Gold and Energy Advisor
Gold and Energy Advisor's Real Wealth

Real Wealth #135  12/12/2007

Fed Surrenders, Admits Defeat!

Something amazing happened this morning.


As you've probably heard, the market has leaped up today, erasing yesterday's losses. Traders are responding to this incredible announcement from the Federal Reserve:


"Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets...


"Actions taken by the Federal Reserve include the establishment of a temporary Term Auction Facility... Under the Term Auction Facility (TAF) program, the Federal Reserve will auction term funds to depository institutions against the wide variety of collateral that can be used to secure loans at the discount window.


"All depository institutions that are judged to be in generally sound financial condition will be eligible to participate in TAF auctions... By allowing the Federal Reserve to inject term funds through a broader range of counterparties and against a broader range of collateral than open market operations, this facility could help promote the efficient dissemination of liquidity when the unsecured interbank markets are under stress."


Translation: the Fed has created an entirely new way of injecting liquidity into the economy. It bypasses the current network of approved dealers for open market operations, and expands the acceptable collateral for loans.


Incredibly, it also intertwines the Fed with other Western central banks, so they can all inflate their economies simultaneously.


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This announcement is HUGE. I'll have much more to say about this in future issues of Real Wealth and Gold & Energy Advisor, but for now, I'll leave you with this.


The Fed has, in effect, surrendered and confessed defeat. Its previous monetary tools—which have been around since 1913! —were utterly inadequate to control today's growing financial crisis. So it has created a new tool: a way to flood the economy with newly-created dollars. Waves and waves of them.


The dollar is going to fall off a cliff. Think it's fallen a lot lately? Just wait!


Not only that, the other major currencies are going to dive right along with it. The pound, the euro, the Swiss franc... they're all going down together.


Today is a great day for gold investors!


Best Wishes,


James DiGeorgia

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