Fiat currency is a term that is used to describe a currency which is created by "fiat" or "arbitrary order or decree" of the government. It is not created by the free market or backed by anything like gold, silver or real estate. It is essentially an "IOU- nothing". A lot of people do not realize that every currency in the world today is considered to be a fiat currency. (Although the Chinese may be working on creating a gold backed currency and several OPEC countries have considered it as well). The US dollar, the euro, the Great Britain pound, the Japanese Yen, and the Australian dollar are all fiat currencies, to name a few. Since everyone uses this type of currency, why is it such a big … [Read more...]
How Does Gold Fare During Hyperinflation?
By Jeff Clark, Casey Research Inflation is a natural consequence of loose government monetary policy. If those policies get too loose, hyperinflation can occur. As gold investors, we'd like to know if the precious metals would keep pace in this extreme scenario. Hyperinflation is an extremely rapid period of inflation, but when does inflation (which can be manageable) cross the line and become out-of-control hyperinflation? Philip Cagan, one of the very first researchers of this phenomenon, defines hyperinflation as "an inflation rate of 50% or more in a single month," something largely inconceivable to the average investor. Hyperinflation has One Root Cause While there can be … [Read more...]
Why Buy Gold?
Gold has been one of the best investments over the last decade going from a low of $252 to a high of $1889. If you're looking for a way to protect against the effects of inflation, currency collapse or economic instability, here are a few things to consider about why gold should be in your portfolio. Return to the Gold Standard If you've been paying attention to what is going on in the world these days, you know that the financial markets have been in turmoil. Much of this relates to the basic underpinnings of the economic system. In the United States, the Federal Reserve is in charge of the money supply and interest rates. Nothing is backing the paper money that is printed, other than the … [Read more...]
What is Quantitative Easing?
Is Quantitative Easing Money Printing? Quantitative Easing is often referred to as "money printing" or a way for the government to increase the money supply. According to Wikipedia, quantitative easing is different from the typical method whereby governments buy treasury debt to increase the money supply. In QE1 when the market was panicked, and banks didn't want to buy government bonds, the central bank implemented "quantitative easing" by purchasing relatively worthless financial assets (like mortgage backed securities) from banks and giving them new electronically created money. So this is straight forward money printing compared to the more round about traditional method. Thus … [Read more...]
The Fed Resumes Printing
By Bud Conrad, Casey Research The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words: The Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for … [Read more...]
Fed To ‘Hold Off’ On QE 3
We noted extreme levels of optimism earlier today. What could possibly trigger a correction in stocks and commodities? If the Fed fails to signal and/or announce another round of quantitative easing (QE), it would undoubtedly leave the markets disappointed. The Fed uses the Wall Street Journal (WSJ) as a medium to communicate with the markets. It is possible someone at the Fed picked up the phone and said, “We need to temper short-term expectations for another round of QE. Can you help us out?” Friday’s WSJ has an article titled “Fed Holds Off For Now on Bond Buys”. Notice the word “may” is not included. Here is the first paragraph of the article: Federal Reserve officials are waiting … [Read more...]
Has the Fed Started QE3?
By Bud Conrad, Casey Research The Fed surprised the market by extending its policy of 0 to 0.25% Fed funds rate to mid-2013. The way the Fed manages to drive rates lower is to buy Treasuries with newly created money – driving the price up and the rates down. The big question is whether the policy will have a sizeable effect on markets. The chart below shows the historical jump in the Fed’s combined policy tools that were used to lower rates and bail out financial institutions through a variety of programs. These include the big purchase of mortgage-backed securities (MBS) called QE1 and the large purchase of Treasuries called QE2. The point of the extrapolation in the chart is just to … [Read more...]
Does The “FED” Really Just Print Money?
Printing Money, Quantitative Easing, Money Supply and Currency in Circulation--- how do they relate? Today we are looking at an excellent explanation on the FED's money printing process by James Hamilton, economist of the University of California, San Diego. Did the Federal Reserve really print a Trillion dollars in their Quantitative Easing program? Did that increase the money supply by a Trillion dollars? He presents some interesting charts on currency in circulation versus currency reserves. Tim McMahon, editor … [Read more...]
How The FED Prints Money- Part 4
This is part 4 in the video series on the effects of Quantitative Easing by Chris Ciovacco the Chief Investment Officer for Ciovacco Capital Management. To see the other parts How the FED Prints Money, How the FED Prints Money – Part 2, How The FED Prints Money- Part 3 … [Read more...]
How The FED Prints Money- Part 3
Last week we looked at who gets all the money the FED prints and before that we looked at the process the FED uses to get the money "Out of Thin Air" and into the hands of people who can spend it. Today we are going to look at what is "Quantitative Easing" well it sounds cool anyway... ~editor What is Quantitative Easing? Fed’s Perspective & Writings Part 3 in a 6 Part Video Series on Quantitative Easing A Wall Street Journal article (10/27/10) on quantitative easing (QE) hints the Fed will take a middle of the road approach in terms of the size and duration of QE2. As we would expect, the stock and commodity markets’ initial reaction is negative. A middle of the road … [Read more...]
