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Why Hire These Guys Anyway?

Graham Summers

Posted March 12, 2021

Graham Summers

The Federal Reserve system employs roughly 20,000 people. I believe it is the single largest employer of economists in the U.S. And as a result, it actually produces a decent amount of high-quality research.

The problem is that no one at the top of the Fed listens to it!

Case in point… In 2001, researchers at the Federal Reserve bank of St. Louis discovered that the Fed’s preferred measures of inflation — the Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) — were, in fact, useless at predicting future inflation.

At the time they wrote:

We see that past inflation in food prices has been a better forecaster of future inflation than has the popular core measure… Comparing the past year’s inflation in food prices to the prices of other components that comprise the PCEPI (as in Table 1), we find that the food component still ranks the best among them all…”
Source: Federal Reserve bank of St Louis

Despite this discovery, the Fed continues to use CPI and PCE as its preferred measures of inflation. Put another way, despite the fact the Fed’s OWN RESEARCHERS proved that CPI and PCE are garbage, the Fed keeps using them.

And if you think that’s bad, take a look at what the Fed discovered in November 2019 when it comes to printing money to service debt.

A solution some countries with high levels of unsustainable debt have tried is printing money. In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money. History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.”
Source: Federal Reserve bank of St Louis

Yes, the Fed’s own research found printing money and using it to buy debt results in raging inflation and economic ruin.

Bear in mind, that the Fed has printed more than $3 trillion over the last 12 months for this express reason… and intends to print $120 billion per month for the next TWO YEARS (another $2.8 trillion).

This Will NOT End Well

Those who believe that all this money printing, and the subsequent inflation it will unleash, means stocks will forever go higher, need to brush up on their history.

Stocks love inflation at first. But that love quickly turns to hate. During the last bout of hot inflation in the 1970s, stocks initially bubbled up before CRASHING nearly 50% in the span of two years — wiping out ALL of their initial gains and then some.

S&P500 1973-1974

As I keep warning, inflation is going to ANNIHILATE investors’ portfolios.

But those who are properly prepared. however, will make literal fortunes.

Best Regards,

Graham Summers
Editor, Money & Crisis

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