Dollar Death Ray #2
Dollar Death Ray, powered by the U.S. Treasury and the Federal Reserve, is aimed at the heart of the U.S. dollar. Forget the U.S. Congress debate of the Bank Bail Out and Congressional Reelection Bill of 2008. The Federal Reserve and U.S. Treasury, without a vote of Congress and support of the voters, has given $253 billion to banks in the past week. That is according to the Federal Reserve statement issued yesterday, 2 October. Without any regard for their actions, these two agencies are flooding the U.S. banking system with liquidity in an unprecedented manner. Never in the history of the Federal Reserve has regard for sound monetary policy been so tossed out the window.
The graph above is a continuation of the one introduced last week. It is the year-to-year change in the Federal Reserve' balance sheet, adjusted for some special transactions by the U.S. Treasury. In a matter of weeks, the Federal Reserve's balance sheet has exploded to a third higher than it was a year ago. Never, as mentioned above, has the Federal Reserve injected such a massive amount of reserves into the system. Panic indeed reigns at the U.S. central bank.
The Street, and special circumstances, can temporarily push the dollar higher and Gold lower. However, with no self control existing at the Federal Reserve, the days of dollar appreciation are indeed numbered. With momentum traders at soon to be gone hedge funds pushing down Gold's price, investors should be stepping up to buy Gold. Momentum traders may punish Gold in the short-term, but with the Federal Reserve's balance sheet now out of control that situation can not persist. Total panic in Washington, as evident by the bank bailout bill, is giving investors a rare opportunity to preserve their wealth with Gold at these prices.
Ned W. Schmidt,CFA,CEBS is publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive these reports simply go to: http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html.