In his last appearance from Jackson Hole the Fed chairman Jerome Powell has delivered a brand new approach to monetary policy for the central bank: it will tolerate inflation rising above 2 % for ‘short periods of time’. This means the Fed will likely be more comfortable keeping its extraordinary stimulus measures in place for longer as it waits for the labor market to heat up and the economy to recover. How effective that would be is a completely different topic which we will cover in another article.

Symbolically this is a marked departure from the days of Paul Volcker, Powell’s predecessor who made his name fighting against inflation, even at the cost of the recession.

Once blasphemy now it is perceived as common wisdom and everybody repeats it like a parrot. There is a race who will spend more. Donald Trump is willing to sign a $1.3 trillion! Coronavirus relief bill. U.S. House Speaker Nancy Pelosi said the White House proposal to spend $1.3 trillion in new Coronavirus economic relief would not be enough to meet the needs of American workers and families.

Ms. Pelosi said in a statement she hoped Republicans would come to the negotiating table and accept the Democratic offer of $2.2 trillion! in spending. And after that, as you can imagine only the sky is the limit.

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AUSTERITY IS NOW A DIRTY WORD

NOT ENOUGH !!!

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Of course, that doesn’t mean endless spending is free of consequence. Eventually, the numbers get too big. The debt load can crush the economic engine supporting it.

The U.S. debt doubles under each eight-year president going back to Reagan. It’s roughly true. Clinton slightly missed the double. Obama made up the slack. When Trump took office in 2016, the debt stood a little less than $19 trillion. Trump or Biden, it definitely would double it over the next four years, which seemed impossible at the time of Trump’s inauguration.

Without natural restraint the numbers get exponential. Trillions, quadrillions, quintillions, soon we’ll need new words to quantify the debt burden.

Meanwhile, the economic engine supporting that debt shrinks under the weight of the growing debt burden. It needs more tax revenue to pay interest on the ballooning debt. Promises to voters overwhelm revenues flowing in from shrinking tax receipts. Everything becomes sluggish, overburdened, and eventually doesn’t work at all.

The most important thing today is protecting our hard-earned wealth from the governments and central banks' next move.

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Could that be the insurance of a lifetime?

Could that be the insurance of a lifetime?

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