The Feds Won’t Scale Back Stimulus, No Matter What the News Headlines Say

CHISWICK, WEST LONDON – A Wall Street Journal headline read on Friday: “Powell Says Fed Could Start Scaling Back Stimulus This Year.”

The Journal tells us that Jerome Powell, the Federal Reserve chief, “expects a recent surge in inflation to fade over time.”

And Powell isn’t the only one. Many Fed presidents are calling for a “taper” – the media’s term for a withdrawal of inflation.

But don’t pay attention to this. It’s a false flag. More likely, we’re about to see a mini crisis. More below…

Exploring Royal London

Another day, another palace…

Greetings from London. We are trying to soak up as much English heritage as we can before we hit the road again next month.

Today we visited Kensington Palace in London. It’s been home to many members of the royal family for over 400 years, including Princess Diana, Queen Victoria and now, Prince William.

Queen Victoria was born in this room, 202 years ago…

And here we are in The Queen’s Gallery, with Mary, our personal London tour guide, learning about Queen Mary II, who lived in this apartment in the 1690s…

Here’s Princess Diana’s wedding dress…

And here is Dusty (13) looking at a new statue of Princess Diana in the Sunken Garden…

Pump and Stimulate

Back to the mini-crisis I mentioned earlier…

Last week, we looked at some of our favorite boom-bust indicators. Our conclusion? There is likely a significant decline coming in the stock market.

One of these boom-bust indicators was a chart put together by a historian, Paul Schmelzing.

The chart showed the “risk-free” return on savings going back 700 years, adjusted for inflation. Over the last 200 years, the average risk-free rate was 2.6%.

Today, we look at another one of Schmelzing’s charts. Take a look…

This chart tracks inflation for the dominant sovereign issuer – in other words, the dominant government at the time – going back 700 years.

The biggest insight I take away from this chart is this…

The last 70 years were the most consistently inflationary period since 1300… and the longest period without a deflationary episode.

Why would that be?

It’s because in 1944, the U.S. Treasury Bond became the benchmark for the global risk-free rate. And the dollar became the reserve currency.

Since then, the financial system has required relentless inflation/credit growth to function.

Every time there has been a chance of deflation, the feds pump and stimulate the economy by “printing” more dollars.

As such, there has been no serious deflation (in the method Schmelzing used for the chart above) for the last 70 years.

Whatever It Takes

My mentor Bill Bonner and I call this phenomenon “inflate or die” (or, as Bill put it in his Diary recently, “inflate and die.”) It’s an expression coined by the old-time financial writer Richard Russell.

So what comes next on the great inflation timeline?

More inflation.

The events of March 2020 confirmed what we already knew. And that is, the government will do “whatever it takes” to keep the financial system expanding and inflating.

As I mentioned, many Fed presidents are calling for a “taper” – the media’s term for a withdrawal of inflation.

But don’t pay attention to this. It’s a false flag. More likely, we’re about to see a mini crisis.

The boom-bust indicators we looked at last week – including the charts of margin debt, credit spreads, and industrial commodities versus gold – warn about this.

When the crisis comes, the Fed will pivot again. It will use the crisis as cover to turn on the pumps again. Remember, it’s “inflate or die”…

We might call this the “crisis-monetization-crisis cycle.”

One day, we will see an equal and opposite reaction to all these years of unbroken inflation, in the form of a severe deflation… which will bring the inflation timeline above back to balance.

That’s still some years away. For now, I’m just waiting for the next mini-crisis and the Fed’s next pivot for more stimulus. And I’m investing accordingly…

I’m holding gold, silver, cash, and cheap shipping stocks for some income. Whenever these go on sale, I buy more.

– Tom Dyson

P.S. If you want to protect your hard-earned savings from the crisis I see coming, I designed a simple investment strategy for you to follow…

Unlike a lot of financial newsletters out there, our goal isn’t to find the next hot stock or crypto. You see, the financial system is simply not safe right now. We’re just trying to preserve our purchasing power – and protect our wealth – until the imbalances in the system blow over. To learn more, go right here.

The education controversy continues, after one reader warned of the dangers of homeschooling…

Reader comment: I find it laughable that people suggest that a problem with homeschooling would be that the children might believe the things their parents believe! Every family, homeschooling or not, passes on their values and ideas, homeschooling or not! That is the purpose of a family. That is very positive. The problems arise when there is no family to pass on values.

Realize that civilization has gone on a long time. There are no new principles or ethics to expound on, they all relate to the ancient traditions. Even the Bible states, “There is nothing new under the sun.” You can invent new products or ways to make products, but truly new mores are not to be found. Good luck, Tom and Kate, and keep on passing on your family ideas.

Reader comment: Your Postcards are the one correspondence I never fail to read. Your family’s experience is so unique that it is compelling. Not only are your experiences of interest, but the comments by readers are equally of value to me. They give a global perspective. And I sense a special humanitarian dimension.

Sometimes, the comments prompt a desire to respond. Such as the comment indicating that it was a problem for children to believe only what the parents think. Who cares more about what children learn than their parents? This issue was related to another reader’s comment that education involves how to think.

A responsible parent would blend these two issues for their children’s benefit. Another reader made comments on class reunions I had never thought of. I graduated from high school in 1956 and have attended a number of reunions. While I didn’t find the comments about reunions to be entirely true, when I thought about them they certainly resonated. You are very generous with your time to freely share your experiences with us. Thank you so much.

Another reader has some travel suggestions advice for Tom and his family, as they get ready to embark on a new journey…

Reader comment: As you resume your travels, might I recommend a jaunt through Alabama. You can find rocket scientists, cowboys, lowlifes, and other interesting people. I own properties in Colorado, North Carolina, central Alabama, and the gulf coast. My favorite is a patch on the Alabama river, south of Selma, Alabama. The river property is unique. It would be an honor to host your family there, in the veritable middle of nowhere, yet with access, via water or road, to anywhere.

I love kids. I have four and four grandkids. My idea of a good time is taking kids fishing on the river… setting trotlines, traps, and limb lines for cats. As far as “boltholes” go, this is up high on the list. You ought to block a week out here. It would be my pleasure to entertain you guys and pass on some of that special southern resilience I’ve learned as a son of the South.

I spent many years contributing my time to kids. I find it rewarding to have the opportunity to be a part of creating experiences that impact people, especially kids.

Tom’s note: Thank you for the kind words, and for the invitation. Please keep your messages coming at [email protected], and I’ll try to answer as many of your notes as I can in a future Friday mailbag edition.