It’s been a month since we last looked at inflation here at Sector 8.
The government has been creating too many dollars. In December of 2020, one third of all dollars that had ever existed had been printed in the past ten months.
It appears as though the Federal government was just getting started. Six months later in May 2021, it was said that 40% of every dollar that has ever existed was created in the preceding 12 months.
Another 5 months later, that had increased to 80 percent of all dollars that have ever existed were printed in the past 22 months.
This is a cycle that causes hyperinflation: Printing more money causes that money to become less valuable. To counter this, more money is printed, which causes it to become less valuable. Wash. Rinse. Repeat.
In fact, the Fed printed an average of $27 billion per day in 2020 and put those dollars into circulation.
In 2021, the Fed increased that rate to nearly double that. Of course, most money today isn’t physically printed. It exists only in the electronic minds of computer systems. That’s because no one could physically print that many bank notes.
This out of control creation of money is warping the entire economy. Excluding food and energy, consumer expenses are up 4.9 percent from a year ago. This is the largest increase in 40 years.
According to a friend of mine who works in the banking industry, the Fed governors were recently polled on where they see the Federal funds rate going in the next 24 months. The average was 2 percent.
A two percent increase is a big deal. It also isn’t enough. The greatest impact that higher interest rates will have is on the largest borrower in the world — the United States government. The United States national debt is nearly 30 trillion dollars, which it finances through Treasury bills, notes and bonds. The public holds 80 percent of this debt, which requires direct interest payments, rather than ledger transfers on the Treasury books.
The fiscal year 2021 United States budget included over $562 billion spent paying interest on the federal debt. To put this into perspective, the cumulative net worth of the five wealthiest people in the US (Jeff Bezos, Elon Musk, Bill Gates, Mark Zuckerberg and Warren Buffet) was $465 billion. So, the interest paid on the debt in 2021 is more than these five people’s net worth COMBINED.
An increase in those interest rates will cost the government a lot of money. Money that they do not have. Any increase in interest rates will add hundreds of billions of dollars of interest to the federal budget. In fact, a one percent increase in interest rates means an extra $300 billion in interest on our national debt.
The only way for the government to pay the higher interest is- you guessed it- to print the money, which will cause the currency to be devalued, and worsen inflation, which will again cause higher interest rates. Wash. Rinse. Repeat.
We are riding this sinking ship all the way to the bottom.