Just a few days ago, JP Morgan's CEO Jamie Dimon, stated that the post-pandemic economic boom could last untill 2023, forecasting a strong rebound in the face of excess savings, stimulus, quantitative easing (QE) and mass vaccination. Less than a month ago, the OECD, sharing Dimon's optimism said that the Biden stimulus will boost global recovery from the pandemic. Regrettably, both Dimon and the OECD are ignoring the reality of the economy.
This wrongly-called recovery forecasted in the U.S could not be further away from the truth, in practice the economy itself is not only weak but an uncontrollable clutter. The Biden – Yellen – Powell rebound will just result in the spending of excessive quantitative easing (QE) and monetary expansion put in place by the central bank. The concern relies on the fact that it is the excessive enlargement of the money supply, driving the mien of economic growth, when in reality it is just a catastrophic bubble waiting to implode. Sooner than later, consumer prices will soar, just then, Powell and markets will accept how damaged the U.S economy actually is. Unfortunately for them, the Federal Reserve will not have the tools to counter inflation.
What Powell has to do is to reverse all implanted policies and pop the bubble before it collapses. They will have to start by contracting the monetary mass, while allowing interest rates to rise, forcing the United States Government to cut spending considerably. On top of that, Biden will have to drop future stimulus and axe away the ones promised in the past. Ultimately, the only two exits would be either to substantially cut government spending, or to increase taxes on both the average Americans, and the 1% - something that will hardly happen. What is in effect happening, is the government financing itself through monetary expansion which essentially leaves the system on autopilot towards uncontrollable inflation.
If one goes back a decade ago, the Federal Reserve, presided by Ben Bernanke, stated exactly the same thing about the mortgage crisis at the early stages of the subprime, “Subprime mortgage woes won't seriously hurt economy”, or “we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.” They were completely wrong, the crisis exploded and the rest is history - exactly what is currently happening, with Powell instead of Bernanke, and stimulus instead of subprimes, “We need more stimulus, inflation is not a worry”, as the Chair argued in January.
The board's arguments are hardly convincing, “rise in prices will be transitory” - how do they know it is transitory? Just like when Bernanke said subprimes will be contained - in fact, this inflation is as transitory as subprimes were contained back then.
With all the uncertainty and in the face of increasing and uncontrollable inflation, gold which has historically been the main inflation hedge is constantly decreasing its value along with several precious metals. This because of markets maintaining expectations on Jerome Powell and his ability to counter inflation. It is when investors and institutions realize how powerless the board is, that these precious resources will soar and the U.S dollar, collapse.
Written by Nicolas Martinez
Nicolas Martinez is a columnist at DecipherGrey
Photograph: FederalReserve|Flickr.com
Comments