Is inflation “transitory,” the result of a quickly recovering post-pandemic economy as Jerome Powell insists? Or is it a long-term phenomenon resulting from loose monetary policy that’s not about to abate anytime soon? Peter Schiff recently participated in the “great inflation debate” on RT’s Cross Talk with Peter Lavelle, along with American Institute for Economic Research economist Pete Earle and Renaissance Capital economist Sofia Donets.
This analysis focuses on gold and silver data provided by the Comex/CME Group. The Comex allows investors/traders to gain exposure to commodities using futures contracts. Contracts can settle for delivery of the physical commodity. Tracking the demand for physical metal can give better insight into the market. See the article What is the Comex for more detail.
- If the Fed tapers QE, it may reveal waning appetite for long-term treasuries
- The Treasury may have used its cash balance reserve to anchor inflation expectations
- If inflation persists, the Fed may have to increase rather than decrease QE
Note: By definition, inflation is an expansion of the money supply. In this article, inflation will be used interchangeably with rising prices (usually as a result of money supply expansion)
The markets have obsessed over what the Fed is saying while almost completely ignoring what it’s actually doing.
After the June FOMC meeting, markets reacted to the hint that the Fed might start raising interest rates in 2023 instead of 2024. But of course, it didn’t move rates up from zero. And while the Fed apparently talked about talking about tapering its quantitative easing bond-buying program, it continues to expand its balance sheet at a torrid pace.
The S&P 500 closed last week at an all-time record high. This is quite a reversal from the previous week. In his podcast, Peter Schiff said there has been a shift in expectations. After the June FOMC meeting, investors were jittery that the Fed was going to tighten monetary policy to fight inflation. Now the thinking seems to be that there is no inflation problem. It really is just transitory. Everything is great because – well – the Fed tells us so!
The markets widely interpreted the June Federal Reserve meeting as hawkish. The central bankers pushed their projections for the first interest rate hike from 2024 back into 2023. But in reality, the Fed didn’t actually do anything. Interest rates will remain at zero and quantitative easing will continue unchanged into the foreseeable future.
The fact is the US government needs the Fed to continue its loose monetary policy to sustain its out-of-control borrowing and spending. Money is control and that’s why every government wants to control the money. Of course, this never works well for the average person. As Ron Paul put it, the road to big government authoritarianism is paved with fiat currency.
From 2016 to 2020, Republicans were constantly trying to play up the economy. You’ll recall Donald Trump claiming it was the greatest economy in history. Meanwhile, Democrats were trying to play it down. Now, the roles have reversed. Since the Democrats own the economy now, they’re talking about how great the recovery is while Republicans are sounding warnings. This political hypocrisy is letting the real culprit get away without blame.
“Officer, I need to report my wife. She lost her gold necklaces.”
That’s basically what happened in Strongsville, Ohio, recently.
Yesterday, President Joe Biden announced Republicans and Democrats have come up with a $1.2 trillion infrastructure deal. But where is Uncle Sam going to come up with the money? And what does this tell you about the likely trajectory of Federal Reserve monetary policy? Host Mike Maharrey talks about it in this episode of the Friday Gold Wrap podcast. He also discusses the latest talk, talk, talk coming out of the Fed.
Who produces the world’s gold?
Gold production fell again in 2020. According to the World Gold Council, gold production came in at 3,478 tons last year. That compares with mine output of 3,597 tons in 2019.
