Update Aug 15, 2020 Inflation and more market news. PLEASE READ

Will all this money printing lead to inflation?

Is inflation in our future?

Milton Friedman famous economist once quipped: “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”.

Simply put, print more money than you have ‘stuff” and the price of that stuff will rise. So the question we have to be asking is, has the U.S. government, the controlling body of our currency the U.S. dollar through its arm the Federal Reserve (the Feds), printed a lot of money lately?

Through the 2008/09 crisis it would be safe to say yes, the Feds printed (created) about 5 trillion dollars in the years that followed the real estate implosion. A government that prints more than it takes in is said to be in deficit spending. The Feds actually have been doing that since the U.S. inception in 1776 but it wasn’t until the mid-70’s where it started to accelerate significantly.

The deficit spending total is given the name “the deficit” but it has a few different and some argue debatable versions. The plain old deficit is like your house expenses which is revenue (how much you take in) versus how much you spend. There is the annual deficit (measured every year) and the national deficit (the ongoing running total).

Every year it changes and needless to say there are big spending years and smaller spending years but in the last half a dozen decades it’s an ongoing practice for the U.S. government to spend more than it makes.

For just how much they spend and take in you can visit an eye opening website called “usdebtclock.org but don’t go there with an upset stomach.

The site show spending in real time in various modalities and it will scare the beejeebers out of you, or should.

Last time I visited the site (which I resist doing as it’s so depressing for an economist) the deficit spending was ticking along at about $100,000.00 every two seconds. In other words, we were overspending about $50,000.00 every second. The total deficit since 1776 is over 26 trillion and obviously still counting, up.

Then there is something called “unfunded liabilities” which not only include what we HAVE spent in relation to what we took in, but also includes what we PROMISE to pay in the future. That total dwarfs’ the national deficit figure and stands at a whopping 152 trillion and change (but who’s counting).

That said, given the Milton Friedman definition of inflation, one could argue inflation has been and will continue to be baked into the proverbial economic cake. 2020 spending includes CoVid 19 stimulus and rescue monies which are estimated at 5 trillion.

One only needs to look at the stock market over the last 100 years or so to see the inflation. Much like the price of a candy bar, the stock market is a great proxy for inflation. It’s no wonder many say “hold for the long term” or “the market always goes up in the long run”. Since it is said to mirror inflation, as long as the Feds keep deficit spending, one could easily make the argument the market will continue up. Indeed since the trillions in CoVid stimulus packages announced and paid by the government the Dow Jones Industrial Average is up over 30%. Seems pretty correlated to me.

Is there inflation in our future? Last week I penned such a though in my last Money Matters article. Joining the inflation discussion party this week is none other than financial expert Stephen Roach, Yale University Fellow and Scholar and chief economist for Morgan Stanley Asia division and someone I deeply respect and follow because of his expertise.

Roach says in a recent MarketWatch article by Steve DeCambre. “The U.S. dollar is going to fall very very far” with a likelihood of a 35% fall in value to other currencies. This “fall in value” is another way of saying inflation as a fall in value means the currency will purchase less of something. Put another way it will take more dollars to buy something.

Roach followed up with a comment on CNBC financial network on June 15^th “that the rise of China and the decoupling of the U.S. from its trade partners is setting the stage for a dramatic weakening of the U.S. currency in the next few years that is likely to end the supremacy of the monetary unit as the world's reserve currency”.

Considering the amount of money the Feds are printing to help avoid a CoVid caused recession or worse, Roach’s warning should not be taken lightly. The last thing we need coming out of this horrendous shut down is skyrocketing prices. Something we are already seeing in selected goods and services.

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