Precious metals expert Michael Ballanger discusses effects of the Bank of Japan’s actions on the U.S. dollar, silver and gold.
The “big story” circulating around the blogosphere yesterday and last evening was a paper authored by Pimco’ s “strategist” Harley Bassman that essentially opined that “the Fed should unleash a massive Fed gold purchase program that could echo a Depression-era effort that effectively boosted the U.S. economy.” Well, isn’t that original? Back in 2013 I reviewed Michael Lewis’ follow-up to “The Big Short,” a brilliant piece of work entitled “Boomerang—Travels in the New Third World” where Lewis interviews a Deputy Finance Minister at the German Bundesbank who told Lewis that because Germany had 3,390.6 tonnes of gold, its entire government debt was “covered.” At the time, I was listening to the audiobook while on a treadmill and I actually had a Eureka moment and immediately texted myself a reminder to make that the central theme of the weekend note to clients, which I did.
What everyone seems to agree upon is that it would be a bloody masterful way of turning DE-flationary expectations (which is what we have now) into IN-flationary expectations and put an end to all of the cash hoarding that has money velocity at a standstill. The desired result would be a booming economy and immediate sovereign solvency and peace and love breaking out all across the globe, right? WRONG! What this idiotic idea is really all about is bank loans and COLLATERAL. You see, as long as mortgages have an appreciating asset like a house attached to it, the bank that originated the mortgage is protected. However, in a deflationary spiral and even in a period of heightened deflationary expectations (otherwise known as “subdued inflationary expectations”), the collateral underpinning the loans weakens and the banks as originators …read more