As central banks continue to inject trillions of dollars created out of thin air into the financial system, the mainstream generally sits backs and shrugs. But a few lonely voices in the wilderness continue to warn about the potential for price inflation and its nefarious effects on the average person.
In a recent podcast, Peter Schiff warned that prices are going to surge because “the Fed is not going to take away the punch bowl.”
The FY2020 budget deficit came in at $3.13 trillion. At some point, the US government will have to reckon with the debt and spending. But according to recent analysis from the nonpartisan Committee for a Responsible Budget, neither Trump nor Biden appear prepared to do so. In fact, its analysis shows Trump would only be slightly better than Biden when it comes to spending and debt.
When governments started locking down economies in response to the coronavirus pandemic, the Federal Reserve sprung into action. The central bank immediately cut interest rates to zero and launched what we’ve called “QE infinity.” Since then, the Fed has ballooned its balance sheet by nearly $3 trillion and increased the money supply at a record pace. Along the way, Powell and Company signaled they were surrendering to inflation, moving the inflation targeting goalposts to allow for the inevitable increases in consumer prices. Meanwhile, the federal government has run the national debt to over $27 trillion.
The question is how long can this go on?
In response to any economic downturn, the Federal Reserve cranks up the money printing press. The reaction to the economic chaos caused by the government response to the coronavirus pandemic was no different. The Fed launched what many have called “QE infinity,” and has increased the money supply at a record pace. A lot of politicians and pundits see no problem with this approach. After all, “inflation” remains muted despite the money printing.
It’s true that by some measures, we haven’t seen the rising prices you would expect after injecting trillions of dollars created out of thin air into the economy. But that doesn’t mean there isn’t inflation. In fact, defined correctly, increasing the money supply is inflation. And with our without rising consumer prices, inflation has pernicious effects.
Many people claim there is no inflation. But as we have explained, when understood correctly, it becomes clear that inflation is rampant. In fact, it is at all-time record levels.
Strictly speaking, inflation is an increasing money supply, and by that measure, it has set records for five straight months. Even so, many will swear that inflation is a problem. They are wrong.
Last month, the Federal Reserve moved its inflation goalposts. Is it setting us up for a return to the inflation of the 1970s?
During a speech at Jackson Hole, Federal Reserve Chairman Jerome Powell announced new policy guidance for how it addresses price inflation. In the past, the central bank has targeted a 2% inflation rate as measured by CPI. Now it will shift to “average inflation targeting.” In practice, the Fed will allow the CPI to run “moderately” over 2% “for some time” to balance out periods where it runs under that level. In effect, the central bank now has an excuse to let inflation run hot.
Last month, the Federal Reserve moved the goalposts when it changed its inflation targeting policy. In the past, the central bank has targeted a 2% inflation rate as measured by CPI. Now it will shift to “average inflation targeting.” In effect, the Fed will allow the CPI to run “moderately” over 2% “for some time” to balance out periods where it runs under that level.
We have argued that this isn’t some kind of technical policy shift due to new economic insights. It’s a necessary move because the Fed can’t stop printing money and price inflation is an inevitable side-effect.
Last week, the Federal Reserve announced a change in the way it will target inflation going forward. In other words, the central bank moved the inflation goalposts. In effect, the new policy will allow the Fed to let inflation run hotter.
As Peter Schiff explained in his podcast, the move was expected and necessary.
We’ve written extensively about the “war on cash.” Government officials and academics offer all kinds of plausible rationals for moving toward a cashless society. Most of them involve consumer convenience and the ability to battle drug dealers and big-time criminal organizations. But make no mistake, governments love the idea of eliminating cash for more a more sinister reason — it would make it possible for them to track every single purchase you make. And it would also allow them to exercise a tremendous amount of control over individuals.