Lear Capital: The Future of QE and Gold

  on

DaveEveryday Congressman Paul Ryan steals a few headlines with his plan to balance the Federal Budget.  Ryan's plan is to cut $650 billion a year from the deficit.

To get a better feel for what this really means, let's take a few steps back to the beginning of the credit crisis.  To rescue banks and stimulate the economy, the budget deficit increased from $455 billion in 2008 to $1.416 trillion in 2009.  This deficit funded TARP and a variety of stimulus efforts from Cash for Clunkers to Energy Efficient Appliance credits.

Essentially $1 trillion of the deficit was due to stimulus.

Then in 2010 another $1.294 trillion deficit was incurred and in 2011 an additional $1.65 trillion is projected.

I think it's safe to conclude that since 2009, $1 trillion per year has been added to the budget for stimulus purposes.  And, before I forget - Did anyone else hear that TARP had been paid back?  Just wondering . . .

Now the trillion dollar question.  What is it that Congressman Ryan is trying to cut from the budget?  Ryan's deal should be a no-brainer as his proposed cuts do not even bring us back to pre-stimulus budget levels.  Is opposition stemming from a concession that an ongoing effort to print more money must be maintained in order to keep the economy alive? 

How is it now that a debate to cut just $100 billion per year, ($61 billion over the remainder of fiscal 2011) has been spun as an effort to starve the elderly?

As Dick Morris said to Sean Hannity, let the government shut down then defund things like $730 million of foreign aid to Kenya.  In so doing, Republicans would soon have their cuts.

Nope!  Can't do that.  Dick Morris you are way too smart for our own good.

If the concession has been made, that we need to keep printing more money to keep the economy at some stage of almost recovery, then say hello to inflation.  If you want an explanation as to why Gold prices and and now Silver prices are pressing to new highs, maybe it's because there are those who listen to this meaningless rhetoric and see massive inflation on the horizon.

And, what if Congressman Ryan has his way?  If we have conceded to the need for forever stimulus and resigned ourselves to accepting perpetual Transitory Inflation, who continues to carry the Stimulus ball?

I think Tyler Durden, mastermind of the ZeroHedge.com website said it best.  This simply means that even more stimulus will reside with the Fed, and with monetary policy, which also means that not only is QE3 guaranteed, but so is QE33.

Indeed, there is more than one way to skin a recovery.  Larry Kudlow asked a guest today if the sky was the limit as to how high commodities like gold and silver could rise.  The answer was Yes!

Join Learcapital.com's inflation watch and see why Gold demand and Silver demand are rising on a global level.

Join the Discussion