Economic and Monetary Outlook for 2021
The comments below are an edited and abridged synopsis of an article by Alasdair Macleod
The most important event of 2021 will likely be the Fed losing control of the markets. The US dollar’s declining trend is already well established against other currencies and commodities, and will contribute to this outcome.
Much of what occurs this year will be the result of hyperinflation of the dollar. Foreign holders of dollars and dollar assets—currently totalling $27.7 trillion—will increase the pace of reducing their exposure. This is a threat to the Fed’s policy of using QE to inflate assets, thus promoting a wealth effect and continuing to finance a rapidly increasing federal government deficit by supressing interest rates.
Bubbles will pop, leaving establishment investors exposed to a collapse of fiat currencies, bonds and equity markets, which could be rapid. The question is, what will replace collapsing fiat currencies: limited issue distributed ledger cryptos such as bitcoin, or precious metals such as gold?
Clearly, when the dust settles, it will be gold, because central banks already own it in their reserves, and it has a long track record of success as money in the past.
Up for discussion: Introduction; inflation of money is the Fed’s only management tool; setting the scene for a dollar collapse; the false safety of equity markets; and hedging a dollar collapse.
The conclusion: The end of fiat currencies by 2021; the Fed will almost certainly lose control of financial markets as it hyperinflates the dollar; equities are being pumped up through QE, which will result in a vicious bear market with financial asset prices being measured in collapsing fiat instead of gold-backed dollars; and the field will be open to cryptos and precious metals.
In time, gold will replace fiat, because monetary gold is already owned by governments and their central banks.
