In the last five months, according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent. It has almost tripled.
Have car sales tripled? Home purchases? Consumer spending? Corporate investment? Not only have they not tripled, they have all declined more sharply than they have since at least the recession of 1981-82, and perhaps since the Great Depression.
So where is the money? If it isn’t being spent, where is it?
It is being parked, squirreled away. Consumers are using it to pay down their credit card balances, pay off their mortgages, reduce their student loans, make the payments on the car sitting in their driveway — not the one in the dealer’s lot. Businesspeople are buying T-bills, investing the money and saving it. They aren’t spending, either.
But one day this recession — despite Obama’s best efforts — will end and things will begin to look up again. Then we can expect all of this money to come out of its parking space and get back on the highway of commerce. All at once. The inevitable result will be double-digit hyperinflation.
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Step 1. If you haven't done so already, buy inflation hedges. Back in the 1970s, it was often cumbersome and inconvenient. Investors scrambled to buy gold bullion bars. Or they hoarded bags of silver coins.
Step 2. Also consider energy-related investments. Oil, natural gas and alternative energy sources are in the vanguard of this round of inflation, with no end in sight. Stocks and ETFs tied to their rise are bound to continue to benefit.
Step 3. Diversify out of the U.S. dollar by buying the strongest foreign currencies. Although the dollar could enjoy a nice rally in the near term, the long-term outlook remains negative. Even if the Fed pauses its recent rate-cutting ... even in the Fed actually raises rates ... as long as real interest rates in the U.S. remain below zero, it's unlikely to provide lasting support for the dollar.
I beg to disagree. Gold will rocket because the currency will tank. Prices will continue to deflate because nobody has any money. The money is going to debt for bailing out the swap players. When China decouples fron the dollar, you will get inflation.
ReplyDeleteNot so. The more money printed the more chance inflation occurs. The currency tanks and is replaced by GOLD. Money is going to debt AND to pay the interest on the debt, so the printing press has to keep pumping. When too much money is in circulation it is worth nothing, thus creating HYPERINFLATION until COLLAPSE.
ReplyDeleteRead Denninger and Mish on inflation. You cannot inflate the COGS unless you give someone the money to purchase the goods. Who do you know that has mpney? Inflation comes from the demand side. The demand side is dead.
ReplyDeleteThese comments are insinuating that we will forever be in a recession/deflationary period. The point of the article is that ONE DAY things will rebound. Maybe a new technology will resurface, maybe the system will be reformed, whatever. Inevitably after that, when loans are being made again, we will be awash in currency.
ReplyDeleteWe have two choices at this juncture; inflate or default.
Pick your poison.
History, history not conjecture will tell you that Gold is the best hedge for inflation and with so much currency being ingested into the market this is going to be a train wreck. Don’t be fooled, the best predictor of future performance is past performance, you have been warred.
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