At the beginning of the year, I wrote: “The financial system has become so abnormal, the Fed has to keep inflating to prevent the system from literally going off the rails. But the irony is that eventually the financial system dies as a consequence of accumulated inflation.” I then went on to identify three things that everyone needs to watch in 2013.
Two of these events have already happened. I still expect the third to occur this year too. Here they are, with my current thoughts:
1) “The Federal Reserve balance sheet starts growing.”
The Federal Reserve began expanding its balance sheet soon after my article was published. It does this in a process called “quantitative easing”, or QE, in which the Fed creates money “out of thin air” to buy debt instruments.
Its total assets on 9 January, 2013 were $2.93 trillion. In the latest financial statement issued on 19 June, total assets are $3.47 trillion.
So in 23 weeks, the Federal Reserve’s balance sheet has grown by $540 billion, which is a 41.7% annual rate of growth. The inflationary implications are staggering. This monetised debt can be compared to a huge pile of tinder just waiting for a lit match. That spark will likely come from rising interest rates.
2) “The yield on the 10-year T-note climbs above 2%.”
I wrote in January: “This yield is probably the tipping point signaling that the Federal Reserve through its financial repression cannot keep interest rates artificially low any longer. In other words, market forces will finally overpower the Fed.”
Read the complete article at GoldMoney here.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.