(Mises)—Although the Federal Reserve and the European Central Bank’s message regarding interest rate cuts seems clear, reiterating their commitment to reducing inflation, the market is expecting between five and six interest rate cuts, between 125 and 150 basis points, in the next twelve months.
This shows us the bubble bias of many investors. We live in a world where two generations of market participants have only seen rate cuts and massive liquidity injections. Central banks have created huge perverse incentives in markets that should have been prevented if they truly followed their mandate of stable prices. On top of it, the ECB faces another risk. It must avoid following the siren calls of interventionists if it wants the euro project to survive.
The euro is the biggest monetary success of the last 100 years, and the ECB’s excessively loose policy may destroy its position as a world reserve currency. The interventionist hordes of European socialism want the central bank to become an instrument in the hands of governments to nationalize the economy and destroy the currency’s purchasing power.
Don’t be mistaken; for those who come up with soft words demanding “expansive-looking monetary policy,” what they are looking for is exactly what they have supported in Argentina, Venezuela, and Cuba: the expropriation of wealth through the dissolution of the purchasing power of the currency.
It would be completely irresponsible to implement massive rate cuts for several reasons.
Central banks are placing all the focus on the price and not the quantity of money. Ignoring monetary aggregates is very dangerous, and centering decisions only on rates may create a larger problem: a market bubble and a real economy contraction.
By ignoring monetary aggregates, central banks may cut rates with no real effect on the productive economy and solve nothing. There may be a significant contraction in economic activity even if rates decline, as credit availability worsens even with declining rates, but markets keep inflating the financial bubble.
Inflation has not declined persistently. Since the consumer price index is a year-on-year calculation from a very high figure, the base effect accounts for up to 85% of the decline in inflation. The same base effect could adversely affect inflation in the coming months if the annual path of price rises remains.
The greatest economic aberration of our time, negative interest rates, actually made the structural weakness in the economy worse, causing it to slow down.
The economy has been accumulating poor and indebted growth data for years in which misguided so-called “expansive” monetary policies have been implemented. Negative rates and extreme liquidity injection have not generated greater or better growth but have left states with enormous imbalances.
Consumers are still suffering from the monetary disaster created in 2020. We are talking about a cumulative inflation rate of more than 22% since 2018 and a price rise that continues to be worrying, particularly in non-replaceable goods.
Monetary aggregates show that there is a private sector recession disguised by accumulated debt. Between January 2020 and July 2022, the money supply (M2) soared by an insane $6.3 trillion, according to FRED. It has declined almost a trillion dollars from its peak. The impact of this decline in money supply on the availability of credit and the broad economy will not be evident until 2024, when it coincides with an enormous wall of debt maturities. Central banks went from excess money to overlooking the money slump. Both are equally negative. One created the inflation burst, and the second is driving a private sector recession disguised by debt.
Inflation is a monetary effect. What some call cost inflation, commodity inflation, or supply shock is nothing more than more units of issued currency than real economic growth going to relatively scarce assets. Unit prices may rise for exogenous reasons, but they do not generate a sustained and cumulative rise in aggregate prices, which is what measures inflation. If a price soars due to an exogenous factor, the rest of the price does not rise at once if the currency issued remains constant relative to economic growth.
Of course, the system creates a whole series of experts who blame inflation on everything and anyone except for the only thing that can make aggregate prices rise at once, consolidate that annual burst, and continue to rise: the decrease in the purchasing power of the currency.
Those who understand money predict inflation and warn of the current risk. From Steve Hanke’s articles and the Inflation Dashboard that accurately predicted the inflation eruption of 2021–22, Richard Burdekin, “The U.S. Money Explosion of 2020: Monetarism and Inflation” (2020), to Claudio Borio, “Does money growth help explain the recent inflation surge?” (2023), or Juan Castañeda and Tim Congdon, “Inflation, The Next Threat?” (2020), dozens of studies warned of the arrival of inflation by excess monetary and explained the empirically monetary cause. Some argue that in 2009–2019 there was no inflation and money was also printed massively, but they do not understand the quantitative theory of money and ignore that the monetary expansion of 2020–22 was up to five times greater than that of the previous period of stimulus plans, as well as fully dedicated to government spending programs.
If we look at the contraction of monetary aggregates, inflation should have dropped faster, and the economy would be in a recession. However, the accumulated effect of massive money growth added to an unstoppable debt-fueled government deficit makes the impact of the 2020–21 liquidity explosion disguise the risks.
Inflation was created by the wrong monetary policy, and incorrect central bank measures may have lasting negative impacts on the economy. The first effect is evident: governments continue to crowd out the real economy, and families and businesses suffer the entire burden of rate hikes. Maybe the objective was always to increase the size of the public sector at any cost and implement a gradual nationalization of the economy.
Market participants should stop encouraging bubble-generating policies, and central banks should focus on monetary aggregates to avoid boom and bust cycles. The negative effects of the current money slump may arrive at once with the wall of maturities. Even if we avoid a recession, it will likely be a false way out with a debt-bloated government consumption figure, weak productivity, and private sector growth.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
