The Federal reserve like all central banks is creating trillions and trillions of dollars worth of currency. Before Covid-19, to prevent a lack of liquidity from locking up the banking system, and after to prevent civil disturbance and financial panic due to an extreme and sudden financial downturn. The Fed recently created $2 trillion, increasing the national debt to $24 trillion which is about $2 trillion higher than the national annual GDP of $21 trillion. It makes one wonder, why stop at $2 trillion, why not print $21 trillion and give every citizen a year’s worth of GDP or about $65,000 each? That way everyone can relax, right?
While they are at it, the Fed, instead of buying stocks, ETFs, junk bonds, mortgages, and all kinds of other loans heading for default; should instead just take a mere $9.5 trillion and buy all 170,000 tons of gold in the world at the current price of $55.6 million per ton. If they don’t understand what would happen if they tried, let me explain. They would struggle mightily to obtain the first ton and then by the time they buy the second tonne, the market will value the dollar at its intrinsic value of ZERO and gold measured in worthless dollars will go to infinity.*
The US and all governments seem hell-bent on printing all the currency they please until gold regains its rightful historic role as the premium store of value and replaces the dollar as the de-facto world reserve currency. There is plenty of gold worldwide to fulfill this function. All that abundant currency in the world will just have to re-denominated in terms of ounces of gold. Instead of thinking about how the value of gold goes up or down in terms of dollars, one will think about how the value of the dollar goes up or down in terms of ounces of gold. Gold can be worth however many dollars is necessary to reset the economy, $5000/oz, $16,000/oz, $32,000/oz…it doesn’t matter.
*The credit for the thought experiment described in these first two paragraphs belongs to Egon von Greyerz.