Long Bonds vs. the Gold Bull
by Doug Hornig
Paydirt editor Doug Hornig outlines how the bond market is signaling that confidence in the full faith and credit of the U.S. government has plummeted. Despite Friday’s crash in gold, the potential for a real fiscal crisis is looming…
As I sit down to write this morning Friday January 30, I see that the PMs got hammered overnight, with gold down over 9% and silver off—gulp—over 26%. That may look ominous, but the fact is that this was long overdue. No asset rises in a straight line forever, and the PMs surely needed a breather after their extraordinary year. No worries.
Now on to my topic of the day.
What the Fed Does
There is a widespread misconception that the Federal Reserve “sets interest rates.” It doesn’t, with one exception. It sets the federal funds rate, which is what banks charge each other for overnight loans. A very short-term interest calculation. That’s all.
Not that the federal funds rate is insignificant. It’s the liquidity linchpin for the big banks. So it’s closely watched in financial circles. There’s always a lot of teeth-grinding anticipation about what the Fed Chair will announce after the Board’s next meeting.
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