The Investment Scientist

Archive for July 2020

 

1000x-1.jpgIn my last article, I wrote that the Fed’s actions were necessary to backstop the economy from sliding into another Great Depression. Now let’s talk about a few of the negative long-term consequences.

Hyperinflation
With so much liquidity sloshing around in the economy that is only half-opened, the only outlet is the financial market. That’s why we’ve seen a divergence of the financial market and the real economy. These two will have to converge at some point. When this happens, will we see hyperinflation? That is, the prices of goods and services are rising fast like they do for assets. In its communication, the Fed has signaled to the world that they don’t foresee any inflation in the next two years. If you read between the lines, it appears that the Fed does not see the economy returning to normal in the next two years, and during this time, they may print still more money.

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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