I just spoke with a relatively high-ranking investment banker who said he was “extremely worried” about dollar inflation. He said double-digit inflation within the next five years was a “certainty”, and mentioned some compelling reasons as to why it hasn’t happened yet.
First, the role of China in purchasing our debt cannot be overstated. They are the lifeblood of our liquidity. The dollars they pump into the Treasury have had a huge effect in keeping US interest rates low.
Also, my friend pointed to the Federal Reserve’s prime lending rate, which has been kept artificially at zero percent for almost a year now. This essentially amounts to free money to whosoever wishes for it. Needless to say the lending rate cannot be kept at zero indefinitely, and when it rises, my friend said he expects inflation to shoot upward as well.
His advice? Invest in gold.