Jay Taylor spoke with Axel Merk about the gold market and mismanagement of global economies by central banks. Merk believes that the United States, Europe, and Japan cannot afford to raise real interest rates. So even if the Federal Reserve delivers a nominal interest rate hike later this year, effective real rates will remain near zero. He expects this to stay the same for at least the next decade, which is very bullish for precious metals and gold.
Highlights from the interview:
“[I was at] The Stanford conference hosted by the Hoover Institute… A couple of interesting pieces there. One of them was Mr. Warsh, who was a [Federal Reserve] Governor during the 2008 crisis, saying that people are just reading statements during the FOMC meeting. There’s not really any debate. You need to have comities, you can’t just have the Chair decide on everything…
“The most noteworthy comment came from Charlie Plosser… What he said is that we should go back to basics on central banking. Clearly, our audience should maybe get rid of them entirely, but what he said is to let the Fed just have an inflation target and nothing else. What he means with that is when emergency liquidity is provided, the Fed shouldn’t do that. The Treasury should authorize it. The Fed can then provide the money maybe short-term. But if the money sticks around at the Fed, it should be swapped with Treasuries. So basically the Fed gets out of politics and doesn’t buy anything but Treasuries…
“I’ve always argued that you can get away with a pretty bad central bank if you have good fiscal policy. But if you have bad fiscal policy, the best central bank won’t help you. Ultimately, they’re the hostage of the government…
“Multiple speakers, including John Williams, the San Francisco Fed President, said, ‘Hey, during the gold standard things weren’t so bad. They worked pretty well. You were able to take the government out of many of these things.’ But he did lament that ultimately it did break down; whenever there was a crisis, people got off the gold standard…
