Thomas Jefferson’s Prediction is Coming True

         In last week’s post, I looked at various sectors of the economy and offered perspective on these sectors as we move into the New Year.  To briefly summarize, I am bullish on companies that can benefit from commodity price inflation including mining companies.

          Ever since the book “New Retirement Rules” was published more than five years ago, I have been forecasting one of two economic outcomes.  Deflation or inflation followed by deflation.

          It now seems fairly evident that the latter is the path on which we are traveling.

          This chart illustrates the growth in the M2 money supply.  M2 is immediate money as well as ‘near-immediate money’.  M2 includes currency and deposits that are immediately available like checking accounts and money that is available but may be subject to withdrawal penalties like time deposits and money market accounts.

          Notice from the chart (Source:  that the money supply increased by 37% year-over-year in November.

          That is simply mind-boggling when you let that fact sink in.

          The chart was originally published in an article authored by Ryan McMaken of the Mises Institute.  In the piece, Mr. McMaken noted that the Fed’s assets are up about 600% from just before the 2008 financial crisis.  The Fed’s balance sheet now stands at $7.2 trillion which, in plain terms, means that is how much money the Fed has literally created out of thin air.

          History teaches us that massive levels of money creation leads to price inflation; should the money printing continue long enough at a high level; currencies are eventually affected.  Money creation happens when debt levels are too high to manage using ‘honest’ means.  When currencies fail, debts don’t vanish, they are simply redenominated in a new currency that the population accepts.

          That’s when deflation kicks in.

          Collectively, we’ve wandered a long way from the vision of our founding fathers in many ways.  As far as currency is concerned, Thomas Jefferson gave us sage advice that we have totally ignored.  Here are a couple of relevant quotes from Mr. Jefferson:

“If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

“I believe that banking institutions are more dangerous to our liberties than standing armies.”

          Now, it seems, that Mr. Jefferson’s warnings of inflation followed by deflation are becoming reality, barring a pro-active currency reset which seems unlikely.

          Absent a proactive reset, the reactive reset predicted by Mr. Jefferson will be the ultimate outcome.

          As noted, we are already on that path.  The signs of inflation are here and intensifying.

          This chart of corn prices shows that corn prices have risen about 40% since the first of August.

          Granted, corn prices have been depressed, which has some analysts arguing that prices were due to rebound.  But it’s interesting that corn prices rose 40% and the M2 money supply increased by about the same percentage year-over-year.

          It’s not just corn prices moving up, the same pattern can be seen in many commodities as we have been noting on our weekly update webinars.  (The webinar replays can be found at  The replays are also available via the Your RLA app which is also available at

          This chart shows the soybean index, the grains index, and the agricultural and livestock index all rising dramatically since early 2020 when the extremely aggressive money creation began.

          In rough terms, the soybean index is up about the same 40% as is corn, the more general grains index is up slightly less than that, and the agricultural and livestock index is up a bit more than 30%.

          This is significant food price inflation in a noticeably short period of time.

          Does this rapid, massive inflation signal the beginning of hyperinflation?

          Past radio guest Jeff Deist, President of the Mises Group, recently penned a piece that suggested Americans read the book “The Death of Money” by Adam Fergussen.  I have read the book and would also suggest adding it to your reading list.

          Mr. Deist correctly notes that many Americans can’t even consider the prospect of hyper-inflation.  That’s something that happens in faraway places, banana republics if you will, not in the world’s largest and most prosperous economy.  Here is a bit from Mr. Deist’s piece (I’ve added the emphasis):

Ours is a nation willfully lacking in knowledge and understanding of money; a cynic might think this lack of apprehension is by design. Money is seldom discussed in schools, popular media, or politics. And almost a century after the stark lessons of 1923 Germany, the West is convinced it can’t happen here. In our overwhelming material abundance, aided by the natural deflationary pressures of markets, we simply have lost our ability to imagine a hyperinflationary scenario. Sure, there have been currency meltdowns since the two world wars in places like Yugoslavia, Zimbabwe, Bulgaria, and Argentina. Yes, Venezuela and arguably Turkey face currency crises today. But we need not worry about this, because modern central banks—especially the US Federal Reserve and the European Central Bank—have tamed inflation through sheer technocratic expertise and a willingness to use extraordinary monetary policy tools.  Asset purchases and balance sheet expansion, ultralow or negative interest rates, and a determination to provide as much “liquidity” as an economy needs are the new normal for central bankers. Thanks to this open embrace of centrally planned money, former Fed chair (and likely future Treasury secretary) Janet Yellen assured us we need not expect another financial crisis in our lifetime.

            Despite the assurances of central bankers that everything is under control and there is nothing to worry about, money creation has been off the charts and is now beginning to create inflation, food inflation in particular.

            It is inflation in essentials that accelerates hyperinflation.  Once the average citizen fully wakes up to the fact that it’s better to have something tangible than to have fiat currency; we will reach a tipping point.  At that tipping point, the price inflation numbers go off the charts.

            Given the inflation numbers that I reviewed in this week’s “Portfolio Watch”, that tipping point is fast approaching.  Our team has been working for many years to help people prepare for this inflation followed by deflation outcome that now seems more certain absent a thoughtful proactive currency reset.

            Owning more tangible assets now before the tipping point is reached, will be key to surviving significant price inflation.

            And, as for Ms. Yellen’s assurance that there will never be another financial crisis in our lifetime; I don’t find much comfort from it.  History teaches us that never is an exceedingly long time and each time current policies have been pursued, the outcome has been the same, 100% of the time.             Make sure you’re prepared.     

Inevitable Outcomes?

While last week was quiet in the markets, over the long term, I expect markets to be anything but quiet; central bank policies will see to that.

I have long been critical of central bank policies and, truth be told, I am fundamentally opposed to private bankers controlling monetary policy which is the case worldwide today. 

History teaches it never works in the long term.  To think that private bankers are putting the interests of the public ahead of their own interests is as unrealistic as it is naïve.

Thomas Jefferson, one of the founding fathers who understood this well, had a lot to say on this topic.  One of his quotes, becoming more famous due to present monetary policy rings true:

“If the American people ever allow private bankers to control the issue of their currency, first through inflation, then through deflation, the banks and corporations that will grow up around them will deprive the people of all property until they wake up homeless of the continent their Fathers conquered.”

Then there is this one, also attributable to Jefferson:

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” 

While central banks, controlled by private bankers, still enjoy a fair amount of believability worldwide, the day is soon coming when the central bankers will be recognized as the cause of the problem rather than the solution to all things economic.

Francesco Brunamonti, writing for the Mises Institute had this to say in a piece he wrote recently titled, “Central Banks Are Just Getting Warmed Up” (Source: (emphasis added):

According to all central banks, one of the main problems they are called to solve is that countries cannot reach their inflation target of (close to but below) 2 percent. Even their religious trust in the long-discredited Phillips curve cannot explain why price inflation is low in many countries despite historically low unemployment rates. Nonetheless, central banks still enjoy immense credibility. It’s common to hear such sentences as “never bet against the Fed,” the “ECB has big bazooka primed”… and all market participants monitor each public meeting to understand what the next policy could be and how they should be positioned when it arrives.1

To reach the inflation targets and “stimulate the economy,” central banks regularly meet to devise ever-new stimulus programs, and do not despair when, inevitably, the one-off unconventional interventions quickly become the new normal. For example, the world-famous Quantitative Easing (QE) was supposed to be a one-time emergency response to the 2008 crisis, except it has now become one of the many tools of regular monetary policy, and a key component in market demand for financial assets. An undesired but perfectly predictable side effect of QE is that it allows governments to increase their spending without care for the deficit, and still pay negative interest rates in real terms, so no discipline is imposed, except for some empty promise to reduce the deficit sometime in the future, if the opportunity comes. Several Western countries have embarked in QE, some in many consecutive rounds, but there is no mention of a reverse-course, an eventual, opposite Quantitative Tightening (QT). Only the United States have tried QT, and the Fed has even announced that they were on a stable and data-driven process back to normalization, to try to maintain their reputation of scientific management of the monetary aggregates. However, the Fed had to quickly abandon the plan, and its balance sheet remains massively bloated under any historical measure. It is abundantly clear that markets are doing well only thanks to monetary life support, and the help provided by QE cannot be taken out without provoking a serious crisis across all the whole investable universe.2 Now the Fed has embarked in a new round of QE, although Powell denied in the most absolute terms that it is QE.

Some comments.

First, Mr. Brunamonti states that central bankers have ‘religious trust’; in the Phillips curve.  The Phillips curve simply theorizes that the relationship between unemployment and inflation is inverse.  In other words, when unemployment is low, inflation is high and when unemployment is high, inflation is low.

The Phillips Curve was first discussed by its developer Bill Phillips in 1958.  In developing this economic theory, he studied nearly 100 years of wage inflation and unemployment in the UK.  After his theory was introduced, it was met with skepticism by other notable economists such as Edmund Phelps and Milton Friedman who argued that wages would automatically adjust to the market on an inflation-adjusted basis.

Given that the official unemployment rate is very low as is the official inflation rate, that would seem to make the case for Phelps and Friedman’s argument.

The bigger point here is that central banks, as Mr. Brunamonti states, are regularly meeting to try to figure out new, ever-more innovative ways to stimulate the world economy.

Consider central bank actions since the financial crisis and you’d have to conclude that central banks are increasingly desperate.

Remember 10 years ago when the central bankers decided to engage in a program of quantitative easing, a.k.a. money creation out of thin air coupled with zero interest rates?  As Mr. Brunamonti correctly states it was to be a one-time, emergency measure that would never be used again.

Yet, despite the insistence that interest rates would return to more normal levels, it took only a couple of rate hikes to throw the financial markets into absolute turmoil.

Now, in addition to negative interest rates (not just zero interest rates), central bankers are continuing their program of quantitative easing although according to Mr. Powell, current Federal Reserve Chair, we are not to call it quantitative easing.

This latest decision to engage in quantitative easing (I don’t know what else to call it) came about so the Fed could prop up the repo market.

The repo market refers to repurchase agreements or the lending in which financial institutions engage among themselves.  Last month, the Fed injected cash into this market when the interest rate for overnight loans jumped from a couple percent to nearly 10%.

The Fed hadn’t been forced to put cash into this market in over 10 years, since the time of the financial crisis and the failure of Lehman.

There was never an official explanation given for the Fed’s latest foray into the repo market, but, reading between the lines, one would have to assume that there were banks worried about getting repaid on their short term loans perhaps because a big bank was once again looking shaky? 

This suggests that despite more aggressive monetary policy – negative interest rates and money creation – there are once again problems with the financial system.

Makes me wonder what money experiment central bankers might try next although I am very sure they will come up with something.

Regardless as to what the next money experiment is, Mr. Brunamonti has, in my view, stated the inevitable outcome of such an experiment. 

This from the article quoted above (emphasis added):

There is today a veritable alphabet soup of monetary policy tools (QE, OMT, TLTRO, APP, ABCP…) and the result is that no asset class is free of distortion, including the key markets of foreign exchange and corporate debt. All these tools are only more of the same: they apply the same means (create new money out of thin air) to reach the same end (artificially decrease the interest rate). Clearly, these interventions have the same side effects as a regular, conventional decrease of the interest rate. Chief among these problems are a general hunt for yield in all markets, the setting in motion of boom-bust cycles, and the inability for pension funds to provide savers with a long-term real return to support retirement and future consumption. Far from being problems confined to banks and the ultra-rich, this diverts resources from savers and wealth generators to the politically-connected.

The behavior of central bankers is not likely to change.  That means your investment behavior needs to change. 

You need to have a deflation hedge to protect you from boom and bust cycles and an inflation hedge to protect the purchasing power of your savings.