Over the last two weeks, ECB President Mario Draghi and Federal Reserve Chairmen Ben Bernanke went all in with respect to trying to protect the bond markets.
What they have missed in their analysis however is the risk from moral hazard. Reforms continue to fall behind in Greece and until the EU actually stands up to Greece they will now have no incentive to implement any reforms.
Spain has yet to officially join an EU/IMF program but we all know this is only a matter of time.
The new programs only kick the can down the road for another couple of months doing nothing to address the structural problems of high unemployment in the US, Greece, and Spain.
Missed by most people is that while the German courts approved the ESM they also capped Germany's liability meaning that the program is not really as open-ended as people may think.
The truly dangerous part of Ben Bernanke's strategy is that he has not just committed the Federal Reserve to a ZIRP policy through mid-2015 but he has also committed to destroying the savings of the elderly until that time forcing them to remain in the workforce as CDs and fixed income securities can no longer supplement their incomes. This constrains his attempts to lower the unemployment rate.
If we dig into the A-6 Employment status of the civilian population report we find that seniors are working longer into their golden years. The number of employed Americans, with no disability, age 65 or older has risen from 5.079 million in June of 2008 to 6.303 million in August of 2012, an increase of 24%. This is due to home prices which have fallen and the inability to rely on interest from bonds to supplement incomes.
We have all been taught that fixed income securities were the way for seniors to supplement their incomes during their retirement. Now that this retirement option has been taken away seniors are being forced to work into their golden years.
This causes a trickle-down effect as seniors continue to work blocking the career paths of those beneath them. Efforts to kick start hiring slow and the unemployment rate stagnates.
This is the untold story of the Federal Reserve and Ben Bernanke's War on Savers.
The second dangerous part of Ben Bernanke's strategy is that he has now committed the Federal Reserve to subsidizing the budget deficit through his ZIRP strategy for a longer period of time.
The good news for gold (GLD, DGP) and silver (SLV, AGQ) investors is that we should be hitting new highs later this year and early next as the policies enacted over the past two weeks fail to settle the problems facing the EU and US and in fact make everything worse.
In terms of miners I found it a bit odd that many majors are pulling back their capital plans in light of recent inflationary conditions around the world, especially for those projects located in Argentina.
As the price of gold continues to rise the projects which are being placed on the shelves will become more economic and decisions will be made to restart the projects given the high prices expected for the price of gold.
I expect that many of the projects put on shelves will be brought back to the table in less than a year's time.
For now gold and silver investors should be reaping the benefits after waiting out a summer that saw the prices of gold and silver base in preparation for this move.