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Money Printing Has No Limits, Buy Gold and Silver

September 19, 2012 – The European Central Bank’s latest monetary moves have removed limits to the expansion of its balance sheet. The manner and method of the European Central Bank’s actions echo Federal Reserve Chairman Ben Bernanke’s dismissal of legal restrictions in 2008 when Bernanke talked his way around the restrictions with politicians who had been made pliant through fear and misunderstanding.

European Central Bank President Mario Draghi’s move away from monetary restrictions can be constituted as an incitement to unlimited price inflation. This has been a real concern for the United States following the institution of Quantitative Easing. European opposition to the new monetary policy melted away very quickly, perhaps reassuring the choices of Ben Bernanke’s Fed, but the specter of inflation may make that reassurance moot.

One of the main assumptions of the Federal Reserve regime has been that the selective purchasing of bonds, particularly through sterilized quantitative easing, will avoid the nastiest effects of inflation. According to Federal Reserve Chairman William McChesney Martin, who faced a similar dilemma as the U.S. Senate lobbied the Federal Reserve to cap interest rates, stated that it is impossible for the Federal Reserve System to peg the price of government bonds at any given level unless it stands ready to buy all of the bonds offered to it at that price.

Martin added, the amount of inflationary force generated by such a policy would be dangerously inflationary under conditions that prevailed in his day.

The traditional remedy to inflationary pressures and dangers are gold and silver, which retain an inherent value in uncertain markets. This is one of the primary reasons gold and silver have outperformed traditional investments in the past five years as the first two rounds of quantitative easing work their way through the financial system. Now, as the third round of quantitative easing begins to work its way through balance sheets, gold and silver are again poised to make multi-decade gains in both price and volume.

Mario Draghi’s European Central Bank gave a new acronym to the European Central Bank’s purchase of bonds. OMT, or Outright Monetary Transactions, entails the ECB buying unlimited quantities of sovereign bonds in the euro area. This dynamic compounds the situation put forth by the Federal Reserve and heightens the dangers of inflation. Gold and silver are a remedy to the dangers of inflation that are, in the view of Fed Chairman Martin, inherent to the Fed’s purchase of bonds.

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