The Federal Reserve has just announced they’re extending “Operation Twist” to the end of the year, and will be trading $267,000,000,000 to buy some bonds and sell others in an attempt to manipulate interest rates lower. The goal is to get as many people into as much debt as possible in the short run, because they believe that increasing debt during unstable times is somehow a good long-term idea.
Of course, those of us who squirrel away gold and silver know that they’re wrong. They keep creating short-term bubbles that bust, destroy trillions in real wealth, increase our national debt, and leave young people shackled for a generation. This is bad for the economy, but in the long-term this is good for gold.
Gold prices are down this morning, though it’s relatively soon to see how strongly they’ll react — positively or negatively — to the news. It will most likely be fairly muted at best, because many gold investors were prepared for another round of quanitative easing, which they believe is inflationary. I’ll be writing more about QE2 and what another round would mean economically in the next few days.
Operation Twist is likely even worse economically than another round of QE, because it is essentially a direct shot in the arm for lowering interest rates, and will essentially mess up prices even more. Interest rates exist for a reason, and that reason is to connect supply and demand in a way that recognizes risk.
When we manipulate prices, we break the supply and demand connection, and something is destroyed. This is why price controls on gasoline would just lead to gasoline shortages, and some people would be able to get gas to go on vacation, but other people wouldn’t be able to get gas to go to work — price controls mess everything up.
Operation Twist is essentially an attempt to manipulate the price of interest — or part of the price of credit. This would have horrible, horrible, horrible economic implications over time. The last big example of manipulate interest rates? Well, that caused the housing bubble and bust.
I wish I was kidding when I say that the response of the government is to do exactly what caused the global depression in the first place. How sad. And for us investors, what a great opportunity to continue to not just invest, but actually save in gold and silver.
If you haven’t set up an account at SilverSaver yet, click here and create one. Set up an automatic deposit once every month or so, and never think about it again. Within a few years, you’ll have amassed a pile of gold and silver without having to actively think about it. That’s what I’m doing, and it’s the simplest way to be prepared for the economic fallout that our government is making inevitable.
SilverSaver is the only bullion company I currently purchase gold and silver from, and I’m financially affiliated with them now so I can focus on getting more people to save in gold and silver. For people worried about long-term security, this was created with you in mind.
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