Be Careful What You Wish For.... When the jobs picture improves and wages rise, look out, inflation is around corner

The recent FOMC meeting and subsequent announcement came as a surprise to me. I expected a more hawkish tone, at least some hint of an exit plan (at least some plan to taper the 85B a month in Fed purchases of bonds and mortgage back securities). But not even a whisper on that! And now everyone is focused on the Debt ceiling, and the annual tradition of "raising the debt ceiling". What a farce! If this whole fiasco wasn’t such a serious situation it really would be a good joke! But it’s not a joke, or if it is, the joke may soon be on us. Why? Because inflation is coming and it’s going to be a much more difficult problem to solve and take at least twice as long as the current crisis (following the 2007/2008 melt down)! And what's worse is the U.S. Dollar may not survive, at least not as the single global reserve currency. The U.S. currency system, and Federal Reserve banking system, could come under extreme pressure in the years ahead.

All the QE and manipulating of interest rates to create liquidity with the hope of stimulating the economy is pumping up the money supply at an exponential rate! This is going to have a big effect down the road, via "cause and effect" with "supply and demand".

There is a great deal of demand for U.S. dollars around the world right now as it’s the single global reserve currency. This is how the USA is able to run up huge trade deficits and trillions in debt. The debt will never be paid off, as the future dollars needed to pay it off will likely be worth less (or simply "worthless"). That's what's coming down the pipe (in the future unfortunately). The Fed has been pumping all this money into the system for the last 5 years and it’s all going into equities and various other assets (bonds, mortgage back securities and so on). What the Fed is doing now (to try and jump start the economy) is the easy task. The more difficult problem is still to come.

Down the road, when the Fed has to try and manage all the money that has been created its going to be a huge mess. All this money is not causing any major problems right now; in fact it’s supposed to be fixing the problems with the economy (which it’s not doing either). But since all this money hasn't been let lose yet, inflation has not moved at all, and prices are either stable or going down in various areas of the economy. The large institutions are still sitting on 99% of all the new money and they are sitting on trillions!

When these corporations begin to hire (as the Fed wants), and raise wages (as the Fed wants) this will be the beginning of the end! It will eventually cause cash to flood into the hands of the consumers, and as a result, the prices of goods/services will soar higher than anyone could ever believe! And the Fed won't be able to do anything about it, because they already created all the money and they cannot remove it after it’s already been introduced into the system! Yes, it’s easy to pump money into the system; all they have to do is lower rates and run the printing presses. This is precisely what the Fed has been doing for the last 5+ years (petal to the metal printing)!! But taking it back out of the system is a completely different thing altogether, virtually impossible! Who's going to agree to give back their money? Not even the banks will agree to that! But that is what they will be attempting to get institutions to do when inflation goes wild in the next decade or so.

It’s coming!!
 

 Floyd Upperman, Contributor

*Disclamer: Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of the company Traders Exclusive.*