Saturday, October 21st, 2017 MST

$2 trillion annually. Where’s the inflation?

According to David Stockman, who served as Budget Director under Ronald Reagan, the world’s central banks are adding some $2 trillion annually to the world’s money supply.  This is on top of the trillions that were added with multiple quantitative easing programs by the Fed, the European Central Bank and the Bank of Japan since the WFC of 2008.

If so, why has inflation not reared its ugly head?  Because the money flowed to Wall Street, not Main Street.

All stock market indexes are at or near all-time highs.

Dow Jones 6.15.17

Bonds were even larger recipients of the freshly created money, driving yields to piddling returns. Living off interest income is almost a past generation thing.  Many people who supplement their pensions from savings, do so by dipping into principal.

As for inflation, Janet Yellen and the Fed are disappointed it is not “stronger,” meaning not running at higher rates.  Their target is 2%, but their projection for the year is 1.6%.

The thing about inflation is that once it takes hold, it’s not that easy reign in and doing so inflicts great pain on the economy (and people).  In the 1970s, which kicked off the goldsilver industry, inflation hit 13%, the Fed hiked interest rates, and the economy went into a recession.

As weak as the economy is now, Yellen and Company are playing with fire.  Real GDP (Gross Domestic Product) grew in the first quarter 2017 at 1.2%, down from 2.1% in the fourth quarter 2016.

GDP bar chart 6.15.17

Trump talks about growing the economy at 3-1/2% to 4%, but that is highly unlikely with the Fed planning on hiking interest through 2018.  Hiking interest rates is the classic way to slow down an over-heated economy, but this economy is far from over-heated.  It’s not even tepid.

For gold and silver investors, premiums are the lowest in years.  With the price drops over the last few days, now may be the opportune time to add to positions.

Leave a Comment

You must be logged in to post a comment.