Monetary Explosion Goes Global!

Martin D. Weiss, Ph.D.

While the most hotly contested presidential election in recent memory swings into its final two weeks …

While global investors sway between fear and hope about its consequences …

And as U.S. voter polls wax and wane …

A singular, extraordinarily powerful machine continues to pump away without interruption or vacillation — Fed Chairman Bernanke’s money-printing press.

Nothing in the world of politics or investments could be more ironic:

Here we have a force with the proven potential for FAR greater long-term impact on the lives of everyday Americans than taxes or defense spending … oil pipelines or alternative energy … immigration reform or women’s rights … Libya, Afghanistan, Pakistan, Iraq or Iran …

And yet, here we are in one of the most hotly contested presidential campaigns in recent memory … after three debates, scores of stump speeches, plus countless ad campaigns … and STILL neither candidate has said hardly a word about it.

But I have found at least one important figure in this year’s election campaign who HAS spoken out — and quite vociferously — about Mr. Bernanke’s unbridled money printing.

He’s former Speaker of the U.S. House of Representatives, Newt Gingrich.

I will be talking to him personally this coming Thursday, October 25.

Plus, last week, when I called Speaker Gingrich to set the agenda for our call, he gave me this sneak preview regarding the Fed:

Newt Gingrich

“Bernanke has been very dangerous. I think he is operating on a very high-risk theory. They have poured out money at a rate that we have not seen in modern times, and they have been helped by two things:

“One is that the economy is so weak that the velocity of the money has not led to the normal inflation you would expect given the quantity of the money that’s available.

“And the second is that, as various places around the world have become more dangerous, the U.S. has become the final refuge for an amazing amount of capital.

“That has all helped to drive down interest rates and drive down the price. The result has been a remarkably anti-savings and anti-retiree environment.

“Interest rates are so low that, in essence, you’re paying the bank to hold your money. You’re getting a net negative return in terms of real dollars … which has increased the hardship for retirees and for planning for retirement and has also increased the pressure on pension funds.

“So I understand what Bernanke thinks he’s accomplishing in creating liquidity for the big banks and stabilizing the macrosystem. But in doing so, he’s sending micro signals that are very destructive and that could have a big impact.

I agree.

That’s why, last week in this space, I provided this chart illustrating the sheer enormity of money printing in the United States:

Fed's monetary explosion
Click the chart for a larger view.

Data: Federal Reserve’s most recent Flow of Funds report (Table L.108, pdf page 83, line 1, “Total financial assets”), plus the Fed’s historic yearly data on the same series going back to 1945.

The chart shows the five-year growth rate in the Fed’s financial assets since 1950. And it demonstrates the incredible, unmistakable, inexcusable expansion of the Fed’s role — in three distinct eras:

Era of monetary stability (1950 – 1963): On average, the Fed grew its financial assets by only 3.4% every five years.

Result: Inflation and interest rates were very tame. Any speculative bubbles and busts were limited to niche sectors. Recessions were relatively mild. And the U.S. dollar was king in the global economy.

Era of monetary expansion (1964 – 2007): The Fed began expanding its balance sheet at a rapid pace — by an average of 37.2% every five years, or ELEVEN times faster than in the prior era of monetary stability!

Result: Inflation surged and interest rates went through the roof. Moreover, toward the end of the period, two boom-bust cycles and the worst recession since the Great Depression nearly destroyed America’s middle class. The U.S. dollar fell precipitously and America’s global leadership became a shadow of its former self.

Era of monetary EXPLOSION (2008 – present): Chairman Ben Bernanke, true to his nickname “Helicopter Ben,” has expanded the Fed’s financial assets at an average five-year clip of 194.9%!

That is now FIFTY-SEVEN times faster than the pace of growth recorded during the era of monetary stability!

Result: Unknown and unimaginable.

And as if this weren’t enough to rekindle some of the worst inflation of our lifetime, look at what the world’s other powerful central banks are doing …

European Central Bank’s QE2
Is Far Larger Than Its QE1!

Throughout the post-Lehman era, the European Central Bank (ECB) tried to portray a modicum of restraint.

Europe’s monetary leaders said they would absolutely NOT follow the U.S. Federal Reserve’s lead on its wild escapade toward money printing.

Some European leaders even warned that such a path would lead to monetary destruction akin to Weimer Germany’s hyperinflation.

European Central Bank
Click the chart for a larger view.

So while the Fed launched QE1 with a big bang in September 2008, the ECB grew its assets from 1.9 trillion euros (nearly $2.8 trillion) on August 31, 2008 to “only” 2.6 trillion euros ($3.4 trillion) two months later.

The greatest increase since in Europe since Weimar Germany? Yes!

As fast as Mr. Bernanke’s money-printing machine of that two-month period in late 2008? No.

But all that so-called “restraint” disappeared last year when the ECB responded to the latest phase of the European debt crisis:

On April 29, 2011, the ECB’s balance sheet stood at less than 2.5 trillion euros ($3.5 trillion). Today, it’s close to 4 trillion euros ($5.1 trillion)!

What does this mean?

Simply that the world’s most “conservative” major central bank is now printing money at an even more rapid pace than Helicopter Ben himself!

But if you think that’s extreme, consider this:

Bank of England Bloats Its
Balance Sheet 4.3 Times Over!

Most UK leaders were also supposedly on a fiscal path that was “independent” and tacking toward “greater moderation.”

Bank of England
Click the chart for a larger view.

But the decision-makers at the Bank of England (BOE) were apparently living on another planet.

On August 29, 2008, prior to the Lehman Brothers failure in September of that year, the BOE’s balance sheet assets were only 149.6 billion pounds ($292 billion).

But at the end of last month (Sep. 28, 2012), the BOE had bloated its assets to 641.1 billion pounds (over $1 trillion) … with no end in sight.

That’s a history-smashing growth of 4.3 times since the days before the Lehman Brother failure — another major central bank with a money-printing machine gone wild.

What Will All This Lead To?

When I spoke to Speaker Gingrich last week, he answered the question this way:

“My sense is that this has an impact on virtually every asset.

“In the case of gold, you have people who are very inflation-averse piling into gold, and they have had a couple good years of run-up of gold prices without inflation …

“Which makes you wonder: If you start getting inflation, what would happen to gold prices?”

In other words, even WITHOUT very much consumer price inflation in the U.S. and Western Europe, gold has moved dramatically higher. Add rip-roaring inflation to the mix … and there’s no telling how far it could go.

Our advice: Don’t be fooled by Wall Street, Washington or election rhetoric.

Hold your gold — and stick with the diversified strategies our team is recommending.

Good luck and God bless!

Martin D. Weiss Ph.D.

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