By Sean Kelly
“Who will tame inflation this time? You already know the answer, don’t you, Dear Reader? No one. It’s too late for that. Too many businesses… households… and the government itself depend on “printing press money.” Too many economists, investors, politicians, and policymakers have forgotten how inflation works. They think it stimulates the economy. And today, the costs of tapering off the Federal Reserve’s crackpot policies are far too high.” – Bill Bonner
The Federal Reserve is between a rock and hard place again. The Fed’s policy-making Open Market Committee met in Washington this week and will issue a post-meeting statement on Wednesday, June 16.
The Fed is going to have to decide if inflation – apparent to everyone now – is “transitory,” as it has so stoutly insisted, or if steps should be taken to reign it in.
However, there is always another choice, which has been popular at the Fed crisis after crisis: Just try to muddle on through.
We think the wisest response is to buy gold and silver. When prices dip, we thank the Fed profusely for another opportunity to prepare for the crisis at advantageous prices!
Let’s take a closer look at the Fed’s choices beginning with “transitory” inflation. On closer inspection, it turns out not to be so transitory after all. When someone purchases a new home at an inflated price, it typically comes with a 30-year mortgage. The cost of that inflated house price persists with every monthly mortgage payment year in and year out for 360 payments.
And that is not too transitory.
The same is true for new (and used) car buyers. While the Fed insists that inflation is temporary, the cost impact of the inflated automobile price tag will persist for the four or five years of payments.
The same is true for companies that invest in plants and equipment at “temporarily” higher prices, or for those who buy raw materials for long-term production needs. When labor shortages force companies to pay more to higher people, those costs tend to persist. Temporary turns out to be a very long time. More and more people are beginning to recognize this, including Jamie Dimon, the head of JPMorgan/Chase, bond guru Jeffrey Gundlach (“the Fed is guessing”), and hedge funder Paul Tudor Jones.
The Fed risks its wafer-thin credibility if it telegraphs plans to try to reign in the inflation that it has insisted will be here and gone in no time. And that would pull the rug out from under both the bond market and stocks. We experienced that sort of thing in 2013 when the Fed hinted at backing away from its bond-buying, money-printing. A nasty interlude remembered as the market’s “temper tantrum” resulted. The Fed apologized and stopped at once.
Fed Chairman Jerome Powell initiated another Wall Street temper tantrum in 2018. Hints at turning down the money spigot collapsed stock prices. By Christmas Eve, the S&P 500 had fallen 20% from its high just weeks earlier.
Powell got the message. “Raise rates? Not us! Never even thought about it.”
It is likely the Fed will try to muddle through, alluding to its seriousness about controlling inflation in the future and carefully monitoring conditions, yadda, yadda, yadda. While the Fed dithers, gold is off its all-time high and below its high from earlier this year.
For that, we give thanks and buy gold during this dip! Because an unpayable $28 trillion national debt, and the $4.2 trillion the Fed has printed in this unprecedented 21-month spree, will rule no matter what the Fed does now.
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