We have been arguing for quite some time now that this really isn’t an economic stimulus game that the Fed and other central banks are playing. What they are really trying to do is to de-lever the system.
We see the $40 billion a month in mortgage backed securities purchases as being a way to put your thumb in the dyke. We think it’s only going to get larger. There is much more of this to come. The frequency of further QE announcements is going to be greater, and it’s ultimately going to lead to much higher resource and precious metals prices.
Gold was up today, but what I really think we are looking at is a fundamental shift in investor psychology in that there is only so much central banks can do in terms of real economic stimulation. Meaning they can’t. So, again, what we are looking at is a deleveraging process that has to take place. There is nothing that fiscal policy can do about it.
We also think we are beginning the next and last wave of gold’s uptrend. In reality, the move today was muted. I would agree with Felix Zulauf’s comment (on KWN) today that you are supposed to buy the dips, and that’s been our strategy for years now.”
Brodsky added: “I would also agree with Felix that we are in the process of witnessing the end of the fiat money system right now. The end result is probably going to be a new global currency regime. It’s the only politically expedient way out.
By the way, the deleveraging that has to take place is the gap between bank assets and base money, and maybe even more than that. There are only two ways to handle this. The first way is to let it deteriorate on its own. That would involve bank system failure and a deflationary depression.
The other way to deleverage is to simply manufacture the base money, which of course destroys the purchasing power of all savings. We believe this second choice is what the central planners have been and will continue to choose. This frankly defines QE. They are confirming it because this is the 3rd round of QE we have seen, and they are going to continue doing more.
The bottom line here is that investors need to make sure they protect their purchasing power as the currencies are destroyed.
