New Biden Tax And Spend Plan Throws Gasoline on Inflation Bonfire

By Mike Gleason, Money Metals Exchange

As the Federal Reserve ramps up its rhetoric on rate hikes, video :

Joe Biden: My dad had an expression. He said, "Don't tell me what you value. Show me your budget, and I'll tell you what's your value."

Nick Gillespie: So, President Joe Biden has released his budget plan for fiscal 2023. At the very moment, we're experiencing the highest inflation rates in 40 years, and it turns out he values the same sort of government spending that is already sending prices sky high. It's debt-financed spending that spurs inflation in the first place. Rather than cutting spending and reforming entitlements, the government borrows and prints money so it can keep giving goodies to its favorite citizens.

You get more dollars chasing the same amount of goods, and that leads to price hikes. Fed chairman, Jerome Powell, has announced a series of interest rate hikes to help tame inflation. But in a recent speech, he made no mention of the increase in the money supply measured by M2, which has risen by a record 41% in two years, or of the Federal Reserve's holding of U.S. debt, which has jumped $3.5 trillion over the same time period.

The Fed finds itself in a tough spot. It may have some room left to maneuver on rate hikes. But it likely won’t ever be able to staunch currency supply growth—the raw material of price inflation and the fuel for government deficit spending.

The dirty little secret in Washington is that inflation functions as a tax. It transfers purchasing power away from wage earners and savers.

At the same time, inflation erodes the real value of debts that have to be paid. And the U.S. government is the biggest debtor of them all with $30 trillion owed officially and tens of trillions more in unfunded liabilities.

The inflation tax is taking a huge bite out of household budgets. The average American family will have to pay $5,000 more this year just to maintain the same lifestyle they enjoyed last year.

Inflation is also eating away at investors’ real returns on financial assets. Bonds and money markets have been yielding negative real returns for years. Now equity market investors are struggling as well to keep pace with inflation.

Many potential alternatives exist for generating inflation-beating returns—from real estate to cryptocurrencies to collectibles. But the most essential asset class to own for inflation protection is physical precious metals.

Gold and silver represent sound money. And sound money, by definition, retains purchasing power over time.

A gold prices are quoted is becoming less valuable.

That inverse relationship will continue to persist. And as there is no limit to how much currency the Fed can create, there is no ceiling for how high precious metals prices can go in U.S. dollar terms.

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Written By: Stefan Gleason