February 20, 2021
There’s plenty of economic hardship for Americans these days, from small businesses shuttered by the pandemic to stock market volatility – unfortunately, there’s another fiscal wolf at our door: inflation. And if it’s not already here, it’s coming.
I’ve discussed the Fed’s insidious nature before, with its out-of-control printing press approach to every monetary problem… This is nothing new.
During the Obama era, we witnessed the Fed actively trying to “support” our markets and economy. Still, for years it’s had a visible hand in worsening class divides with its inflationary measures. But have we seen any progress with real wage growth in the last decade? No. Inflation may help the stock market, but as for everyone else, good luck.
You have a Federal Reserve that’s upped its inflation targets but tells us to look the other way, trying to distract us from the true-crime scene of our economy bleeding out. And not only that – they want more spending. Treasury Secretary Janet Yellen has gone on about the need for larger stimulus packages, and at every turn, they downplay the risk.
In short, prepare for inflation, the likes of which we may have never seen in this country. The sheer amount of money in our money has increased dramatically, with prices continuing to skyrocket.
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One of the biggest drivers right now is the fear of a lower dollar (inevitable with inflation), which partially explains the latest bitcoin crypto craze. But it’s not just cryptocurrencies people are looking at… They’re desperate for any commodity that seems safer than the dollar at this point.
These measures theoretically help the economic spectrum’s two polarities –the poor and the wealthy. Social support and government programs aid the disadvantaged, while if you’re well-off and invested in equity markets, you’ll benefit from inflationary pressures.
But if you’re stuck in the middle class, as so many Americans are, the vice will squeeze even tighter until there’s almost no financial breathing room.
Trillions of Dollars and Zero Accountability
On the American Consequences podcast this week, I spoke with Neil Grossman, a former senior executive at the Central Bank of Norway, who likened the Fed to playing God (and not well). He further analogized the current fiscal crisis to Apollo 13. NASA had a narrow window to save those astronauts by changing their trajectory – Neil says the Fed has an equally small margin of error in correcting the economy’s direction. And this time, more lives are at risk.
But Washington treats the urgency of this moment with a collective shrug. And the longer they wait, the more disastrous the results will be. Once the next relief bill comes through, the Federal Reserve will have spent nearly $6 trillion in less than a year, raising the national debt trajectory at a staggering pace. For perspective, in 2000, we had a $4 trillion deficit – and now, in one year, we’ve exceeded the amount it took more than two centuries to accumulate.
With the lack of concern for inflation right now, we’re creating liability and, indeed, a giant moral hazard. No thought of costs (fiscal and otherwise) or consequences. What does it mean for our country if this is a situation we can’t get escape?
As Neil puts it…
“We don’t just have a fiscal deficit – we have a responsibility deficit.”
One of America’s unfortunate talents is by “solving” problems by glibly imposing them on the future. We’ll bequeath so much debt to next generations, creating an economy that’s sluggish with lower productivity.
If we’re not careful, we could end up like Venezuela.
Nearby Latin American countries, that can barely function due to staggering deficits, provide genuine case studies of worst-case scenarios for our country. And what about up on Capitol Hill? How can we restructure the political sphere so that lawmakers can adequately respond to this fiscal crisis?
Unfortunately, most Republicans have abandoned conservative money management while Dems move further into progressivism. The sad state of politics at the moment is that there’s no incentive for anyone to be responsible.
The bottom line is the Fed’s policies have done one thing well – equity prices have exploded. And it seems everyone’s lost touch with reality with the flood of cash pouring in… a monetary feedback loop of Washington-Fed-Americans-Wall Street that does very little to help the health of our economy.
The Fed’s core problem is that it’s a handful of academics telling us there’s only one way to behave, and this sheep-herding mentality destabilizes our economy. We’re relying on one institution to solve everything, and that rarely (if ever) works.
So, you want to invest to keep up with inflation, but inflation’s making the market too volatile to be safe… What’s an investor to do? Neil says you could buy inflation-friendly products, like foodstuffs. Or, if you’re worried about the state of the dollar, go after international assets. And of course, there’s always the bitcoin route.
A Dream, Deflated
Listen, if you have $100,000 nestled away for retirement, that money might not cut it in five years. As an investor and a saver, you have to protect yourself and be aware of this moment’s reality and the future probability. Prices will continue to rise…
And the expectations for politicians continue to sink as they chase their short-sighted, self-serving, myopic agenda of overspending in the here and now, mortgaging Americans’ very future and that of our children and beyond.
At the moment, we have a very involved government. This trend may shift in two to four years, but now, control what you can and acknowledge that inflation is here. But things could get way worse, way more quickly than you imagined. Please take financial responsibility for yourself since our leaders – Biden, Cuomo, Newsom – don’t seem to be up to the task.
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Publisher, American Consequences
With Editorial Staff
February 20, 2021