The grasping hand holds inflation

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The question people ask me the most is when will the US see inflation?

Not to be a two-handed economist (“one hand”), but it is really the third hand – the gripping hand that has the least dexterity and the greatest strength – that holds the answer.

The thing is, you can’t predict inflation or deflation until you know what’s going to happen to COVID-19 this summer.

The good news is that US vaccinations are accelerating. The federal states and the federal government are working on mistakes. The supply bottlenecks are easing somewhat. It’s still way too slow, but it’s always been an ordeal. Johnson & Johnson’s single-dose vaccine should be approved soon and will help ensure everyone can be vaccinated by the summer.

And hospital stays are way down …


Source: Justin Stebbing

The same applies to intensive care patients:


Source: Justin Stebbing

The test positivity rate and the number of new cases also decrease. Well over 27 million people in the United States had at least one dose of vaccine, with about 1.3 million additional doses given daily.


Source: Our world in data

Here’s another table that compares responses from different countries. We need to remember that we need to vaccinate the world to prevent a new strain / variant from popping out and starting this process all over again.


Source: Our world in data

The winter tide is reversed. So we’ll soon see if the current measures are enough to keep this up.

On the other hand, the numbers are still worse than they were at the height of last summer. Then there is the British strain B117 and other more infectious variants that could increase the number of cases and hospitalizations again – possibly much higher.

Back with a vengeance

Imagine the US and other major economies vaccinate enough people in the next few months to resume semi-normal life. Restaurants, hotels, airlines and other hard-hit industries are bouncing back on their feet.

Such scenarios usually suggest inflation.

The pent-up demand will cause people to spend some of the additional savings they have accumulated over the past year (often through tax aid programs).

Possible? Yes, but I don’t expect it.

I think this experience scarred many people in the same way that the Great Depression scarred our parents. Your generation adopted a consistently frugal attitude. We’ll see if – or how long – it stays for this generation.

However, inflation can also come from other directions. My friend Louis Gave sees it coming back with a vengeance. This is because central banks are “printing money like never before” and supply chains – particularly between the US and China – are being scrutinized.

Globalization was already beginning to slow down and possibly to reverse for technological reasons. President Trump’s trade war gave more impetus to Buy American and Buy Local policies, and President Biden seems intent on continuing them.

Now, COVID-19 is giving national governments everywhere reason to be as self-sufficient as possible. Companies feel the same pressure.

What matters, however, is how the Federal Reserve reacts when price inflation drives interest rates high.

Louis believes the Fed will put some kind of “yield curve control” in place to keep long-term government bond yields near 2%. This will fuel the dollar, fuel inflation and make “real” interest rates even more negative than they are now to finance the rapidly growing national debt.

That scenario would be good for gold and terrible for bonds. So plan accordingly.

The Great Reset: The collapse of the largest bubble in history

New York Times The bestseller and renowned financial expert John Mauldin predicts an unprecedented financial crisis that could be triggered in the next five years. Most investors seem completely unaware of the relentless pressures that are building right now. Find out more here.

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