Modern Monetary Theory side effect Could be the Collapse of The Dollar
Inflation is a significant risk facing investors, which is why now might be the best time to turn to safe-haven assets such as gold
The best time to buy gold is before a crisis. So this is now a perfect time for people to be stocking up, as it were. Because in the event of widespread inflation, we think the gold price will go up much more.
There is a perfect storm out there that could trigger high inflation, which involves the U.S. government increasing spending to achieve its employment goals.
There will be more and more spending, and there will be intense pressure to ignore inflationary concerns to achieve those targets. Unfortunately, the Fed will be slow to react, which is a recipe for higher and higher inflation.
The U.S. economy could end up with the Fed that is much less concerned with inflation than in the past. Trexler pointed out that he is already seeing his manufacturing company costs going up by double digits. That tends to take a minute to filter into consumer prices, but that is coming.
Inflation could run up to 10%. When you see that inflation rate, it will be very damaging for people on a fixed income. It will make savings very problematic. What you will have is a total loss of wealth for people's savings. You will also tend to see a lag between inflation and people's salaries. That could lead to a decline in real wealth. It is also a potential ingredient for more significant social upheaval.
The people who will be caught off guard the most will be the everyday investors, he said. Those who are not balancing their portfolio with precious metals and diversified assets are exposed to real individual risk when we see this kind of inflationary volatility.
The equities market is also running hot and could be due for a correction soon, which is why now might be a good time to look at taking some profits off the table to diversify portfolios.
I am looking to diversify further, take more of a defensive position, and allocate more funds to gold, cash on hand, and safe-haven assets. However, there is a risk of a significant market correction. So now is an excellent time to consider taking more profits and take a more defensive position.
Many U.S. investors are less aware of gold's role in protecting against inflationary risk because the U.S. dollar has been steadfast over the last 50 years.
Gold is considered the most efficient way to hedge against the national economies we are in and against currency risks. Most notably India, China, and Russia. It is used in South America for those purposes. People tend to flee to it in times of economic stress. We saw that in the financial crisis, we saw that during last year's COVID crisis. It tends to outperform and even be countercyclical for these kinds of situations.
Aside from the inflation narrative, gold has two other significant drivers coming together. First, western investor demand and Asian gold jewelry consumption are likely to surge towards the end of the year.If you have gold jewelry consumption rising, which we think will towards the end of the year, coupled with Western gold investment demand going up, you have a recipe for sharply higher prices.
With all these drivers pushing gold higher, the founder of Val aurum is not ruling out gold at the $3,000 an ounce level.
In real dollar terms, with inflation coming, we will see gold over $2,500. Nevertheless, we will see a devaluing of the dollar. That devaluing is very difficult to predict. Nevertheless, if you see 10% inflation, the dollar number value of gold could be much higher. So I do not think $3,000 gold is impossible. However, if we see a hyperinflation scenario, it could be significantly higher.
The newly adopted monetary policy stems from what experts call "MMT, "which stands for The Modern Monetary Theory. From a socialist standpoint, it seems to give you the cake and devour it. Modern Monetary Theory or Modern Money Theory (MMT) is a heterodox macroeconomic theory that describes the currency as a public monopoly and unemployment as evidence that a currency monopolist overly restricts the supply of the financial assets needed to pay taxes and satisfy savings desires.
It would presumably work by saying that a government does not need to sell bonds to borrow money since that is the money it can create on its own. Instead, the government sells bonds to drain excess reserves and hit its overnight interest rate target. This labor would act as a buffer stock to help the government control inflation in the economy.
However, several economists, including myself, have been critical of MMT, as it inevitably leads to rising deficits that are dangerous because they push up Real Interest Rates, which could lead to hyperinflation. If that were to happen, we would have adverse impacts on investment returns, and Once the storm hits, there is not going to be enough time to evaluate your portfolio. Gold began taking a beating after the Fed spoke on 06/16/2021, hinting that they would keep rates low and begin to raise them in 2023. This writing on Monday 06/21/2021 8:00 CT gold is down nearly 5% and silver around 7%. Make sure to protect what you've worked so hard for before you have missed the boat!