Welcome to our Friday mailbag edition!

Every week, we receive great questions from your fellow readers. And every Friday, I answer as many as I can.

This week, the conversation continues around popular Inside Wall Street topics – the Federal Reserve, inflation, and central bank digital currencies (CBDCs)…

I love your educational work, and I read all your stuff. Is the U.S. still printing new money, and is there a way to find that information?

– Thomas

I appreciate that, Thomas. We do have a great team here. That’s also a very good question.

There’s a report on the Fed’s website called the H.4.1 report. There, the Fed shows the total money that it has to buy treasuries or mortgage bonds and so forth. If you google “H.4.1 Fed,” you’ll find this page with all of these reports.

The report is updated every Thursday night. And I look at it all the time. That’s how I know when they’re printing money, even when they’re not talking about it or letting some of those bonds roll off their balance sheet.

Now, the amount of money they’ve printed is decreasing. But I do think they can print more money. We saw that when the banks started flailing and failing this year. The Fed printed about $300-350 billion worth of money.

It wasn’t in the mainstream news, but they did print that money. And I knew that because of that report.

The Fed will print new money again if there is a banking emergency for retail or regional banks. We’ll see that money printing in its H.4.1 report.

So that’s where you can look at it. My team and I certainly look at it, and we’ll continue to write about what it means for the markets in these pages.

Regarding inflation and central banks’ obsession with a 2% target, It leaves out the fact that population inflation causes more demand for products and services, therefore, the inflation target needs to move. They forgot about the inflation population, didn’t they?

– John F.

That’s an excellent observation, John. We follow inflation a lot here.

It’s funny because a few years ago, Federal Reserve chairman Jerome Powell was debating with his internal researchers at the Fed. They weren’t sure if that 2% target was meaningful, so they considered moving it.

This was before Covid when there was almost no inflation in the U.S. Then, after Covid, inflation started rising. For a while, the Fed claimed it was transitory. But then it went so far up they realized that it was here to stay.

Now they’re sort of obsessed with the 2% target. They feel that they’re stuck to it. But I absolutely agree that it doesn’t fundamentally show what’s happening with supply and demand.

It also doesn’t show, for example, that a lot of people in the U.S. and around the world are paying with debt for items that they need for their households.

Whether that’s utility bills, certain pharmaceutical bills, or food. And aside from that, they’re doing that so they can pay their rent, or pay their mortgages on higher rates.

So, there are so many aspects of inflation that the Fed didn’t – and still doesn’t – care about while still being obsessed with the 2% target.

And here’s what I think is going to happen next year.

Towards the second half of the year, we’ll potentially see the economy slow down. But there will still be pockets of inflation. And so, even if inflation stays above 2%, the Fed is going to have to back off that target.

But the Fed’s going to kind of step back without admitting they’re stepping off it. And if things get weaker in the economy, they’re going to have to turn around and cut rates.

That’s something I’ve been saying for over a year now – that the Fed would have to cut rates next year. And the Fed confirmed that this week at its last meeting of 2023. Rate cuts are now officially on the table for 2024.

There will still be products that go up, despite this. Energy prices will have an impetus to go up, for example, and that’s going to bear on inflation.

In particular, I expect to see a rise in commodity prices, including oil, natural gas, and uranium.

What’s the latest with the government changing to a digital dollar to replace paper money and cash?

– Jeanne

Thanks for writing in, Jeanne. This question is also very important.

In a nutshell, the government is going to go digital. That means the Federal Reserve, in conjunction with Congress, will likely move towards a central bank digital currency (CBDC).

Why? Because they have spent too many years, too much money, too much analysis, and too many internal whitepapers on this.

They’ve published many papers on CBDCs internally at the Fed and the New York Fed. They wouldn’t do that just as an exercise.

And it’s not just the Fed. Around the world, about 93% of the central banks are at some point in the evolution to a CBDC.

In the U.S., the Fed unveiled a system called FedNow this summer. It’s not a digital currency. But it is a mechanism that allows the Fed to connect immediately and instantaneously to banks and other companies and them to each other.

What it does is it takes the wait time out of the transacting process. And as a result, it creates a path for when there is a digital dollar, to use that mechanism to get in and out of accounts quickly.

Here’s what I believe is going to happen next.

This is going to be a multi-year process for there to be a complete replacement of the dollars that we know. The cash in our bank accounts won’t be replaced by a CBDC overnight.

That evolution is going to be something like banks connecting to the Fed, the Fed creating a CBDC, and then giving you the choice to convert your account.

So it’s going to start as a suggestion, as an opportunity. There might be an incentive, too. For example, you might get a little bit more interest if you convert your account to a Fed account that’s backed by CBDCs.

But from there it’s a slippery slope.

Our concern here about CBDCs is that they are programmable currencies for the U.S. and around the world. And that means they give the government a way to track your private information.

Not just what you’re buying and selling. But really take all of the data points of a CBDC and track everything you’re doing.

That’s a really dangerous situation. And that’s one of the reasons we also look to help you diversify your portfolio away from what could happen if there is a CBDC.

Being in gold, real precious metals, and Bitcoin are all good options. Diversifying out of the main banks and keeping your money spread out are also ways that anyone can do that.

Have you done any research on the possibility of the government shutting down the off-ramps to get Bitcoin out of wallets and back to cash?

– Thomas H.

This is a very interesting question. Bitcoin evolved in 2009 out of a whitepaper created in retaliation to how much the government and the Fed were bailing out the banks.

We had this big financial crisis. The big banks got bigger, some failed in the process, and the Fed came in and printed up to $4 trillion.

That balance was on their books until even the beginning of the Covid period. It was still there years after the financial crisis and years after the government came in and bailed out a lot of these banks with our tax money.

And one of the reasons for Bitcoin back then was to say, look, we need a more democratic way to deal with currency. One that doesn’t involve the government or the Fed.

So getting to your question: Can the government get into Bitcoin wallets and convert that Bitcoin to cash?

Well, right now a lot of the wallets make it very hard for the government to do. It’s different from a bank account, which the government can easily get into.

Any of you who have ever owed extra money on your taxes or had negotiations with the IRS over deadlines may have noticed this.

The government can come in, garnish wages, and take money out of your bank accounts. And that’s because the banks are in bed with the government.

It’s a lot harder to do that with Bitcoin. Which is one of the reasons we look at it as a hedge to the central bank-centric element of creating money.

And that’s all for this week’s mailbag. Thanks to everyone who wrote in!

If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.

I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.

And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].

Happy investing… and have a fantastic weekend!



Nomi Prins
Editor, Inside Wall Street with Nomi Prins