ClearValue Tax: The Great Melt-Up: National Debt Crisis Will Skyrocket Inflation
The Federal Reserve has shifted to fighting inflation to protecting the job market. While most investors have cheered the news, there’s a key takeaway. It’s the fact that the central bank may allow inflation to tick higher.
If that’s the case, then inflation could even re-accelerate. Historically, that’s what happened with the high inflation of the 1970s. An initial surge higher in inflation dropped, only to reignite higher later in the decade.
With that in mind, investors may want to prepare for a melt-up in inflation again.
Besides lower interest rates, government spending could fuel this melt-up. That’s because government spending is already running a massive deficit. The U.S. government has managed to increase its total debt by nearly $1 trillion every 100 days this year.
Plus, the cost of financing that debt has now topped $1 trillion annually. That’s just money going out to bondholders of U.S. Treasury bills, notes, and bonds. It doesn’t go towards any productive spending.
In the initial stage of a melt-up, markets may rally higher. Governments like this option, as it creates a feeling of initial wealth creation. But markets may not make new all-time highs in inflation-adjusted returns.
Investors looking to protect from a debt crisis and inflation have few alternatives. Assets such as gold and bitcoin have no counterparty risk, if held directly. Financial assets in general should rise as well, from the stock market to your home.