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A real -USD- money tsunami

The inflation card is now being played on the international financial markets, and not without good reason. Anyone who looks at the development of the Federal Reserve’s balance sheet or takes into account the massively skyrocketing money supply in the U.S. will realize that forty percent (!) of the money in circulation in the United States has been generated in the course of 2020 alone.

Mind you, in a history of some 250 years! In a period that spanned just three months in 2020, the U.S. government produced a budget deficit that was higher than in any of the five previous recessions in 1973, 1975, 1982, the early 1990s, and at the time of the global financial and banking crisis.

In the time-strapped era of Jerome Powell, the Federal Reserve has purchased more U.S. Treasury bonds in a period of just six weeks than in the previous decade under the aegis of Ben Bernanke and Janet Yellen. Meanwhile, average prices in agricultural commodity markets have risen nearly forty percent since last August.

  • The Commodity Analysis Bureau’s specially calculated index has even shot up 75 percent since last April. These figures alone are frightening. But it will by no means stop there, because:
  • The copper price is currently trading at over 8,900 U.S. dollars per ton, which is a 10-year high. Goldman Sachs had also recently forecast new all-time highs for the copper price.
  • At the same time, a ton of nickel is trading above US$18,500, a 6-year high.

In recent days, the price of lumber surpassed US$1,000 for the first time in history, which is equivalent to reaching a new all-time high.

This is a summary of some events I stumbled across in a recent report by Graham Summers of Phoenix Capital Research, the originator of the term “everything bubble.”

Best (or saddest) of all, according to their official statements, Fed officials can’t (or perhaps don’t want to) see any signs of rising inflation.

Last week, Fed regional president John Williams told CNBC in an interview that currently rising prices were justified and based on growing “optimism” about a rebounding economy.

In the course of this, inflation expectations in the financial markets also increased, according to Williams, but there is no reason to assume that asset prices are threatening to get out of control.

While worries and concerns about rising inflation, widely supported by recent data, are strongly on the rise in the financial system, the Fed is dreaming the sleep of the righteous.

Things will probably get worse before they can get better. Janet Yellen, in her customary coded language, had recently pointed out that the Fed will probably have to use mechanisms to control the yield curve in the U.S. from a certain point on.

Conversely, this means nothing other than that the Fed seems to be preparing to buy more long-dated government bonds such as 10- and 30-year bonds in the future in order to stop or even reverse the interest rate trend in this area.

Graham Summers, on the other hand, is of the opinion that the Federal Reserve will have no choice but to raise domestic interest rates, possibly even drastically in the manner of former Fed Chairman Paul Volcker, once inflation becomes visible to everyone, not only in the financial system but also on the street.

Michael Burry just warned that the U.S. will go into hyperinflation. Let’s face it, from the Federal Reserve’s perspective, how would it ever be possible to raise interest rates significantly again, taking into account current levels of debt (both government and private), without provoking a complete systemic crash?

On the contrary, from this perspective, increasing inflation with a continuing devaluation of the U.S. dollar would be an ideal way to devalue the outstanding debt bit by bit, even if Main Street’s backbone would be broken in this way.

The probable flare-up of social unrest associated with this would then be a different matter, which would potentially have to be countered with the full force of the police state. Graham Summers points out that the Fed is still pumping $120 billion per month into the domestic financial system.

According to (so far) official statements by Jerome Powell, interest rates in the U.S. are to be kept at the current level for the next two years – and not to rise. If the pace of U.S. government bond purchases is maintained at its current level, the Fed will pump another $2.8 trillion of freshly created money into the system over the next two years.

In addition, the new Biden administration and the U.S. Congress are working to pass a new fiscal package of $1.9 trillion, which could be joined over time by an infrastructure package of another $2 trillion.

An additional 1.7 trillion U.S. dollars could then be added in the form of a climate change pact, so that, according to Graham Summers, we are talking about a total amount of around seven trillion (!) U.S. dollars that threatens to be poured out over our heads in the next two years alone.

Taking current figures into account, seven trillion U.S. dollars would correspond to a 33 percent share of the U.S. gross domestic product. For this reason, Graham Summers warns that inflation threatens to shatter portfolios among investors who are not prepared for this. Portfolios appropriately geared for such a development could, in turn, produce immense wealth.

DepthTrade Outlook

Non-cash assets are still the name of the game! For this I count from personal view everything which promises to withstand a potential A fiat money devaluation tsunami, without wanting to go into details again at this point.

Hayato Ishikawa Send an email

Mr. Ishikawa has more than 25 years of experience in the financial markets, focusing on stocks, real estate, cross-asset risk hedging, and business founding. He is co-founder of a private investment group - specializing in the western pacific region and an independent analyst as well as business advisor. Mr. Ishikawa is known for bringing technical and fundamental analysis as well as sentiment into a coherent overall assessment - unbiased financial and political journalism made in Japan.
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