Boom and Bust Economy: Sound Money Solution

Since December 23rd, 1913 – the Federal Reserve has been in charge of monetary policy within the United States, with their main mandates being to keep inflation under 2%, as well as keeping unemployment low.  Due to the USD being the world reserve currency, the Fed’s policy changes impact all countries around the world holding USDs in reserve, which is pretty well most countries.  This gives the Federal Reserve immense power to weaponize the USD through restrictive policy or by outright placing sanctions on certain countries limiting their access to USDs.  However, although they are meant to create stability, due to the Federal Reserve having free-range to print fiat currency at will – since their conception, the economy has been unable to act as a free market would, being highly influenced by the amount of USDs made available to the market.

What should be noted, is that if you have inside information as to how the Federal Reserve is going to act regarding their policies, you can profit massively from the booms in the economy, but even more so from the busts.  The reason for that, is when everyone is making money, there is less profits to go around, however, when you understand that “money is neither created nor destroyed, it is merely transferred” (Mike Maloney), when the economy experiences a massive bust, the savings of the many are transferred into the hands of the few, enriching a small portion of the population.  What would shock some people to learn is that prior to the 2020 crash caused by the global lockdowns, the largest amount of millionaires in United States history were made during The Great Depression.  Going further, during the lockdowns of 2020, there were more BILLIONAIRES made than at any time in history, with a new billionaire being added to Forbes every 17 HOURS.  During the two times laid out above in the last 100 years when the overarching public was decimated by a financial crisis – the rich became richer, but how?

The answer has many layers, but simplistically, those in the know positioned themselves in the correct assets ahead of time, while steering the public to own the opposite.  Normally, this means the wealthy ride the stock market to a high up until the public rush in due to FOMO (Fear of Missing Out), before liquidating and purchasing physical assets like silver and gold that perform much better during times when derivatives of value on the stock market begin plummeting.  During crashes, illusionary wealth is transferred into real wealth like silver, gold, property, value producing businesses, energy, etc.  This needs to be considered when looking at where we are today.

Our past newsletter highlighted how stuck the Federal Reserve was at present.  However, below we will highlight even further how stuck they are, and why it is imperative you begin considering holding wealth outside the system in real money, silver and gold.

First off, it is important to understand the role of the Federal Reserve balance sheet and how that relates to the terms Quantitative Easing (QE) and Quantitative Tightening (QT).  When the Federal Reserve expands its balance sheet by purchasing government debt in the form of Treasuries, or other assets like mortgage-backed securities, they are essentially printing money to buy assets from the market, effectively injecting new liquidity into the economy.  This has the capability to cause massive inflation if not done correctly. The opposite, to help curb high inflation would be QT.  Rather than purchasing more assets from the market, the Federal Reserve lets their securities and treasuries mature and roll off their balance sheet, effectively shrinking the money supply because they are no longer injecting more currency.

Looking back to see how the Federal Reserve has consistently caused booms and busts to the economy, enriching those in the know during every crash, you begin to clearly see that one of the biggest busts is on route.  From 1980-2000 the Fed Funds Rate was lowered from over 19% down to as low as 2.96% stimulating what is now known as the tech bubble.  In 2000, the total Federal Reserve balance sheet was only around $500 billion, allowing for stimulus to be injected without causing too much chaos.  By late 2007 after another boom in the economy, the Federal Funds Rate needed to be raised to around 5.26% to slow down the inflationary pressure being created by the stimulus used to stop the 2000 crash.  However, this caused another bust, forcing the Federal Reserve to slam rates down to 0%, while simultaneously taking their balance sheet from $850 billion to over $4.5 TRILLION by 2015.  Again, fast liquidity was the answer, however, it is the answer no more.

In 2000 and 2008, the Federal Reserve had the ability to slash interest rates to near 0% because inflation was low; this time around the Federal Reserve is dealing with inflation over 5% with a balance sheet that has swelled to just under $9 trillion.  The difference this time around, is that the Federal Reserve increased their balance sheet from $850 billion to $4.1 trillion by 2020, as the Federal Reserve shrunk their balance sheet by around $400 billion between 2015 and 2020 to help keep inflation at bay.  Then the pandemic started.  It took 12 years for the Federal Reserve to increase they balance sheet by $3.25 trillion.  In 2020, it took less than 1 year to increase their balance sheet by $4.8 TRILLION effectively doubling the USDs in circulation in 1 single year, which sent inflation soaring.  Currently, the Federal Reserve is working overtime using the quickest rate hikes in their history to combat raging inflation, however, if we remember, they need to shrink their balance sheet in tandem with rate hikes to do this.  Their balance sheet currently looks like this:


During Jerome Powell’s recent speech he indicated that a slowdown in rate hikes was coming, but that there was still lots of work to do to curb high inflation.  Looking at the Federal Reserve’s balance sheet above, they can either use massive selloffs of their assets, which would crush an economy already starved for easy liquidity OR they stop raising rates, and with their balance sheet where it is, inflation will again begin to rage.  There has been no other time in recent history when inflation was as high as it is, with the interest rates as high as they are.  1980 was the last time this occurred, and still interest rates were WELL ABOVE inflation, not the other way around like they are today.

Since 2000, silver is up 351.72% and gold is up 583.17%, this during a two decade period where the Federal Reserve had been forced to intervene with QE (money printing) to a tune of $8.5 trillion dollars, a 1600% increase in the money supply in just 23 years.  It is clear that if the Federal Reserve is forced to change course and begin stimulating an economy that is already facing inflation that does not want to subside, silver and gold prices will soar as they always have in these situations.  While there is a lag during the chaos, no other asset class has secured wealth the same way physical precious metals have the past two decades plus.  It is evident to sound money advocates that because we operate in a system based on illusionary paper wealth, the economy has never been allowed to grow at a steady pace based on sound money.  Rather, it has been artificially stimulated causing massive booms and then equally massive busts making it difficult for the average person to get ahead and stay ahead.  Silver and gold simplify this process for their holder as they have held value for 5000+ years through ALL booms and busts recorded.

If you want to get out ahead of another impeding round of QE from the Federal Reserve that is sure to send inflation skyward once again, it is imperative you are holding at least a small portion of your wealth in physical form, the best option being silver and gold.  This week, we are having a sale on our 1oz Circulated Gold Britannia’s – making them the perfect option to secure wealth at as low a premium as possible.

1oz Circulated Gold Britannia