Inflation is a monetary curse, Alasdair Macleod

This is a great explanation of what’s going on in and what’s going to happen to the world’s financial system. Own some physical gold and silver. From Alasdair Macleod at goldmoney.com:

Remarkably, in a speech on monetary policy given at the Jackson Hole conference last Friday, Jay Powell never mentioned money, money supply, M1 or M2. With money supply expanding at a record pace to fund both QE and intractable budget deficits the omission is extraordinary.

The FOMC (the rate setting committee) appears to no longer take the consequences of monetary expansion into account. But the fact is that rising consumer prices caused by monetary expansion have driven real rates sharply negative and are leading to pressure for higher interest rates.

This article looks at the consequences of policies which combine the maintenance of a wealth effect by juicing markets with QE, and funding enormous government deficits, which are now beyond control. A flight out of foreign-owned dollars and dollar-denominated financial assets, which currently total over $32 trillion, is becoming inevitable.

Will the Fed respond by increasing its QE support for financial markets, while resisting the pressure of rising interest rates? If so, there is no surer way to destroy the dollar.

The lessons from history combined with sound economic analysis tell us that markets will reassert themselves over the Fed, and for that matter, over all other central banks which have embarked on similar monetary policies.

Gold is the ultimate hedge against these events and their consequences.

Introduction

Last week, in his Jackson Hole speech Jay Powell grudgingly admitted that prices might rise a bit more than the FOMC previously thought. But it was too early to conclude that policies should be adjusted immediately. He said:

“Over the 12 months through July, measures of headline and core personal consumption expenditures inflation have run at 4.2% and 3.6% respectively— well above our 2 per cent longer-run objective. Businesses and consumers widely report upward pressure on prices and wages. Inflation at these levels is, of course, a cause for concern. But that concern is tempered by a number of factors that suggest that these elevated readings are likely to be temporary. This assessment is a critical and ongoing one, and we are carefully monitoring incoming data.”

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