Market Insights, The US Dollar

When Is the Best Time for the US to Spend $3 Trillion?

Gold Alliance disclaimer

Another month has gone by, and inflation is continuously rising. Last week, the consumer price index saw the steepest increase in over 30 years, jumping to 6.2%. But before anyone relaxes into a feeling that 6.2% isn’t the end of the world, remember that this is not the real inflation. It’s a number that doesn’t include gas prices and the costs for having a roof over your head. Our real inflation — the percentage you are going to lose this year on all your dollars and dollar-denominated assets — is at around 10%.  

We have had to cope with inflation for months now with higher costs for groceries, heating, gas, and pretty much every item we purchase. And there is no sign that inflation is going to slow down anytime soon. Fed chair Powell himself has resigned publicly to the fact that the price increases are not “transitory.” 

Where could the US inflation rate be heading? 

While our inflation is the highest since 1990, let’s zoom out a bit further to see the uptrend we are in and that, historically, we could go much, much higher. 

If President Biden and the Fed don’t rein in inflation soon, by the next inflation report we could find ourselves with the same inflation rates we experienced during the 1970s, as seen in the chart above. Meanwhile, the economy is stalling — economic growth dropped to just 2%, down from 6.7% in the previous period. Things are starting to look more and more like the 1970s’ stagflation

One of the drivers behind the rising inflation is the enormous amount of government stimulus and the Fed’s money printing, which we discussed in detail here. In short, as I wrote then, 

“Inflation is the loss of purchasing power of each individual dollar because more and more dollars are being created …, diluting the value of the precious dollars in the system. More dollars are chasing after the same amount of goods, so the prices of the goods go up. Inflation robs us blind.” 

The Fed knows this. Heck, every 1st-year student of economics knows this. So, if inflation is really theft of Americans’ purchasing power, wouldn’t you think our government would want to stop it and protect us? 

How do you stop inflation? Well, for one, you stop adding money to our money supply. Stop the dilution of the dollar since adding more money via stimulus bills and money printing is adding more fuel to the fire. This is the worst time to spend trillions of dollars — the last thing we need is more money added to the money supply and our national deficit.

Biden, what’s your view on this? 

“Inflation hurts Americans’ pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement after the release of the latest inflation data. 

But we can question his commitment to fighting inflation since his actions show a different view on inflation and spending: Biden just signed his $1.2 trillion infrastructure bill into law. 

How will Congress pay for the infrastructure bill? 

Lawmakers are claiming that Biden’s infrastructure bill will pay for itself. However, the Congressional Budget Office finds that the $1.2 trillion bill will add $350 billion to the deficit and that many of the pay-for provisions won’t raise as much money as Democrats claim. 

How will Congress fund that deficit? Of course, more money printing is the first answer that comes to mind. But Biden will not stop at his recent bill.

In the same statement, Biden made about his inflation concerns, he urged lawmakers to keep spending: “Going forward, it is important that Congress pass my Build Back Better plan.” 

And the Democrat-led House listened and just passed Biden’s $1.75 trillion Build Back Better plan. So, in the middle of the highest inflation, we have seen in over 30 years, more money is thrown into our economy’s furnace.  

What will happen to our inflation rate when, in total, more than $3 trillion is added to the economy? Biden and the Fed may pass on answering that question, but you and I know the answer. And you and I will pay for it down the road. 

Headshot of Joseph Sherman.

Joseph Sherman

CEO, Gold Alliance


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