Ben Bernanke re-elected !

During his campaign, Mitt Romney had stated that, should he win, he would get rid of the FED’s Chairman, Ben Bernanke. That strong statement means he was going to address the U.S. economic problems the right way, by slowing and then stopping the FED’s debt buy-back program, which is what makes the budget deficit seem painless. Case in point, why worry about balancing public accounts if the FED keeps buying most of the State bonds that finance this deficit ?

Bernanke stands behind this policy of monetizing the public debt, while waiting for an hypothetical growth rally, and does not seem to understand that this huge flow of money, combined with very low interest rates, actually hampers productive investments while, on the contrary, it fosters speculative bubbles on commodities and keeps the stock market artificially going well. Quantitative easing is, in fact, a failure. It only buys time. All those debt buy-backs are realized through newly printed money, which may lead in time to inflation risks. The wake-up call will then be more painful but, hey, the election is over and we’ll see what happens later !

Sadly, this easy money policy will continue with Barack Obama. Nevertheless, we know that, starting January 1st 2013, if no deficit reduction agreement is reached until then between the President and the Congress, we will see automatic cuts in spending and the end of the Bush fiscal exemptions : this is what is called the « fiscal cliff ». This drastic accord, negociated in August 2011 at a time the U.S. debt ceiling had to be raised, would bring about a reduction of the budgetary deficit but, on Obama’s team, there is talk of reviewing it...

In any case, there will be much friction between the Democrat President and the mostly Republican Congress and that won’t help in bringing down the deficit. The printing presses are going to roll for a long time ! The « Japanization » of the USA is happening, with the vicious circle of deficit – debts – monetization – stagnation taking roots progressively, as seen in the numbers.

All this money printing contributes to the devaluation of the dollar, and Mario Draghi’s BCE is traveling the same road in Europe. So, of course, all of this is fundamentally bullish for gold. Its price should continue to rise, and it will probably be one of the very few assets that will be able to protect our savings in the years to come. Should we rejoice ? Well, a solid economic growth and a steady price for gold would be preferable to a period of major uncertainty and a bloated monetary/financial system that could explose at any moment... But the choice has been made and, sadly, monetary manipulation will continue.

Japan has now entered its ninth QE... this is a record ! In the four years to come, will Ben Bernanke beat this record ? Well, he just got another mandate, so he’s on his way...