Welcome to our Friday mailbag edition!

Every week, we get great questions from your fellow readers. And every Friday, I do my best to answer them.

This week, the conversation continues around the all-digital dollar I’ve been warning about in these pages… And a reader wants to know more about the Federal Reserve’s obsession with 2% target inflation…

Thank you for your continuing diligent coverage of big and small issues. My question has to do with policy making for the economy.

Have you seen any analysis of our economy that can estimate what would happen in the short and long term if the Fed stopped pushing for its 2% inflation goal?

Would our economy eventually stabilize at a new inflated level or would it go crazy like some countries’ runaway inflation troubles?

– Stephen B.

Hi, Stephen. That is such an excellent question.

The short answer is no. There is no single analysis of what our economy overall would look like if the Fed stopped pushing its 2% goal.

First, because there are so many factors that come into play in terms of how we measure what the “economy” is.

And second, because that 2% target is totally arbitrary. It came from a random comment New Zealand’s finance minister made in a television interview in 1988.

New Zealand became the first country to use a numeric inflation target. Other central banks played copycat. In 2012, then-Fed Chair Ben Bernanke made that 2% figure official.

Now, the Fed considers 2% inflation as the most consistent metric to hit its dual mandate. If you’ll recall, that official mandate is to ensure maximum employment and price stability.

The 2% target is based on the annual change in personal consumption expenditures, or the PCE price index.

But that PCE figure doesn’t care how much a household makes and what it needs to survive.

What I’m getting at is that nothing good comes from the Fed’s obsession with 2% inflation.

In fact, if the Fed would just pack up and go home, our economy would be better off. Without the Fed manipulating the cost of money… or printing trillions of dollars when it feels like it… our economy would not be distorted.

Yes, prices would likely stabilize at a slightly higher inflation rate. But not a crazy one – since in the end, the Fed can’t really control inflation anyway.

Powell knows this. It’s obvious that he lacks conviction in the ability of the Fed’s own policies to get the results it wants.

Take the latest post-monetary policy decision press conference. Someone asked if the Fed is confident that it’s reaching its goal based on its current policy. In response, Powell said, “We’re not confident that we haven’t; we’re not confident that we have.”

That confusion confirms how powerless the Fed is over the things that matter. It can’t control inflation. It can’t determine the price of oil or food or medical expenses.

Yet, the list of economic causalities of the Fed’s arbitrary adherence to the 2% target goes on and on.

What I mean by that is that Americans are being squeezed from all sides. They’re caught between record total household and credit card debt… record total interest on debt payments… and wages that have not kept up with inflation.

Something as basic as corn flakes at Target costs a family $5.29, up from $4.19 in 2021. Gas prices are around $3.52 a gallon, up from $3.20 last year. And the national median rent is at $2,011, still near recent peaks.

Meanwhile, U.S. household incomes continue to lag spending, while personal savings are in a downward spiral.

At the start of the year, real average hourly wages – meaning adjusted for inflation – were down 1.8% from a year ago. And more than half of Americans are tapping into their savings to pay for everyday expenses.

And according to the Philadelphia Fed, regional businesses are planning to keep raising their prices. Even if it’s only by 2-3%, it means the cost of goods will rise even more for American consumers who are already feeling the pinch.

While all of this is happening, we’re seeing headlines like this one:

“Halloween Spending to Reach Record $12.2 Billion as Participation Exceeds Pre-Pandemic Levels”

– National Retail Federation

Yes, households are still spending. The chart below shows that trend is up, even as incomes are dipping. But households are spending more because things cost more, not because they have more expendable income.

And they are raiding their savings and taking on more debt at higher interest rates to pay for their basic needs. That’s not healthy for an economy.

To put that in perspective, the average credit card rate was 21% in October 2023. That’s up from 16% in March 2022.

Meanwhile, people are spending more than 30% of their income on housing for the first time in over 20 years.

Part of the reason rents have inflated is that would-be homeowners can’t buy homes due to higher interest rates.

Mortgage rates are at a two-decade high. The average rate on a 30-year mortgage is 7.2%, up from 6.4% a year ago. And it’s double what it was two years ago.

And high rates don’t just harm homeowners. They also harm small business owners and entrepreneurs that need financing to grow. That means they can’t borrow the money they need to grow their parts of the economy.

All that is to say that the Fed is bad for the real economy.

Over the past few years, it printed trillions of dollars that mostly went to Wall Street and the billionaires that were most active in the markets. That distorted the financial markets relative to the real economy.

Then, it raised rates too quickly and by too much to “curb inflation,” even though in reality it can’t control inflation. This has hurt average Americans and, therefore, their contribution to the real economy.

And yet, the Fed doesn’t care about this. At the Jackson Hole central bank soiree this August, Fed Chair Jerome Powell repeated his mantra. He said, “It is the Fed’s job to bring inflation down to our 2% goal, and we will do so.”

So, until annual PCE growth is below 2%, Powell will ignore the financial pain of Americans. And, as I said live on Fox Business last week, the real economy will continue to suffer.

The good news is that there is something you can do to protect your own wealth, even as the Fed continues to mishandle the economy.

And it starts with owning assets that can hold – and even grow – their value as the Fed devalues the dollar. I released a video report with one such asset, which has given our readers the chance to close recent gains of 2,174%, 2,805%, and even 4,942%. Watch it here to learn more.

You seem to be in favor of the CBDC. I don’t see any advantage unless you’re a bank or the Fed. Why would the people not have a say in whether or not to accept CBDC as a norm?

– Francois G.

Thanks for writing in, Francois. First, let me say that I’m not at all in favor of a central bank digital currency (CBDC).

CBDCs are at the forefront of the encroachment on our freedoms today. That’s why I’ve been highlighting concerns about them ever since we launched Inside Wall Street two years ago.

You say you don’t see any advantage in using CBDCs unless you’re a bank or the Fed. I agree with you that they’ll be the biggest winners, and it’s something I’ve written about before in these pages.

There are many ways the Fed and banks will benefit from the rollout of an all-digital dollar.

As a government body overseeing the monetary system, the Fed would gain enhanced control and oversight over people’s transactions. So much so that the Fed could have unprecedented financial control over your life.

An all-digital dollar would also enable the Fed to fabricate even more money out of thin air. That’s because it’s easier, cheaper – and faster – to create an electronic currency than a fiat currency.

For banks, too, there are plenty of reasons to be aligned with the Fed when it comes to an all-digital dollar.

For one, banks see it as a way to level the playing field in the payments ecosystem.

Think about how apps like PayPal, Cash App, and Venmo have totally changed the game with instant money transfers. They effectively cornered this market niche. Meanwhile, conventional banks have been left in the dust.

But banks realize that this is where the real money is, and they want to grab a good chunk of the market for themselves.

For some context, the global digital payments market size will be valued at $9.5 trillion in 2023. Almost 22% of that is in North America.

And it’s set to reach $15 trillion by 2027. That’s 56% growth in just four years.

For perspective, the GDP of the entire European Union in 2022 was about $16 trillion. So, the payments market size could grow to be on about the same scale as the EU’s total economic output.

That’s why banks have been itching for a shot at the payments game. They’re trying to keep up with other payment options like PayPal, Venmo, and Zelle.

Now, to be honest, a CBDC isn’t all bad for consumers either.

It might come in handy for people when they receive a stimulus check… or apply for a government emergency loan for their business.

A CBDC could even facilitate new business models and serve as a foundation for sparking innovations in the financial sector. That could benefit consumers down the line.

But as I’ve written in these pages and elsewhere, the potential benefits don’t outweigh the risks.

And that’s, again, because CBDCs will give central banks and governments almost unbreakable financial control over your life.

The possibilities and implications stemming from this are virtually limitless. They range from taxation to interest rates, as I wrote in a recent essay.

Unfortunately, the global shift towards CBDCs is already in progress.

Now, in the U.S., the Fed can’t flip a switch and mandate exclusive CBDC use. It’s just like many other infringements on our liberties. It will happen in steps.

Even Fed Chair Jerome Powell said that the Fed would “require Congressional approval” for a CBDC during his testimony before the House Financial Services Committee in March.

That means introducing a CBDC in America won’t happen overnight, but the process is underway.

That brings me back to your question: Why don’t everyday Americans have a say over whether the U.S. rolls out a CBDC?

Unfortunately, the U.S. is a representative democracy, so decisions like this are mainly up to the lawmakers. The Fed has also mentioned its intention to get Congress on board.

So we the people can only resort to the civic actions I talked about in our last mailbag. These actions may not stop the U.S. from going all-digital with its currency, but they can help reduce the impact on our everyday lives.

It’s just like FedNow, which is a precursor to a CBDC. None of us had a say on whether the Fed rolled out that payments system this summer.

The good news is that every time there’s been a massive change to our money, people who saw it coming had a chance to come out ahead.

For anyone who has concerns about a CBDC, it’s essential to own the right assets for wealth protection.

I’m a big advocate of gold and Bitcoin for that purpose. Both offer a chance to become our own bankers, while also holding assets that are poised to grow in value as this encroachment takes place.

Gold, in particular, serves as the ultimate form of wealth insurance. It has preserved its value through every crisis imaginable.

There are many ways to own gold. For anyone who prefers physical gold, see our April 6 essay for best practices.

Anyone more interested in convenience might consider a gold exchange-traded fund (ETF). We recommend choosing one backed by physical gold. Read more about that in our April 7 mailbag issue.

And finally, anyone who has an appetite for higher-risk, higher-reward plays should check out this free presentation. In it, I give details on a gold miner with as much as 50x upside potential.

And that’s it for this week’s mailbag! Thanks again 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