Two Dollars Investing: The Fed Will Crash Precious Metals

Right now, the Federal Reserve has two poor choices. They can raise interest rates to get inflation down, but potentially at the cost of an economic implosion. Or they can stop raising rates, and hope that inflation slows down. But if that happens, inflation may run at an above-average level for some time.

This problem is responsible for the big swings in the market that investors have had to contend with this year.

Amid this monetary policy problem right now, fiscal policy remains loose. The government continues to spend more money than it brings in via taxes.

The total debt has increased by over $1 trillion in the last 8 months. This has to be financed via debt or a direct printing of new money.

Without deep cuts in government spending, inflationary pressures will remain. If the government wants to get rid of inflation, they’ll need to spend less.

In the real world, this is unlikely to happen. Such a cutback could cause a number of companies to have insolvency or bankruptcy issues.

The rapid rise in interest rates this year is creating a number of financial stresses on the market.

That could cause another “Lehman moment” where a crisis erupts on Wall Street. If that happens, stocks could hit new lows, and lead to a selloff in safe-haven assets like precious metals.

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