Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Target Must be 5% Inflation

Interest-Rates / Inflation Sep 21, 2011 - 04:16 AM GMT

By: Dr_Jeff_Lewis

Interest-Rates

The Federal Reserve may engage in what has been mocked by investors as “the twist,” a bond buying program intended to reduce long-term borrowing costs by soaking up long-dated Treasury issues.  Of course, no matter the short-term goal, the real goal is to monetize the entirety of the US debt loads.


In 2011, the debt to GDP ratio for the United States will cross the psychologically important ratio of 1:1, meaning that the entirety of economic production in the United States is equal to that of the public debt.  For each dollar of economic production, the United States government (not including personal debt) has one dollar in existing debt. 

Debt to GDP is one of the few ways for investors to understand the importance of national debt in an economy.  It’s also one of the few metrics that allows us to see the efficacy of fiscal stimulus programs, which have thus far provided a negative change in GDP for each new dollar of debt.

However, what is most important is how the United States can reduce its total debt load relative to gross domestic product.  The United States and its citizenry could increase their productivity, produce more, and thus reduce the importance of debt.  Or, in a more likely case, the United States could print money to replace the debt, essentially inflating away the $14 trillion debt as it currently exists.

Baseline deficits

The US government previously reported that it would sustain some $7 trillion in new budget deficits over the next 10 years to 2021.  Those figures have since been revised upward to $9 trillion, or 64% of the current debt load.

In our calculations, we should give the government the benefit of the doubt that the deficit will grow 64% for the next ten years.  Using this as a guideline, the US government will have to grow the economy by 5.07% per year for 10 years, or produce inflation equal to 5.07% for 10 years.  A combination of both, of course, would keep the debt to GDP ratio in balance.

In the first two quarters of the year, the United States posted nominal growth rates of 3-4%.  Inflation was less than 3% at the time.  Now, with the dollar losing value, the United States saw CPI-U inflation of 3.7% in August.   This should be the new normal.

In order to sustain a relative plateau in the debt to GDP ratio, the Federal Reserve will have to make up for the short-fall.  With real growth lagging in at inflation-adjusted readings of .7%-1% in the first half of the year, the Federal Reserve’s new mandate must be a steady inflation rate of at least 4%, otherwise the US government will have a sovereign crisis of its own.

Those of us who invest in alternative investments should realize the profit potential of such policies.  The United States is now actively engaged in propping up its own economic vital signs with inflation.  Bonds are negative yielding, as are the best dividend stocks.  Gold and silver are the only safe havens when the basis for wealth—dollars and cents—are losing money as a result of intentional policy to devalue the dollar.  

By Dr. Jeff Lewis

    Dr. Jeffrey Lewis, in addition to running a busy medical practice, is the editor of Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com

    Copyright © 2011 Dr. Jeff Lewis- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in