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

Central Bank Gold Reserves Chart Second-Highest Increase Since 1950 in 2022

Central banks closed out 2022 with reported net purchases of 28 tons of gold in December. Including large unreported purchases, this brought total central bank gold buying in 2022 to 1,136 tons. It was the second-highest level of net purchases on record dating back to 1950, and the 13th straight year of net central bank […]

READ MORE →

Gold Mine Production Up Modestly in 2022 But Remains Below Pre-Pandemic Peak

Gold mine production was up modestly in 2022 as mining operations normalized post-pandemic. But mine output still hasn’t returned to the peak we saw in 2018, boosting speculation that we have possibly reached “peak gold.”

READ MORE →

Why Have So Many People Dropped Out of the Labor Market?

Why is there a labor shortage in the US? In a nutshell, a lot of people have simply dropped out of the labor market. They’re not working. But why?

READ MORE →

Gold Demand Hit 11-Year High in 2022

Gold demand grew by 18% to 4,741 tons in 2022, the highest demand in 11 years, according to data compiled by the World Gold Council. Massive central bank purchases coupled with strong retail investor buying and slowing outflows from ETFs drove overall demand higher.

READ MORE →

Petrodollar on Shaky Ground; Saudi Arabia Willing to Discuss Selling Oil in Other Currencies

In a recent interview, Saudi Arabia Finance Minister Mohammed Al-Jadaan said the country is open to discussing trade in currencies other than the US dollar. This could mark the beginning of the end of petrodollar exclusivity. That would be a huge blow to dollar dominance.

READ MORE →

Comments are closed.

Call Now