The Federal Reserve, saying economic growth had “paused” in recent months, announced Wednesday it will continue its $85 billion monthly bond buying and hold interest rates near zero until unemployment falls to at least 6.5 percent.

The central bank decision, which followed a two-day meeting, had been widely expected, especially after a surprising decline in U.S. economic growth for the fourth quarter.

Earlier Wednesday, the government announced that GDP unexpectedly suffered its first decline since the 2007-09 recession, falling at a 0.1 percent annual rate after growing at a 3.1 percent clip in the third quarter. (Read More: GDP Shows Surprise Drop)

Markets showed relatively little reaction to the GDP report, in part because it reinforced expectations that the Fed will continue to provide stimulus as long as the economy is weak. Stocks were slightly lower after the Fed decision. (Read More: Stocks Listless After Fed Decision)

“The report, noisy as it is, may help ease ideas that has surfaced earlier this month that the Fed may look to soon pull back from its asset purchases,” wrote Marc Chandler, chief currency strategist at Brown Brothers Harriman. (Read More: Why Markets Aren’t Worried About Bad GDP)

The minutes of the last Fed meeting in December showed that some Fed members thought QE should end this year, a comment that helped send interest rates higher this month.

Read More at CNBC .

In this week’s talk with National Numismatics’ Tom Cloud, he explains why Germany’s gold repatriation is just the beginning, the US Mint’s silver shortage will continue, and the big money is right about precious metals.

DollarCollapse: Hi Tom. It’s been an eventful few weeks in precious metals, though you wouldn’t know from the price action alone. Hit the high points for us.

Tom Cloud: Germany’s gold repatriation is obviously a game changer. They got all their gold back from France right away. But the US government put them off for 7 years, probably by offering them some kind of premium to take their gold back slowly. More gold, Treasuries, no one knows what exactly but clearly it was a big inducement. It’s also clear that Germany won’t be the last country to bring its gold home. The Netherlands is next and then probably Switzerland. It’s become a game of musical chairs. No one wants to be caught when the music stops. And make no mistake, it will stop. Everybody in the industry knows the US doesn’t have the gold and can’t deliver it. They’ve leased it all out.

It’s important to understand that there are two big stashes of gold in the US. Fort Knox supposedly holds the gold that belongs to us. And the New York Fed holds gold that has been deposited by other countries for safe keeping. That’s where Germany’s gold would be if the US hadn’t leased it out.

DC: Then there’s the US Mint running out of silver eagles.

Read More at dollarcollapse.com . By John Rubino.

Today’s report of a 0.1 percent GDP decline for the fourth quarter came as a surprise to most forecasters. But it actually masks considerable strength in the private economy. Namely, housing investment in the fourth quarter jumped 15.3 percent annually, business equipment and software spiked 12.4 percent, and real private final sales rose 2.6 percent. All in, the domestic private sector of the economy increased 3.4 percent annually — a very respectable gain.

And here’s one for the record books: Working ahead of year-end tax hikes, individuals shifted so much money to the fourth quarter at the 35 percent top rate that personal income grew by 7.9 percent annually — a huge number. And there’s more: In order to beat the taxman, dividend income rose 85.2 percent annually. You think tax incentives don’t matter? Guess again.

Now, all this private-sector strength occurred despite the fact that government spending — namely military spending — dropped 6.6 percent. Inventories also lost ground and the trade deficit widened.

But here’s a key point: Military spending has now fallen virtually to its lower sequester-spending-cut baseline. It did so in one quarter by about $40 billion. So the brunt of the impact over the coming years has already been felt. (Normally, as of recent years, military spending has been virtually flat.)

Which leads me to another key point: Even with the fourth-quarter contraction, the latest GDP report shows that falling government spending can coexist with rising private economic activity. This is an important point in terms of the upcoming spending sequester. Lower federal spending, limited government, and a smaller spending-to-GDP ratio will be good for growth. The military spending plunge will not likely be repeated. But by keeping resources in private hands, rather than transferring them to the inefficient government sector, the spending sequester is actually pro-growth.

Big-government Keynesians think big spending provides big growth. They are wrong. This has been a 2 percent recovery — the worst in modern times — dating back to 1947. So let’s try something different. Let’s shrink government. Let’s let the private sector breathe and generate entrepreneurship and risk-taking.

Read More at Real Clear Markets . By Larry Kudlow.

US economic output fell at a 0.1% annualized rate in the fourth quarter, adjusted for inflation. Blame spending cuts, say the Democrats. Blame Republican “austerity.” And one more thing: Stop the sequester. As the Center for American Progress put it: “The economy most certainly would have grown at a faster rate were it not for the ongoing political brinksmanship over the debt ceiling and the risk of sharp fiscal contraction in the form of the pending automatic ‘sequestration’ budget cuts.”

If you break down the GDP report, you begin to see the problem with this line of argument. Private-sector GDP actually added 1.2 percentage points to overall GDP during the past three months. A decent rise in consumer spending was slightly offset by a drop in business investment and a rise in imports. Government spending, however, subtracted 1.3 percentage points, turning the overall GDP number slightly negative.

But so what? Liberals are confusing a metric used to measure the size of the US economy with the actual US economy. What if GDP internals were reversed? What if government spending contributed 1.2 percentage points, and the private sector subtracted 1.3 percentage points? The overall GDP report would have been superficially the same, but in reality much, much worse with the real economy contracting.

Or what if government spending added 6 percentage points, and the private sector subtracted 2 percentage points? The news headline would say GDP rose by 4%, but that growth would be illusory and unsustainable. Should we have more government spending just to prop up the GDP numbers? As economist Tyler Cowen notes in The Great Stagnation: “We are still valuing government expenditures at cost rather than being able to measure prices set in a competitive market. … The larger the role of government, the more the published figures for GDP growth are overstating the improvements in our standard of living.”

Instead of kvetching about how spending cuts are hurting growth, liberals should focus on the fourth-quarter drop in business investment — and the impact this year of the 60% rise in investment taxes. From 1994 through 1999, GDP growth averaged 4% a year. But government spending added, on average, just 0.3 percentage points to that total. The other 3.7 percentage points came from private sector growth, with business investment adding a healthy 1.3 percentage points to that total. (Also note that federal spending as a share of GDP fell from 21% of GDP in 1994 to 18.5% in 1999. Still the economy boomed.)

Read More at The American Enterprise Institute . By James Pethokoukis.

I have often explained why the Keynesian belief that the government can print/ borrow and spend enough money to trigger self-sustaining prosperity is a nonsensical, magical-thinking Cargo Cult.

During the current commodity supercycle, there have been occasions—too many to count—when investor psyche has been damaged by reports about slowing U.S. growth, a hard landing in China or a debt crisis in Europe. Yet just behind the gloom, significant and positive trends are taking hold, causing the storms to start dissipating.

I often say that government policies are precursors to change, which is why we follow the monetary and fiscal actions closely as they can have a significant impact on asset prices. You have to go back about 16 months when Brazil kicked off the latest global easing cycle by cutting interest rates by 50 basis points. Since then many developing countries such as the Philippines, China and Colombia, as well as developed nations of Japan, the European Central Bank, the U.S. and the U.K. have joined forces in a world-wide synchronized stimulation of the economy.

Last summer, Mario Draghi indicated that the ECB would do “whatever it takes” to save the euro. In the fall, the Federal Reserve agreed to buy $85 billion a month in Treasuries and mortgages, amounting to $1 trillion a year. And just recently, Japan announced that, in addition to pumping $1.1 trillion into the markets through 2013, the central bank will keep an open-ended approach to buying assets through 2014.

Historically, central banks’ policy actions occur after there’s been some economic deterioration. Several months later, the stimulative measures work their way through the global economy.

Read More at dailyreckoning.com . By Frank Holmes.