Call us Today!  (800) 630-1691

The Golden Edge  {Sapientiae & Veritas} Commentary on economy that effects the markets, that help you generate trade ideas, research and tested strategies, Not fake news just the facts,  , Real Time Knowledge To Secure Your Future. Read daily or weekly

Get Ready for the Great U.S. Inflation Mirage of 2021

The story of U.S. inflation in 2021 could very well amount to this: It’s all a mirage. Americans are likely to see prices jump across a variety of sectors next year, thanks in part to Covid-19 vaccines that will potentially turbocharge demand for such pandemic casualties as travel and tickets to sporting events. With prices also climbing for some inputs such as copper and lumber, inflation could very well reach or surpass the Federal Reserve’s 2% target in some months. Financial markets are increasingly pricing in higher inflation in coming years, and debates over whether the central bank should start easing back its record monetary stimulus may intensify. “In 2019 we had a really perfect storm for higher inflation,” with low unemployment, goods tariffs, and a weaker dollar from prior years, said Matthew Luzzetti, Chief U.S. economist at Deutsche Bank AG. “And that really only got us not even back to the Fed’s core inflation objective, so achieving above-target inflation is a really difficult thing for the Fed.” At 6.7% in November, the jobless rate is almost twice as high as it was in the closing months of 2019 when it stood at a five-decade low of 3.5%. Yet worker compensation costs decelerated then.

Business Cycle: Contraction and Trough As the market resists any higher prices, a decline begins. This is the beginning of the third, or contraction, phase. The growth rate turns negative. If it lasts long enough, it can create a recession. During a recession, deflation can occur. That's a decrease in the prices of goods and services. It can often be more dangerous than inflation. As the economy continues its downward trend, it reaches the lowest level possible for the circumstances. This trough is the fourth phase, where contraction ends and economic expansion begins. The rate of inflation begins to increase again, and the cycle repeats. During recessions and troughs, the Federal Reserve (the Fed) uses monetary policy to control inflation, deflation, and disinflation.

The Effect of Monetary Policy The Fed focuses on the core inflation rate, which excludes gas and food prices. These volatile prices change from month to month, hiding underlying inflation trends. The Fed sets a target inflation rate of 2%. If the core rate rises much above that, the Fed will execute a contractionary monetary policy. It will increase the federal funds rate. This is the rate at which banks lend to each other overnight. Historically, this action reduces demand and forces prices lower.

Why Didn't Quantitative Easing Lead to Hyperinflation? Why the Inflation Rate Matters The inflation rate demonstrates the health of a country's economy. It is a measurement tool used by a country's central bank, economists, and government officials to gauge whether action is needed to keep an economy healthy. That's when businesses are producing, consumers are spending, and supply and demand are as close to equilibrium as possible. A healthy rate of inflation is good for both consumers and businesses. During deflation, consumers hold on to their cash because the goods will be cheaper tomorrow. Businesses lose money, cutting costs by reducing pay or employment. That happened during the subprime housing crisis. So where did all the M0 money go if it wasn't multiplied through the credit system? The answer is that banks and financial institutions hoarded the money in order to shore up their own balance sheets and regain profitability. Banks still had bad loans and toxic assets on their balance sheets as a result of the housing bubble burst and its aftershocks. The extra cash on hand made their financial picture look a whole lot better. As the economy has recovered and the fed has begun tapering its interventions, the money being held by banks is being returned to the Fed slowly in the form of interest payments on the debts purchased during QE. Meanwhile, the U.S. economy, on the whole, has remained productive and growing. The Bottom Line Many feared that QE would spell hyperinflation for the U.S. economy following the economic crisis of 2008. The crisis, however, was largely a deflationary phenomenon and the money being injected into the system by QE, as seen by the spike in the M0 monetary base, was by and large retained by the financial sector, with the more important M2 money supply remained fairly stable. Banks and Financial companies kept the Money to Themselves No monies for the People Hyperinflation is an exponential rise in prices and tends to occur not when countries print too much money; instead, it is associated with a collapse in the real underlying economy. The printing of money is a desperate effort to maintain stability and prevent production from coming to a halt, as what happened in post-WWI Germany and during the 2000s when Mugabe headed the government of Zimbabwe. On the other hand, the U.S. economy remained productive during the period of the Great Recession and only saw very modest increases in inflation.

"The Dollar's Crash Is Only Just Beginning" -Stephen Roach  (Bloomberg Opinion) - After an initial spike higher, the dollar has been falling steadily since the Covid-19 pandemic took hold in the U.S. last March. It is down about 10% to 12% relative to America’s major trading partners, dropping to its weakest levels since early 2018 as measured by several of the broad dollar indexes. There is more to come. Based on a wildly unpopular forecast that I made  There were three main reasons why I argued the dollar would fall: 1) a sharp widening in the U.S. current-account deficit, 2) the rise of the euro, and 3) a Federal Reserve that would do little in response to any weakness in the greenback. On each of these counts, I have a greater conviction on the weak-dollar call today than I did six months ago. At work is a deterioration in domestic saving driven by explosive Covid-related increases in the federal budget deficit. When a nation is lacking in saving and wants to invest and grow, it must import surplus saving from abroad to square the circle, running current-account deficits in order to attract the foreign capital. Unsurprisingly, the identities have held. The net domestic saving rate (depreciation-adjusted saving of businesses, individuals, and the government sector, combined) fell below zero in the second and third quarters for the first time in a decade. The 3.8-percentage-point decline in the net domestic rate to negative 0.9% in the second quarter from a positive 2.9% rate in the first quarter was also the largest quarterly decline on record.  The second-quarter plunge in domestic saving was largely an outgrowth of the $2.2 trillion Cares Act, which was aimed at providing fiscal relief during the Covid-related lockdown. With the pandemic and its aftershocks still very much in evidence, another $2.8 trillion of fiscal relief is in the offing — $900 billion already signed into law in December 2020 and another $1.9 trillion proposed by Biden The combined Covid relief packages total $5 trillion, or 24% of 2020 GDP. While not stimulus in the conventional sense, this fiscal injection breaks all modern records by a wide margin. The domestic saving rate, as a result, should plunge further below zero, putting the already wide current-account deficit under even more intense downward pressure. Although the international imbalance may not break the prior record of minus 6.3% hit in late 2005 as I argued in June, it is likely to come close. A still-raging pandemic and an economy on the brink of a double-dip recession leaves the Biden administration with no choice other than to opt for another round of massive fiscal relief. This outcome would have consequences for any economy. For saving-short America, it spells a weaker dollar.

How safe was your Money? How much Did These Presidents take from You? Look at the past records

Jimmy Carter January 20, 1977 – January 20, 1981 s relevant and interesting. Bill Clinton January 20, 1993 – January 20, 2001 Barack Obama January 20, 2009 – January 20, 2017 Joe Biden 2021 -  Harris next?

The United States Is Going Into Hyperinflation Summary Deficit to outlay ratio tops 60%, above the hyper-inflationary threshold of 40%. Q2 2020 GDP shrank 31.7%, but will improve in Q3 2020. Delinquencies are on the rise on record high corporate debt. U.S. dollar will lose value due to ultra-low interest rates and QE. Gold is the only safe haven. The U.S. is about to embark on a very ominous journey into hyperinflation with record amounts of debt and deficits.

Biden and gold: History suggests potential upside

New Regime Will Get It

Click Here To Email Richard Directly!

Call us Today (800) 630-1691 Get Your Gold Now Buy Low - Sell High

About Us News & Views Knowledge Contact Us

A "Views expressed" disclaimer is typically seen on blogs or other online media publications, posts, or articles. This disclaimer informs readers that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.