– This Major Fed Move Is About To Cause Gold To Skyrocket (King WorldNews, July 8, 2012):
As I predicted, as far back as June of 2010, the Fed will soon follow the strategy of ceasing to pay interest on excess reserves. Since October 2008, the Fed has been paying interest (25 bps) on commercial bank deposits held with the central bank. But because of Bernanke’s fears of deflation, he will eventually opt to do whatever it takes to get the money supply to increase.
With rates already at zero percent and the Fed’s balance sheet already at an unprecedented and intractable level, the next logical step in Bernanke’s mind is to remove the impetus on the part of banks to keep their excess reserves laying fallow at the Fed. Heck, he may even charge interest on these deposits in order to guarantee that banks will find a way to get that money out the door.
Commercial banks currently hold $1.42 trillion worth of excess reserves with the central bank. If that money were to be suddenly released, it could, through the fractional reserve system, have the potential to increase the money supply north of $15 trillion! As silly as that sounds, I still hear prominent economists like Jeremy Siegel calling for just such action. If they get their wish, watch for the gold market to explode higher in price as the dollar sinks into the abyss.
Ennio Morricone – Ecstasy of Gold