Inflation Is Here

The mainstream isn’t worried about inflation. In fact, we’re told inflation is muted. And that’s true, at least by some measures. We haven’t seen the rising consumer price index (CPI) you might expect as central banks inject trillions of dollars created out of thin air into the economy. But just because government numbers don’t reflect it  – yet –  that doesn’t mean there isn’t inflation. In fact, defined correctly, increasing the money supply is inflation. And we certainly have plenty of that.

The fact is inflation is here and it will almost certainly find its way to consumer prices eventually.

Peter Schiff has been saying that we can’t avoid the inflationary impact of money printing forever. During an interview on RT last month, he said that ultimately the price of everything is going up “because the value of the dollar, the money that people are using to buy things is going down. So, everybody is going to need a lot more dollars to buy the stuff that they need.”

In a recent interview with Kitco News, Degussa chief economist Thorsten Polleit agreed with Peter, saying people should be concerned about inflation because it’s a major threat looming on the horizon.

The Federal Reserve was already increasing the money supply before the pandemic, but the response to COVID-19 has put money printing into overdrive. As governments locked down the economy in response to coronavirus, the Fed launched what many have called “QE infinity,” and has increased the money supply at a record pace. But the Federal Reserve isn’t alone. According to a recent IMF report, central banks worldwide have injected $12 trillion into the global economy.

Meanwhile, people are asking “where is the inflation?” Polleit said it’s there. You just have to look for it.

You just have to look at equity markets, real estate and bond prices. At the moment inflation is impacting asset markets. But the increase in the quantity of money that has been printed in the US as well in the Euro area inflation will sooner or later also push up consumer prices. It may take a while for inflation in asset markets to show up in consumer prices, but it will eventually happen.”

Most people reflexively agree that money printing and stimulus are necessary to deal with the economic impacts of the pandemic, but Polleit reminds us that printing money doesn’t create wealth. It merely debases the currency and erodes our purchasing power.

Money is just a means of exchange. The wealth of a nation comes from the products it produces, the apples it grows and the homes that it builds. More money doesn’t make a nation wealthier.”

With the economy mired in a recession, millions out of work and many governments still keeping the clamps on their economies, products aren’t being produced and services aren’t being rendered. “Right now there is very little production so very little wealth is being created,” Polleit said.

But inflation isn’t bad for everybody, at least not in the short-run. Wealthy investors with big portfolios see their wealth grow thanks to asset inflation. The stimulus and money printing have blown up a massive stock market bubble. Real estate prices have also spiked. But your average consumer doesn’t reap the benefits of asset inflation. Instead, they watch their purchasing power erode. As Polleit put it, “Inflation benefits some at the expense of others.”

As the quantity of money rises, it has various effects, but eventually, it will make the great majority of people poorer.”

So, how can we mitigate the pernicious effects of inflation? Polleit said own gold. After all, the yellow metal has thousands of years of history as a store of value.

Holding gold is the best way of getting a risk reduction and return enhancement in your portfolio. Holding gold, especially at current prices, is a wise thing to do.”