Lear Capital: Fed Stimulus To End Up In Gold’s Pocket

Something just doesn’t add up.  A few days ago it was announced that consumer spending was up 1.1%.  Out came the Kazoos and party hats – it was a sure sign the economy was recovering.  At the same time reports tell us GDP growth is 2.4%, another sure sign of recovery.  Now, ne’er a day goes by that we don’t hear or read something about the $85 billion a month the Fed is pumping into the economy.

It got me thinking, something just ain’t adding up.  So, I decided to add it up.  The Fed is spending $85 billion a month.  What percent of GDP is that?  Based on about a $16 trillion economy, that amounts to 6% of GDP.  Does this strike you like it struck me?  The Fed is pumping up the economy by an amount equal to 6% of its total size and we can only get a 2.4% rate of growth and a 1.1% increase in consumer spending.

This begs the question, where’s the rest of the money going?  Some would argue a big chunk of the money is going into stocks.  If that be true, then stocks are being artificially propped up with money printed on your behalf.  That’s right.  $85 billion a month is equal to $1200 per working person.  Do you really want to follow the Fed into the stock market now?  What happens when Fed stimulus stops?

Maybe this helps to explain why central banks are buying gold in record amounts.  While stock prices are artificially high, gold prices are artificially low as investor eyes stray from gold and fixate on stocks.  The banks know it so they’re buying.  Think of this.  Every day stocks go higher, it’s because someone got out. They know, one day, the Fed will turn off the spigot.  And by then, who do you think will be holding all the gold?  Will you have some?

As always, I’m pretty sure my math is right but as for the rest, that’s just my opinion.  And if you want to hear more, be sure to visit LearCapital.com for breaking news and free economic reports.  And if you would like to follow me on Twitter, I would be honored  @DaveTheGoldDr

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