Here’s Why We Won’t See Inflation

The Inflation Head Fake Were you forwarded this email? [Sign-up to The Daily Reckoning here.]( [Unsubscribe]( [Daily Reckoning] Here’s Why We Won’t See Inflation - Something for everyone and the road to serfdom… - The inflation head fake… - Gold wins either way… Recommended Link [This Is the Moment Cryptos Will Officially Be Mainstream…]( [Read more here...]( A major event could be coming to cryptos in 2021… It’s all thanks to a new type of crypto one expert calls “Tech Royalties.” Teeka Tiwari has followed the development of “Tech Royalties” from the beginning. And now, he’s brought his discovery to the public in his: “Tech Royalty” Summit [Click Here For The Official Replay]( Portsmouth, New Hampshire March 12, 2021 [Jim Rickards] Dear Reader, Yesterday afternoon Joe Biden signed the massive $1.9 trillion Covid-19 economic relief package into law. Biden said, "This historic legislation is about rebuilding the backbone of this country and giving people in this nation, working people, middle class folks, people who built the country, a fighting chance. That's what the essence of it is." That’s just happy talk, of course. Actually, the entire process is a fraud on the American people and taxpayers, in particular. This legislation has been presented as COVID relief. But only about $200 billion of the $1.9 trillion goes directly for COVID-type assistance in terms of public health, vaccine distribution, testing, and aid to hospitals and other public health facilities. The rest is a wish list of Democratic welfare spending. The wish list includes an extra $300 per week in unemployment benefits (that’s $15,000 per year on top of usual benefits), a tax exemption for the first $10,200 in unemployment benefits (which increases their value by 24%), a $1,400 handout check to most Americans. Also, a $3,600 fully refundable tax credit for children under 6-years old and $3,000 per child if they’re under 17, up to $8,000 in child-care tax credits, Obamacare subsidies, converting the earned income tax credit into a pure tax credit whether you have income or not -- and much more. There’s money for the National Endowment for the Arts and for the Kennedy Center, a performing arts center in Washington, D.C. What does that have to do with COVID relief? There’s also a lot of money for teachers. Again, that’s not pandemic relief. The Road to Serfdom One can debate the equities of each of these policies. But, they have nothing to do with COVID or public health. This is a huge leap in the direction of guaranteed basic income and an expanded entitlement state. Of course, these new entitlements will go mostly to blue states such as California and New York, because they have the largest number of eligible recipients. History shows that programs of this type incur some resistance in the beginning, but once they are in place and people start to get their checks and tax credits, the program becomes politically impossible to end. Democrats know this. They also know they may lose the Congress in the 2022 midterm elections. So, they are moving at warp speed to get these programs in place while they still control Washington. This type of legislation may be fine if you’re on the receiving end of the checks, benefits and tax credits. For everyone else, it means slower growth, inflation down the road and eventually a much weaker stock market. One might think that with the passage of the new $1.9 trillion deficit spending package that the Democrats in control of Congress would be done spending for a while. Guess again. Recommended Link [Shameful! See What Biden and the Democrats Just Did To YOUR Money]( [Read more here...]( The U.S. House of Representatives voted to let the IMF circulate what could be a new elite-controlled reserve currency. Its exchange rate could effectively devalue the U.S. dollars in your pocket and your savings. It’s all part of a disturbing agenda called the “Great Reset,” endorsed by the likes of Alexandria Ocasio-Cortez and radical liberals, under the guise of “equality.” How can you protect your money and all you’ve worked for from this reset? [Click Here To See What's Next]( More Spending, Slower Growth With the ink not yet dry on the new spending, congressional leaders are already planning a new multi-trillion dollar deficit spending package to be passed later this year, probably by August or September. Details are still being debated, but some suggestions include a $4 trillion spending package paid for with $2 trillion of tax increases and $2 trillion of new deficits financed with borrowings. Biden has said that we need these spending packages “to grow the economy.” Actually, these bills slow the economy because the added debt causes Americans to save more and spend less in anticipation of higher taxes down the road. The only sustainable way out of the COVID recession is real growth, which comes from getting people back to work and reinvesting corporate profits. These bills actually keep people from looking for jobs because the handouts are often more than they could be making at work. Higher taxes needed to pay for the handouts also slow the creation of jobs because businesses have less money to invest or hire workers. Now, businesses are reopening, and activity is picking up. There is less need for entitlement spending and more need for reduced taxes and regulation to help economic growth become self-sustaining. These trillion-dollar deficit spending packages do the opposite. Slower growth, more debt and more handouts will be with us indefinitely if Congress continues down this deficit spending path. What about inflation? The Inflation Head Fake Because of the massive stimulus, many people believe we’re finally going to see significant price inflation. The market is apparently forecasting it. Inflation expectations are rising, which means higher interest rates. The yield on the 10-year note has gone from 0.91% on January 4 to 1.32% on February 6 to 1.57% on March 4. Today, it’s up to 1.63%. So interest rates have gone up steeply. If you think that the move from 0.91% to 1.63% is small, it’s not. In the bond market, that’s an earthquake. But it’s not the first time that’s happened. For example, in April 2010, the 10-year yield hit 3.96%. In October 2010, it fell to 2.41%. In February 2011, it went up again to 3.75%. And in November 2018, it went up again after falling to 3.2%. So going back over the last 10 years, we’ve seen multiple rate spikes. All three times, rates went down sharply. They went up on the same scenario markets are seeing today -- because of inflationary expectations. But, the inflation never came. Experts say, “Oh, just give it a little more time. Inflation’s right around the corner.” But it hasn’t materialized. The higher rates actually slowed the economy instead. If there’s real growth, people borrowing, and high demand for funds, interest rates are going to rise to accommodate that demand. But if interest rates are going up on inflation expectations and the expectations don’t materialize, rates will fall back down again, very sharply. It’s happened three times in the last 10 years. And it’s happening again now. Recommended Link [Invest Better with Motley Fool Stock Advisor]( [Read more here...]( If you have been on the fence about joining Motley Fool Stock Advisor...today is the perfect day to take the plunge! Because we're taking up to 50% Off the list price of Motley Fool Stock Advisor today! And even better, thanks to our ironclad guarantee...you can take a full 30 days to "kick the tires" on Motley Fool Stock Advisor...and still get your entire membership fee back if you're not completely satisfied. [Click Here To Join Now]( Killing Jobs Isn’t Inflationary Why aren’t we going to get the inflation? You have to look at the rest of the Biden administration policies. Biden killed the Keystone Pipeline. That immediately cost 20,000 high-paid union jobs with benefits. It’s going to cost over 100,000 jobs when all the ripple effects are done. If you’re building a pipeline out of steel, somebody has to make the steel, and a truck driver has to drive the steel to the site. Welders, fitters, architects, engineers, cement manufacturers, et cetera, are all going to be unemployed because of it. Democrats are also going to raise the minimum wage to $15. It didn’t make it into this bill, but they’re going to find a way to get it in some other bill, even though the Congressional Budget Office estimates it would kill 1.4 million jobs. Yes, some people would get a raise out of it, but 1.4 million people would be without jobs. When you add it all together, the economy is actually going to slow down. We’re not going to get the inflation. The inflation expectations are a mirage. So what’s going to happen? Exactly what has happened three times in the last 10 years. Gold Wins Either Way For the next six months, rates are going to go higher based on inflation expectations. The stock market should continue higher. But by later this year, all of that will turn around. Interest rates are going to come back down, and stocks are going to stall out. I’m not saying the stock market’s going to crash immediately. It will happen sooner than later; it definitely has all the hallmarks of a bubble. But I’m not saying we should expect this in the short run or necessarily this year. Gold is going to rally as the economy weakens. Yields are going to plunge again, which makes gold attractive. Gold at today’s prices is a steal. Longer-term, we’re going to get inflation. A lot of it. Obviously, that’s going to be very good for gold also. Regardless, gold emerges a winner either way. Regards, Jim Rickards for The Daily Reckoning P.S. I strongly recommend you have at least 10% of your portfolio in physical gold and silver during these chaotic and volatile times. And I recommend [Hard Assets Alliance]( to help you get started.Or if you already own gold or silver, to get more. They’re extremely trustworthy. If you think it’s difficult to get started owning your own physical gold, think again… you won’t have to deal with pushy salespeople or phone calls. You can do it all online. [Go here to open an account here with the Hard Assets Alliance today.]( It costs you absolutely nothing to establish your account. I’ve got my gold. Have you got yours? --------------------------------------------------------------- Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [James Rickards][James G. Rickards]( is the editor of Strategic Intelligence. He is an American lawyer, economist, and investment banker with 35 years of experience working in capital markets on Wall Street. He is the author of The New York Times bestsellers Currency Wars and The Death of Money. Add feedback@dailyreckoning.com to your address book: [Whitelist us]( Additional Articles & Commentary: [Daily Reckoning Website]( Join the conversation! 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