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The Federal Reserve Is Now the Market

Stack of silver coins sitting on top of a stack of leaning wooden blocks

Rapidly increasing taxes? Massive, runaway inflation? Or an outright economic collapse, the likes of which the world has never seen?

Choose your poison, because something will have to give sooner or later...

The Federal Reserve, along with many other governments around the world, have essentially circumvented the free markets, choosing to keep the system from collapsing by printing staggering sums of fiat money out of thin air.

Whether or not this is the right course of action is not for me to decide. However, to think there will be no long-term consequences would be foolish—to say the least.

Bailout after bailout has been initiated, with many countries choosing to send their citizens large sums of money, in the mail or digitally, to help mitigate some of the economic damage caused by the COVID-19 shutdown.

Unfortunately, as common sense would dictate, this cannot and thus will not go on forever, as one cannot create true wealth by simply printing ever-increasing amounts of money without any production or productivity to go along with it.

However, in the short term, government officials are proving just how far they can push the limits of an ever-increasing supply of fiat money without entering into an outright collapse.

(Chart source, usdebtclock.org)

This has caused national debts around the world to explode, with the most notable being the United States, which has issued trillions of dollars since the outbreak of COVID-19 began just a few short months ago.

This blatant intervention has inverted reality, largely destroying the free markets in the process, as we have just seen with the latest jobless claim figures, which in any rational world would have sent markets spiraling lower.

Yet these are not rational times that we live in. Quite the opposite.

Over five million Americans filed jobless claims last week alone, bringing the total to over 22 million in just one month!

These truly staggering numbers will have cascading and dire effects on the economy, not only in the short term but the long as well. The true economic fallout caused by the COVID-19 outbreak will be felt for years to come.

As one economist recently stated:

“The labor market is showing us what I think we all know, that the economy is falling off a cliff at an unprecedented rate.”

At the same time, the United States is reporting their largest ever one-day increase in coronavirus related deaths, rising by at least 2,371 and bringing the total to 30,800, according to a recent tally by Reuters.

(Chart source, worldometers.info)

Meanwhile, futures rebounded on this devastating news, doing exactly the opposite of what any rational-minded person would believe they should do, indicating once again just how much of a bizzaro world we now live in.

This is because, as I stated earlier, Wall Street knows that the Federal Reserve " will do whatever it takes " to keep the markets afloat, printing as much money as need be, no matter the economic cost down the road.

Even if that means completely eroding the value of the dollar in the long term.

The Federal Reserve is now the market, and that is truly terrifying. This has the potential to end in disaster, as people lose faith in the system as a whole, forcing the Fed to take an ever-increasing role in supporting the markets.

What people also need to remember is that we are only in the early days of this crisis. Many health experts now indicate that the coronavirus will be a threat for many more months—if not into next year—as a possible " second wave" brings the system to its knees once again.

Dr. Robert Redfield, Director of the CDC, made the following statements :

“I think we have to assume this is like other respiratory viruses, and there will be a seasonality to it.”

“The CDC is science-based, data-driven, so until we see it, we don’t know for certain [there will be a resurgence]. But it is critical that we plan that this virus is likely to follow a seasonality pattern similar to flu, and we’re going to have another battle with it upfront and aggressively next winter.”

If these statements come true, this means that the bailouts are far from over and thus the fiat money-printing will have to continue unless governments around the world suddenly change their tunes and open up their economies again, hoping for herd immunity to occur while also hoping they are not sacrificing a significant percentage of their populations in the process.

This means that the markets are going to become increasingly more of an illusion the longer that Central Banks are forced to intervene and support the system as a whole. How long can it last? No one truly knows, as nothing like this has ever been attempted on such a grand scale.

However, one thing is for certain: tangible, real assets such as physical gold and silver bullion will continue to increase in price and be in extreme demand the longer this crisis continues.

I believe that $2000 USD per oz. of gold is only going to be a pit stop, as future gains will make that price look cheap in comparison.

Additionally, I believe silver bullion will follow a similar pattern, but with even greater potential gains in store, as the gold to silver ratio eventually stabilizes and comes back down to a more historic average.

Until then, stay the course, stay safe, and keep stacking.


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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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