TRUTH used to be a useful, very simple and easily understandable word, which referred to something being in accord with fact or reality. Recently however, even the distinction between black and white has become blurred for some reason, especially in government circles. For example, White House acting chief of staff Mick Mulvaney described a textbook example of quid pro quo last week, when referring to Trump’s Ukrainian “favor.” This occurred after two weeks of denial by the administration and the next day he recanted his explanation saying there was no quid pro quo. Now, the Fed is apparently eager to join the fray too. After explaining for more than a month, their desire to sit back and watch before making any further moves, the fact is they’ve been purchasing Treasury bills at a rate of $60 billion per month and will probably continue that quantitative easing technique into next year and possibly beyond. But last week, the Federal Reserve Bank of New York intervened twice with fresh liquidity injections, raising overnight repos up from $75 billion to a whopping $120 billion and increasing the Fed’s balance sheet by $200 billion on top of Treasury purchases.
No quid pro quo, no QE! Apparently, negative has become the new positive and if the President has his way, that scenario will soon apply to interest rates. You would normally think that such events would concern anyone owning dollars, or stocks, or T-bills, or any paper asset tied to dollars, but the market is reaching for new highs and investors seem unconcerned. But a day of reckoning is surely coming, ultimately in the form of higher interest rates and serious inflation. The collateral damage it will create also should be obvious and more than concerning. At the very least, investors and particularly bankers should be concerned with the persistent liquidity shortage in overnight lending markets. Rather than concerning themselves with long term damage, the Fed seems content to simply avoid causing the banking system to lock up and money market funds to fail. Talk about setting the bar low.
The country has obviously become very polarized with Republicans warning that a Warren win next year would all but insure a 20% stock market loss and Democrats are concerned with anything and everything except the stock market, as long as Warren’s wealth tax, or some other Top 1% takeaway plan, can be implemented. But regardless of who gets elected in 2020, the fact of the matter is that the elected administration will be looking for new ways to raise revenue, which will be required as budget deficits continue to soar. Last week precious metal markets showed signs of an upside breakout, which was then tempered by a blindly increasing stock market and hopeful expectations of another .25% interest rate reduction by the Fed this week. But it appears that everyone, except possibly the President, is beginning to realize that it could be the last.
If Warren’s wealth tax or Biden’s capital gains tax is implemented, investors with Gold IRA’s will not be getting the annual haircut, as well as whatever revenue resource the Republican side comes up with. The government can’t tax IRA assets, because a tax-deferred IRA protects those assets from taxation prior to distribution. Investors are going to have to protect themselves as best they can from the coming government revenue collectors, whatever form they take, so call the experts at American Bullion now, at (800) 645-GOLD (4653).