Most Popular
1. THE INFLATION MONSTER is Forecasting RECESSION - Nadeem_Walayat
2.Why APPLE Could CRASH the Stock Market! - Nadeem_Walayat
3.The Stocks Stealth BEAR Market - Nadeem_Walayat
4.Inflation, Commodities and Interest Rates : Paradigm Shifts in Macrotrends - Rambus_Chartology
5.Stock Market in the Eye of the Storm, Visualising AI Tech Stocks Buying Levels - Nadeem_Walayat
6.AI Tech Stocks Earnings BloodBath Buying Opportunity - Nadeem_Walayat
7.PPT HALTS STOCK MARKET CRASH ahead of Fed May Interest Rate Hike Meeting - Nadeem_Walayat
8.50 Small Cap Growth Stocks Analysis to CAPITALISE on the Stock Market Inflation -Nadeem_Walayat
10.Apple and Microsoft Nuts Are About to CRACK and Send Stock Market Sharply Lower - Nadeem_Walayat
Last 7 days
The NEXT BIG EMPIRE WILL BE..... CANZUK - 25th June 22
Who (or What) Is Really in Charge of Bitcoin's Price Swings? - 25th June 22
Crude Oil Price Forecast - Trend Breaks Downward – Rejecting The $120 Level - 25th June 22
Everyone and their Grandma is Expecting a Big Stocks Bear Market Rally - 23rd June 22
The Fed’s Hawkish Bite Left Its Mark on the S&P 500 Stocks - 23rd June 22
No Dodging the Stock Market Bullet - 23rd June 22
How To Set Up A Business To Better Manage In The Free Market - 23rd June 22
Why Are Precious Metals Considered A Good Investment? Find Out Here - 23rd June 22
UK House Prices and the Inflation Mega-trend - 22nd June 22
Sportsbook Betting Reviews: How to Choose a Sportsbook- 22nd June 22
Looking to buy Cannabis Stocks? - 22nd June 22
UK House Prices Momentum Forecast - 21st June 22
The Fed is Incompetent - Beware the Dancing Market Puppet - 21st June 22
US Economy Headed for a Hard Landing - 21st June 22
How to Invest in EU - New Opportunities Uncovered - 21st June 22
How To Protect Your Assets During Inflation - 21st June 22
AI Tech Stocks Current State, Is AMAZON a Dying Tech Giant? - 20th June 22
Gold/Gold miners fundamental checkup - 20th June 22
Personal Finance Tips: How To Get Out Of A Tough Financial Situation - 20th June 22
UK House Prices Relative to GDP Growth - 19th June 22
Will Global Markets Be Pushed Deeper Into Crisis Event By The US Fed? - 19th June 22
Useful Things You Need To Know About Tweezer Top Candlestick Pattern - 19th June 22
UK House Prices Real Terms Sustainable Trend - 17th June 22
Why I’m buying the “new” value stocks… - 17th June 22
Optimize Benefits from R&D in Software Product Development with an R&D Tax Credit Software - 17th June 22
Want To Save On Your Business Energy? Here Are Some Helpful Tips - 17th June 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Offers No Holiday from Inflation

Economics / Inflation May 31, 2021 - 12:45 PM GMT

By: MoneyMetals


Heading into Memorial Day weekend, American motorists will see the highest prices at the pump since 2014, according to AAA. Gas prices now average $3.04 a gallon nationally – reflecting a jump of more than $1.00 compared to the same time last year.

A rising gasoline price is just one of many emerging symptoms of a larger inflation problem:

  • A lack of housing inventory, low interest rates, and surging costs for building materials are pushing home prices through the roof.
  • Billionaire Warren Buffett recently complained that he is seeing significant inflation pressures throughout the supply chains of businesses he owns.
  • Beef is becoming increasingly unaffordable for many grocery shoppers, and rising food costs are forcing already beleaguered restaurants to hike menu prices.

These examples are even being confirmed by the government’s own notoriously understated Consumer Price Index (CPI) and Producer Price Index gauges.

The latest CPI data shows inflation running at a 4.2% clip while producer prices have shot up 6.2% from a year ago.

The inflation surge should alarm investors who are positioned in dollar-denominated paper assets. But they can’t say they weren’t warned.

It’s not just gold bugs who have been warning of higher inflation. The Federal Reserve itself has been trumpeting its intent to raise and keep inflation rates above 2% for an extended period.

Now the Fed is trying to downplay the recent surge in consumer prices as “transitory” so that it can continue to pursue extraordinary stimulative monetary policy – while egging on Congress to rack up gargantuan deficits and dole out trillions of dollars.

Federal Reserve Bank of Chicago President Charles Evans said on Tuesday, “I have not seen anything yet to persuade me to change my full support of our accommodative stance for monetary policy.”

Meanwhile, San Francisco Fed president Mary Daly told CNBC, “I am firmly in the transitory camp.”

When queried about double-digit rates of housing appreciation bring average home prices 30% above the 2006 peak, Daly said they were “supported by the strong economy.”

How can an economy mired in lockdowns and restrictions for more than a year with tens of millions of people reliant on emergency government aid be regarded as “strong”?

It’s strong only in the worldview of those who see currency creation and its effects on prices as a legitimate substitute for productivity and real growth.

Daly went on to gloat about “monetary policy actions we’ve taken that support balance sheets for households by lowering interest rates and allowing them to put more money in their pockets.”

In other words, she views Federal Reserve Note money itself (inflation) as an engine for prosperity.

“Higher prices can be seen as evidence that President Joe Biden's economic and health policies are working,” claims CNN, even while acknowledging that the undesirable effects of rising costs could eventually become a problem for the administration.

As long as the Fed and the media can focus on rising home prices and stock market indexes, they can continue to peddle the myth that inflation creates prosperity.

But when the rising costs of living for struggling wage earners and retirees begin to drag on the economy and financial markets, the peddlers of inflation will have to change their tune.

The precious metals markets often serve as an indicator of when inflation turns from being perceived as “good” to being revealed as “bad.”

A gold price surging to record highs would be like the canary in the coal mine to investors concerned about inflation risk. It would signal that trust in the U.S. currency is waning, that the Fed needs to tighten monetary policy, that stock and bond markets are vulnerable.

Gold prices rallied this week to over $1,900 an ounce.

Although gold and silver markets have taken a back seat to copper, lumber, and other commodities for most of the year, precious metals have a chance to exert leadership as the stimulus-fueled economic recovery narrative recedes and the realities of inflation come to the fore.

Many economists including Joel Naroff are decidedly not in the “transitory camp.” According to Naroff, “I think we have a greater risk that this will be an extended period of inflation rather than a transitory period.

The Fed is expecting the risk to fade as the government support winds down.

But if President Joe Biden’s infrastructure and family programs are passed, the Fed could be in trouble.”

The spending already set to take place this year will bring the federal budget deficit up to the previously unthinkable level of $3.1 trillion.

Neither the White House nor Congress have shown any signs of pursuing fiscal discipline. They are hoping, along with Federal Reserve policymakers, that the massive expansion in centrally directed cash infusions will provide a lasting boost with only “transitory” effects on price levels.

In the months ahead, the precious metals markets may indicate a different reality is playing out – one perhaps more akin to late 1970s stagflation. If so, then it will be a difficult investment environment for holders of conventional stocks and bonds who have not diversified into the safe havens of physical gold and silver.

Stefan Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.

© 2021 Stefan Gleason - 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.

© 2005-2019 - 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