The Federal Reserve is in trouble. Inflation is heating up. In May 2021 at an extraordinary 5% annualized inflation rate. The FED tells us these price hikes are not permanent. Fed officials view is that they will start raising interest rates in 2023.
So, the official story of the FED is to bring forward a rate hike but may be in 2 years down the line and that they will take tiny steps to reduce their huge bond purchase programme.
But in my opinion the Federal Reserve is feeling the heat from rising inflation but there is little they can do, if they do not want to scare the markets. They really should raise rates now and stop printing money immediately. But it can’t, because there’s too much debt and leverage in the system. The system would implode, probably 1/3 of companies would likely go bankrupt, and a 1929-style crash scenario is very likely. So, instead they are going to raise rates in 2 years time when there will be additional more trillions dollars in debt piled up.
Who is buying such nonsense? Not me!
The Federal Reserve and governments everywhere in the world want inflation because devaluation of money is the easiest way to deal with a huge pile of unpayable debt. If inflation runs hot over several years, all of a sudden the huge mountain of debt looks a lot smaller compared to the GDP and is suddenly payable again.
Inflating away the debt is the path of least resistance. Even if inflation gets out of control for a while, I think the Fed has to stay the course. The alternative is basically 1929 but this time with much worse consequences.
If the Fed really attempts to raise rates and reduce quantitative easing (QE), the stock market will not react well to that. After stocks tank, the financial world will demand more QE and bail-out programmes and will send rates back to 0. But how often can you do this?
I think, there are great buying opportunities for inflation hedges such as precious metals and cryptos. It seems most people actually believe that the Fed has everything under control and will normalize in 2023. That’s why they are currently selling their gold, silver and bitcoin. If you haven’t developed an inflation hedge yet, now could be an excellent time to start to do it.
Sven Franssen