Yesterday, something dramatic unfolded.
Most Americans probably missed this even though it’s going to impact everyone’s financial wellbeing.
Not that I blame them. A Federal Reserve symposium doesn’t sound like something exciting.
Nonetheless, this annual gathering in Jackson Hole, Wyoming, is highly important.
It’s when the Fed sets future economic policy and makes its biggest announcements.
And the message this year was profound.
Why We Urgently Need Inflation, Even Though It’s Already High
As you know, for the last decade, the Fed has been trying to ramp up inflation by keeping the interest near zero.
The reason why they’re it is that moderate inflation is a sign of a healthy economy. Moreover, it allows the Fed to raise interest rates, giving it more firepower when the next recession occurs.
To the Fed’s disappointment, however, inflation remained low.
Although whether it’s as low as they claim remains a contested issue among the financial community. Many, including myself, believe that inflation is all around us and that the Fed intentionally measures it the wrong way.
While the price of goods, what the Fed mostly looks at, has fallen, that of services and housing, for example, increased substantially over the last ten years. This is a crucial discrepancy because services represent two-thirds of the U.S. economy, and the average American spends 37% of their budget on housing.
So, to turn a blind eye to those, and act as if all the money the Fed printed just disappeared, signals to me there’s something else at play here.
The truth is, I know why the Fed is doing this. And you’ll be surprised to hear that it’s in the public’s best interest.
It’s to lower the national debt.
After the 2008 recession, the United States went on a massive spending spree, which it financed by increasing debt. To make the matter worse, the same happened again during the current crisis.
The problem a country faces in such a situation is the same as with an individual. The more debt you take, the higher your interest payments become, and the less you have to spend elsewhere.
But there is a way around that, especially when a country is considered to be the most powerful in the world. It’s by creating inflation. That’s because devaluing the currency also decreases the real value of the debt. And if you can bring inflation to the same level as the interest on your loan, your payments are virtually free.
Of course, you can’t admit to doing this. Otherwise, your debtors would get mad. You are, after all, cheating them out of their money. This is especially the case for the United States, with foreign countries owning about 40% of the U.S. public debt.
So, as you see, creating inflation and acting as if it doesn’t exist is very much in the Fed’s and the United States’ best interest.
The Fed’s New Hyperinflationary Policy
The problem with such tactics is that inflation can potentially run out of hand if you start printing too much.
Given that the Fed printed record amounts in the last few months, this has become a serious concern.
Which is why yesterday’s speech was so important.
Since the 80s, the way the Fed responded to inflation is to start curbing it in as soon as it rose above 2%.
This will no longer be the case.
From now on, the Fed will start doing that only once the “average” inflation over a certain period reaches above 2%.
What the time or that average will be is unknown. The Fed will set it as they deem fit. It could be three years, for example, or ten. They’re basically saying that inflation is whatever they say it is.
Either way, the outcome is the same. Inflation has been well below the target for decades. Meaning, that to get to the average 2%, the Fed will tolerate inflation higher than that from now on. They won’t be rushing to stop it.
The conspiracy theorist in me also suspects that because of the trillions of dollars of new money printed in the last few months, the Fed expects inflation to pick up significantly in 2021. By saying that this is OK and all part of their new plan, they can make this appear as something normal, which should calm the public and the foreign debtors.
In any case, inflation is coming, and you don’t want to end up on the losing side.
How To Survive And Profit From Inflation
First thing, you should remember that in this environment, cash is trash.
Inflation is eating away its value, so it’s best to invest it in real assets.
One option is to buy precious metals. Because of their limited quantity, they retain value over time, which makes them excellent protection against hyperinflation.
It’s one of the main reasons why so many investors have been flocking to gold and silver in recent months. But even at current prices, I still consider the two metals as a great buy. You can find more about why that is so in this article.
Another option is to invest in real estate. Because of its intrinsic value, this is another asset class that does well in inflationary environments.
Alternatively, you could also opt for Bitcoin, though its inflation-protection properties are still to be tested.
Nonetheless, I consider it a strong buy at this moment. For this reason, I wrote a special report about Bitcoin, which you can read about in the latest issue of my True Retirement Wealth.
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