Tag Archives: money printing




I was amazed by Fed Chairman Powell’s remarks last week. Predictably he reiterated the Fed’s dedication to raising the inflation rate to a “symmetrical 2%”, i.e. over 2% for a while to compensate for the last ten years when it has been running under 2%. Forgetting about the fact that the Federal Reserve was formed in 1913 to control inflation, not create it: relative to the need for higher interest rates and less stimulus, he said “There will come a time—and that time will be when the economy is back to full employment, and taxes are rolling in, and we’re in a strong economy again-when it will be appropriate to return to the issue of getting back on a sustainable fiscal path, but that time is not now.”

Do you know how many years there have been since 1971, when the US went off the gold standard, that the US debt has not increased? Take a moment….. the answer is ZERO. Even in the last three years of the Clinton administration and the first year under GW Bush, when the “surplus” in total over the four years was $972B, the debt still increased every year, because “off budget” spending eliminated the so called surplus. In the fiscal year ending 9/30/20, for example, the US “deficit” was $3.1T and the debt went up by a cool trillion dollars more. As far as Jay Powell’s remark noted above, there will never be a time, not in his administration, and possibly not in our lifetimes.


“A billion here and a billion there and pretty soon you are talking about real money” is the political commentary from thirty or forty years ago. Three zeros have been added, taking the billions to trillions, but the economy is not three zeros (1,000x) larger. Here’s another way to picture the situation: The US debt went up by $4 trillion last year and will go up by $4-$5 trillion more this year, even without the Green New Deal currently under discussion. The table just below provides a decade by decade (with mid-decade 1945, the end of WWII, thrown in) picture of the debt as a percentage of GDP.

The most expensive prior single undertaking in the last hundred years was WWII, which cost $4.1 trillion in today’s dollars in total. The US government, therefore, will spend about double, over 18-24 months, the amount that it cost to conduct WWII over five years. The problem is that there is no postwar industrialization by a surplus nation on the gold standard to help us work our way out of this situation.


We are hearing and reading about the Biden administration’s inclination to raise taxes to pay for the new infrastructure spending. Before you conclude that more taxes are unfortunately necessary to make the books balance, here are a few numbers.

Total spending was about $7.5 trillion, represented by the $3.1 trillion deficit (in excess of the $3.4 trillion of receipts) plus additional “off budget” spending of about $1 trillion. The $3.4 trillion of receipts  broke down this way: Personal Income Taxes were $1.6T, Social Security and Medicare Payroll Taxes were $1.3T, Corporate Taxes were $.212 T (only $212B).revenues of $3.4 trillion dollars in the fiscal year ending 9/30/20. The remaining $0.3 trillion came from excise taxes ($.087T), customs duties ($.069T), estate taxes (only $.018T = $18B), and miscellaneous sources ($.117T).

Since the Federal Reserve is financing well over half of the deficit with freshly printed money, as their balance sheet expands at an annual rate of close to $2 trillion, an increase in personal income taxes, corporate taxes, social security or medicare taxes, especially the minimal estate taxes, would be of small consequence to paying back the cost of new infrastructure.  This is why the politicians always talk about RECOUPING, say $1 trillion of RELATIVELY SHORT TERM SPENDING with $100 billon of higher taxes on this or that OVER A MUCH LONGER TERM. Obviously, with the timing mismatch,  our legislators will have found trillions more to spend, and receipts can never catch up with expenditures.  Taxes could never be raised enough to make a serious dent in the increasing debt burden. It’s actually kind of ridiculous to bother the public with a long term ax burden when it is a lot easier for the Fed to instantly create an extra trillion dollars or so.

The Fed and the politicians like to tell us that all this newly created currency will not be inflationary, because the “velocity” of the funds is at an all time low, and  the price of goods and services (by their calculation) hasn’t changed much. Let’s create am extreme example. If one hundred trillion dollars worth of colored paper was distributed, do you think  quite a bit of it would start moving around and the price of goods and services would move higher?

Don’t ever believe that it doesn’t matter how much debt the US carries, as long as interest rates remain minimal. Someone along the way once said “there is no free lunch”.

Roger Lipton



The general capital markets were strong in August, both equity and fixed income, as the Fed continues to keep interest rates close to zero and grow the money supply at a double digit rate, M2 running at +24% annualized.  Gold related assets gave back hardly any portion of the year’s gain, even though, with a very strong stock market,  there was no obvious short term need for gold as a presumed “safe haven”.  Gold bullion was down 0.3% in August, gold mining stocks down a touch more. For the year, gold bullion is up almost 30%. The gold mining stocks are up more than that as investors are beginning to allocate a  portion of their assets to the precious metal sector. Our update from two weeks ago describes the value based appeal of gold mining stocks, and how their value has substantially lagged the increase in the price of gold bullion.  As we have said before, this is the very early stage of the resumed bull market in gold related assets.

There has been a number of fiscal/monetary developments within just the last week, none larger than the enlarged role of the Fed Reserve, embedded in the commentary of Chairman Powell last Wednesday.


Chairman, Jerome Powell’s, speech last week summarized the country’s tenuous financial condition, the Federal Reserve’s approach to dealing with the situation, and, most importantly, a revised view of their long term role. Recall that the Federal Reserve was established in 1913, with the primary role of maintaining stable prices while managing the US money supply to alleviate or avoid the financial panics that precluded the Fed’s creation. In the late 1970s, during a period of high unemployment and high inflation (“stagflation”), Congress broadened the Fed’s responsibility, creating the “dual mandate” of (1) encouraging stable prices and  (2) maximum employment, at the same time promoting moderate interest rates. It is on this basis that the presumably apolitical Fed has become increasing important to the US capital markets and the economy as a whole over the last four decades.

Powell’s much anticipated speech expressly described how the previously described 2% annual inflation target (which destroys about 50% of your purchasing power over 30 years) is now to be considered an “average long term” target. This means that if the inflation rate has been running below 2% for a period of time, the Fed will be tolerant of a range above 2% for a similar time. This was presumably the BIG NEWS.  This should not be news to our followers. In August, 2019, we started writing about all Fed governors invariably using the word SYMMETRICAL when describing the 2% target, and we explained what that means. How much above 2% is tolerable, and for how long, is uncertain, and can the Fed even control these parameters once the inflation genie is out of the bottle ? Only time will tell !

THE REAL NEWS: A third mandate is coming. As Powell described it, for the first time publicly, a broad review of economic conditions was put in place, including events called FED LISTENS. Community groups, apparently something like “town halls” talked to Fed representatives around the country, involving “a wide range of participants—workforce development groups, union members, small business owners, residents of low and moderate income communities, retirees, and others—to hear about how our policies affect peoples’ lives and livelihoods”. YOU CAN SEE WHERE THIS IS GOING. “A clear takeaway from these events was the importance of achieving and sustaining a strong job market, particularly for people from low and moderate income communities.” Further along in Powell’s talk last week, as part of the New Statement on Longer Run Goals and Monetary Policy Strategy” – Powell specifically states: “With regard to the employment side of our mandate, our revised statement emphasizes that maximum employment is a broad-based and inclusive goal….particularly for many in low and moderate income communities”.

What this means is: MONEY, trillions of dollars of it, to be printed up by the Fed to purchase the government securities that will finance the huge debts that will increasingly be a drag on future productivity. The Wealth Gap must be addressed, without question, so the Fed is correct to that point. However, inflation, in and of itself. creates  a predictable Wealth Gap. This Wealth Gap has increasingly asserted itself after Richard Nixon eliminated the exchange of US Dollars into gold in August, 1971, and the Fed started managing the money supply more aggressively.  This “third mandate”, now clearly described by Chairman Powell, allows the “fox to continue to be in charge of the henhouse”.


Inflation is coming, and it will not be “controlled” at 2.25% or 2.5%. So far it has been limited to “Assets”, rather than groceries and apparel, but that will change, as it always has. The Fed is now embracing an effort to narrow the Wealth Gap, as described above, but their effort will not succeed.  The well to do have their stocks, bonds, art, real estate, and perhaps even gold, so can largely maintain their purchasing power. Lower and middle class consumers, on the other hand, never quite figure out why the higher nominal amount in their paycheck doesn’t ever catch up with their needs.  Inflation is the cruelest tax, predictably embraced by the politicians (because they don’t get blamed), and the Federal Reserve, which was established to control inflation becomes an accomplice.

It takes a sound currency to support a productive economy that can grow for the benefit of all, and there is no prospect of that any time soon.

Roger Lipton