September 16, 2020 Tom’s Blog
Now What?
The Jerome Powell, Chairman of the Federal Reserve recently stated that the Fed would keep interest rates low and let inflation run above the two percent target. Run “hot on inflation” in my words. This is another way to say that they are in a bind.
Washington Post Aug 27, 2020
- First and foremost, they can’t raise interest rates without crashing the financial markets. The Fed is hostage to the markets.
- Second, this tactic has been used before when U.S. debt was too large to repay. That was post-WW II. So, letting the inflation rate run is one way of paying the debt back with cheaper US$. The current way to measure the inflation rate is not what You and I live with in the real world. Just look at food and restaurant prices over the last ten years of “no inflation”.
- Eventually the Fed’s will have to kill speculation, whatever asset class (we are thinking Precious Metals & Crypto currencies) absorbed the flow of funds and became that bubble. This is years down the road, but the Fed will kill that market to get inflation under control. The Fed knows this now. It is “The Plan” Let’s enjoy today, but also know there will be a day to exit. Our solution is to annually search for the greatest “value” and rotate some funds into that greater value opportunity.
Low interest rate, letting inflation run hot will cause the US$ to lose purchasing power. Pay back our national debt with cheaper dollars. It will also boost our exports and grow jobs. This is the perfect world for investing in cryptocurrency, precious metals, and hard assets – natural resources.
There are many people who are getting harmed by the pandemic who have lost everything. They need time to recover. Unemployment checks will run out. Evection notices will be come real. People will lose their home and business if they have not already. That is the deflation zone we fear. That is why the Federal Reserve is letting interest rates stay low and Inflation run hot.
The biggest question is, do we have a deflationary period to get through before getting to the high inflation period? It is possible both happen at once. A depression for your neighbor might be your fixed income cost of living inflation problem. 20% to 30% of the population will not even notice either one. Plan for it because it is upon us.
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