When asked last month if the US economy was heading into stagflation, Fed Chair Jerome Powell said he didn't see the "stag" nor the "flation" in the data he looks at.
Well, US Q2 GDP growth estimates as forecasted by the Atlanta Fed's GDP Now service have been weakening, and Q1's anemic reported GDP growth rate of 1.6% was revised further downwards to a paltry 1.3%
That's some "stag" right there.
And CPI remains quite sticky at 3.3%, solidly higher than it was 9 months ago.
So that's some "flation"
To learn how to protect the purchasing power of your wealth in an increasingly stagflationary environment, we're fortunate to be joined today by Matthew Piepenburg of Von Greyerz Gold.
Matt delivers an eloquent excoriation of our folly for building up more debt that we can ever repay (and continuing to do so at a rapid rate).
And he explains why the main casualty of this will be the accelerating erosion in the purchasing power of fiat currencies.
Here are my key takeaways from this interview:
Matthew views the global economy and financial markets as precarious due to unsustainable debt levels. The world is approaching $400 trillion in global debt, with the U.S. nearing $35 trillion in public debt and having $210 trillion in unfunded liabilities. The U.S. debt-to-GDP ratio is over 120%, and the deficit-to-GDP ratio is around 6-7%, indicating severe fiscal imbalances. Debt influences markets, currencies, politics, and social structures, leading to centralization and opportunism. Historical data has shown that debt destroys economies, implying that current unsustainable debt levels will lead to a grim outlook for the global macro environment.
He believes markets are overvalued, with the S&P and Nasdaq driven by a small number of companies, mirroring the Dot-Com bubble. Despite potential nominal gains, real returns will be undermined by inflation and currency debasement. The U.S. equity markets, driven by forms of liquidity, may rise, but the purchasing power will diminish due to inflation, which is currently at 3.5% and remains "sticky."
The Federal Reserve faces a challenge between controlling inflation and managing the growing debt burden. Piepenburg expects the Fed to cut rates or implement liquidity measures, driven by the interest expense on debt projected to reach $1.6 trillion, surpassing the U.S. military budget. Fiscal spending will continue to drive inflationary pressures despite any short-term disinflationary measures.
Inflation and currency debasement lead to wealth inequality and social unrest. Piepenburg emphasizes that middle-class Americans are severely impacted by inflation, which erodes purchasing power. The official CPI data understates actual inflation, which is felt more acutely by the middle class in everyday expenses.
Matthew argues that the Fed’s policies will ultimately lead to
inflation as a means to manage debt, regardless of short-term disinflationary events like market corrections. Historical precedent shows that debt-soaked nations resort to inflationary policies to reduce debt burdens. He predicts that the endgame for current monetary policy is significant currency debasement.
In the East, there is a historical understanding of economic cycles and wealth preservation through assets like gold. The East views gold as a stable store of value, which contrasts with the West’s focus on speculative investments and short-term returns. Piepenburg notes that 70% of bullion market purchases come from China, India, and the Middle East, while Western financial markets show disinterest in gold.
Eastern countries view gold as a stable store of value and are wary of fiat currencies. The East prefers to save in gold and spend in fiat currencies, reflecting a long-term perspective on wealth preservation. Western investors, on the other hand, focus on speculative returns and often overlook gold’s stability.
Historical data shows that gold holds its value against inflation and currency debasement, such as a house costing 250 gold coins in 1920 would still cost the same number of gold coins today. Gold’s ability to retain purchasing power makes it a prudent investment for long-term stability amidst fiat currency devaluation.
Matthew emphasized the importance of investing in oneself and trusting one's own judgment. He learned this from his mentors, who were brave and honest. The key lesson is not to abandon your judgment, whether in politics, relationships, or investing. Instead of relying solely on experts or emotional reactions, it's crucial to gather diverse perspectives and form an informed opinion. He advises thorough research beyond superficial sources like social media, ensuring that decisions, especially regarding investments like gold, are well-founded and personally assessed.
For the full interview with Matthew Piepenburg, watch the below video:
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