Week Ending June 18th, 2021
Inflation is transitory… And Modern Monetary Theory (MMT) will save Zimbabwe.
What does it mean – All the printing in the world will not save Zimbabwe or any other country with its own currency. I have a $Trillion dollar note from Zimbabwe that is not worth the paper it is printed on.
Many advisors in the current administration believe that a government with a fiat currency can simply print its way out of trouble. The U.S. is seeing it, no living it, in real time as inflation is going up at a record pace much like the 1970’s. Time to ask yourself why.
MMT assumes that the government can control supply and demand through printing or taxing back when there is excess within the economy. In 5,800 years of recorded history, socialism has never worked in any culture or in any century. MMT or Modern Monetary Theory is the new term for Planned Economy. A government big enough to give it to you, is big enough to take it away.
Globally, MMT is quite literally creating a race to the bottom. Lucky for us, the U.S. just happens to be the biggest midget in the circus.
Producer Prices… Up 6.6%. This is the highest jump history.
What does it mean – Inflation. How do you know? It costs more to go to the store, fill up your car, pay for your utilities, buy food and raw material.
Retail sales fell 1.3% for the month of May… Inflation is starting to hit the consumer.
What does it mean – Consumers are starting to feel the pinch. In just a couple of months we have seen a shift in spending due to record high inflation rates.
Fed admits inflation is on the rise… Inflation is rising faster than predicted.
What does it mean – Fed forecasts that rates may go up sooner than expected.
Bond yields defy reality… Inflation up, yields down. How is this possible? That’s the opposite of what is supposed to happen.
What does it mean – The Federal Reserve is managing yields. Since the pandemic, the Fed has purchased 56% or $4.5 trillion of treasuries. According to Joel Ross, that is 76% of the cumulative federal deficit this year. Second, our dollar has weakened, and this means foreign investors can buy more of our treasuries which translates into a higher return for foreign buyers. Foreign investors along with our Federal Reserve purchasing U.S. treasuries is keeping yields down.
Bank of America CEO Brian Moynihan and hedge fund billionaire Paul Tudor Jones told CNBC on Monday that it is time for the FED to pull back on the easy-money policy it instituted during the pandemic. Heck, not sure about their timeline, but we have enjoyed the easy money policy since the real estate bubble and recession of 2008 to 2010 that led us to understand what too big to fail meant.
Always at your service,
Doug De Groote, CFP®, MBA, CTC Managing Director