The Peter Schiff Show Podcast

Financial Conditions Are Loosest Since 1994 I was reading an article today that the Chicago Fed released their National Financial Conditions Index (NFCI)  and according to their research, financial conditions in the United States are the loosest since January of 1994.  Of course, that was early on in the dot com bubble, before it even "bubbled up", it was just at the beginning of that bull market, yet the Federal Reserve has been tightening; raising interest rates for a couple of years.  They've been talking about shrinking the balance sheet - why is it that financial conditions are looser now than they were when the Fed was still at zero? Fed Behind the Curve I have been talking about this the whole time.  The Fed is so far behind the curve.  Yes, they have raised interest rates, but it is too little too late.  Even the official inflation rates have risen as much if not more than the rate hikes. Meanwhile, the stock market keeps going up and now that you have the dollar going down, a weakening dollar actually adds to the loosening of financial conditions which are obviously going to get a lot looser if the Fed doesn't really start jacking up rates faster, which I don't think they are going to do. Relapsing Back into Recession In fact, I think they are going to get ready to cut rates again and loosen financial conditions even further as the economy relapses back into recession, which I said in my last podcast, would have already been here had Hillary Clinton won the election.  Since Donald Trump won, all this false optimism is delaying the onset of that recession for a year or two, but it's not preventing it. So if financial conditions are this loose now, when the Fed is tightening, imagine how much looser they're going to get when the Fed is easing.      Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Faltering Expectations The U.S. dollar and the stock market continued to be a little bit under pressure this week as anxieties are rising over the fate of the tax cuts with so many investors are putting so much expectation into the proposed tax cuts. Tax Cuts Do Not Reflect Smaller Government I have gone over many times on this podcast why I do not believe the tax cuts are going to help the economy. Tax cuts are good for the economy to the extent that they reflect smaller government.  If you are going to make government smaller, and government is going to be less of a burden on the economy, if government is going to take fewer resources out of the economy, it will be freeing those resources up for the private sector.  If you are lowering people's taxes because you relieve them of the responsibility of paying for a larger government, that is a big positive! Government Will Have to Print or Borrow Any time we can take resources out of the government sector and put them back into the private sector, those resources will be used more efficiently and more productively, the economy will be better off.  But if we simply cut taxes, and allow government to get bigger and bigger, that is not good for the economy.  All that is happening is that the government has to find and alternative source for paying for the resources it is consuming.  And if it is not going to collect it through taxes, then it is going to have to borrow it or print it. Those other ways of sucking up those resources do more economic damage than what otherwise would have been the case if they had just left taxes alone. So Everybody is Wrong So everybody is wrong in believing that these tax cuts are going to be good for the economy.  They are not going to be good for the economy, and they are certainly not going to be good for the dollar. They will hurt the dollar because, by definition, instead of removing dollars, the government is going to print dollars out of thin air and spend that.  So they are debasing the dollar. No Individual Mandate But putting that aside, there is still a lot of nervousness out there about whether or not the tax cuts will pass and what their final form will be.  First of all, the Senate came out yesterday and all of a sudden thew a curve ball into the tax cuts. As part of the tax cuts they said they were going to repeal the individual mandate from Obamacare. That is the part that requires individuals to pay a penalty to the government for not purchasing insurance. Hail Mary First of all, the fact that they have to throw that in there shows that they needed to do that to tempt some Republicans, maybe like Rand Paul, who were on the fence or not for the tax cuts. I think the fact that they had to go for the Hail Mary shows that they are having a hard time getting enough Republican support. Saving the Government Money? But here's the ridiculous part: The government claims that by eliminating the individual mandate it is going to save the government a lot of money and the savings will subsidize a larger tax cut for the middle class.  Wait a minute. The individual mandate means that people who don't buy insurance have a penalty to the government!  That's revenue to the government. Wouldn't that cost the government more? Republican Logic Here is the Republican logic: If they stop penalizing people who don't buy health insurance, then fewer people will buy health insurance.  Some of the people who are buying health insurance now are getting government subsidies, so if they don't buy health insurance then the government won't have to provide the subsidies and that's where they save the money. Premiums Through the Roof Then they argue that if younger healthy people drop out, then insurance premiums will rise even faster than they are rising right now.  And because health insurance premiums will rise a lot faster,Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

No Real Tax Relief Yesterday the Senate released their version of the Tax Cut and Jobs Act, and it is not that different from the House version.  There are some differences, some of which I will get into, but the main problem is not the difference, but the similarity.  The plans don't deliver any kind of substantial tax relief, in the manner that President Trump refers to as, "the biggest tax cuts ever". It's not even close. For most people, there will be minor tax cuts and for other people there are actually minor tax increases. Democrats: "I'll Give You Something You Did Not Earn!" The real problem, again, is that Republicans can't really be Republicans, given how much debt we have.  They like to talk about lower taxes - that's how they get elected: "We're going to lower your taxes!". The Democrats are generally the party of, "I'm going to increase your benefits! Vote for me and I will give you something you did not earn."  What the Republicans used to say is, "Vote for me and I'll let you keep more of what you did earn." That was really the difference between the Democrats and the Republicans. The Democrats were about taking things from other people and the Republicans were about keeping your stuff. You Can't Take Away an Entitlement The problem is, too many Republicans are really Democrats or they're afraid to cut any government spending. At this point, the deficits are so big that you can't really have big tax cuts unless you're willing to cut government spending. Most Republicans are not willing to do that. Sometimes they will vote not to create a new government entitlement, but they will never vote to take something away, which is why they didn't really want to take away Obamacare. A lot of Republicans didn't vote for it, but they are not going to vote to kill it. Small Government Everywhere but in the Military The problem is, if you really want to cut spending so you can have tax cuts, where's the money? The defense budget is big, and most Republicans don't want to cut defense - that' s the only place they like big government (in theory) is defense. They want small government everywhere except in the military. So there are not very many Republicans who are willing to cut defense to enable the tax cuts. So What's Left for Republicans to Cut? Now you got Social Security and Medicare, but a lot of Social Security recipients vote Republican. So the Republicans don't want to cut Social Security and don't want to cut Medicare because they are afraid of how the voters will react. So that's off the table. You can't cut interest on the debt, unless you're going to default on the debt; nobody wants to do that. In fact, interest on the debt is going to go up as interest rates go up.  So what's left that Republicans (in theory) can cut?  They are afraid of being labeled mean, heartless, taking away programs for the poor, the needy - so there's really nothing that the Republicans are willing to cut, so they can't give any tax cuts. They don't want to level with their constituents and say that they can't cut your taxes because then, what's the point of voting Republican?  Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Conventional Media Was Surprised It's hard to believe has been a year since Donald Trump shocked everybody, at least everybody in the conventional media, Wall Street, all the pundits, professional politicians, anybody who has anything to do with Saturday Night Live... Nobody believed that Trump a snowball's chance in Hell of winning the White House. Hillary Clinton had already picked out her china patterns, she had this big glass ceiling that she was going to shatter in her victory party.  So everybody believed that Trump was going to lose and Hillary was going to win even after the polls closed. It took about an hour or two for reality to set in. Conventional Media Was Surprised So now it has been a year.  Of course the stock market has gone up a lot during that year, in fact, the market was up just under 21% in Trump's first year.  Of course, Trump never lets you forget this because he constantly talks about it, but he says this stock market rise is unprecedented - and that is a lie! Why do you have to go out of your way to lie when 21% is still a big move.  In fact if you go back to Eisenhower, which is almost 70 years, this is the fifth biggest rally for a President's first year.  That's still not bad, it's fifth place. The guy in last place is George W. Bush. Not Unprecedented Unfortunately, Bush was elected in 2000 and the market tanked that year, it was down 20.4%.  That is the worst performance of any President. Trump is #5, but let's look at #1; Number one was Bill Clinton - Democrat, 1996, his second term, the market was up 31.7%. So that's a 50% greater rise than Trump's first year, yet Trump is claiming that this is unprecedented.  Kennedy, first term, 1960, the market was up 28.4%. In third place, Barack Obama's second term the market rallied 23.9%.  Then George Bush (41), in 1988, the stock market rallied 21.7%. So Trump is certainly in the top third, but his first year is not unprecedented.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

High Expectations for Jobs Numbers This morning we got the release of the October jobs report, and it followed the hurricane-related very weak report that we got in September. This time, the reason actually was weather-related. Remember, they originally reported a decline of 33,000 in September.  No one cared, though, because it was all about the hurricane. This month everybody was very optimistic; the consensus for October was 325,000 jobs. Numbers Fell Flat I was watching CNBC this morning and they were all trying to guess the jobs number.  Everybody ended up being over.  Rick Santelli's estimate actually was 401,000, but most guys were somewhere between 350 - 400,00, so everyone on CNBC was more optimistic than the consensus. And then the number came out  at 261,000. Everybody went over, so they all lost by the Price is Right rules. Lowest Unemployment Since Dot Com Bubble But beneath the surface, this is a weak report - even weaker than the 261,000 jobs that were reported.  The unemployment fell to 4.1.  That's a new low for this cycle.  You have to go all the way back to the dot com bubble to get an unemployment rate this low.  I don't know if Trump tweeted about it yet, but I'm sure he's going to talk about it: "Oh this is great!" He's going to take credit for the drop in the unemployment rate.  But the problem is, the reason that the unemployment dropped was because so many people left the labor force Largest Labor Force Exodus We had 968,000 people leaving the labor force in October.  This was the third largest monthly exodus ever, causing the number of Americans currently exiled from the labor force to hit a new record high - 95,385,000.  The labor force participation rate plunged back down to 62.7% from 63%. Obama Revisited This is the exact same type of jobs numbers we were getting under Obama, where you'd have a falling unemployment rate because so many people were leaving the labor force and so many people were working part time. Candidate Trump was extremely critical of this:"The unemployment rate is the biggest con, the biggest fraud in history - unemployment is really 30-40-50% - the jobs are lousy, they are low paying, people are leaving the labor force!" Exactly what is going on today.  Yet now, "Everything is great, the unemployment rate is low, it's all thanks to me, and I'm doing a great job!" Weak Number This is a weak number.  In fact, look at average hourly earnings. They were supposed to rise by .2% and they were flat.  The only reason they were flat is because they rounded it up. Actually, average hourly earnings went down during the month of October. And this is not adjusted for inflation.  These are just the earnings.  So we know prices are going up and so earnings actually went down in October.  Now year over year, we have an increase of earnings of 2.4%.  I am sure the cost of living is up by more than 2.4%, regardless of what the CPI claims. So this is a weak report.    Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

No Change in the Fed Swamp The announcement of the new Fed Chair, Jerome Powell, represents a commitment to the status quo at the Fed.  President Trump has nominated the person most likely to do exactly what Janet Yellen did for President Obama. Powell has voted in lock step with Janet Yellen for the entire time she has chaired the Fed.  The only real difference between the two is that Yellen is a Democrat and Powell is a Republican, even though he was nominated to be on the Fed by President Obama. Politics as Usual, Rather than Change Powell does not have an economics degree.  Initially you might think that's a plus; Bernanke and  Yellen have Ph.D.'s in economics, but they know nothing about economics because they learned from Keynesians. But Powell has hung out with these folks for such a long time, I assume he has all the same failures when it comes to understanding economics. More important than that is the politics of this.  Jerome Powell embodies everything Candidate Trump criticized about the Fed and about Janet Yellen. President Trump accused Janet Yellen of being political, keeping interest rates artificially low to make Obama look better and to help Hillary get elected, and all of that was true. This is why many people voted for Trump, they voted for change.  They thought that he was going to drain the swamp.  Well the water level at the swamp is not going down at all with the nomination of Jerome Powell.  Trump interviewed John Allison, who would have represented a change; he is a free market guy, and Austrian economist, Ayn Rand fan, he would have been a market change in direction at the Fed Cut, Cut, Cut Plan Now let's turn to the sham that is the Tax Cuts. Donald Trump wanted to call the plan the Cut, Cut, Cut Plan. Instead, they named it the Tax Cut and Jobs Act. This plan will definitely create jobs for the accountants. I skimmed through the 450-page outline of this plan, and what I can tell you is I believe that taxes will be much more complicated if this bill passes than they are now. Tax Savings Will Go to Accountants For low income earners. this tax bill will not complicate already rather simple tax filings.  But if you have a small business with employees and capital investments, this bill will substantially complicate your tax filing. So to the extent that you might save any money on taxes, you will spend more on accounting fees, which by the way, are no longer deductible. No Reduction in Size of Government This bill is not the biggest tax cut in history, and it is not a tax cut for everybody. Many people will see a tax increase. Overall, the government will collect less revenue as a result of this bill, even though some people will be paying more. I watched Republicans claiming that this bill will provide relief from high taxes - there is no real relief because government doesn't get any smaller. The reason tax payers have such a heavy burden to bear is because government is so big.  Since there is no reduction in the size of government, in fact, government is getting bigger, and will be bigger next year taxes should be going up on everybody! But Republicans are saying, " No we're not going to make government any cheaper, in fact we're going to provide even more government, we're going to make government bigger and more expensive, but we're just going to relieve you of the burden of paying for it, which is impossible, because there are not free lunches. There are no free lunches from Democrats and there are no free lunches from Republicans.    Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Trial Balloon #1: Backpedaling on State and Local Tax Deductions All this talk about tax cuts is all a fraud, because government is getting more expensive and the taxpayers are going to be stuck paying the bill one way or another.  They keep on launching these "trial balloons. I was reading over the weekend that they are backpedaling, talking about the idea of eliminating the deduction for state and local taxes, but not for property taxes. So everybody can deduct their property taxes because everybody pays property taxes, whether you're in a red state or a blue state, whether you have state income tax or not. In fact, some states without state income tax have higher property taxes to compensate. So they still are going to allow the property tax deduction. That's the latest trial balloon that I have heard about. Housing Lobby Against Tax Reform But we still a lot of Republicans from high-tax states to allow the deduction for all taxes, including income taxes. The housing industry is still pushing back because they want people to deduct property taxes because that reduces the cost of owning property and makes it easier to sell at a higher price because one of the features of the property is a tax deduction. They also want to preserve the home mortgage deduction.  I was reading that the housing lobby is trying to get something in there.  Because if you double the standard deduction, that means far fewer people will itemize and they won't need the tax break associated with home ownership and that is a problem for the housing industry, that is really selling tax shelters. They are lobbying to get Congress to put back in a "homeowner's credit".  Even if you don't itemize, you could still get some kind of tax benefit for being a home owner, which, if we were really reforming the tax code we would not want to do. Trial Balloon#2: 20% Corporate Tax Rate "Phased In Over 4 Years" Another trial balloon that came out over the weekend, obviously the market is not liking it, is that corporate tax cuts, where the plan is to lower the corporate tax rate to 20% from 35% - now they are saying that this would be phased in over a number of years so we wouldn't actually get to a 20% corporate tax rate until the year 2022.  Now, why would they be doing this?  Well, obviously, to the extent that they can delay the phase-in of the lower rate, then the effect on the deficit, at least during the initial years is not as great because they don't have to immediately calculate the reduction in tax revenue. Failing to Attract Business to the U.S. A lot of people are saying, "Well this will still be okay, because at least it's a permanent tax cut, and American businesses with still know that they can look forward to these lower tax rates..." And really what these lower tax rates are designed to do is to make the U.S. a more competitive place to do business.  My feeling would be, if they delay the implication of these tax cuts until 2022, they ain't happening! Getting a Bad Rap A lot of stuff is going to happen in the economy between now and 2022, including another presidential election in 2020, and I'm already on record as saying that Trump will be a one termer, a placeholder between 2 democratic administrations.  All the economic problems that built up during the Obama administration will blow up under Trump.  If we get a Bernie Sanders-type as President in 2020, what are the odds that the 2022 corporate tax cuts are ever going to see the light of day? No Such Thing as Permanent Tax Relief All these people talking about permanent tax relief, what are these guys smoking? There is no permanent tax relief, especially when you don't have any relief from increased government spending.  You know how much bigger the national debt will be by 2022?  They will have to raise taxes on somebody, and obviously, corporations will be an easy target, especially if they are vilified.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

We're getting a tax cut! There is one thing now that that has the potential to cause a short-term decline of more than 3% in the stock market, and that would be: no tax cut.  If the Republicans announce that they're at a deadlock, and we're not going to have any tax reform or tax cuts, it seems to me the stock market will get hit.  Washington and Wall Street both agree that if we don't get this tax cut, the market's going down.  So what does that mean?  We're getting a tax cut! Making the Stock Market Great Again After all, the market is now the barometer of the success of the Trump Presidency, and by extension, the Republicans in the House and Senate.  If House Republicans want to get elected in 2018, the Dow Jones had better be higher than when Trump was elected. This is not about making America Great Again, it's about Making the Stock Market Great Again. Not that it wasn't great before Trump was elected, but now the greatness of the stock market goes hand in hand with the greatness of America. Accelerating the Growth of the Budget Deficit So we are going to get a tax cut, but that pretty much assures that we are going to get an increase in deficits and the National Debt.  They've already cleared the way now in the Senate and the House is about to rubber stamp it someway that the Republicans are allowed to reduce revenue to the Federal government by $1.5 trillion in the tax cut bill - over 10 years.  So it's not $1.5 trillion a year, it's only $150 billion a year, over 10 years. Remember, government spending is going to rise substantially over those 10 years, so the government actually needs a lot more revenue in order to cover all its spending. So when you reduce the revenue you just further accelerate the growth of the budget deficit and the resulting National debt. Republicans Don't Care About the Deficit We've got a number of Republicans who were very hawkish about the debt and when Obama was President, "We're going to shut down the government…" "We're not going to raise the debt ceiling…" They demanded fiscal discipline.  In fact, there was some modicum of discipline imposed on the budget, but all that is now being unraveled under Trump.  Now the Republicans can throw out whatever discipline that they forced into the system when Obama was President.  I've said this before, that when Republicans are in the minority, they can at least try to exert some pressure on government spending. The minute they have both houses of Congress and the White House, precedence shows that they don't care about the deficit. Consequences of Tax Cuts: Higher Inflation and Higher Interest Rates The deficits are only a problem when the Republicans are in the minority. But when they have the power, they don't care about it because they want a tax cut, and deficits be damned. Especially when the market now depends on it.  Nobody wants to stand in the way of the market. Even Rand Paul, who was the one Republican who voted against the Senate budget resolution, has already said that he will vote for the tax cuts.  He just did not want to vote for the budget bill to enable the tax cuts.  Somehow now that the budget bill has been enacted, he is going to vote for the tax cuts. He'd rather people pay lower tax than deal with the consequences, which are: higher inflation, higher interest rates.  There is not free lunch.  That is the problem with these tax cuts.      Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Black Monday 1987 Today marks the 30th anniversary of the 1987 stock market crash.  It's hard to believe that it's been 30 years.  I still remember where I was when the crash happened and my reaction to it. It happened just after I had graduated from the University of California at Berkeley. By the time the crash happened, I had already accepted a job in Newport Beach, California.  I was going to be working in the commodity options market, but I hadn't started yet. Lesson:  The Market Goes Up The crash began a few weeks before I was on the job, but I do remember when I first got there, I met a guy who had a lot of S&P 500 puts for clients and for him, anyway the crash was a great thing because he was able to make a lot of money on those puts.  Of course the S&P was a fraction of its current value.  The market is up dramatically since the 1987, which is the lesson that everybody hope that you learn: "Hey don't worry about the market.  If it ever goes down, it's going to come back up." Trade Deficit Tiny Compared to Now I remember some of the catalysts that were weighing heavily on the stock market leading up to the crash of '87 was the fact that the dollar was weakening as a result of a increase in the trade deficit - trade deficits that are tiny in comparison to the enormous one that we run today. Yet nonetheless, people were rightly worried about it back then.  They couldn't care less about the trade deficits now. Interest Rates at 9% Also interest rates were rising. The yields on the 30-year bond (nobody really talked about the 10-year back then) were 9% and they were going up.  So you had 9% interest rate, interest rates rising, the dollar falling, the trade deficits getting bigger and the stock market had pretty much ignored what everybody agreed was bad news at the time.  The stock market kept going up anyway, despite all of that.  Eventually it all came crashing down in 1 day. Good Company One of the things I remember about that was how Alan Greenspan reacted.  I mentioned this on a prior podcast. Greenspan had not been the Fed chair that long when the market crashed. He took over from Paul Volker.  I knew Greenspan, and was familiar with him because he was a libertarian and an Austrian economist.  He had written an essay on Gold and Economic Freedom, which I had read, in addition to Ayn Rand's Capitalization: the Unknown Ideal.    Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy

Inflation Higher Than Expected Today we got the hotter than expected news on prices - on inflation.  We got the import/export prices.  Import prices were supposed to be up 0.5%, which in and of itself is a pretty big jump, but they were up 0.7. Export were also up; (we would want export prices to go up, because that means we are getting more for what we export) they were expected to rise 0,4%, and instead they rose by 0.8.  Double the expectation. Import/Export Index Methodology More Accurate Year over year, import prices are up 2.7%.  As of last month, the year over rise was just 2.1%, so that's a pretty big jump in the year over year gain.  Export prices were up 2.9% year over year.  Averaging these out, you get 2.8% as the average increase in 1 year of the price of the stuff we import and export.  That's a broad based increase - well above the supposed 2% level the Fed is looking for.  They are looking for consumer prices, measured by the CPI, but the Import/Export index represents things the consumers consume, and I would think these numbers are going to be more accurate than the CPI because there is less subjectivity in there.  I think the methodology is more accurate than the methodology on the CPI.  I think soon we're going to see year-over-year increases import and export prices with a 3 handle. Markets Working Counter-Intuitively When this news came out, the immediate reaction was to buy the dollar and sell gold.  Why?  Why is higher inflation bad for gold?  The main reason to buy gold is as an inflation hedge. If you think there is going to be more inflation, then you buy gold.  Perversely, the way the markets work now, you sell gold if you think there's going to be more inflation, in fact, you buy the currency of the country that is experiencing more inflation, which is counter-intuitive. Inflation by definition, is the currency losing value.  If the currency is losing its purchasing power, why would you want to buy more of it?  You would want to get rid of it to avoid that loss. Will Higher Inflation Produce a Tighter Fed? But the thinking is, if there is more inflation, as measured by these price indexes, that the Federal Reserve is now going to have to fight the inflation, that they are going to be more likely to raise interest rates, to raise them sooner, to raise them more, in the face of higher inflation. So it is the expectation that these higher numbers will produce a tighter Fed - that is what rallies the dollar,  That is what hurts gold - the anticipation of higher rates to fight off the inflation. Fighting Inflation vs. The Bubbles Reality is that the Fed will ignore the higher inflation numbers and do nothing.  Whatever it is going to do with rates, it will do it regardless of these numbers.  Ultimately, if the Fed has to make a choice between fighting inflation and unemployment (because the Fed believes in the Phillips Curve trade-off between employment and inflation), the Fed will always choose to fight unemployment.  It will prop up the labor market and sacrifice its inflation goal. It is more concerned with maintaining asset bubbles, propping up the U.S. government so it does not have to default on its debt. Letting Inflation Burn The reality is, higher inflation is not going to produce a tighter monetary policy.  The Fed is going to have to ignore higher inflation, which means the inflation is going to get even worse.  It is almost like the Fed has to ignore a fire, and because it ignores the fire, it is just going to get bigger, it's not going going to try to put it out because it is afraid that putting it out is actually worse than letting it burn.  If traders understood this, then they would be dumping the dollar and buying gold. Real Inflation vs. Nominal Inflation Even if the Fed ultimately raises rates, they're not going to get out in front of the inflation curve.Our Sponsors:* Check out Avocado Green Mattress: https://avocadogreenmattress.com* Check out Boll & Branch: https://boilandbranch.com/SCHIFF* Check out Fast Growing Trees and use my code GOLD for a great deal: https://www.fast-growing-trees.comPrivacy & Opt-Out: https://redcircle.com/privacy