In his March Gold Letter released today, Peter Schiff explains why he’s not buying into the rumors that the Fed is actually going to tighten its monetary policy any time soon. There’s also an insightful commentary by Jeff Clark of Casey Research urging you to take a cue from central banks around the world and buy gold.
“Testifying before the US Senate this past Tuesday, Fed Chairman Ben Bernanke made an extraordinary claim about its bloated balance sheet: “We could exit without ever selling by letting it run off.” What Bernanke means here is that the Fed could simply hold its Treasuries and agency bonds until they mature, at which point the government would then be forced to pay the Fed back the principal amount. Through this process, the Fed’s unprecedented and inflationary position will be gradually and placidly unwound.
Growing rumors last month of a potential “tightening” of monetary policy – seemingly confirmed by the Fed minutes released on Feb. 20th – have spooked the precious metals markets, leading to a 5.8% correction in gold and 10.2% in silver.”
The Fed is bluffing they can hold treasuries until they mature. As you pointed out, they made it that much difficult because of twist. And of course we all know that when the Fed stops buying the new debt the party is already over.
But… Bernanke’s bluff could be China’s exit strategie. Is there any data about the average maturity of the debt China is holding? If China holds a lot of short term debt, the party could be over really soon and they don’t even have to sell.
The Fed has to buy even more debt if China stops rolling over the debt.
Maybe we should replace China with Japan, because they will start selling dollars soon, to save the Yen.