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Saturday, August 14, 2021

INFLATION VS DEFLATION: HARD ASSETS

 



The raging debate between those claiming inflation will get out of hand and morph into hyper inflation - like billionaires Paul Tudor Jones and Michael Burry (who made a killing off the subprime collapse), and those who worry deflation will ultimately destroy the global economy - like all the world's central bankers, essentially contrast  two ideas that are both right.

The problem of the global economy is that there is so much debt in the global system  - 280 Trillion dollars - not counting debt derivatives which push the figure into the multi Quadrillions - yes Quadrillions - that unless the global bankers artificially create inflation by keeping real rates deeply negative and commit to massive quantitative easing - which means the central banks create ever more debt and then buy it themselves from themselves (yes it sounds crazy but that's what it means and that's where we are) then the whole system will collapse in a massive deflationary hole.

But the QE Infinity produces massive asset price inflation which ultimately seeps into the real economy of everyday purchases and inflation rises and rises crushing the middle class.  So the governments must commit to ever more deficit spending to bail out the crushed middle class which adds to the global debt which causes ever more inflation.

Add to that a global pandemic which has been hopelessly politically exploited so that common sense solutions have been discarded by enough of the population that it may never get under control - and Global Warming that is destroying the global food supply so food costs will rise forever - while fires, floods, hurricanes and tornados do their part to destroy the housing supply - which necessitates more debt to bail out the homeless and the hungry..

So that is now our choice,  Massive inflation or the Deflationary destruction that results from stopping the liquidity that fuels the inflation.  

So how do you invest?

As long as inflation wins out Hard Assets along with paper assets will all rise,  That's stocks, real estate, and all hard assets.  Even pure gambling instruments like crypto currencies and space fleet funds will rise as long as inflation carries the day.  

But as soon as there is a crack in global debt system as there was in 1997, 2007 and again in 2020 all of which necessitated central bank bailouts of the world's wealthiest corporations, hedge funds, banks, and individuals first with one trillion - then 3 trillion - then 8 trillion - a new multi trillion dollar bailout will be necessary.  How much can the global system give away to the wealthy?  20 trillion?  30 trillion?  Because that's what the next bailout will take.  And the one after will be more expensive.

Eventually the bailouts will not be tolerated by the poor and crushed middle classes and then we'll get civil unrest that will necessitate a stop to the bailouts and that will bring about the deflationary crash.  It is inevitable.   Then paper assets will become worthless.  Hard Assets will take a hit - but they will retain value.  And that's why the wealthy are moving into Hard Assets.



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