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Thursday, January 26, 2012

Bernanke promises free money for everyone (if you happen to be a bank)

Big Ben stepped out of his cocoon yesterday long enough to promise unlimited free money for every banker in the Club Fed - for at least the next free years.  How?  By pledging to keep rates negative through 2014, and promising more QE as needed.

How this will help the Economy - meaning you and me - is entirely unclear.  In fact it will certainly destroy the purchasing power of every paper dollar in every portfolio. 

How this will help the banks over the next three years should be pretty clear.  Free money means big bonuses.  After all they deserve them for being smart enough to have gone into the banking business.

How this will help the risk markets over the next few weeks should be pretty clear.  The banks will pour all that free money into the risk markets, in the hopes of even bigger bonuses.  If they lose, they know Big Ben will bail them out.   At last until the next crisis, anyway - which could come at any moment.  But may not come for several months as long as the European Central Bank follows Ben's lead, and bails out Greece, Italy, Portugal, and Spain - and then France and Austria and Belgium. 

How this will help Gold over the next three years should be eminently clear to anyone who finally realizes that gold is a currency not a commodity.  Though it should be said there are still many dull normals out there who just can't get this.

What should also be eminently clear is the Big Ben has looked into his crystal ball and sees nothing but pitch darkness for the world economy for at least the next three years.  Otherwise his move makes no sense. 

Why would you set your house on fire unless you saw a nuclear freeze and had no other means of keeping warm?  When the house burns down - well, you'll just have to think of something else.

That's the plan.  Hope you have some physical gold.  And a warm house.

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