Fed alchemy can’t turn paper into gold Fleck

Fed alchemy can’t turn paper into gold   Fleck

No one should think that money printing will solve our No. 1 problem: job creation. It won’t, and it will make the business of running businesses that much harder. That, of course, is going to be even more complicated by other business-unfriendly moves of the Obama administration and Congress, not least of which is the trampling of legal contracts — mortgage “cram-downs,” American International Group (AIG, news, msgs), etc. 

The disintegration of the dollar may be somewhat alleviated against other pieces of paper, as the central banks of other countries potentially join the Bank of Japan, the Swiss central bank and the U.S. in quantitative easing. So, the dollar may not go down as hard as it ought to against other pieces of colored paper. But certainly it will against various other assets like precious metals (as well as assets that we can’t yet know but which will become clear over time).

Gold is looking better than ever for the long term. The devaluation of the Swiss franc means the world has one less haven in an inflationary crisis, MSN Money’s Jim Jubak says. (March 19) 

As a side note, the Fed has also, given the size of its bid (which will likely be increased), enabled the Chinese to sell their Treasury holdings if they want. Then the question is, what will the Chinese buy with those “liberated” dollars? My guess: the hard assets that China needs. 

To sum up: Quantitative easing, unfortunately, is an outcome that I always knew would occur, though it still shocked me when Fed Chairman Ben Bernanke finally pulled the trigger. The masthead of my Web site reads, “In a social democracy with a fiat currency, all roads lead to inflation.” Many people have been confused because they thought that it meant every negative outcome would lead to inflation directly, but that isn’t the case. It’s the response to the problems that leads to the inflation (and currency debasement). 

We are attempting to print our way to prosperity (see “The Fed embraces inflation,” my June 2, 2008, column). That can’t be done, any more than we could speculate our way to prosperity during the stock bubble or borrow our way to prosperity in the real-estate/credit bubble. Got gold?