-- Posted Wednesday, 23 April 2008 | Digg This Article | Source: GoldSeek.com
The U.S. Federal Reserve has forgotten the most essential rule. They should first do no harm. In a rush to bailout the bankers from their self inflicted mortgage mess, the Federal Reserve has seriously distorted the U.S. monetary system. In this week's graph are plotted the year-to-year dollar change for several Federal Reserve balance sheet items. The first bar is for Reserve Bank Credit, which is essentially the change in the Fed's total assets. It is the monetary base from which money is created. The second bar is for the Fed's holdings of government securities. The third is essentially the special lending facility created to bail out bankers. The Federal Reserve has lent more than $200 billion to the creators of the mortgage mess. At the same time as indicated by the second bar, the Fed has extracted from the rest of the economy nearly a like amount.
In essence, the Federal Reserve has reallocated money from Main Street to Wall Street. This massive shift of funds to Wall Street away from producing sectors of the U.S. economy has some strong implications. The U.S. recession will be deeper and longer. Rather than allowing the system to purge itself of weak financial institutions, the Federal Reserve is providing them with special funding. Money has been shifted from goods and services producing sectors to non productive financial entities. Massive economic recession now rolling across U.S., and into Canada, was created by misguided policies at the Federal Reserve. Now, another round of misguided policies has been initiated. This latest set of actions is not a cure, but a prolonger of the disease and rot. These actions will only exacerbate the long-term Bear market for the U.S. dollar. Over time, $Gold's price will benefit from these actions. Gold is insurance against acts of the central bank. On a tactical basis, Gold has passed into a correction. Investors should use any serious price weakness which is likely to develop to add to Gold holdings in a measured manner. Also, be wary of oil trading lemmings, their next act may push Gold lower and deeper than many consider possible.
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.html
-- Posted Wednesday, 23 April 2008 | Digg This Article | Source: GoldSeek.com
Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here
Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.
Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.
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