Is Inflation Coming

[JohnyMac]

The Velocity of Money - Definition

"The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy...." Federal Reserve Bank - St. Louis

Looking at a 20 year average the Velocity of Money has been ~8. This is the amount of time that a dollar begins life at the Fed and then returns. The higher the number the better as more people are spending and circulating money. The lower is bad as people are hanging onto money. Capitalism needs the velocity of money to be high to prosper.

Now the Velocity of money M1 and M2 started to be measured in 1959; However, experts claim that if it was measured in 1930 (The Great Depression) it would have been around a "3" or money changes hands 3 times. Of course this is bad. Today (as of Q3, 2017) we are at "5.5" which is the lowest rating as of Q2, 1973 - Forty-four years.



Now on the other hand there is more and more money being pushed into the economy through low unemployment, reparation of companies assets laying off shore, and the increasing of peoples salaries. All good but?

I suggest we are at the foothills of some serious inflation yet to come. Probably not seen since the Jimmy Carter years (1976-80). Below is a inflation chart from 1920 to present.



The years with spikes in inflation were years where the amount of money in circulation was high yet the velocity of money was low. Which is lining up to my eyes at least, high inflation, lower stock market, and higher precious metals value. If I am correct, then now is the time to buy those hard goods, e.g. car, truck, tractor, refrigerator, etc. as the prices of these goods will rise right along with our inflationary future.

Anyhow, just some fun thoughts to bat around.
Peace!

[JoJo]

 As of this writing the market is down today 400pts. It's down more than 1000pts from its high.
https://www.marketwatch.com/  says that this is the first 5% fallback in more than a year.

[pkveazey]

I liked your charts. I've been expecting massive inflation for quite some time. I've seen enough in recent years to believe its just about here. There is talk about Silver going up dramatically in 2018 so I plan to grab as much as I can afford this year. I've always felt that precious metals are a hedge against inflation. I figure that if a loaf of bread cost $3 today, I can buy about 6 loaves for 1 ounce. If bread goes up to $20 a loaf, then Silver will increase in value proportionally and I'll still be able to buy 6 loaves for 1 ounce. One form of sneaky inflation is the size of grocery items has gotten smaller but the price has remained the same.

[JohnyMac]

So if we all agree inflation is coming what will the Fed do to try and put a muzzle on inflation. Yup you got it, increase long term interest rates. Stay tuned, as when the Fed meets in March, the interest rates WILL go up.

Now here is a 40 year graph showing interest rates. Please notice the rate late 1970's/ early 1980's.



Again, to repeat myself, there was low money velocity and generous money supplies available leading up to this five year period which meant high inflation.

Since the reader of this tread is saying by now, "gotz ya' JohnyMac. Time to invest in some hard goods." What is going to happen if Mr. Trump wants to sell more bonds to raise the $1T for his infrastructure plans for the country?

Lets understand that in 2016 the USofA sold ~$500B in bonds to make up the deficit. Last year we sold ~$900B in bonds which brought our national debt to - $20.6T.



So the question to the group is...

With inflation coming down the pike, prime interest rates climbing, the continuing USofA debt and the additional debt being added to the mix - What is going to happen?

Now a warning  alert!!!

I have been saying for a couple of months that the only way the Shadow Government will be able to topple Trump will be to bust the economy. Are we seeing the beginning of this plan?

  Alert over.   

[Jackalope]

Inflation has been here for a while.  I've noticed how food packages have been getting smaller, though they're priced the same.  Inflation has been hidden, now it'll come out in full force. 

I'm not too concerned about the economy yet.  If you look at the percentage of drop in the market, it's not too significant.  If the Dow drops 5000 points in a single day, then I'd be concerned.  I do consider an economic tsunami to be one of the most likely contributors to a SHTF scenario, but I don't think this it yet.

[JohnyMac]

Well, at this writing the market (DJIA)  is down 240 Pnts today, the fourth day with in the past five. As we march towards the November 2017 mark of around ~23,500 which seems to not be unlike Sherman's March through the South.

I still think it will go down till the Fed meets in March and then flatten out. The question is: How much will it go down.

A stock market correction is usually between 10-15% and moves into a Bear Market of in excess of 25%.

So if the market hits 22,600 we have a correction. If we hit  20,000 we enter into a Bear Market. That is if everything goes along with little news worthy reason for it to rise or drop even faster, e.g. a domestic or foreign terrorist event. Maybe even some serious nastiness from our enemies.

I openly opine that in the 2018-19 time period the World economy event will come to fruition. I share with close friends that it will be leading up to the 2018 Mid-term elections. If my predictions are true for this year, it would need to start in the late winter/early spring so it has time to "snow ball" and run down hill towards the November election.

Stay tuned. 

Update: Stock Market finished up for the day ~200 points. With that written it will continue to be volatile until the Fed raises the Prime.

[Nemo]

The deep state will see the danger coming, realize Trump will get through just fine and they will be the hurting pups in the deal.

So they will begin a major program of quantitative easement to make things right.

Nemo