Independence

"There is no more independence in politics than there is in jail." - Will Rogers

July 4th, 1776 was the day that America adopted the Declaration of Independence from Great Britain.  It was the day that the shackles of another society (Great Britain) were cast off and it was allowed to create its own laws, policies and government.  It was given a clean slate on which to craft its own unique society and from this emerged the constitution that has stood America in good standing ever since (although parts may now be outdated but that is a separate topic altogether).

Jumping forward to today we are lead to believe that the Federal Reserve is independent of politics.  The Federal Reserve was created to manage the economy independent of political influences.  Their job is to keep inflation contained and employment levels robust.  Now if they were truly independent it is hard to imagine that they would continue on with their current policies.  As I explained a couple of blogs ago, when they mentioned that they were going to slow down the magnitude of their money printing the market took a massive tumble and interest rates spiked. 

This spike in interest rates has had an immediate effect on the housing market which saw mortgage applications skid to their lowest level since November 2011.  Now I will not place all the blame of the housing weakness on interest rates alone as affordability of housing is headed in the wrong direction in a hurry as the price of housing continues to spiral higher at ridiculous rates but what is clear is that the markets of housing and stocks are both inextricably tied to the Federal Reserve's quantitative easing strategy.  Stopping will have the same effect as cutting the rope when a climber is hanging from it with the line being his only hope for survival.  On the flip of this if they continue on their merry way then there is no way to contain inflation.  All that is needed to ignite the inflationary fire is for the velocity of money to raise its massive head and all bets are off.

For the velocity of money to start up though you do need lending to improve and with housing going into orbit slowing mortgage applications and with the recent announcement that the banks need to add more reserves to their balance sheets, it appears that this will be held at bay for a little longer but between then and now what is desperately needed is an independent Federal Reserve.  The problem is that with Bernanke's term coming to an end it is clear that the long arm of politics is more interested in protecting themselves than they are in protecting the economy.  On the surface therefore it seems highly likely that Janet Yellen will replace Bernanke.  Now if you thought Ben could print I think Janet will take it to a new level however this in my mind will be the hair that breaks the camel's back.

China is already becoming a global economic super power and if the Federal Reserve continues on its way it will not be long before the dollar loses its status as the world's currency of choice.  Lose this status and printing money is no longer an option.  It is time for the Federal Reserve to re assume its independence and instill a policy that creates jobs and protects the economy as that is what is required but as this is not going to happen it is clear that the only option to protect your portfolio during the coming years is to load up with gold.  Gold always has and will continue to prosper during times of economic weakness and high inflation rates and with its recent pounding you have been given a great opportunity to buy so that you prosper once mud starts to fly.