One of the biggest reasons for people deciding to buy gold bars or to own silver coins is because of the folly of central banks and government. It seems bizarre to most people that we are all aware that money doesn’t grow on trees and yet those responsible for financial stability have forgotten this basic life-lesson. But, what has felt even more bizarre (and maddening) is for how long this foolishness has been allowed to continue. Well, it seems this won’t be the case for much longer. Below, we outline how central banks and governments are coming to the end of their experiment, not necessarily by choice and certainly not without consequence.
Central banks have been printing money non-stop for the last 15 years – since the 2008-09 Great Financial Crisis. The central bank purchases assets in exchange for newly printed money. The main asset being government bonds. The European Central Bank (ECB), Bank of England (BoE), and the US Federal Reserve (Fed) are holding close to $12 trillion in government bonds on their balance sheets – more than half of these bonds purchased since the 2020 covid pandemic took hold. Central banks sucked up government bonds in order to keep yields from rising so governments could continue to issue bonds … and this circle worked for as long as bond prices continued to stay the same or rise.
Central banks’ buying of government bonds was a win for the government too, as governments benefited through the low yields that central bank buying created. This allowed governments to continue spending well beyond their revenues, thereby increasing already large debt loads without the consequence of rising yields.
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