this problem is “fixed,” what will happen is that all the cheating, stealing, and lying will once again submerge beneath the surface and another round will begin. In other words, the scam of converting labor-value to its money-form, and money to its various other forms, will once again regain respectability the luring masses back to the slaughterhouse.
Until people can get beyond the notion that they can receive something for nothing, they will be subject to the wrong end of a deal they simply can not understand, as the next round of financial wizardry promises to be much more complex and considerably more alluring.
The Alchemists could not convert lead into gold, so they finally found a solution by turning paper into money that tried to represent the same thing. My financially illiterate friend thinks money is backed by Gold in Fort Know..
Those Alchemists were very smart!
Pingback: A Step Towards Gold Confiscation « Hypatia's Place
Pingback: Guest Post: A Step Towards Gold Confiscation
Pingback: American Overkill » A Step Towards Gold Confiscation
http://www.youtube.com/watch?v=Xi6gM1THMYU Not going to happen to anyone but the Big parties.
Pingback: A Step Towards Gold Confiscation