A March Toward Hyperinflation

The idea that March 23 was a turning point toward a march toward hyperinflation as proposed by Alasdair Macleod remains intact. Yes, this week the Rogers Raw Materials Fund fell a bit, but that’s largely because of the heavy weight that that fund gives to oil and gas, which have been weak.

Support for the notion that things changed on March 23 is given credence from an article in Bloomberg this week by Tim Duy titled, “The Fed is Setting the Stage for a Major Policy Change.” Duy wrote, “For the Federal Reserve, this time really is different. Having learned a hard lesson in the last recovery — don’t tighten monetary policy too early — the central bank is leaning in the opposite direction. In practice, that means the Fed will not just emphasize actual inflation over forecasted inflation, but will also attempt to push the inflate rate above its 2% target. It’s a whole new ballgame. Policy makers have begun talking about letting the inflation rate rise above its 2% target. Look for a formal statement soon.

This article shows just how wrong our policymakers are. The conclusion that the Phillips Curve model, which held that high levels of employment beget high levels of inflation, is wrong because while we have had high levels of employment (until COVID-19) they erroneously believe inflation has been very low. That’s just plain wrong! Not only have we had enormous levels of inflation in stocks and bonds but also the actual cost of living has gone up dramatically more than the sub 2% that the government has been lying to us about. You need look no further than the work of John Williams (www.Shadowstats.com), who demonstrates that the actual cost of living has been rising from around 6% to 8% annually while middle-class wages have remained flat until the Trump presidency when they rose slightly. So their conclusions that we have not had much inflation are wrong and if the data they are basing their policies on are wrong, the notion that they should now start to goose inflation to avoid the next major financial crisis—which will come no matter what they do—is just more evidence for Alasdair’s argument that the dollar may be facing its fatality very soon.

This is indeed a major change in policy, which no doubt dates back to March 23, which is the date Alasdair noted “something changed”—meaning that everything in the financial and commodities markets is rising. The Fed apparently has thrown in the towel. It had decided there won’t be anything left of the free market at least as far as the capital markets are concerned. On your left is my latest IDW, which has now broken through the three-year moving average (red line) in the sharpest upside trajectory since I created this measure of inflation/­deflation. Of course, the Fed can’t ever allow interest to rise, so it will now have to hyper-inflate the currency. I can’t think of any environment that could be more bullish for gold.

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