The Clouds Have Cleared in 2021, and What We Are Seeing Is a Dystopian 2022

The Clouds Have Cleared in 2021, and What We Are Seeing Is a Dystopian 2022
Photo by Javier Quiroga

From Birch Gold Group

This year was a doozy. Right out of the gate, millionaires were sounding the alarm that the economy was looking overheated while reducing their risk exposure.

In February we got a taste of what could be the “end game” for the U.S. dollar as we saw it lose more of its grip as global reserve currency. Of course, it won’t collapse overnight because of the psychological factors propping it up (for now).

But three big major economic influences have made 2021 one to remember. This chaotic “trifecta of economic turbulence” kept the media busy and retirement savers on the edge of their seats.

So without further ado, let’s dive into the first one…

The confused Fed

Back in 2019 when the repo markets started going crazy, we reported how the Fed’s “confused” response only added fuel to a fire that continued to burn into this year.

And this year, one word you might have heard coming from Powell’s mouth with nauseating frequency to describe rising inflation was “transitory.” Over and over again, Powell’s confused Fed kept downplaying inflation…

Until it was obvious to everybody that inflation wasn’t transitory any longer. When Senator Pat Toomey challenged Powell during an appearance before Congress, the Fed chairman was forced to change his tune:

Powell explained that while the word has “different meanings to different people,” the Federal Reserve “tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation.

“I think it’s — it’s probably a good time to retire that word and try to explain more clearly what we mean,” Powell added.

(We’ll discuss this in greater detail in a moment.)

The Fed’s supermassive interventions blew up not only their balance sheet (566% higher than in 2007), but also a truly historic wave of speculation.

This remarkable house of cards sent asset prices soaring. Nationwide, housing prices are well above the peak of the 2008 housing bubble.

Speculators lost millions playing day-trader on the Robinhood app, then spent millions more on cartoons of monkeys.

2021 has been one of the most challenging periods in recent economic history to report on. Because just when you think things can’t get any more insane, events prove you wrong.

Bloomberg’s Matt Levine put it best:

The basic issue is that right now everything is dumb… Buy into a struggling company and, instead of going out and pitching your plans to BlackRock and Vanguard, get on Reddit and say like “if my board slate is elected we’re gonna take XYZ Co. to the moon and squeeze those short sellers, rocket emoji rocket emoji rocket emoji, not a proxy solicitation, read my SEC filings for full disclosures.” Draw a picture of an ape riding a rocket and slap it on your proxy statement. Call your activist fund Diamond Hands Capital LP.

Basically you want to… become a meme, then sell a huge profit to people on Reddit.

The Fed has spared no effort to create an illusion of prosperity. The only problem (other than rampant inflation) is that it simply can’t last forever.

We believe the Federal Reserve will be forced to choose between a brutal economic crash or runaway inflation. They’re trying to thread the needle.

The Fed began tapering asset purchases this month and will keep doing so into next year. Meanwhile, interest rates are still near zero, inflation continues to climb and even the most overexuberant speculators are running out of cash…

The “confused Fed” heading into 2022: It looks as though the Fed will stick to interventions heading into the next year, and we expect at least three interest rate hikes. According to IMF spokesperson Gerry Rice, this is a “well calibrated response to price pressures.”

But based on Powell’s prior track record, we’ll have to wait and see how he actually decides to handle “Inflation Nation.”

And this is critical, because once the illusion of prosperity has vanished, once the dreaming millionaires wake to find themselves broke, once all the imaginary money is gone, its legacy, inflation, will still be with us…

Not even Powell believes surging inflation is “transitory” anymore

Since the start of Biden’s term in January 2021, consumer price inflation (CPI) has been steadily increasing each month.

This “tax that no one voted for” is still increasing as you read this. One example we gave back in June about the permanent damage done to people’s wealth:

Consider our imaginary friend Arthur. He nets $100 per month. After a year of 5% inflation, Arthur’s monthly money buys 5% less. Next year, it turns out the inflation spike really was transitory, so the inflation rate goes to 0%.

Here’s the thing: Arthur’s monthly income STILL buys 5% less.

It’s as if Chairman Powell reached into Arthur’s pocket and stole $5 every month. Forever.

Of course, the wealthy elite like Powell and his buddies don’t have to worry about the impact on Arthur’s income when they intentionally “let inflation run hot” because it’s “good for the economy.” (Just not for you.)

Back in September (when inflation was 5.3%) we said the “inflation train” wasn’t traveling at full speed yet… Here we are in December, and it still doesn’t show any signs of slowing down.

“Inflation Nation” heading into 2022: You can see how inflation is still pulling even more money out of Americans’ pockets in the graphic below…

This will not get better anytime soon.

You’ll see mainstream media reports that try to spin inflation as a good thing. They’ll say things like:

“Social Security’s COLA is the highest in 40 years!” (That’s because prices have gone up. In other words, COLA is not a raise.)

“Workers’ paychecks are going up!” (Yes, they are. Companies have budgeted to raise pay 3.9% overall this year, a little less than half the rate of inflation.)

Oddly, even Biden attempted to justify the out of control inflation by stating rather defensively:

Americans have more money in their pockets than a year ago.

That’s technically true. What’s equally true is that “more money” simply buys less than it did a year ago.

In 2022, inflation could turn into a nightmare. You might expect everyone who doesn’t have a net worth in the millions to start pinching pennies. You might expect the U.S. Mint to stop even making pennies.

And thanks to Facebook, something fittingly known as “Metaverse Mania” is now becoming familiar to manic investors who are looking for a high-risk fix.

There’s almost no financial asset whose price hasn’t been bid into absurdity by desperate (or manic) investors eager to get rid of their cash: SPACs, NFTs, rare whiskeys, luxury watches…

And behind it all, a confused leadership we simply can’t trust to look out for our best interests.

Make sure your savings are ready for anything

After reviewing what transpired this year, it’s a good idea to ponder what happened and consider what might be coming up next.

But considering that neither the U.S. government nor the Federal Reserve could keep the dollar and economy under control, one good question to ponder would be:

What will either the government or the Fed do differently in 2022?

Of course this assumes they don’t keep trying to do the same thing and expect a different result. While they figure that out, it’s never the wrong time to reflect on Benjamin Graham’s words:

In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.

It’s a good idea to take steps to ensure your portfolio stays as stable as possible. Take a few minutes to do your own “year-end review.” Are you “voting” or are you “weighing” with your savings? Are you taking appropriate levels of risk? Are you well-enough diversified to stay on track, regardless of what economic insanity comes next?

If you’re concerned about protecting your savings from inflation and market meltdowns, consider physical precious metals. Gold and silver both have a reliable track record of holding their value relative to inflation, and may be the safe haven you need to face the year ahead…

We’ll have some things to say about that, so don’t forget to check back next week for our 2022 economic forecasts.

2021, Featured, inflation, jerome powell