Just weeks after dropping the narrative of a transitory inflationary rate, the Federal Reserve is already talking about the need to raise interest rates and take other active measures to curb inflation. The government is finally recognizing the massive problem of inflation and the risks it poses, but that’s not making investors feel any more comfortable.
With a Fed that’s slow to respond and quick to point fingers, it’s no wonder the American public is feeling unconfident and uncertain about the future of the economy. Recently, Scottsdale Bullion & Coin Founder Eric Sepanek sat down with AZ Daily Mix host Mike Broomhead to discuss the current economic situation and what investors should do.
The Fed Has No Good Choices
The Fed is in the unenviable position of having to figure out how to dig the US economy out of worsening inflation. There are only two potential solutions moving forward: printing more money or raising rates. This is a proverbial rock-and-a-hard-place situation since both options have negative consequences.
Running the money printer will send already rising inflation through the roof. On the other hand, increased rate hikes will strain the economy and might even crash the stock market. The trick is to find a solution that can improve the situation without causing everything to collapse. At this point, though, it seems the Fed is out of good options.
High Gas Prices and the Devaluing Dollar.
There’s been an attempt by the political elite in the country to blame rising gas prices on the Russian invasion of Ukraine. Although it’s true the conflict and resulting sanctions have put pressure on the global energy trade, the pain at the pump results from our strained relationship with Saudi Arabia.
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Following WWII, the creation of the Bretton-Woods Agreement positioned the US dollar as the world’s reserve currency. However, the collapse of this system in 1971 challenged the greenback’s status. In a successful bid to restore the USD’s position as the premier currency, President Nixon encouraged Saudi Arabia to trade petrol exclusively in USD.
Since 1973, the petrodollar has maintained the dollar’s dominance within the global economy. Recently, this stability has been challenged as our relationship with Saudi Arabia has deteriorated. To make matters worse, China is threatening to cozy up with our oil ally with the rise of a petroyuan.
If the world would begin trading petrol in the Chinese yuan instead of the US dollar, our domestic economy would face dire conditions. Countries across the world could lose confidence in the greenback which would directly impact its value. The US’ colossal national debt would crush our markets.
Hyperinflation vs Inflation: Where Are We Now?
With the economic situation becoming increasingly dire, people are trying to gain a better understanding of where the market currently stands. There’s a lot of confusion between the terms inflation and hyperinflation. Despite having clear distinctions, these words are being thrown around synonymously.
In short, inflation is a gradual increase in the prices of products and a decrease in purchasing power. Hyperinflation is when these factors occur at a highly exponential rate in a short period of time. The US economy is currently experiencing inflation. Hyperinflation requires years and years of terrible economic conditions to result and would have catastrophic consequences.
Protect Yourself Against Rising Inflation
As the Fed weighs its limited options and inflation continues to worsen, smart investors are moving their wealth away from greenback-linked assets and into safe havens such as precious metals. For centuries, gold and silver have proven to be reliable hedges against inflation as the values of these precious metals rise when economic conditions deteriorate.
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