Like all central bankers, Fed chairman Jay Powell suffers from the illusion he can “fix” whatever ails the economy by flooding it with cash.
But at least he’s honest about it. Over the weekend, he let the cat out of the bag.
Yesterday, Powell appeared on CBS’ 60 Minutes. And when host Scott Pelley asked him if the Fed had “simply flooded the system with money,” Powell replied with surprising candor…
Yes, we did. That’s another way to think about it. We did.
Then Pelley asked a crucial follow-up question…
Where does it come from? Do you just print it?
And Powell gave another unvarnished reply…
We “print” it digitally. [A]s a central bank, we have the ability to create money.
In today’s dispatch, I (Chris) will show you why this is critical to understand if you’re going to preserve your wealth over time.
Because it’s a giant flaw in considering the U.S. dollar a reliable store of value.
I’ll also show you why it makes us more excited than ever about two anti-dollar currencies you should own in your portfolio.
The Daily Cut is the premium e-letter we created for all paid-up Legacy Research subscribers.
Our mission is to keep you up to date with the latest ideas from Teeka Tiwari, Jeff Brown, Bill Bonner, Doug Casey, Dan Denning, Jason Bodner, Nick Giambruno, Dave Forest, and the rest of the Legacy team.
And one of the biggest ideas we’ve been tracking is the battle over money.
On one side is the dollar and other government-issued (aka “fiat”) currencies, which have infinite supply.
As Powell put it on 60 Minutes, “There’s really no limit to what we can do with these lending programs that we have.”
On the other side are two alternative currencies that have fixed supplies – bitcoin and gold.
To combat the stock crash in March, the Powell Fed has been digitally “printing” new dollars at an unprecedented rate.
At the height of the panic, it was creating $1 million a second… or $90 billion a day.
That’s more than the Ben Bernanke Fed was creating a month at the height of the 2008 global financial crisis.
Meanwhile, as we’ve been showing you, new bitcoin supply just got cut in half.
And the supply of new gold has also taken a hit due to health concerns for mine workers during the pandemic. Disruptions have caused global gold production to drop by over 10%.
Take a look at this chart of how many dollars one bitcoin has bought over the past 12 months…
Here’s what gold looks like versus the dollar over the same time.
It hasn’t been a straight shot higher for either bitcoin or gold. But as you can see, both have risen – 22% and 36%, respectively – against the buck.
David Kelly is the chief global strategist at JPMorgan Chase. In a recent note, he said years of monetary madness have built a ticking “inflation bomb.”
We don’t usually pay much attention to mainstream analysts such as Kelly. They’re nearly always late in identifying profit trends. And it’s our mission to make you aware of these trends ahead of the crowd.
But Kelly’s note reveals how the gold trade is starting to percolate through to the mainstream…
In the aftermath of the Great Financial Crisis, it seemed we had built ourselves an inflation bomb. A huge increase in government debt, monetized by the Federal Reserve, and triggered by an economic recovery should have caused inflation to surge.
For investors today, with long-term bond yields at historic lows, it is a reminder that real assets, including stocks, real estate and precious metals can serve an important, although long-redundant role, in protecting a portfolio against the risk of inflation.
Kelly just realized something many Legacy readers have grasped for years. The supply of the dollar – and ultimately its value – depends on the whims of Congress and the Fed.
Real assets, on the other hand, guarantee value through scarcity.
The best stores of value tend to outperform currencies that allow value to “leak out” through inflation.
That’s another way of saying they preserve your buying power better.
It’s something colleague Nick Giambruno has been hammering on over at The Casey Report. Nick…
Many people don’t realize that the market for money is not that different from the market for other goods. The dollar competes with gold as money. The dynamic is similar to competing products in other areas.
For example, at the grocery store, you have the choice between Dasani and Poland Spring for bottled water. Imagine the quality of Dasani drops rapidly. As a result, people stop buying Dasani and flock to a more desirable substitute in the market – Poland Spring. The same thing is happening in the market for money.
People are sizing up different currency options. Currencies that are scarce… that governments can’t digitize into existence… are winning out.
As I’ve been showing you, he has an uncanny knack for making big-picture calls and then backing them with all he’s got.
For example, in 2011, he went all in on bitcoin – right before it climbed 302,000%.
And in the early 2000s, Tom drained his bank accounts to buy one of the most unpopular assets in the world at the time – gold.
Within eight years of Tom’s bet on gold, it had skyrocketed almost 500%.
Gold stocks did even better. The NYSE Arca BUGS Index (HUI) tracks the 15 largest gold mining stocks. It shot up 1,630% over the same time.
Gold went on to be the best-performing asset of the decade (2000 to 2010).
Gold outshone stocks between 2000 and 2010. But over the past decade, that relationship reversed.
And Tom believes it’s about to reverse again in gold’s favor.
It’s why, two years ago, he sold all his stocks and bonds and personally invested about $1 million in gold.
He believes this single investment will set his family up for the rest of their lives.
But don’t worry. Although the window of opportunity is closing fast, there’s still time for you to take advantage of gold’s move higher.
It’s why Tom is holding an urgent briefing on gold on Wednesday at 8 p.m. He’ll outline the opportunity ahead and how he’s taking advantage of it.
His mentor, and Legacy Research cofounder, Bill Bonner will also make an appearance to discuss what’s ahead for gold.
I’m going to be listening in… along with more than 100,000 of your fellow readers. You don’t want to miss out.
May 18, 2020
County Wicklow, Ireland
P.S. Jay Powell isn’t the first Fed chairman to say that the central bank creates dollars by marking up accounts using a computer keyboard. Ben Bernanke explained exactly how the Fed does this in a clip from a 60 Minutes interview he did in March 2009. Watch it on YouTube here.