KW: Doug Casey writes: Last week, the Fed created over a quarter of a trillion dollars out of thin air and injected it into the repo market. It’s the first time the Fed has done something like this since the 2008 financial crisis. It could signal imminent problems in the financial system.
Even worse, it could mean the Fed is on the cusp of creating an avalanche of new money that could significantly devalue the dollar. That would be terrible news for savers and retirees in particular. To protect yourself from currency devaluation and inflation, we think everyone should own some gold.
Jim Rickards writes: Financial panics and recessions don’t always go together. Panics can happen without recession, as happened in 1987, 1994 and 1998. Recessions can also happen without panics, such as in 1982 and 1990. And sometimes they happen together, like in 1929 and 2008. Right now, recession risk is low. But signals from the credit markets suggest a possible panic, as part of the market nearly seized this week.
The “repo” rate is the rate that banks pay to borrow overnight in exchange for safe collateral like U.S. Treasurys. And the overnight interest rate spiked above 8% Tuesday morning, far above the Fed’s target rate, in the face of a liquidity shortage. The Fed rushed in with about $125 of liquidity Tuesday and Wednesday, its first repo operation since the financial crisis.