Tim Murphy
Precious Metals Advisor
Tim Murphy is a Precious Metals Advisor with over 15 years of experience. He started on the New York Commodity Exchange floor before founding his own brokerage firm. Tim joined Scottsdale Bullion & Coin to leverage the small-company feel with national exposure, focusing on personalized, client-first service and fostering long-term relationships.
Everyone is aware by now that inflation is raging, and it’s even worse in other countries. As a result, the Federal Reserve is raising interest rates, but ultimately the effort to stem high inflation will fail and here are 4 reasons why:
- Too much money already in the system chasing too few goods is a supply side issue and increased rates will not fix supply shortages.
- A banker friend says it takes nine months for a 0.25 percentage point rate increase to have its full effect. The Fed is too late in the game when it comes to raising rates.
- The Fed will stop raising rates when the already teetering markets begin to fall in earnest.
- Ukraine is one of the world’s largest producers of fertilizer, so this summer expect less foodstuffs produced and even higher food prices.
Following are some thoughts by Peter Schiff of Euro Pacific Capital on inflation and the current Fed predicament, and at the bottom is a link to his self-produced nine-minute video. Schiff was one of the few people that accurately predicted the 2008 financial crisis and believes the crisis coming this time around will be far more painful, and it’s not COVID-19 that will cause the massive downturn. It will be the runaway debt and the bubbled financial markets that will cause the great demise.
Our economy and 401K’s have been living on borrowed time (or better yet, borrowed money) and the luxury of “kicking the can down the road”, especially since 2008, is at an end. The Fed is at a crossroad and certainly no one wants a crashing economy and plunging market going into mid-term elections this November. So, it appears the lesser of evils, higher inflation, is the best viable option left on the table.
Each time the economy is in trouble, the Fed comes to the rescue. Lower interest rates. Print more money. Manipulate market prices … and for a time, all looks good, as the markets go back up and the economy appears to be on solid ground. But the amount of debt and money printed is just too overwhelming now. Yes, over the last decade, stocks and bonds were elevated as “money created from thin air” provided the illusion that everything is OK. But in the end, the fiat currency created which is backed by nothing, is realized to be of no real value. The economy is not producing more goods and services, as the additional fake money simply drives up prices. All the Fed is doing is destroying the value of the dollar and driving up inflation.
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The US government is now borrowing more money than they are raising taxes. The only reason we appear solvent is because we are only paying 1.5% interest on the debt. If interest rates were to “normalize” to say, 5%, it would take 40% of all tax revenue just to pay the interest on the debt. Based on a 26 trillion trade deficit, it would take eight years of tax revenue to pay it off. (Which of course is not feasible. And can you imagine how long it would take to pay off all the debt: including Federal, State and Local, plus other unfunded liabilities like Social Security, which would put the total tab at 150 trillion dollars). Of course, a debt of this size can never be repaid, so again it only makes sense for the Fed to allow further inflation (and a collapse in our standard of living). The key now is when is the world going to wake up? And if you don’t already see the handwriting on the wall: when are YOU going to wake up?