By the time Joe Biden stepped into the Oval Office, the US was already out of borrowers. So when he decided to spend $3 trillion that didn’t exist, the Federal Reserve simply created it out of thin air. At the same time, foreigners stopped buying US treasuries, so the Fed bought the extras. In addition, US banks had run into trouble with their motgage backed securities again. Howe familiar. So the Fed bought them too.
The thing is, this happened 9 months before Biden was sworn in.
In all, the Fed splurged $12 trillion in a few weeks, and another couple of trillion over the year. It’s not like they could have borrowed it.
After all, the world’s GDP is only $85 trillion. So it doesn’t generate anywhere near $12 trillion in excess wealth (“profit”) per year.
Currency in circulation plus savings accounts (M1) quadrupled in just a few weeks.
M1 was $4 trillion at the start of 2020. Now it’s $20 trillion. That’s insane.
So by the time Biden launched is $1.8 trillion stimulus package, the money had already been prepared and inflation was already waiting to happen.
The only way to normalize this level of money creation is to deflate it either through quantative tightening (what the Fed is doing right now) or inflation. Given that the Fed can’t possibly take $4 trillion out of circultation — let alone $16 trillion — it looks like we have some serious inflation coming our way. Specifically, we have about 400% of inflation to deal with over the next few years.
If this is ten years, then we will have 17% inflation per year. Over five years, it would be 38%.
Is this possible? Yes, but unlikely given that low priced imports will shield the US from much of the consumer price impact. However, the stuff produced in the US, such as food and energy, will not be shielded and will take the full force of this inflation.
As will capital assets. So those with assets will benefit while anyone working for a salary is going to be able to afford less and less. Electronics may seem cheap, but even cheap prices will be out of reach of those who can barely afford food and gas.
America has already hollowed out the middle class to some extent. This will finish the job. There will only be rich and poor.
It will be the best of times, it will be the worst of times…
Given how the US will export this inflation, the entire world will be suffering from this splurge — which is simply the cherry on top of a a 43-year debt addiction.
- Turkey has 70-80% inflation
- Sri Lanka is set to suffer 60% inflation
- South Korea hit a 24-year high
- Thailand’s inflation is at a 14 year high
- Australia just socked borrowers with a 0.5% hike amid high inflation and electricty prices up 500-1100% over two years ago
- UK inflation hit a 40-year high
Meanwhile, the US only had 8.6% inflation so far. There’s a lot more to come.
