With central banks and governments around the world putting the pedal to the metal with currency creation, spending, and borrowing, they are sure to ignite the effects of inflation. The increase in money supply is inflation by definition. The subsequent increase in financial asset prices and consumer prices are the effects of inflation – monetary and fiscal policies. We know as a matter of policy, that such inflation is to make its way into financial asset prices, which we have been witnessing with equity prices at record valuation levels, and housing prices at all-time highs. The hope with such a policy is that with higher prices, profits can be taken and thus spent into the real economy to generate growth. This is a false narrative and only has marginal benefits at best that are short-term and come at a cost. So on a net-net basis, this translates into a drag on current and future economic growth. True growth does not simply come from spending, but rather production and investment. If economic growth could come from a printing press, then the likes of Venezuela, Argentina, Lebanon, Iran, Zimbabwe, Turkey, and others would be the envy of the world. But they are not, because money printing is not a solution. In fact, such actions are a major part of the problem and will only make matters worse.
An increase in consumer prices and commodity prices is also underway. If this trend continues, then a vicious cycle will occur. As commodity prices rise, these prices will be passed on to consumers, and in this environment, we will have stagflation – inflation with a stagnant economy. Another interesting occurrence that may well happen will be with respect to the bond market and yields. If yields continue to rise, this will put upward pressure on borrowing costs for other loans such as mortgages, as well as the national debt. The Federal Reserve is attempting to keep rates low to “stimulate” the economy. But if yields are rising, then the Fed will have to print (inflate) even more currency to go into the bond market to buy US debt across the yield curve in order to suppress the rising yields. In effect, this translates into the Fed fighting inflation with more inflation. See the problem? Because the rising yields reflect the ensuing inflation as opposed to any real economic growth. We continue to see one metric after the next slow down or roll over, and several hundred thousand Americans are filing initial jobless claims on a weekly basis as we approach the one year anniversary of restrictions and lockdowns. So where is the economic growth? Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #Inflation #Markets #USA #bananarepublic #EndTheFed #Liberty #Debt #Gold #Silver #Recession #Depression #Stagflation
