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All but Assured: Erosion of the Dollar, Explosion of Debt

Gold key placed on top of US Dollar

The Federal Reserve has unanimously come together, developing a strategy they believe will help prop up the U.S. economy as the threat of COVID-19 continues to plague the world.

Their plan? Well, it’s the same as always: easy money and debt creation.

This cannot and will not end well for those who continue to hold and accumulate their hard earned savings in U.S. dollars, as the Federal Reserve has made a pledge to keep interest rates near zero for the foreseeable future.

Some analysts have even gone as far as estimating that rates could remain at these historically low levels for at least several years, due to the fact that the Fed has no other option than to keep them there.

The Los Angeles Times reports:

"The policy shift, which Fed officials have been developing for many months and was adopted unanimously, isn’t meant to address the immediate economic problems caused by the pandemic-induced downturn. But knowing that the Fed’s benchmark rate is likely to stay at its current level of near zero for a long time — analysts say that could be several years — might give companies more confidence to invest and hire."

This is all being done in the name of artificially propping up an economy that has been hit hard by the forced restrictions and lock-downs government officials imposed due to the COVID-19 outbreak, which has continued across large parts of the country seemingly unchecked.

Whether or not these actions are correct is yet to be seen. However, they are going to have a number of dire consequences on the long-term health of the U.S. economy and thus the West as a whole.

This undoubtedly means a continued erosion of the U.S. dollar and rising inflation, the latter of which has the potential to run out of control if the easy money tap is left open for too long.

(Chart source, Yahoo Finance)

This will come on the heels of an already battered and bruised U.S. dollar, which has taken a beating over the course of 2020. 

However, we haven't seen anything yet if the Federal Reserve does indeed follow through on these new policy changes, as the USD will move much, much lower.

A Weak Dollar Diminishes the Value of Existing Debt

The Federal Reserve likely knows this is the only path left available to them unless they wish to utterly implode the U.S. economy by going the opposite direction, crippling and destroying those who have been forced to take on extraordinary debt levels.

The West is largely broke, and the Federal Reserve knows this fact. They know that if interest rates were ever to be raised in any meaningful way then the entirety of the system would implode, as debt defaults would soar out of control due to rising interest rates.

(Chart source, Federal Reserve Balance Sheet)

And it is not just on the business or individual level, as the Federal Reserve itself has been forced into action, erasing any of the deleveraging that they did since the 2008 crisis, taking on a stunning amount of debt in such a short period of time.

Keeping rates low all but ensures that people will go deeper and deeper into debt in the coming years—however, they will do so at historically low rates.

The Federal Reserve is hoping beyond all hope that this debt creation may possibly help spur on the economy and people can begin to dig themselves out of the holes they now find themselves in.

Sadly, I believe we have passed the Rubicon and there is no hope of ever collectively getting out of this mess. 

Easy money will be the only policy until the entire house of cards eventually comes crashing down on the Federal Reserve’s head—and everyone else’s in the process.

The other hope that the Federal Reserve likely has is the fact that a deteriorating U.S. dollar will diminish the value of pre-existing debts that people and the government owe.

If a dollar is worth a quarter of what it once was, then so too is the previous debt that was denominated in that dollar.

As you can imagine, this is unsustainable in the long run and is thus typically only seen by countries spiraling toward hyperinflation or outright collapse.

In Conclusion: Keep Stacking

In this upside down world—in which the Federal Reserve is openly embracing the creation of debt, the destruction of the U.S. dollar, and thus rising inflation—it should come as no surprise that gold and silver are more vital now than ever.

As we move forward into this period of higher than normal inflation, gold and silver are going to steadily and consistently become more and more desirable to hold.

A period of low interest rates should result in a strong bull market for precious metals, significantly making their fundamentals that much stronger.

Central Bankers know this, the "smart money" knows this, and it is exactly why they are moving so heavily into precious metals.

It is now only a matter of time before the masses wake up and smell the roses, pushing gold and silver to staggering new heights, sparking one of the greatest wealth transfers in mankind's history.

The prices we see today are not going to last forever, and those who act sooner rather than later will be the ones who benefit the most in the coming bull market.

Prepare accordingly.

Keep stacking.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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