A skeptic's typical Peter Schiff gold rebuttal will consist of questioning why, after U.S. debt has reached $18.3 trillion and the U.S. Federal Reserve has pumped $2.4 trillion in the banking system through three rounds of quantitative easing, the dollar is still stronger than it's been in recent history.
Quantitative easing is the process by which the Fed buys bank assets and credits them with newly created reserves in an attempt to bring down interest rates. But QE by itself is not an inflationary policy.
The reason why inflation, or hyperinflation for that matter, hasn't happened yet is that the U.S. economy hasn't entirely shrugged off the effects of a so-called "balance sheet recession."
In a balance sheet recession, households and firms use extra money to pay down debt, as opposed to making purchases on consumer goods. The classic definition of inflation as "too many dollars chasing too few goods" breaks down when the economy is not "chasing goods." Instead it's redirecting that money to reduce debt.
When there simply isn't enough economic activity and consumer loan demand is stifled, no amount of quantitative easing or government spending is going to get money moving around in a way that stokes inflation/hyperinflation.
But, there is another more sinister force brewing beneath all these policies that can help explain why gold is a valuable portfolio builder…
- Source, Money Morning