Stagflation: Bad for the Economy, Good for Gold

We describe stagflation as the worst of two worlds.  Slow or even negative economic growth.  High inflation.

Here is the evidence that stagflation has arrived.

The US national debt has now surpassed $39 trillion.  That represents a reckless increase of approximately $2.75 trillion since President Trump was inaugurated just 14 months ago.

Debt is a primary driver of stagflation.  Otherwise productive national economies (or even companies and individuals) can stagger under debt loads. But government will print money to both meet the demands of its debt service and to devalue the nominal debt. 

Despite a built-in budget of a trillion dollars in war spending, Trump is asking for a supplemental appropriation of another $200 billion.  That is but one dynamic driving the debt higher.  Rising interest rates on Washington’s $39 trillion debt is another.

The national debt clock displays the relationship of national debt to our national productivity, the Gross Domestic Product.  The ratio of debt-to-GDP has more than doubled since 2000, and is now 125 percent of GDP.  Debt growth is outpacing our productivity by a country mile.

Hiring is flat and unemployment is rising.  February showed a decline of 92,000 jobs, and a rise in the unemployment rate to 4.4 percent.

Both food and energy prices spiked in February. The Producer Price Index, which is sometimes described as wholesale prices that will soon show up in consumer prices, shows a February increase for food of 2.4 percent; for energy an increase of 2.3 percent. Be aware that those are increases for one month.

Bear in mind as well that those steep hikes were before any major impact of the Iran War, which began with initial airstrikes on February 28, the last day of the price survey. The war surge in oil prices did not begin until the following day.

The oil shock we are experiencing now can be expected to be accompanied by higher inflation and recession, just as was the oil shock of the first Gulf War.

In the Iran war higher oil prices are visible first. Higher food prices will appear later.

A scramble for liquidity in war-threatened areas, a move to safer venues, and even sudden liquidity demands by domestic hedge funds and banks who are experiencing redemption demands by customers, and higher interest rates as well, have created volatility in the gold price, much as a big stock market sell-off can create a quick drop in the gold price, which then bounces back right away.

With stagflation indicators picking up speed, consider speaking with a Republic Monetary Exchange precious metals specialist to take advantage of the current turmoil.