While perceptive consumers and investors have been watching prices increase slowly for months now, those prices increases are picking up, putting them on the radar screens of an increasing number of people. Inflation is becoming a topic of discussion for more and more people as the pace of inflation has picked up recently, hitting 5% year on year. From food to cars to houses, not a sector of the economy seems to have been left unaffected by rising prices.<\/p>\n
With millions of Americans still out of work and reliant on government unemployment benefits, the debate surrounding inflation and what to do about it has taken on renewed urgency. Government eviction moratoria are about to end, extended unemployment benefits have been curtailed in many states, and more and more households are feeling the pinch of rising prices.<\/p>\n
Retirees are among those who will be most affected by inflation, as many of them live on fixed incomes, are dependent on retirement savings whose yields are low, or are seeing no cost of living increases from government benefits such as Social Security. If inflation continues to rise and isn\u2019t transitory like Washington policymakers believe, those retirees could be in for a lot of financial pain in the coming months.<\/p>\n
The roots of these rising prices are in the Federal Reserve\u2019s monetary policy. The massive stimulus bills passed by Congress had to be paid for somehow and, without the money to pay for them, the US Treasury issued huge amounts of new Treasury debt. Much of that new debt was purchased by the Federal Reserve System, which nearly doubled the size of its balance sheet in a matter of months.<\/p>\n
Today the Fed\u2019s balance sheet sits at over $8 trillion, meaning $4 trillion of newly created money has made its way into the financial systems since last year. Money supply figures have skyrocketed as well, so it\u2019s no wonder that we\u2019re seeing that reflected in price increases today.<\/p>\n
The Fed continues to purchase at least $80 billion of Treasury securities each month, as well as $40 billion of agency mortgage-backed securities. That\u2019s nearly $1.5 trillion of assets purchased, and that much new money entering the financial system each year. Until those purchases stop, inflation is essentially guaranteed.<\/p>\n
While many financial analysts are warning that the Fed intends to begin tapering its purchases in the near future, there\u2019s no guarantee that the Fed will be able to do that. President Biden\u2019s budget request for FY 2022 is over $6 trillion, with an estimated deficit of over $1.8 trillion. That deficit will have to be paid for with new debt, and there\u2019s no guarantee that markets will want to absorb that much debt, especially at near zero interest rates.<\/p>\n
That may force the Fed to step in and purchase that new debt from primary dealers or other Treasury auction participants, thus continuing the increase in the size of its balance sheet and continuing the amount of newly created money pumped into the financial system. And with projected deficits of well over $1 trillion annually for the next ten years, the Fed may be forced to continue loose monetary policy whether it wants to or not.<\/p>\n
President Biden is still pushing for passage of his infrastructure plan. While the size and scope has been downsized, it\u2019s still expected to cost around $1 trillion. Fat chance the Fed will be able to taper monetary policy anytime soon if Congress ends up passing that plan.<\/p>\n
Pressure is being put on Republicans in the Senate right now to pass the bill, and there is talk of a bipartisan deal in the works. With just over a month left before Congress recesses for the August break, expect pressure to pass the plan to ramp up. And don\u2019t be surprised to see the Fed purchasing more than the minimum in order to soak up the new debt that will have to be issued to pay for this new infrastructure plan.<\/p>\n
Believe it or not, there are still some in Washington pushing for even more economic stimulus. As if high-flying stock markets and rising inflation weren\u2019t indication enough that massive amounts of stimulus have already done damage, some of the proposals for a fourth round of stimulus have been even more generous than before.<\/p>\n
Some Democrats in Congress have pushed for monthly payments of $2,000 per person, a massive increase over what has already been paid out. And while the political will for more stimulus seems to be waning right now, don\u2019t be surprised to see more calls for stimulus as unemployment benefits decline and the economic recovery falters.<\/p>\n
More stimulus means more debt, which means more easing. And that would likely result in even higher inflation than we\u2019re seeing already.<\/p>\n
We\u2019ve been assured by policymakers in Washington that this rising inflation is merely \u201ctransitory\u201d and that we can expect prices to stop rising by the end of the year. But can we trust that they know what they\u2019re doing?<\/p>\n
After all, in early 2007 the Fed assured us that weakness in the subprime mortgage markets was largely contained, and that any weakness in the housing market wouldn\u2019t spill over into the general economy. Of course, a little over a year later all hell broke loose. Anyone who trusted the Fed back then saw their investments decimated as stock markets collapsed, bond markets froze, and the financial system teetered on the point of collapse.<\/p>\n
That\u2019s all to say that the Fed doesn\u2019t have a very good reputation when it comes to economic prognostication and forecasting. So if you don\u2019t start hedging your bets now and protecting your assets against future inflation, your investments could lose a lot of purchasing power.<\/p>\n
In a worst case scenario we could be on the verge of another lost decade similar to the 1970s. That decade featured stagnant stock markets, high inflation, and huge amounts of economic turmoil. But not everything was doom and gloom.<\/p>\n
Silver and gold performed spectacularly during the 1970s, with both precious metals seeing average annualized gains of over 30% over the course of the decade. In the event of another inflationary decade, gold and silver could very well repeat that performance. Right now everything is in the Fed\u2019s hands. If the Fed continues to inflate, expect gold and silver to keep rising.<\/p>\n
Investing in gold and silver doesn\u2019t have to be difficult either. With a gold IRA<\/a> or silver IRA<\/a>, you can invest in physical gold and silver coins or bars while still enjoying the exact same tax advantages as a conventional IRA account. Even better, you can roll over or transfer assets from your existing 401(k), IRA, TSP, or similar retirement accounts into a precious metals IRA without tax consequences. That allows you to benefit simultaneously from an investment in physical gold and silver as well as the tax advantages afforded by an IRA retirement account.<\/p>\n If you\u2019re worried about inflation and the damage it can do to your investments, now is the time to start thinking about protecting them. You can\u2019t afford to start taking big losses when you near retirement, as asset preservation is the name of the game.<\/p>\n Gold and silver can be vital as part of a strategy to maintain your wealth into retirement, particularly if the outlook for the economy is poor. And there\u2019s no better time to start thinking about protecting your assets with gold and silver than today.<\/p>\n Don\u2019t let your hard-earned retirement assets fall victim to inflation. Call the experts at Goldco today to learn how you can put gold and silver to work protecting your investments.<\/p>\n","protected":false},"excerpt":{"rendered":" While perceptive consumers and investors have been watching prices increase slowly for months now, those prices increases are picking up, putting them on the radar screens of an increasing number of people. Inflation is becoming a topic of discussion for more and more people as the pace of inflation has picked up recently, hitting 5% […]<\/p>\n","protected":false},"author":13,"featured_media":36301,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[207,208],"tags":[218,904,226,227,656],"class_list":["post-36300","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","category-federal-reserve","tag-federal-reserve","tag-government-spending","tag-inflation","tag-stagflation","tag-stimulus"],"acf":[],"yoast_head":"\n