Gold Bugs, this week around the world, will be joining together to celebrate the greatest financial collapse in history, past or future. In bureaucrat-speak, a conservatorship for FNM & FRE is being created. However, Gold Bugs know a duck when they see one. Part of that celebration will be our heartfelt thanks for those at Federal Reserve. In this week's chart we recount the glory of that institution. While FNM & FRE may be financially insolvent, Federal Reserve is intellectually insolvent. Would FNM and FRE have failed if Federal Reserve had acted properly in past two decades, or past 105 years? Creating the Federal Reserve was to reduce economic instability, rather than foster it.
Financial markets may initially applaud the action by U.S. Treasury. Any financial meltdown as a consequence of FNM & FRE has been transferred to a future date. The financial losses hidden in those two entities have not disappeared. The losses have just been temporarily put out of sight, to rise at a later date. Given character of today's financial markets, party may be in order with the threat not imminent. For you see, the losses have been transferred from the bond holders to tomorrow's U.S. taxpayers! Bank of China should send a thank you note to all U.S. taxpayers for their generous support. Should financial markets celebrate this transaction, Gold Bugs will likely have last great buying opportunity of a life time! While FNM & FRE are being reorganized, real culprit escapes. Unless the Federal Reserve is too reorganized, the source of financial diseases will still lurk in the system.
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive these reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html.