Inflation Or Deflation?

February 10, 2022

Inflation or deflation? This is a question that may have a large impact on all investment vehicles depending upon the way this plays out. There are many good arguments on both sides of this discussion.

Personally, I believe that we will have inflation because the results of stopping our “printing” would be catastrophic for the economy and also for mankind as we, and many other countries, are basically creating “money” out of nowhere and allowing people to live. They are doing this with housing subsidies, food subsidies, and free healthcare if your income or assets are low enough.

Since we have over $30 trillion in admitted debt and are spending $3 TRILLION more than we are collecting in taxes (admitted to- likely FAR higher with off-balance sheet spending) just imagine what our country would look like without that $3 trillion? Would we still have a military? Would we have millions of homeless or would the government step in and wipe out landlords with mandates that allow those that can’t pay to stay? Just how would that work? The last time they provided subsidies for landlords but in this scenario that would not be an option. Not that it worked very well for small landlords the last time anyway.

I saw an article yesterday where England’s largest grocery chain is warning food inflation is picking up with no end in sight. I am lucky enough to have a friend who is the President of the world’s largest Shoprite. I asked him about availability and prices. He said that availability of product is spotty but not too bad in most cases and prices are rising relentlessly with no end in sight. 

There are people far smarter than I am who are on both sides. Lacy Hunt did an interview and laid out his case for deflation. He made some very good points like:

Negative real yields have historically been a precursor to recession.

Money velocity (how fast people spend and money moves through the economy) is at all-time lows.

The law of diminishing returns- basically more debt equals lower growth and we are drowning in debt.

At 60% debt to GDP you generally see a reduction in growth. The USA is near 125%. Since 2000 the USA has seen “growth” 50% lower than average. I use the term “growth” because much of the “growth” is not even traditional growth in the economy but deficit spending leading to even higher debt and a larger burden on real growth going forward.

I am sure that there are a lot more reasons why many believe deflation is more possible than inflation. If I believed that we were in a normal situation I would likely agree with them. The reason I can’t is that all of these circumstances are already upon us and I don’t see deflation anywhere.

In my opinion, the economy has already imploded and is being masked with trillions from nowhere to keep the peasants at bay.

Since the Fed and other central banks can conjure up unlimited amounts of “money” with a few clicks on a computer screen and have been doing it for years already I find it hard to imagine deflation kicking in UNLESS they stop.

Is it possible they stop? You may be surprised to know that I believe they just might. Why would they do that?

It is highly likely that we are nearing the end of the greatest monetary experiment of our lifetimes. Unlimited “money” and debt creation can only go on for so long in a world of finite resources. When there is so much cash sloshing around and limited amounts of goods prices get bid higher.

At some point, those that are left behind revolt because they can’t even afford the necessities of life.

This has happened many times throughout history (Russia, France, Arab Spring, etc.) but this is actually a global situation.

If you were in charge would you want to be in the crosshairs of the angry mob?

My guess is that there will likely be a black swan of some kind that will be blamed for the economic carnage that will usher in the “SOLUTION” that I am sure already exists (think Central Bank Digital Currencies).

First of all, this system must implode first so those “in charge” can offer their solution to those who will be begging for one.

The BIG question: Do they kill the US dollar through inflation or implosion of the economy?

I’m sure those “in charge” know the plan but I am not in on it and I’m sure nobody reading this is either.

Not knowing which way the wind will blow I believe that having assets everywhere is the best solution.

A few years ago I did a page on what assets would likely perform better in inflationary or deflationary environments. These are my ideas:

In an inflationary environment I want to own:

· Stocks


·Silver and other hard assets like oil, food, gas and real estate

These assets provide a hedge against currencies losing value and have intrinsic value that can’t be “printed” to oblivion.

I would NOT want to own:

·The currency losing value or bonds denominated in that currency.

By definition the currency is losing value and a bond is a promise to be repaid in that currency at a future date.

In a DEFLATIONARY Environment I would want to own:

·Cash (If prices are falling the value of your cash would be rising)


The case for gold in deflation can be made by looking at Greece in 2011 or the USA from 1929-1937. While most bonds became worthless because everyone was worried about actually being repaid what they were owed (counterparty risk) and stocks lost nearly 90% of their value (in many cases tied to corporate debt defaults as well as other factors) gold, in the USA, gained 75% by government decree and gold stocks ROSE 525% while the overall market dropped 90%.

I would NOT want to own:

·Bonds because of counterparty risk, defaults, etc.

·Stocks- particularly now when most companies are drowning in debt and those debts get harder to carry as the economy slows down or rates rise.

·Hard assets that are not necessary for survival. I would exclude food, fuel, energy, etc. While demand would likely fall there will always be a need for food, fuel, energy, etc.

I believe gold wins either way. In inflation the currency is debased and all hard assets are likely to cost more just because of that. In deflation the fact that you OWN gold and don’t have to worry about being repaid by someone else becomes its most redeeming asset. It also doesn’t hurt that for 5000 years people have run to gold in times of trouble. I also believe that since central banks have been loading up on gold-particularly in the last 4 years- that is also a MAJOR sign.

Hopefully, this can get you thinking about where you are, where you would like to be and what some obstacles may be in your path to your own financial security in the future.

Again I have to ask “What is the VALUE of a promise that can’t be kept? I will also add What is the value of an asset that you are valuing with an asset that has no real value?” Think about that one!

Be Prepared!

Any opinions are those of Mike Savage and not necessarily of those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information in this report does not purport to be a complete description of securities, markets or developments referred to in this material. The information has been obtained from sources deemed to be reliable but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

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1 cubic foot of silver weighs approx 655 pounds whereas 1 cubic foot of gold weighs more than half a ton.

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