This week, Fed Chairman Jay Powell issued a warning about rising debt levels…
“The federal budget is on an unsustainable path, with high and rising debt.”
It’s nice to see the establishment finally confessing there’s a problem. However, he completely downplayed things…
“Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”
“The outlook is still a positive one,” he said. “There’s no reason this expansion can’t continue.”
Technically, he’s right. The expansion could continue for a while longer. But the underlying economy isn’t doing that well. We’re growing only because interest rates are very low, and we’re racking up record debt to consume.
As Powell himself pointed out during a recent Q&A, “The debt is growing faster than the economy. It’s as simple as that.”
So Powell admits it’s all unsustainable, but he says it could go on longer. We already knew that.
We should also note that Powell, and others in positions of power, never talk about the ultimate resolution to all this debt. But it’s already begun. With its new “not quantitative easing,” the Fed is now buying up $60 billion of U.S. debt per month. And I don’t think it will ever come off the Fed’s balance sheet.
This is debt monetization. Printing new money to pay the bills. Here’s how I described it a few weeks back:
For now, inflation is the only real option. For a while my prediction has been that the Fed will print money to fund U.S. deficit spending. This is known as “monetization.” And eventually it will stoke serious inflation. I believe this is why we’re hearing so much about Modern Monetary Theory, which is essentially just deficit spending combined with monetization. We’re starting to see this play out now.
And if that doesn’t cause enough inflation, then I bet the Fed will do just about anything to make it happen. It might give out $25,000 checks every year to every citizen. Or fund huge development projects with newly printed money.
The world is finally beginning to digest and accept the size of the problem at hand. And that’s an important step toward understanding how the situation will eventually be resolved (by printing massive amounts of money). As more people come to this understanding, I believe owning alternative assets will become much more widespread.
This is why I’ll continue to hold assets such as gold, silver, bitcoin and emerging market stocks. All should act as excellent hedges against inflation and irresponsible government spending.