The US Fed’s Plan for Inflation — If at First You Don’t Succeed…
…Try, try again!
It seems no one is taking that instruction more seriously right now than the US Federal Reserve, which, as Jim Rickards explains below, is desperate to get inflation.
Read all about the Fed’s latest plan below, along with another, far more sinister plan from the powers that be that could affect us all. You’ve been warned.
Now it’s over to Jim.
Until next time,
Editor, The Daily Reckoning Australia
Desperate Times Call for Desperate Measures
The Fed is desperate to get inflation. That may sound strange to a generation that grew up viewing the Fed as a great inflation fighter. This view goes back to the late 1970s when the US experienced borderline hyperinflation, with annual inflation rates running at 15% and mortgage rates at 13%.
The Fed defeated inflation under the leadership of Paul Volcker, who raised interest rates to 20% and plunged the US into what was then the greatest recession since the Great Depression. It worked. Inflation was back down to 3% within a few years.
From the mid-1980s to 2008, the Fed retained its inflation-fighting credentials. But after the 2008 financial crisis, interest rates hit zero and US debt levels soared. Suddenly, deflation looked like a greater danger. The Fed did not want high inflation, but it was targeting 2% on an annual basis.
A dirty little secret
The dirty little secret was that if you combine 2% inflation with 0% interest rates, you cut the value of the dollar (and the real value of the US debt) in half in 35 years. If you have 4% inflation and 1% interest rates, the value of the debt (and dollar) is cut in half in just 24 years.
Sounds good (unless you’re a saver or live on a fixed income). But there’s one big problem. The Fed can’t cause the inflation it wants.
The Fed’s flawed quest for inflation
This article reveals the latest twist on the Fed’s plan to get inflation. For decades, the Fed has targeted interest rates in the expectation that low rates would produce the higher inflation it wants. The policy has failed miserably. (The reason is that low rates and money printing are not what cause inflation, but that’s another story.)
Now the Fed is has announced it will target inflation instead of rates. This means it will just keep rates low as far as the eye can see and wait for the inflation target to be hit.
This policy will fail, but the Fed doesn’t understand that, so it will pursue it. This makes it easy to forecast monetary policy and to position portfolios to profit from the Fed’s blind spot. The big winner: Gold.
Never let a good crisis go to waste…
During the depths of the 2008–09 global financial crisis and recession, Obama’s Chief of Staff Rahm Emanuel said, ‘Never let a good crisis go to waste.’ (Actually, those were not his exact words, but the popular version is close enough and it’s precisely what he meant.)
This is one of the oldest sayings in Washington. Policy elites, think tanks and politicians always have a wish list of laws, rules and regulation they want to implement. Some have broad political support and it’s just a matter of time (and working the system) before they come into place. Other plans are more radical and lack support in normal times.
Policies resisted in normal times are quickly enacted during crises
In that case, politicians wait for a panic or crisis to scare people. Then they bring out their ‘plan’ to save the day. People buy into it because they’re afraid and just want solutions. The policies that are resisted in normal times are quickly enacted during times of crisis.
This is how we got the USA Patriot Act in 2001. At the time, it seemed like a good response to terrorism. By 2016, the same law was being used to spy on innocent Americans. It’s only when normality has returned and the hidden costs of the radical program become apparent that buyer’s remorse sets in and citizens can see their mistake. By then, it’s too late.
It’s difficult to pass a law in Washington, but it’s even more difficult to repeal one, so the radical plan remains. Politicians then crawl back into their caves and wait for the next panic to push through their next radical plan of action. Wash, rinse, repeat.
Is a cashless society on the horizon — and what should you do?
The latest version of this tactic can be seen in this article. It is written by Harvard Professor Ken Rogoff. Professor Rogoff is the leading voice for the elimination of cash. He wants to replace cash with digital accounts only. That makes it easier for the government to freeze or seize your assets, impose negative interest rates, and track your financial transactions in real time using computers.
Now that we are in a COVID pandemic and a new depression, Rogoff is using the crisis to push his cashless society one more time. Don’t buy into it. Once your cash is gone, you’ll never see it again. We’ll all be stuck in digital accounts where the government can steal from us blind with a few lines of computer code. The best alternative is physical gold or silver.
All the best,
Strategist, The Daily Reckoning Australia
PS: Aussie Gold Miner Stocks: Free report reveals why Australia is set to become the next ‘gold epicentre’ — which could result in a HUGE spike in Aussie gold stock prices. Click here to learn more.