I have always believed the Federal Reserve and it’s Chairman had other objectives when taking office than simply “stabilizing the business cycle” or “fighting inflation”. As in all Orwellian dramas, the stated objective is usually the polar opposite of it’s nomenclature. This Federal Reserve with it’s current Chairman, Ben Bernanke, is no exception.

Currency manipulation and by proxy then, gold price manipulation are right up Bernanke’s alley. As we all know the price of gold and the strength of the dollar go hand-in-hand…inversely, of course. We all also know the way Bernanke and company print so many US dollars to pay for wars and bailouts…it’s call the US Treasury market.

A quick overview how money is created out of debt in our system…


1. The Treasury needs money so it issues Treasury bonds…or debt which requires a repayment with interest.
2. The buyers of the Treasury bonds, both foreign and domestic, transfer US dollars to the Treasury which deposits these payments.
3. The Treasury is now responsible for repayment of both principal and interest on the bonds issued. It is said this system is the “back-door” to pay the “cost of government” politicians are unwilling to ask the taxpayers for in the form of more taxes. It is the “line of credit” for Congress and a direct addition to the National Debt which now stands at over $10,000,0000,000,000.
4. We will pay back that debt with interest and maintain our standing in the world, but it is becoming increasingly worrisome. The only real solution is to payback all of the interest and principal payments with “devalued” dollars. So, sooner or later we will have to “inflate” the US dollar and some say keep inflating it so our creditors get less and less for buying our Treasuries.
5. This is where Ben Bernanke steps in since the Federal Reserve prints the US dollars, controls the money supply, and by proxy, it’s value. Increase the money supply decrease the value, decrease the money supply, increase the value.

Ben will inflate the currency when necessary and my guess it will be an on-gong endeavor for years to come. Federal Reserve Chairman in the past have at least given lip service to a “strong dollar” policy, but not Mr. Bernanke. He stated in his famous 2002 speech on deflation, a “helicopter drop” of more money could be used if necessary. He became know by detractors as “Helicopter Ben” after that speech.

  • Are we not in a “deflationary period” right now?
  • Won’t Ben need to fire up his helicopters soon?
  • Hasn’t he already “dropped” $700 Billion with the lastest financial bailouts?

    • This is where the price of gold gets a kick. If Ben does what he thinks “needs to be done” a weaker dollar is the result. A weaker US dollar means the price of gold goes through the roof.

    James Conrad on SeekingAlpha writes,

    “Anyone who reads the written works of our Fed Chairman knows that Bernanke’s long term plan involves devaluing the dollar against gold. This is the exact opposite of most prior Fed Chairmen. He has overtly stated his intentions toward gold, many times, in various articles, speeches and treatises written before he became Fed Chairman. He often extols the virtues of former President Franklin Roosevelt’s gold revaluation/dollar devaluation, back in 1934, and credits it with saving the nation from the Great Depression. According to Bernanke, devaluation of the dollar against gold was so effective in stimulating economic activity that the stock market rose sharply in 1934, immediately thereafter. That is something that the Fed wants to see happen again.”

    Since Congress can’t seem to steer clear of war expenditures, cease funding every private sector bailout, and eliminate the mentality we can “borrow and spend our way” out of every mess we create…the price increases of gold are baked into the cake.

    As James Conrad said in the same December 4, 2008 SeekingAlpha story,

    “It won’t matter much if you purchase gold at $750, $800, $850, $900 per ounce, or even much higher. All of these prices will be looking extraordinarily cheap in a few months. The price of our pretty yellow metal is about to explode, and it is probably going to soar, eventually, to levels that not even most gold bugs imagine.”

    I think he’s right…so get started today…I’ll help…click the link.

    Happy Investing!

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