Earlier this week, Andy asked a critical question...
What if?
What if omicron or some other nasty variant takes hold?
What if pent-up consumer demand peters out and the economy goes downhill?
What if all hell breaks loose?
We don't have to wonder. Just look to the massive troubles in Turkey.
The country's having a rough go of it lately. And the similarities to what's happening in our nation are stunning... and scary.
Thanks to low interest rates and cheap money (sound familiar?), inflation in Turkey is "officially" at 20% but is likely closer to 40%. Rising prices are hitting all corners of the Turkish economy.
The purchasing power of the local currency, the lira, is dropping so quickly that Turks are quickly exchanging their money for dollars, gold or crypto before it loses even more value. The lira is down close to 40% since the beginning of the year.
Things are so bad that folks are hoarding physical gold under mattresses out of fear the government might seize assets. (By the way, your mattress is the first place authorities will search.)
There's been a surge in crypto buying as Turks try to shelter their money from rampant inflation.
So what's going on?
Turkey's president, Recep Tayyip Erdoğan, insists the problem is an economic one. He says low rates and spending will give things a boost and in turn fight inflation. He refuses to listen to anyone who says otherwise. And he has been known to fire anyone who disagrees with him.
As a result, the surging money supply has devastated his country.
And if the U.S. continues its spending spree, we won't be far behind.
Our official inflation rate hit 6.2% in October following the biggest surge in more than 30 years. This week, Fed Chair Jay Powell finally acknowledged it's a bigger problem than he first let on.
Powell said the Federal Reserve can't be sure that price increases will slow down next year as many economists had expected.
So he's letting go of the "transitory" description of the inflation he helped stir.
Inflation is not a passing fad... or solely the result of COVID-19. It's a problem that's here to stay unless we do something about it.
But, similar to Erdoğan, President Biden favors dangerous policies. Biden's $1.2 trillion infrastructure bill just became law... and will add $256 billion to the deficit.
And now he's pushing his $2.3 trillion Build Back Better plan through Congress... which will increase deficits by $800 billion in the next five years... and end up costing nearly twice that when all is said and done. That's according to the Committee for a Responsible Federal Budget (is there really such a thing?).
Biden is taking the same tack as Erdoğan by insisting that spending will tackle inflation by boosting the economy. Treasury Secretary Janet Yellen has said as much.
Yet it's all our previous spending that has sent inflation surging... again, as Yellen has admitted.
And we can see how it's hitting Americans in the wallet in the following chart, which shows the dollar's declining purchasing power...
Take a look at that sharp decline starting in January of this year... after multiple stimulus measures were passed to fight the effects of the pandemic.
Things are not looking good if we keep on the same spending path.
And your fellow Americans know it. When the October inflation number was released, Bitcoin surged to an all-time high around $69,000.
It's clear many folks - like the Turks - are turning to crypto to protect their money from inflation's cruel bite. The legendary trader Paul Tudor Jones has said crypto is a good protection against inflation. JPMorgan Chase agrees.
What's happening in Turkey is a stark reminder that loose monetary policies have devastating consequences. And if we don't take harsh measures now, we'll face the same fate.
