Yesterday, the US Federal Reserve announced it will buy up to $300 billion of US long-term Treasury securities over the next 3 months.
Where will the Fed get that money? It will essentially create it out of thin air – also known as “printing money.”
Shockingly the markets did not like this announcement from the Fed with respect to the dollar – apparently traders fear that by printing new dollars, each existing dollar in circulation will decrease in value. Check out these moves just from the past 24 hours in the dollar and gold:
The dollar gets taken to the woodshed.
As traders flock to a form of money that can’t be printed.
In a prescient guest article last December, Bud Conrad stated his belief that The Fed would ultimately opt for inflationary policies, rather than risk deflation.
But the longer-term expectation is that Bernanke’s assertion – an assertion now backed up by action – that the government can and will print new money to any extent needed is the more important force.
Further Reading: Battle of the Flations, by Bud Conrad