Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Heads You Lose; Tails You Lose

  by    0   0

The Fed has a difficult choice to make.

Will it crash the economy? Or will it crash the dollar?

Whichever way this coin flip turns out — you lose.

Based on the December FOMC minutes, the central bankers at the Federal Reserve are suddenly serious about inflation. They are even talking about balance sheet reduction. This is the prescribed policy to take on rampant inflation. And we certainly have rampant inflation.

If the Fed doesn’t shut off the monetary spigot, inflation will continue to flame out of control. If it goes long enough, it could lurch into hyperinflation and eventually even precipitate a currency crisis that crashes the dollar.

But doing something about inflation comes at a cost. If the central bank actually does what’s necessary to tame inflation, it will almost certainly crash the economy, which is built on easy money, low interest rates, money printing, and debt.

An article published by the Mises Wire highlights “a myriad of detrimental effects to other facets of the economy.”

To start, the aforementioned contractionary monetary policies will presumably slow GDP growth, wage growth, and possibly even job creation over the course of their implementation.”

The Fed knows this. It has already lowered its projected GDP growth forecasts. There are also rumblings of rising unemployment in 2022. And keep in mind, the Fed hasn’t actually done anything yet. The central bankers are almost certainly understating the impacts of their tightening policy on the economy.

Rising interest rates and the end of QE will also put a big squeeze on the federal government.

Furthermore, a rise in the federal funds rate will undisputedly lead to a rise in net interest payments made by the government. In fiscal year 2020, the United States federal government spent $345 billion in net interest payments alone, despite near-zero interest rates. The nonpartisan Committee for a Responsible Federal Budget found that even a 2 percent increase in interest rates would cause net interest payments to rise to a whopping $750 billion, and as mentioned above, by 2024 the federal funds rate is expected to increase by exactly 2 percent. It should also be noted that this study was conducted in March 2021, prior to the passage of the American Rescue Plan and the Bipartisan Infrastructure Bill, which was then followed up with a stark increase in interest rates on newly issued Treasury bills, all of which will cause the $750 billion projection to be an underestimate.”

One also needs to consider how rising interest rates will impact consumer behavior.

The upcoming interest rate increases will pull the prime rate up, thus furthering the burden of credit cardholders paying interest. It would be in the best interest of consumers to pay off their debts in a timely manner in order to avoid further economic strain later on. We should also anticipate a rise in fixed mortgage rates, increasing the cost of taking out loans on the purchase of property as well. While fixed mortgage rates and interest rates don’t have a perfect positive correlation, since 2004 there has been a ~0.74 correlation coefficient, meaning they are still very closely correlated.”

“On top of that, car loan rates are also likely to increase, which may worsen already tense conditions for those looking to purchase a vehicle. Similar to fixed mortgage loans, there is not a perfect positive correlation between interest rates and car loan rates. However, a strong relationship is still maintained, shown by a correlation coefficient of ~0.73. Used car prices have reached all-time highs in 2021, and following the disbursement of stimulus checks, consumption expenditures on durable goods starkly dropped. Buying a vehicle is arguably more difficult than ever, and higher loan rates on cars may discourage such purchases even more.”

In other words, tighter monetary policy will slow down the economy and likely drive it into recession. Depression isn’t out of the question given just how much malinvestment and misallocation there is in the economy today.

So, which will it be? High inflation? Or a crashing economy?

The coin is in the air.

Free Silver Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Gold Hits New All-Time Record High

Gold hit a new all-time nominal high, surpassing the previous record set in December of the previous year. The precious metal’s price reached approximately $2,140, indicating a robust and continuing interest in gold as a safe-haven asset, despite a rather peculiar lack of fanfare from the media and retail investors. This latest peak in gold […]

READ MORE →

Is a Weak Yen Feeding the Global Gold Bull?

The gold price has been surging, with unprecedented central bank demand gobbling up supply. It has been a force to behold — especially as US monetary policy has been relatively tight since 2022, and 10-year Treasury yields have rocketed up, which generally puts firm downward pressure on gold against USD. 

READ MORE →

World Gold Council: “Blistering Central Bank Buying” Fuels Strong Gold Demand

Total gold demand hit an all-time high in 2023, according to a recent report released by the World Gold Council. Last week, the World Gold Council (WGC) released its Gold Demand Trends report, which tracks developments in the demand for and use of gold around the world. Excluding over-the-counter (OTC) trade, 2023 gold demand fell slightly from 2022 […]

READ MORE →

VIX – The Calm Before the Storm

The VIX, often referred to as ‘Wall Street’s fear gauge,‘ is currently portraying a sense of calm among investors, registering well below the 20 level. 

READ MORE →

Four States Consider Lifting Taxes on Precious Metals

Citizens of Georgia, Kentucky, Wisconsin, and Kansas may soon enjoy lower taxes on precious metals if recently introduced pro-metal bills are made law in 2024.

READ MORE →

Comments are closed.

Call Now