The June 2021 CPI reading of +6.8% showed inflation at its highest levels in decades. Many are now concerned a repeat of 1970s style hyperinflation is on the way, especially with the Federal Reserve continuing their Quantitative Easing and Money Printing programs. Should investors be looking to buy real estate, Bitcoin, stocks, or gold as a hedge against this Inflation?
The price of goods (especially used cars, gas, and meat) across America has spiked over the last three months as a combination of economic re-opening, supply shortages, and low interest rates has pushed up inflation. The Bureau of Labor Statistics-tracked CPI is now measuring the highest YoY % increases in decades.
The Federal Reserve Quantitative Easing program gets a lot of blame for this inflation. QE is essentially a “Money Printing” strategy where the Fed gives banks cash in exchange for treasuries and mortgage backed securities. Analysis of bank balance sheets shows that their cash reserves have spiked as result.
But interestingly banks aren’t making as many new loans as they used to. The growth rate in loan credit from US commercial banks has slowed to only 4% per year in the last decade compared to well over 8% from 1970s-2000s. If banks aren’t making loans at the same rate, and the Fed printed money is just staying in bank vaults, that’s not inflationary.
Banks appear to be increasingly cautious in 2021. According to Jamie Dimon, the CEO of JP Morgan Chase, the company will hoard cash and wait for better investment opportunities into the future. This mentality of cash hoarding is a deflationary attitude, and it will be difficult for inflation to take off so long as banks are cautious.
The other issue is that the inflation measured so far does not appear to be broad-based. Used cars, meat, and energy are the main segments that have seen big price increases. But many other goods – such as clothes – have actually down in price.
On top of all of this US Treasury Yields have been crashing over the last four months, while the US Exchange rate against other currencies has remained stable. This indicates that institutional investors aren’t betting on long-term inflation in America.
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0:00 Hyperinflation: Here to Stay?
1:14 1950-2021: Historical Inflation Rates
3:45 What IS Inflation?
5:06 Cars, Gas, Energy = Biggest Increases
7:40 But Some Things are Cheaper!
9:16 No Broad-Based Inflation Here
10:27 FED Printing Money!
11:58 Banks are Hoarding Cash
13:52 Is QE Inflationary? or Deflationary?
15:29 Loan Growth is Going Down
17:58 JP Morgan = Stockpiling Cash
19:29 No Inflation: Bond & Currency Investors Agree
21:39 Real Estate / Bitcoin Hedge
#Inflation #Hyperinflation #Deflation