Americans began 2013 with enthusiasm and celebration as we narrowly avoided the dreaded fiscal cliff. Yet many experts feel that an even bigger cliff is looming on the horizon, and the blame is laid at the feet of the Federal Reserve, whose policies have only served to make matters worse.
Federal Reserve Chairman Ben Bernanke defends the Fed’s monetary policies as regrettable, but necessary. The current debate with Congress is over the raising of the debt ceiling, which many Republicans are hesitant to do, fearing that it will only encourage further spending. They are demanding that the President agree to spending cuts before they will consent to raising the debt ceiling once again.
Bernanke argues that this is not the case, and that raising the debt ceiling merely allows the government to pay its existing bills, not incur new ones. According to him, not raising the debt ceiling is the equivalent of debtors declining to pay their bills. He warned Congress that if the debt ceiling is not raised, the government would be forced to default on its payments.
The other controversy is over the Fed’s policy of quantitative easing, whereby they print money to buy government securities from financial institutions, the idea being that by funneling money into the economy, it will trickle down and provide banks incentive to increase lending and lower interest rates. The short-term benefits of this policy include fostering employment, encourages lending, borrowing, and spending which complement low interest rates.
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The problem is that while quantitative easing stimulates the economy in the short term, in the long term it only serves to make matters worse. The benefits it provides only last as long as the program itself—as soon as the Fed stops printing money, unemployment once again rises, as does interest rates, inflation, and debts. QE is generally viewed as a last resort, and therefore risks wreaking havoc on international trade, as investors have good reason to doubt the US dollar.
Many experts believe that QE programs are to blame for the 2012 fiscal cliff, and are concerned that an even bigger cliff is around the corner. If the positive numbers from employment statistics and the stock market are simply temporary improvements dependent on QE, then once they stop those numbers are likely to plummet. The artificial stimulation of the economy can only last for so long, and the longer these policies are in place, the worse the crash will be. The Fed will eventually have to stop printing money, and when they do, inflation will skyrocket, and a heavily devalued dollar leaves the economy vulnerable to a market crash.
There is a great deal of controversy surrounding the issue, and it is important to protect yourself and your finances. Precious metals are one of the few safe commodities these days, ones that will not depreciate. For gold and silver investment advice, talk to an ITM trader to find a way to safeguard your finances.