Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Inflation Tsunami Ahead

Economics / Inflation Jan 23, 2018 - 06:28 AM GMT

By: Michael_Pento

Economics

Inflation is one of the most misunderstood, misused and lied about topics in economics. The Fed professes to know what causes it: an overly employed workforce. But, perhaps it is aware this is false and intentionally promulgates the ruse of growth as inflation’s progenitor because central banks want to deflect attention away from its money printing. Nevertheless, one thing is abundantly clear, we all have to agree that the Fed can’t readily control the exact rate of inflation; nor can it direct what the repositories will be for its quantitative counterfeiting misadventures.


Ever since the Great Recession, the Fed, along with all other major central banks, adopted a perplexing 2% inflation target. Their avowed purpose was that a 2% inflation rate is a necessary condition to maintain a healthy economy. However, the sad truth behind central banks’ inflation targets is that a constant rate of inflation is now sought in order to prevent asset prices from ever deflating as they did during the Great Recession.

Inflation, at least as measured by the Fed, has been below target for the past nine years. Ironically, nine years of failure to reach its dollar-depreciation goal has not dissuaded the Fed to temporarily reverse course on its Quantitative Easing and Zero Interest Rate Policies. Perhaps this is because it is in a panic to refill the money printing presses with ink before the next recession is upon us.

However, the Fed will soon be back in the interest manipulation business like never before in its history. And its 2% inflation target will be something that only can be viewed far into the rearview mirror.

Here’s why. Given the record $21 trillion of U.S. National debt (105% of GDP) and our escalating solvency concerns, the current 2.6% benchmark Treasury yield should already be much higher than the historical average of around 7%. Then, we when you throw in the fact the Fed’s balance sheet reduction increases to $50 billion per month by October. And, when considering the ECB has already halved its QE program, and is predicted to be finished printing money by the end of this year; yields on sovereign debt will soon be rising sharply across the globe.

And now you have to also throw into this rising rate recipe the fact that the Bank of Japan just reduced its bond purchases; and China has issued a brand-new threat to stop buying Treasuries. According to Bloomberg, senior government officials in Beijing have recommended slowing or halting purchases of U.S. Treasuries. This is most likely in response to Trump’s threats of tariffs and sanctions against China. That’s the first step before outright sales. Since the Communist nation is the world’s largest holder of US debt, you can realize the precarious position of this bond bubble.

We also have soaring debt and deficits. The amount of red ink is projected to reach around $1.2 trillion per year by fiscal 2019, but that is just start of the bad news. The baseline projection is that there will be $12 trillion added to the $21 trillion National debt over the next ten years. Then you add on to the debt Trump’s next fiscal gimmick, a massive infrastructure plan, which will add hundreds of billions to the total of red ink. And, since the next recession most likely isn’t more than just a few quarters away--and is already long overdue--deficits will jump again by a further trillion dollars per annum just like they did during the four years from 2009-2012.  Plus, every 100 basis points higher in average interest costs on the outstanding debt piles on another $200 billion in debt service payments per year, which is expected to climb to $1 trillion of interest expenses by 2027—but that’s only if interest rates merely ascend slowly and end up rising to less than half their historical average. All this will be happening as the Fed is dumping $600 billion per year of MBS and Treasuries on to the balance sheet of taxpayers!

The upcoming surge in bond yields should lead to a stock market and economic collapse that will bring central banks around the world to their knees.

Which brings me back to explaining what inflation is and why it could soon grow intractable. The Keynesian economists that run the Fed and dominate Wall Street believe dogmatically that inflation is a function of too many people working. To the contrary, prosperity has nothing at all to do with inflation. Inflation is all about the market losing faith in a fiat currency’s purchasing power. This most often occurs when there is a rapid increase in money supply; not just base money but broad money supply growth.  It can also be the result of an existential threat to a country that would result in the current currency in use becoming extinct.

So here’s how the next super spike of inflation will play out. The next recession is long overdue and on its way very soon. The most probable cause will be a global spike in long-term interest rates. This next recession will cause asset prices to plummet and bring about a truncated period of rapid deflation, an inverted yield curve and economic chaos. The Fed will be in a panic to reflate the massive equity and bond bubbles, but the limitations of only being able to lower the Fed Funds Rate by a relatively small number of basis points and going back to QE isn’t going to work well enough or fast enough to retard the tide of selling. This is because nearly all of the Fed’s new credit will once again accumulate as excess reserves in the banking system and will not quickly save the public and private pension plans from getting destroyed.

The government is going to need to get both the supply and velocity of broad money to increase quickly. Look for ideas such as; Universal Basic Income, Helicopter Money and Negative Interest Rate Policies (which will require the banning of physical cash) as part of the extraordinary measures that could be undertaken this time around.

Those measures will surely be enough to shake faith in the dollar’s purchasing power and cause inflation to rise dramatically. Much more than the Fed’s phony and worthless 2% target. Indeed, inflation could even go hyper.

The bottom line is that government will soon lose control of markets and the swings between inflation and deflation will become much more intense and violent. Therefore, investors will need a dynamic strategy to hedge against both conditions in order to have any hope of getting a real return on their savings.

Michael Pento produces the weekly podcast “The Mid-week Reality Check”, is the President and Founder of Pento Portfolio Strategies and Author of the book “The Coming Bond Market Collapse.”

Respectfully,

Michael Pento

President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance www.earthoflight.caLicenses. Michael Pento graduated from Rowan University in 1991.
       

© 2018 Copyright Michael Pento - 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.

Michael Pento Archive

© 2005-2019 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