Monday, October 24, 2016

Fiat Money & Gold
"The expansion of bank credit is not being picked up yet by many commentators, but it is a serious issue .. The Fed has a problem with raising rates by the required amount, because it would widen interest rate differentials with other major currencies. The dollar is strong enough as it is, and any rise in dollar interest rates seems likely to encourage further dollar strength, leading to potential currency instability. Then there is the question of the effect on asset values, particularly government bonds, not only in the U.S. but particularly in the Eurozone. If bond yields rise, valuations of equities and property will also be threatened, not to mention the cost of government borrowing rising. At the moment there are political pressures on the Fed to do nothing during the presidential election, but that will no longer be an issue by December’s FOMC meeting .. Banks are drawing down their excess reserves to increase their lending. The inflationary implications at the price level are obvious. Gold is already under-priced to a substantial degree. Therefore, further expansion of Fiat Money Quantity (FMQ) seems certain to eventually lead to a complete reassessment of the price relationship between fiat dollars and physical gold, to gold’s benefit and the dollar’s detriment."
- Alasdair Macleod
LINK HERE to the analysis

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