Explained in One Chart: America’s Impending Inflation Disaster

The world has entered a new economic depression… and governments across the globe are addressing it with the same old playbook: spend, spend and spend some more.

I talked a bit about this the other day.

But I only briefly touched upon how this new spending is leading to another looming problem…


We’re in for a historic decline in the value of your dollars… and I have a chart that shows why.

So today I want to make sure you understand what’s happening — as well as how to protect yourself and your family’s wealth in the months and years to come.

If you’re a regular reader, you won’t be too surprised by the key defense.

And luckily, there’s still plenty of time for you to act.

Let’s dig in…

Depending on your age, you may recall the inflation of the 1970s.

With the Vietnam war winding down, all that 1960s-era military spending returned to the U.S. economy with a vengeance. Prices increased for food, energy, rent, houses, autos, clothes… you name it.

In the early 1970s, the term “sticker shock” came into vogue. Hand in hand with inflation, prices soared for pretty much everything, month after month, year after year.

So you’d walk into a store, look at the price tags on things and go… “Aaargh!”

Inflation was so bad that in 1971 President Nixon imposed “wage and price controls” on the U.S. economy.

That was also when he “closed the gold window,” as the saying goes, ending the fixed exchange rate between U.S. dollars and gold.

Here’s the New York Times headline of that fateful day…

NYT headline

But even Nixon’s price controls didn’t help.

Throughout the 1970s, savers were ruined as the purchasing power of their money in the bank dwindled.

Same thing with people on fixed incomes. The same amount of dollars — a monthly pension, for example — bought less and less.

Meanwhile, speculators distorted the price and value of everything worth buying or selling.

It was a mess. And it wasn’t until the 1980s that then-Fed Chairman Paul Volker raised interest rates and squeezed inflation out of the economy. (That’s another story.)

But anymore, it’s clear that policymakers have forgotten the lessons from that dark period.

Remember, the inflation problems in the 1970s started because there was too much cash in the U.S. economy.

One way to measure how much money is in the system is to use what economists call  “M2.”

In plain English, M2 represents the total of amount of liquid money in the economy; cold, hard cash as well as what’s sitting in bank accounts, money market funds and a few other financial elements.

The Fed keeps track of this because its primary mission — or at least, its primary mission when it was established in 1913 — is to promote an “elastic currency.”

Then the Fed acts to expand or contract money supply, depending on the needs of the economy. The Fed can either buys bonds — putting cash into the economy — or sell them, which pulls cash out.

Think of the policymakers as operators who control water flow at a large dam.

If the economy is running hot, the Fed tightens up the “dollar valves” to reduce M2, slowing things down.

If the economy is sluggish, they open those valves to juice things with more M2.

With that in mind, have a look at this revealing — if not frightening — chart of the annual change in M2 growth.1


Begin on the left… Look at M2 growth in the 1960s, as the U.S. fought the Vietnam War. And look at the 1970s, during those above-noted years of inflation. Then look at the 1980s, when Fed Chairman Volker clamped down…

Follow the graph over the past couple of decades until… Whoa!

Look at how the graph has taken off over the past several months.

It’s an unprecedented increase in U.S. M2.

Clearly, something BIG is happening with M2 money supply… bigger than Vietnam!

The Fed hasn’t just opened the spillways. No, it has blown the dam!

Over the past few months, in the face of looming depression, the Fed has poured cash — newly created M2 — into the economy.

We see it in the form of that that $4 trillion of additional federal spending since March. And there’s another trillion or two to come, with the next stimulus bill in Congress.

Now, here’s the good news part of it…

Maybe some of that cash will flow your way…

Did you get a $1,200 per person federal “stimulus” check?

Or perhaps you, or someone you know, received unemployment compensation that included an additional $600 per week from the feds. (Note: that expires next Friday, July 31.)

Maybe you, a relative or a friend work for a company that received “PPP” funds, or one of the larger bailouts that went to hundreds of big companies like Boeing, General Motors, airlines, hotel chains, etc.

You surely recall that the stock market crashed in March… and has largely recovered since then.

That’s because of federal money, of course. All that new M2, emitted from the Fed on Constitution Avenue in Washington, D.C., passed down to the Treasury Department on Pennsylvania Avenue, and then — as if by pipeline — flowed straight to Wall Street.

Don’t celebrate too much, though, because with all that cash comes inflation.

Have you seen it yet? Probably yes… It’s out there.

At the grocery store, for example, you’ve likely noticed that prices are up for meat.

Now wait a minute, you might say, maybe the prices are higher because availability is limited. After all, even companies like McDonalds and Wendy’s are having trouble sourcing ground beef for hamburger.

Time will tell until you see more inflation at the grocery store, or in other things you buy.

But one key inflation index is absolutely signaling trouble ahead. That’s the rising price for gold and silver.

The price of gold is near an all-time high, over $1,875. Silver has soared in recent months from the mid-teens to over $22 per ounce.

“Gold and silver continue to move higher, faster than forecasted by analysts,” says a recent headline from Kitco News, which watches precious metals like a hawk.2

It goes on to explain:

“The accelerated moves to higher (gold/silver) pricing are based upon new fundamental events unfolding during the pandemic causing market participants to not only react to central banks flooding liquidity to reignite their contracting economies. The monetary policy of quantitative easing always results in a devaluation of the currency specific to that central-bank.”

That’s just a fancy way to say that when the U.S. and foreign governments release more and more currency into the economy, the less valuable that currency becomes.

So it takes more dollars to buy an ounce of gold or silver, hence the rising precious metal prices.

And smart investors are starting to realize what that means.

A recent headline at Bloomberg News sums it up nicely: “Wall Street is throwing billions at once-shunned gold miners.”3

Here’s the heart of the Bloomberg story:

“With the Covid-19 crisis threatening economies worldwide and gold prices soaring on the heels of monetary and stimulus programs, precious-metals companies have become the darlings of the investment community. The sector, which once largely drew the attention of specialist funds, is now attracting a broad base of investors.”

In other words, after years of neglect miners are transforming into Wall Street darlings.

We could discuss this all day, but here’s the takeaway…

We’re in a depression.

The Fed has been pouring a Niagara of new “money” into the economy; M2 is skyrocketing.

History tells us that inflation is on the way.

And gold/silver prices are already soaring, while Wall Street is moving serious bucks into mining plays.

How can you deal with it?

Own gold, silver and mining shares, of course.

Do you want some ideas along those lines?

Well, I mentioned the other day that my colleague Jim Rickards and I are speaking this week at our partner’s “virtual” (online) Sprott Natural Resource Investment Symposium.

It began Wednesday afternoon and runs through Saturday. Take a look at the details from our partner here.

The host of the conference is one of the great names in mining investment, old friend Rick Rule of Sprott Investments.

Plus, there are dozens of other presenters from the world of hard assets, mining coverage and executives from mining companies.

You don’t have to go to Vancouver to attend. Just watch it from home, or from any Internet-connected device.

If you sign up now, you can watch everything — past and current. It’s all online, and replays will be available until Dec. 31, 2020.

Again, you can sign up here.

Remember: Depression… Inflation… Protect yourself with precious metals and mining plays!

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder

P.S. – Feel free to forward Whiskey & Gunpowder to friends, family and colleagues. If you received this article from someone and would like to subscribe, click here. Thank you.

1 Money Supply Charts Through June 2020, EconomicGreenfield

2 Gold and Silver Continue to Move Higher, Faster, than Forecasted by Analysts, Kitco

3 Wall Street Is Throwing Billions at Once-Shunned Gold Miners, Bloomberg

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

This “old rock hound” uses his expertise and connections in global resource industries to bring...

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