Inflation projected to reach 26% in 2022
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In any given economy if the money supply is increased by 100%, prices will inevitably rise approximately 100%. Milton Friedman (1972), and Batini, Nelson (2001) published studies showing an 18 month time lag from an increase in money supply and the peaking of inflation.
In 1875 after the completion of the Civil War, M2 money supply increased 20% and the CPI inflation reached 21%. In 1923 M2 money supply increased by 17% and CPI increased 22%. At the conclusion of WWII, in 1947, M2 increased 20% and CPI increased 24.9%. During the Vietnam War and the War on poverty, M2 increased 13.4% and inflation peaked out in 1980 at 14.8%. In 2011 after QE, M2 increased 9.62% and inflation was 11%, (using Shadowstats 1980 based CPI). During the War on Covid, M2 increased 24.9% in 2020. Inflation in 2022 is projected to reach 26%, (using Shadowstats 1980 based CPI).
Between March and November 2020, the measure of broad-based money supply, M2, jumped by a sharp 24 per cent. Shockingly, the money supply surge in 2020 exceeded any surge in money increase in 150 years in the U.S. It follows the increase in inflation will be the largest in history. The Federal Reserve will attempt to hide inflation by using a CPI which removes many volatile prices. However, using Shadowstats 1980 based CPI, inflation is expected to be the highest in 150 years.
From 1976 to 1980 the price of gold per ounce increased eight-fold. After QE, the price of gold increased eight-fold from 1999 to 2011. After QE and the unprecedented increase in money supply in 2020, the price of gold is expected to increase at least eight-fold, from a low of $1,250 in 2015 to $8,000 in 2022. Goering & Rozencwajg believe gold will see $15,000 an ounce, before this gold bull market is over.
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Federal Reserve officials expect to hike rates roughly six additional times this year, bringing its benchmark Fed Funds Rate to nearly 2%. In May the central bank raised the Fed Funds Rate by ½%. Can they reach their goal without a recession?
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One is wise to sell on the rumor of bad news and buy on the fact. Gold is approaching over a year of consolidation on the rumor of Fed tightening and a rate hike. Next week the Fed is expected to increase its bond purchase taper and hint of more aggressive rate hikes in 2022. However, there is almost a two year lag between money printing and inflation.
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Lincoln said, "You can fool all the people some time, you can fool some of the people all the time, but you cannot fool all the people all the time." Jerome Powell has stated the Fed will "began to taper QE and raise interest rates" and "inflation is temporary"
