Reckless Money-Printing Will Trigger a Historic Gold Rally

Reckless Money-Printing Will Trigger a Historic Gold Rally By Nick Giambruno for Casey Research

The real crisis today isn’t the coronavirus.

It isn’t even the bursting of the “Everything Bubble,” which has pushed valuations of pretty much every asset class near historical all-time highs.

The real crisis is going to come from the government’s reaction.

First, with the incalculable harm from the unprecedented shutdown of the global economy.

And second, with money printing the likes of which we’ve never seen before.

Governments around the world have thrown out the last semblance of fiscal and monetary sanity. They are destroying their currencies at a breakneck pace.

The U.S. government is bailing out just about everything… the airlines, the tourist industry, the shale oil industry, car manufacturers. It even sent just about every citizen over $1,000.

Where is the government getting this money? It is simply creating it out of thin air.

Inflation Is the Real Crisis

That’s why this crisis is fundamentally different than the Great Depression.

Back then, a gold standard limited the amount of money the Federal Reserve could create out of thin air. Today, there is no such limit.

Allowing the Everything Bubble to burst and cleanse the economy of its massive distortions would be painful in the short term.

But it would enable the economy to rebuild on a better foundation.

However, that is politically unacceptable. As long as politicians have access to the central bank’s printing presses, it will never happen.

There’s no question that, when faced with the choice, politicians will always choose the money-printing option, which inevitably destroys the currency.

It’s the fundamental relationship between politicians and a fiat money system.

They’ll always choose actions that destroy the currency before they do something that would be economically sound, but not the best political decision.

We’re already seeing that play out in this crisis.

In a matter of days, the Fed has created more currency units out of thin air than it has for most of its existence. In the end, it’s likely to be measured in the tens of trillions of dollars, or more.

The human mind has trouble wrapping itself around such figures. Let me try to put it into perspective.

One million seconds ago was about 11 days ago.

One billion seconds ago was 1988.

One trillion seconds ago was 30,000 BC.

One trillion dollars is almost an unfathomable amount of money.

The Most Conservative Scenario

In the wake of the 2008 crisis, the Federal Reserve printed $3.7 trillion out of thin air, which translated into growing its balance sheet by about five times.

The U.S. federal government debt also doubled in the same period.

The price of gold went up by approximately 2.5 times. Using these benchmarks, we can project that we’re looking at the following:

  • A Federal Reserve balance sheet increasing by five times to $20 trillion, which translates into about $15 trillion in new currency created out of thin air.
  • The U.S. federal government debt doubling, going over $48 trillion.
  • Gold prices going up 2.5 times to about $4,600 an ounce.

Let me emphasize that I consider this to be the most conservative scenario. It’s using benchmarks from the 2008 crisis. The current crisis is orders of magnitude larger.

That’s why I expect the Fed’s balance sheet, the federal debt, and the price of gold to all go up even more.

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