Inflation is on the rise. So much so, that some of the smartest individuals in the world are worried that the Federal Reserve has lost control over monetary policy, and are starting to warn of what ultimately could have disastrous implications for global markets and the economy.
The only real way for the Fed to defend against hyperinflation, is to raise interest rates, which also could have a catastrophic impact on markets and the economy for years to come. With the powers that control money and the levers that control its value stuck between a rock and a hard place, either scenario they consider could lead to a dangerous situation.
Here is a closer look at what hangs in the balance and two different fates for the dollar.
The Dollar And The Global Reserve Currency
When the pandemic began, so did the dramatic downfall of the dollar and its global reserve currency status. But it won’t be a battle that’s so easily lost.
The dollar has been the global reserve currency for nearly 100 years, helping to bring the country economic prosperity, power, and a certain dominance due to the upper hand the dollar gives them.
But when greed wields such power, the power can be abused, diluted, and even destroyed completely, and that is exactly what has begun to unfold.
The Federal Reserve’s one primary job is to push and pull the levers necessary to keep balance between inflation and economic growth. A 2% inflation rate the Fed believes is ideal for economic growth, and going beyond that signals hyperinflation.
The only problem is, prices at retail, at the gas pump, and other places have suddenly gone way up due to a supply versus demand crisis that was created by abuse of the monetary policy, and the increases are frighteningly beyond the 2% baked in economic increase year over year.
Worst of all, they’ve made saving dollars a dangerous mistake that few realize they’re making. With the economy in a potentially dangerous state post-pandemic, many are socking away more and more hard-earned money into their life-savings for a rainy day. But with a high inflation rate and interest rates earning only 0.05% max on any savings, it is a losing sum situation.
The weakness in the dollar has made the cost of living far more expensive while giving it less and less buying power. Oil prices, lumber, and other commodities are on a historic rise as a result.
The Fed Creates Post-Pandemic Bubble
At the same time as the dollar has been dying, it has turned the stock market and the cryptocurrency into a casino of memes and more. Those that took their money out of dollars and put it into equities or crypto like Bitcoin, Ethereum, and Dogecoin, all have made a fortune in a short time.
Certain stocks are massively up year over year, causing comments about overvaluations and bubble-like behavior. While Bitcoin could prove valuable as a safe haven or reserve asset itself, many other cryptocurrencies are up more than 10,000% this year, suggesting that the market could be due for a more extended correction – but not possibly before one more phase of mania will the Fed take action.
The Fed keeping interest rates at historic lows to keep the economy afloat has worked, but the stimulus money that was required to survive the pandemic made those rates dangerous to maintain, yet they continue to do so allowing hyperinflation to take hold.
The only way the Fed has of fighting back, is pulling on the lever they’ve left wide open for so long, with an abrupt hike to interest rates.
Interest Rates Rising And The Start Of The Fall
The Fed has seemingly kicked the can down the road for too long and must address hyperinflation sooner than anticipated. Meanwhile, the US government is raising the debt ceiling, and ready to keep on pumping trillions more into the economy. The dollar is in a precarious position unless the Fed takes action, but doing so could crash the global markets they were helping to prop up in the first place.
Either way, the world has a potential catastrophe on its hands, and a possible recession could be brewing.
When, not if, the Fed does raise rates, it could be the end of the stock market super cycle that began after the crash of 1929. It also could be the first real bear market for cryptocurrencies and Bitcoin – an asset that’s only been in a secular bull market.
The assets that once made fortunes for investors, could soon become a burden to bear. Instead, the assets that have struggled over the last decade and then some since The Great Recession, will begin to shine once again.
How To Prepare For The Coming Interest Rate Hike With PrimeXBT
These assets include oil, natural gas, silver, and gold, which are just a handful of the traditional assets listed for trading at the award winning Bitcoin margin trading platform, PrimeXBT. PrimeXBT is best known for providing traders with long and short positions on Bitcoin and other cryptocurrencies, stock indices, and forex. But when the interest rate hike does hit, commodities will make their presence a lot more known.
Metals, for example, already broke out into a bull run, and have been in a massive reaccumulation phase, while hedge funds seek out profits in riskier markets in the meantime. The risk is taken off the table and put into value, investors put their money into safe haven assets like gold.
Commodities that are valued in USD terms, are also rising unlike ever before. Oil and natural gas are up more than 75% on the year, and this is just the beginning of a breakout from a 13-year downtrend.
The Fed must make a decision soon, but it seems as if markets have already decided. Don’t miss the opportunity to profit from this economic shakeup, using the advanced trading tools at PrimeXBT.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
