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

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

Their plan? Well its 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 analyst 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 do so.

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 incredibly hard by the forced restrictions and lock-downs that government officials imposed as the COVID-19 outbreak began and has continued across large parts of the country seemingly unchecked.

Whether or not these actions are correct, is yet to be seen, however it sadly is 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, that has taken a beating over the course of 2020.

However, we haven’t seen nothing yet, if the Federal Reserve does indeed follow through on these new policy changes, as the USD is going to move much, much lower.

A Weak Dollar Diminishes the Value of Existing Debt

Likely, the Federal Reserve knows that this is the only path that they have 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 are going to go deeper and deeper into debt in the coming years, however, 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 Reserves head and everyone else 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 owes.

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 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 greatest in the coming bull market.

Prepare accordingly.

Keep stacking.

- Source, Nathan McDonald via the Sprott Money Blog

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Nathan McDonald

Financial journalist with over 10 years of experience. Writing about geopolitics, economics and all things related to precious metals.