Patience - Ainslie Bullion News

The Oxford dictionary defines ‘patience’ thus:

“The capacity to accept or tolerate delay, problems, or suffering without becoming annoyed or anxious”

Last night gold jumped $15 on the news that the US Fed sent a clear message that it will still be a long time before they can consider raising US interest rates.  You will recall they dropped their new ‘considerable time’ term for ‘patience’ with respect to raising US interest rates a few meetings ago.  Last night they cited the strong USD, rising tensions over Greece and Ukraine and slow US wage growth for keeping the patient on free money drugs for longer.  For all the rhetoric of a strong US economy, the actions of the Fed are in stark contrast.   This is a market hooked on stimulus and they know it.  It is also a market with a pile of US debt and raising rates will be debilitating for many.

Chris Joye at the Australian Financial Review puts it well:

“Central bankers are taxing future generations to superficially stimulate the present. It's classic human hedonism or, more technically, hyperbolic discounting. The economy is like a human body. If you fall sick, there's a case for temporary medicine to mitigate the malaise and facilitate recovery. The policy analogy is lower interest rates and budget deficits. But if you dope up the patient on extreme quantities of drugs for long periods, you actually start damaging the body's capacity to heal itself. Rather than relying on its innate ability to repair, the body becomes addicted to external bailouts. And the medicine morphs into the problem.

Imposing excessively stimulatory interest rates for unnecessarily long periods (it is eight years since the GFC first hit) undermines the regenerative qualities of the economy that are the cornerstone of long-term productivity growth. Ridiculously cheap money inflates the value of leveraged assets to unsustainable levels, sucking scarce people and capital away from other businesses. Debt-laden firms are rewarded while the prudent are punished.”

As Chris alludes, when you mess with natural markets you are just setting yourself up for a far deeper fall when you lose control.  To many we are in the midst right now of that loss of control.  When considering the true definition of ‘patience’ above, we’d suggest that maybe the US Fed is just a tad anxious right now regardless of their words….