The Federal Reserve plans to spend an additional $1.1 trillion over the next year on mortgage-backed securities and bonds. To do so, the Fed will continue to print money, thereby continuing inflation that has become endemic to our national economy. Concurrently, the yield on a 10-year Treasury note is now 2%. Yet this increase in interest will not match the rise in inflation and the value of the Federal Reserve Note will continue to erode. In fact, since 1971 when President Nixon unilaterally ended the direct convertibility of the dollar to gold, the value of a dollar has eroded by 577% by one estimate and 559% by another. This trend is sure to continue for the foreseeable future under the monetary policies of the Federal Reserve.

Central Banks Look to Remonetize Gold

Once considered fringe unorthodoxy, the Austrian School of Economics is now becoming accepted as canonical to central banks and sovereign wealth funds.

  • How money is injected into circulation has profound consequences.
  • Inflation should measure the increase in the money supply (including credit) rather than being defined by a consumer price index.

These two principles of the Austrian School have given deep-saving nations in Asia a basis to demand monetization of Special Drawing Rights (SDRs) with gold. The amount of SDRs in worldwide circulation has increased by 50% over the past two years. This is inflationary; understandably, countries with vast reserves of SDRs want to protect their accumulated wealth by including gold in the SDR market basket.

What are SDRs?

They are a composite of four reserve currencies – the U.S. dollar, the euro, the Japanese yen and British sterling – used by IMF countries

The Lingering Effects of ‘The Great Recession’

            The global economic decline that began in 2007 and accelerated in September 2008 caused a liquidity calamity that beset financial institutions worldwide. The current Eurozone crisis as well as the prospects for limited global growth for the foreseeable future can be attributed to ‘The Great Recession.’ In the United States, policy to address the crisis has been classic Keynesian economic stimulus, which has the side effect of increasing inflation by growing the money supply.

Protecting Wealth

  • From June 2007 to November 2008, Americans saw their collective net worth contract by over 25%. This decline was reflected by plummeting home values and stock prices.
  • Total retirement assets, which are the second largest household asset of Americans, plunged 22% from 2006 to mid-2008.

How to protect one’s wealth from both inflation and market contractions? IRAs backed by gold have proven their resiliency. With new thinking regarding asset diversification away from reserve currencies, gold is not only an option for governments but for individuals too. It has a proven track record dating thousands of years and retains its intrinsic value. Reserve currencies, on the other hand, have been shown to lose value over time thanks to policy decisions that weaken the currency’s worth. Protect your wealth by diversifying savings into IRAs backed by gold.