(Mike Gleason, Money Metals News Service) In the wake of the Federal Reserve’s oversized rate cut, gold is zooming to fresh new records.
The stellar run in gold and silver markets continues to be overshadowed by the stock market’s relentless gains. The S&P 500 rallied to yet another new record on Thursday while the Dow Jones Industrials surpassed 42,000.
Stock market bulls are riding a wave of euphoria on expectations that the Fed will continue lowering interest rates. Central bankers delivered a hefty 50 basis point cut to kick off their easing campaign this month.
Typically, the Fed doesn’t start cutting and doesn’t go that large unless it is alarmed by a major hit to the economy or fears the financial system is in trouble. History shows that rate cutting campaigns coincide with recessions – and ultimately significant declines in the stock market.
Maybe this time will be different. Maybe the Fed will pull off a soft landing without a hitch.
But perhaps in the process, the Fed will help reignite inflation pressures. Despite softening in recent months, inflation even by official measures never came all the way down to Jerome Powell’s 2% target. But he declared it was close enough.
Even throughout the Fed’s rate hiking campaign, massive injections of fiscal stimulus by the federal government give GDP, and in turn the stock market, an artificial boost. Washington runs on the spend now, pay later philosophy as it runs staggering annual deficits of $2 trillion. There are no plausible plans in sight to bring them down.
This week, Republican House Speaker Mike Johnson cut a deal with Congressional Democrats and the White House to kick the can down the road once again on spending. The deal averts a government shutdown by fully funding the Biden administration’s spending priorities for another three months.
One Republican who is unhappy with the latest bipartisan deficit spending scheme is Senator Rand Paul. He took to the Senate floor to excoriate his colleagues and warn Americans that they may ending up paying the price through the inflation tax.
Rand Paul: Our national debt now stands at $35 trillion and grows with each passing second. To put that in perspective, each taxpayer’s share of the debt is about $270,000. The government now spends more on interest to service our federal debt than it spends on our national defense. Right now, we spend nearly $2 trillion more per year than we bring in in revenue.
This level of spending imposes a tax on every American. This tax is called inflation. When we borrow $2 trillion, somebody’s got to buy it. Someone buys the debt. When the Federal Reserve buys the debt, they create currency, create new money out of thin air, which when it begins to circulate, causes your prices to rise. It isn’t that things are more precious, it’s that your dollar is losing its value.
The U.S. dollar has lost more than 98% of its purchasing power over the past 100 years. In the process, paper currency lost its gold backing, quarters and dimes got stripped of their silver, and pennies had their copper replaced with cheaper metals like zinc.
Pennies now cost three times more to produce than they are worth. They cannot practically be debased any further to solve this problem.
So, some members of Congress want to formally get rid of them. Representative Brad Sherman has likened pennies to “litter.”
Meanwhile, Chicago Federal Reserve President Austan Goolsbee recently proposed a novel solution of his own to the problem of the near worthlessness the single cent. Goolsbee says the government should just declare that pennies are now worth five cents each!
Others within the government have proposed minting a one-ounce platinum coin with a face value of $1 trillion, then selling it to the Fed for that price. Such a coin would cost just a little over $1,000 to produce. It would give the U.S. Treasury a massive windfall for funding its deficit spending without having to borrow or pay interest.
The keepers of the fiat currency regime are now entertaining absurd proposals such as these because they refuse to admit to the inherent absurdity of money that constantly depreciates in value. Real money retains value.
As gold makes new records in terms of Federal Reserve notes, it’s worth remembering that the value of gold hasn’t actually changed much since it sold for $20.67 per ounce a century ago.
An ounce of gold still represents a similar level of purchasing power in the economy. What’s changed dramatically over time is the value of the currency itself.
Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 500,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government, and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales, and logistics, as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.
