Federal Reserve is “stuck to its guns” on loose monetary policy. Summers went on to say that there was a “one-in-three chance that inflation would accelerate in the coming years,” and the U.S. could face stagflation. He also said he saw the same chance of inflation because the Fed would hit the brakes hard and push the country toward recession. The final possibility, he said, is that the Fed and Treasury will get rapid growth without inflation which is, of course, what they want. Considering all of this, I encourage people to invest. Having watched too many middle Americans scarred from the tech bubble bursting in 2000 and deciding to sit on the investing sidelines in 2008 – I would hate to see history repeat itself. Nonetheless, the World Bank’s former economist cautioned, “This macroeconomic policy poses more grave risks at this moment than any other I can remember.” AS THE DOLLAR DIVES, INFLATION CLIMBS Larry Summers is right... And I give him credit for speaking up at a time when it’s not so easy to speak up. His friend Janet Yellen is there now in the Treasury, and with Biden as president, Summers has every reason not to
rock the Blue boat. But sometimes, when you see a storm coming, you need to grab the wheel and veer your vessel to safer waters. There is no way that the printing of so much money will not result in pressure on the U.S. dollar. Currently, the U.S. Dollar Index (DXY) is trading near 92 – down from 100 roughly a year ago. As the government continues handing out money, spending massive sums on overly ambitious projects we cannot afford, the dollar will continue losing value relative to other currencies. And that means it will take even more dollars to purchase assets, thereby creating an inflationary environment for asset prices. Part of the reason for the run-up in stock, oil, and real estate prices in the last year is the expectation that the government will overshoot – and, in doing so, will create too much liquidity and generate inflation. Now, I’m not talking inflation for wages (if only) but, instead, the prices for everything else. Food prices jumped 3.5% in February, food in restaurants gained 3.7%, and energy prices gained 6%. Home prices are at record highs – so, clearly, some sectors are rising. Considering all of this, I encourage people to invest. Having watched too many middle Americans scarred from the tech bubble bursting in 2000 and deciding to sit on the investing sidelines in 2008 – I would hate to see history repeat itself. There was tremendous inflation in asset prices during the Obama-Biden years, but none in real wages.
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