TIGHT SPOT
My mother and father used to tell me about the “dirty ‘30s.” That was the decade of the Great Depression from 1930-1940. Times were tough and people suffered great financial loss. My grandfather on my mother’s side was wiped out when the brokerage firm that held his stock portfolio went bankrupt. People today are oblivious to how bad it was back then. Today, the speculation and leverage fostered by our loose monetary policies have the potential to create another depression. However, the monetary authorities have a host of financial tools to thwart this outcome. They will not hesitate to use them if the economy falters. Everyone seems to know this, and nobody is worried about a crash.
However, the inflation the Fed is so worried about won’t improve if they have to use their so-called monetary tools to stave off recession and depression. In other words, they would have to inflate while fighting inflation. For the short-term, inflation will likely win. Later this year, we could have an inflationary recession, but that can’t last. Sooner or later, we face a runaway inflation or a deflationary bust and depression. The dirty ‘30s could be fast approaching once again.
