FOMC Statement - October 30, 2013

The FOMC has released its October 30 statement regarding monetary policy.  You can compare it to its September 18, 2013 statement.  There are few minor word changes, but essentially it is mostly the same as what was issued 6 weeks earlier.

As usual, it was almost unanimous, with Esther L. George being the one dissenting vote, citing concerns about long-term inflation expectations.

So the Fed will not "taper" yet.  While there was a lot of talk about tapering a few months ago, it was expected going into the day that tapering would not begin now.  It is looking more and more likely that tapering will not begin until 2014, if it ever begins.

This means that for the year 2013, the Fed will have created about $1 trillion out of thin air.  The total adjusted monetary base was just over $800 billion 5 years ago and now the Fed is creating $1 trillion on annual basis.  This is simply astounding and it makes it hard to predict the consequences we will see because it is so unprecedented.

I'm not sure how long the Fed's game can go on for, but it can't keep going forever.  At some point, either the economy is going to run out of juice from the stimulus and all of the previous malinvestment will be exposed, or else we will see higher price inflation.

If we see higher price inflation first, then the Fed will eventually have to cut back in order to avoid hyperinflation.  So at some point, we will get a bust.  It is just a question of how long things can be dragged on and how severe the bust will be when it comes.

Given the Fed's current policy, I think it may be a good time to buy gold and gold related investments, even outside of your core holdings if you have a permanent portfolio setup.  This would be for speculation and I am not suggesting that you throw all of your eggs in one basket.  But if the Fed keeps pumping and velocity picks up some more, then consumer prices could rise fast.  Gold may even precede a rise in consumer prices, must like a canary in the coal mine.

For this reason, you should not wait for confirmation to buy gold if you think it is a good buy now.  Will you be any more likely to buy when it hits $1,500 as opposed to its current price at just under $1,350?

The Fed is proving its trustworthiness in trying to make the dollar worth less.  It is making us all poorer in the process, so you should at least try to protect some of what you have by investing in hard assets.