“Without a mandate for gold or silver to back a currency, most nations can freely increase or decrease the supply of money with few restrictions…
…The Fed and many other central banks have done just that. Central banks now use their ability to manipulate the money supply to help them decrease interest rates and incent borrowing with the intent of spurring economic growth.
Consider the stark differences in the annual growth of the money supply before and after Nixon’s removal of the gold standard:
- Post-WWII era (1950-1970): +3% annualized
- Removal of gold standard until the financial crisis (1971-2008): +19% annualized
- Period since financial crisis (2008-today): +29% annualized
The Fed has quadrupled the money supply since 2008, dwarfing the 100% increase in the money supply during the Great Depression.
This “get rich quick” mentality generated limited shots of artificial economic growth instead of fostering productivity to nurture and support lasting organic economic growth. This strategy is not without cost. In the words of Aldous Huxley, “One can’t have something for nothing.” Laying in the wake of money printing and extraordinarily low interest rates is an unprecedented accumulation of public and private debt, the decline of productivity growth and a fragile economy. These costs have been mounting for years, requiring higher degrees of central bank intervention to avoid paying them.
The so-called “era of easy money” is quickly coming to an end. Debt levels are at a point where they challenge the economy’s ability to grow them, let alone service them. Interest rates have been lowered to zero with some countries now targeting negative rates. As stressed earlier, the U.S. money supply has quadrupled since 2008 and those of other economic powers have done likewise. Productivity growth has grinded to a halt in the U.S. and is in decline in most major economies.
To put the situation in blunt economic terms, the Minsky moment has arrived.
That moment, derived from the works of Hyman Minsky, describes the sudden collapse of assets values that were driven higher by the gross misallocation of capital and speculative debt-based financing. Years of easy money and unregulated money printing have created this condition today.”, Michael Lebowitz, Excerpt from “The Case for Gold to Protect Clients’ Wealth: Shorting the Federal Reserve”, Advisor Perspectives, October 5, 2015