If Central Banks' Sole Modus Operandi Is To Print Money, Take The Right Steps To Protect Wealth

Posted by Vincent Tie on 22 Jun 2020


The words 'guns', 'arsenal', 'fight' and 'battle' all appeared in a recent Reuters article. Seeing such vocabulary, one could not be blamed if they thought the subject was pertaining to war.

Instead, it was about the Federal Reserve seeing the need to 'roll out the big guns' from their 'policy arsenal' to 'fight a future recession' and 'battle coming shocks'. This call for greater action by the Fed came from veteran monetary policy analysts and Federal Reserve Governor Lael Brainard.

The article further noted that the experimental money printing program a.k.a quantitative easing is now 'a staple of central bank practice'. In similar articles from other media outlets, Brainard said that 'the Fed would control the yield curve until it achieved its goals' and called for 'using now-familiar policy tools like forward guidance more forcefully'.

What the Federal Reserve Governor said out in the open may seem normal these days but it is a stunning admission that the Fed is full on with... market manipulation.

So, if the yield curve inverts signalling investors' belief of a coming recession, the Fed is going to bend the yield curve against the wishes of the markets through money printing until it fits the central bank's narrative. Moreover, the Fed will attempt to talk markets up through what it calls 'forward guidance' - in essence, the words of a few dictating how global markets trade.

Despite what the news would have you believe that central banks have an 'arsenal' of tools at their disposal, the only real option they have is printing more money. If one looked deeper, massive bond-buying, lowering interest rates, controlling the yield curve and quantitative easing all stem from the same action - the ability to conjure money out of thin air.

Take away the ability to print money and what would central banks be faced with?

The music.

If central banks could not print money, they could give the most charismatic forward guidance speeches and over-inflated bubbles would still pop. Recessions would set in quicker, as with normal boom-bust cycles, to clean out malinvestments during the boom times. Solid businesses that were prudent would have a chance to arise from the ashes of over-leveraged and highly indebted peers.

Unfortunately, central banks are on a mission to suppress the immune system of the sick economy with its endless injections of monetary methadone. With their meddling, market signals are grossly distorted and markets operate with severely under-priced risks leading to schizophrenic rises and falls.

We are seeing signs of this money printing party going out of control and in its final death throes. The Covid-19 crisis rendered 40 million Americans jobless within weeks - a rate far quicker than the Great Depression. Despite that, stock markets continue to levitate near record highs supported only by Fed's commitment to print at all costs to keep markets afloat. This great disconnect between fundamentals and finance is not sustainable and is certain to end with the current generation learning that the fallacy of money printing can never create prosperity.

It is time we recognize the sole modus operandi of central banks and use it to our advantage for our personal finance. Out-of-control money printing has always been the jet fuel for stellar rises in the price of gold and silver throughout history. It is the accounting that precious metals do since ancient times and it will not be different this time as well.

Protect your wealth with physical gold and silver. This bull market has just begun and those who pay attention to history know the biggest rewards are ahead.