How to ‘Fed Proof’ Your Wealth

Maybe an economy with falling household incomes is not a good place to own stocks. Maybe an economy that is barely growing doesn’t justify the highest stock prices of all time. And maybe the Federal Reserve’s $85 billion a month bond-buying spree doesn’t work…

Economists, analysts and advisors have been trying to figure out exactly what QE does. The Federal Reserve is adding more than $1 trillion to the monetary base every 12 months. It’s got to have some effect, right?

In theory, it goes into banks’ excess reserves…which, in theory, the banks could lend out at a ratio of 10-to-1…for a total potential increase to the money supply of $20 trillion.

But it’s not that simple. These are excess reserves at the Fed we’re talking about. Some experts insist these reserves are untouchable in the financial caste system and they add nothing to the money supply. They say QE is an asset swap (interest-paying excess reserves for interest-paying Treasury paper), not an additive process.

But it’s not that simple either. The Federal Reserve creates money. It buys Treasury bonds from the banks. The banks buy more Treasury bonds. This transfers cash from the Federal Reserve to the federal government. And it saves the federal government having to get it from other sources (at higher rates of interest).

All money, like water, eventually finds its way to the sea – occasionally washing away a few houses along the way. And when you add $1 trillion a year into a $16 trillion economy, it’s bound to raise the sea level.

How? When? We don’t know…but we’d avoid property too close to the shoreline!

The big news is in the gold market. The price of gold went up more than $100 since the Fed announced it would not be tapering its bond buying.


Because gold is waterproof. No kidding. When the broad ocean of cash, credit, and connivance breaks into open fury – with howling winds and towering waves – gold will stand tall and sure, like an indestructible lighthouse.

No financial wind blows it over. No drenching rain warps it. That’s why smart investors…and smart central banks…are watching the weather and accumulating gold.

Gold is ‘Fed-proof’ too…

The Fed’s announcement, according to the press, came as a surprise. No one should have been surprised. This is an economy that has come to depend on Fed stimulus.

Every time the Federal Reserve has hinted that it might…possibly…at some time in the future…unless it changes its mind…and the creek doesn’t rise…reduce its interference, the markets get the heebie jeebies.

Since the purpose of the Fed’s action is to avoid the heebie jeebies, they are now trapped by their own clumsy meddling. They broke it. Now, they own it.

What can they do with it? Perhaps this is a good time to answer our critics. As you know, we have announced our availability to run the Federal Reserve. If selected, we promise to be derelict. We will abdicate immediately…shirking our responsibility completely. As you can probably imagine we’re still waiting for the phone to ring.

C’mon, Barack. We’re in Paris now. Yes, the US government is a little short of funds. But surely you can afford one long-distance call.

But at least one dear reader believes our plans for the Fed are completely unrealistic and downright irresponsible. We’ll let him explain:

Bill, you would have to be a Luddite to believe what you say. Your way will be totally catastrophic, everything, everything has moved on, we cannot go back, should it be that you head the Fed.

I am not saying for a moment I like where we are, or that the banks are not making things worse, they plainly are. But in order to keep people working, you need to rely on the velocity of money, period.

Our reader goes on to tell us that we too are prisoners of the Fed’s actions…and of the paper money system. There’s no way out now…not without hell to pay.

And guess what? He’s right. There is hell to pay. But we guarantee you, dear reader, hell will collect…whether we like it or not. And the bill won’t get any smaller the longer we dodge the bill collector.

Look, what’s the real point of our current paper money, Fed-managed system? It is so that the insiders can manipulate, obfuscate and confiscate.

They manipulate the value of our money, lie about what is really going on and steal wealth from savers and workers to pay for their pet projects and give money to their zombie friends. That’s the way it has always been and shall ever be, amen.

For example, Charles de Gaulle’s economist, Jacques Rueff, explained why inflation seemed to boost employment. It was because inflation robbed the workers of their wages…lowering labour costs…and making it easier for employers to hire them.

And Marc Faber explained, just two days ago, how QE robs more than 90% of the population to pay off the elite. Where does all the Fed’s QE liquidity go? It goes into stock prices! Who makes money when stock prices rise? Wall Street and its elite clients! Everybody else loses.

And what about the zombies?

We’ll explain that part of it ourselves. The Federal government borrows the Fed’s ersatz dollars at record low interest rates. What happens to the money? Does it go to the taxpayers? Does it go to real, productive businesses…or to real, productive workers?


It goes to zombies of all sorts – to the 7 out of 10 families who get more from the government than they pay in taxes…and to all those contractors we passed along the Dulles Corridor on our way to the airport.

QE is a Zombie Enrichment Program. The sooner it ends…and the sooner the Fed is abolished…the better off we all will be.


Bill Bonner
for The Daily Reckoning Australia

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From the Archives…

How Long Can the Government Charade Continue?
20-09-2013 – Vern Gowdie

The End of Australia’s Boom Economy
19-09-2013 – Satyajit Das

Super… Who’s Going to Buy Your Shares When You Retire?
18-09-2013 – Nick Hubble

Australian Banks in the Firing Line
17-09-2013 – Nick Hubble

Yellen at Stocks to Go Up
16-09-2013 – Nick Hubble

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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6 Comments on "How to ‘Fed Proof’ Your Wealth"

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Excellent ‘sooth’ by Bill Bonner… except for the elephant in the room that no-one mentions: Trading in gold will be made illegal in the US. The US government will do ANYTHING to protect the reserve status of the US dollar. When the ponzi dollar printing scheme finally fails, and the ‘paper gold’ naked-shorts ponzi scheme (such as GLD) which is used to suppress the price of gold to protect the dollar, also fails, the price of gold will head into the stratosphere. Except that it won’t, because the US government will make it illegal to trade in gold – as… Read more »
slewie the pi-rat
you see, it is no longer ‘the dormitive principle’. it is now ‘the Bankster Reserves collateral principle’… …thus does ‘Science’ evolve. Bill Dudley, NY FED Prez since 1.29.09 [bye, Timmah!], and current vice-chair of the FOMC just ‘introduced’ something the recent con-fusion-ings MAY have been about: “I want to discuss a new tool that the Open Market Trading Desk (the Desk) at the New York Fed will be testing and developing in coming months. The new tool is a fixed-rate, full-allotment overnight reverse repo facility that would be available to a broad range of counterparties—not just open to the primary… Read more »

The government here can’t confiscate our gold, they don’t know we have any,……. I’ve said that before, haven’t I ?

To ‘Shortchanged’. The US Government is unlikely to confiscate gold. They don’t need your gold. They just don’t want it to compete with the dollar as a store of value. If the gold price rises, it starts to look like an attractive alternative to holding dollars. This is dangerous to the reserve status of dollar if there’s a broad move into the safety of gold. (The wise Chinese are already doing this quietly by steadily exchanging their dollar reserves for gold at a rate of 120 tons a month.) When the US Govt price suppression scheme with paper gold ceases… Read more »

Zephaniah 1:18
“Neither their silver nor their gold will be able to save them on the day of the Lord’s wrath. In the fire of his jealousy the whole world will be consumed, for he will make a sudden end of all who live in the earth.”

Ezekiel 7:19
“They will throw their silver into the streets, and their gold will be an unclean thing. Their silver and gold will not be able to save them in the day of the Lord’s wrath. They will not satisfy their hunger or fill their stomachs with it, for it has made them stumble into sin.”


Thanks for the explanation, William, however I live in the UK and have gold Sovereigns, which are, surprisingly, legal tender, and not subject to the vagaries of the US government.
I too hope the Chinese government ‘holds fast’ and is not persuaded to go to the dark side and prop up the US government, ie. Wall Street. I also realise I’m issing in the wind , just have to remember to face downwind.

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