QE “Can Do No Good” for the Economy

The gold price rallied $49.25 to $1,867 per ounce Friday morning, continuing its recent string of outsized moves. After falling $57 yesterday and briefly slipping under $1,800, the price of gold steadied ahead of a key speech later today from Fed Chairman Ben Bernanke where he will address the state of the economy. Several investment strategists have suggested that Bernanke may telegraph his intention to announce additional monetary accommodation at the September 20-21 Federal Open Market Committee meeting.

Gold prices held firm this morning following the announcement from the European Central Bank (ECB) that interest rates were left unchanged at 1.5%. President Jean-Claude Trichet will hold a press conference at 2:30pm eastern time today. Trichet, who has repeatedly stated his inclination to pursue “strong vigilance” with respect to inflation, is expected to offer a more dovish outlook on price pressures in the euro zone.

When asked in a CNBC interview on Thursday if additional rounds of quantitative easing will help the economy, Edelman responded that “QE can do no good for the economy" because here’s what they’re about: You look at a snake and imagine it swallowing its own tail, you look at the Fed and think that, and if money is fundable and here is what really happens. The government sells Treasuries to the investment banks and other financial institutions and some cases foreign governments and the financial institutions, including the banks, borrow against those Treasuries at the Fed, and the Fed lends them the money against the Treasuries at a lower interest rate than they’re receiving from the Treasuries, and then the Fed goes back and buys the Treasuries at a higher price than they paid for the Treasuries.” Either way, the bull market in gold – now in its 11th year – is sending a strong signal that Bernanke’s policies continue to have very damaging consequences on the global economy.