FROM THE DESK OF CRAIG GRIFFIN

 
On Wednesday, September 18, 2013 the Federal Open Market Committee announced, as I thought they would, that they will not be cutting back on QE.

Call it good news if you like, the markets did rally but what the Fed is really telling us is that after keeping interest rates near zero for almost five years that the economy is too weak to be taken off of life support!

Make no doubt about it the interest rate picture is far more complex today than it has ever been!

Rising interest rates would be bad for real estate, stocks, bonds, bad for the economy and gold. Although I believe there will come a time when interest rates and gold will rise together, that will happen towards the end game for the dollar,

I see a time coming when the no one will buy our debt unless they are being paid an interest rate that makes it worth the risk of holding dollars! It is at this point the gold and interest rates will be rising together.

However, the bad news is that rising interest rates are inevitable but the Fed will do everything it can to keep interest rates low at this point! Why?

Well, as discussed above it will not be good for the markets or the economy! However, there is a larger problem at hand, the National Debt has almost reached $17 trillion dollars! The downside is that there is an interest rate attached to this debt so the debt is compounding. The good news is that interest rates have been extremely low over the past several years. The bad news is that 1995 the National Debt was only around $5 trillion so the National Debt has grown by almost 3 1/2 times during this low rate environment. What if we return to a Fed Fund Rate of 6% or 9.75%, like we did in 1989? Let’s just call it 10% to make the math easy.

Remember the old Rules of 72? Take the number 72 and divide it by any interest rate and that will tell you how long it will take to double your money. Take 72 divided by 6(% interest) = 12. So without creating any more debt (printing any more money) $17 trillion will turn into $34 trillion in 12 years. Ten years is easy to figure, 72 divided by 10 = 7.2, so the National Debt would double in just 7.2 years!

According to an article in Forbes, the ten year bond rate has been five percent for over 70% of the time over the last 50 years so you can see that the balancing act of the Fed is getting more and more difficult!

The problem is that the United States has painted it self into a corner that it can’t get out of! The U.S. is addicted to debt but at some point no one is going to lend us money and we are getting closer and closer to that day!

According to Wikipedia, the debt ceiling has been raised 74 times since 1962. So will they raise it again come October? I think they will!

So while the Fed (Federal Reserve), government and the press continue to occupy our minds with rhetoric the crisis mounts. And make no mistake about it, there is a crisis looming but just like 2007 -2008 and the 1929 crash and ensuing depression it will take most by surprise! It is at these times when gold begins to rise rapidly and the consumer gets caught chasing a rising gold price.

I can remember when gold dropped to $252.20 in August 1999. Gold was about to embark on a path to $1900 by December 2011, and no one wanted to buy it. You couldn’t drag people kicking and screaming to buy gold. Of course it was the same with the stock market in 1982. At that time only 9.4% of the population was in the stock market. The Dow was around 800 points and set to enter the biggest bull market rise of the 20th century and the public wanted nothing to do with it, but by the year 2000, just prior to the crash of the NASDQ, 56% of the public owned stocks.

Don’t wait, the gold price is offering up an opportunity to get into the market again. It is time to cost average or add to your profit positions if you bought early!

But remember, “It would be foolish to acquire gold for the short term but it would also be unwise not to own some gold for the long term!”