Jackson Hole Shows Inflation Genie Won’t Go Away, Warning You to Acquire Some Gold Soon

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Last Updated on: 28th August 2017, 08:59 am

Photo courtesy of South China Morning Post

For the past five years, European Central Bank President Mario Draghi has been stealing the proverbial thunder at the annual Central Bankers convention in Jackson Hole, Wyoming. He started this tradition in 2012 by famously pledging that he would do “whatever it takes” to ensure the euro currency survived. This led to the ECB announcement of an emergency program for buying sovereign bonds of the various struggling peripheral euro zone countries.

All Eyes Were on Draghi Once Again At This Past Weekend Jackson Hole Symposium

Three years ago in 2014, he made another memorable appearance at the annual Federal Reserve symposium at Jackson Hole to lay out his framework for the long-awaited European quantitative easing programs. At the time, the euro zone stared into the black abyss of deflation as weak economic growth and almost historic unemployment threatened to topple the single currency regime.

Draghi went so far as to deviate from his scheduled speech with the one liner, “inflation expectations exhibited significant declines at all horizons.” Only a few months alter, huge-scale bond buying became announced to begin in March of 2015.

You can imagine with what anticipation market watchers and economists waited for what he might say at 2017's Jackson Hole meeting this past weekend. After having flushed over two trillion euros (or $2.4 trillion) in QE through the euro zone economy, inflation still comes in under the targeted rate of two percent. Only in June, Draghi dropped the line “reflationary forces” on the audience and caused the euro zone bond yields and the euro currency itself to begin to soar.

Yet as Chief European Economist Gilles Moec from Merrill Lynch's London office stated, he ran the risk of saying too much this past weekend:

“When Dragi starkly used such occasions to send a very strong message — for instance ‘whatever it takes' in 2012 or in Jackson Hole in 2014 about the possibility of QE — every time it was about something quite binary. Now things are much more complex and a risk of being too granular at Jackson Hole is simply to be misunderstood.”

Most recently at last week's speech to young economists in Germany, Draghi discussed the importance of central bankers choosing to reject the old paradigms which are no longer working.

He is also warning you with this speech. You need to look into the gold IRA rules and regulations as soon as possible. Gold makes sense in an IRA. This is because gold outperforms traditional asset classes during market crisis periods.

European QE Still Not Finished Despite Improving Economic Growth

The European scheduled QE purchases are not about to be over even with the euro zone economies slowly recovering their momentum. Though unemployment levels are at last falling and economic growth has gradually increased its pace in the single currency zone, the purchases are slated to go at the present 60 billion euros per month through year end at least. Other ECB policy makers like Germany's Weidmann are in favor of first reducing and then eliminating them in 2018.

Yet the critics of this idea point to the still anemic inflation of 1.3 percent, significantly below the goal of under 2 percent, as a reason to keep the regional monetary accommodation flowing. Pantheon Macroeconomics' Claus Vistesen stated:

“When people first started talking about Jackson Hole there was the expectation that Draghi and the ECB would come full circle, because it was at Jackson Hole originally that he laid out the foundation for QE. People expected that, as the economy was doing better, that he would be able to do the opposite this time. But there's no room for that.”

This rift in central banking policy shows the extreme difficulties in letting go of easy money which  is all that has really been holding up the struggling world and especially developed Western economies nearly a decade after the Global Financial Crisis wrecked the world economy.

Real Danger Lies in Central Banks Obsession With Chasing Inflation

The central banks are now completely obsessed with their self-styled mandate on chasing inflationary targets. They have spent years in frustration attempting to stoke inflation back, to the point that analysts have even begun opining that they should simply stop pursuing an inflation target entirely.

Low inflation has stymied the will of the American Federal Reserve Bank from normalizing interest rates for year now. Just this past month the committee members again voted to hold the present target band of from one percent to 1.25 percent range. The minutes of this meeting have since revealed that the caution came from still low inflation. In the U.S. it is hovering around 1.5 percent versus their cherished two percent target rate.

Japan is the classic archetype of what happens to a nation that can not find a way to balance this inflation battle. The nation has suffered from deflation for decades now, resulting in what has become known as the lost decades in Japan. Their Japanese Central Bank has fought a colossal but ultimately losing struggle to kick start inflation since the late 1990s. This graphic below says it all:

Graphic courtesy of Digital Disruption

In 2013 they launched their enormous QE program, which has only sufficed to get them out of deflation finally nearly five year later. The country tried to introduced a “yield-curve control” policy back in September of 2016, yet this “whatever it takes” approach to raising inflation has still not served to accomplish the herculean task. The core consumer price index in Japan rose by only .5 percent for July per Reuters' last Friday report.

Meanwhile, ING Asia Research Head Rob Carnell has been warning that the central bank endeavors to increase inflation via quantitative easing have led to severe market distortions that are not fully or fairly pricing in appropriate risks:

“If we've got growth at trend, which most places appear to have, if we've got the unemployment rate at full employment, which most places appear to have, then we shouldn't even worry about what inflation is doing. This constant attempt to drive it higher and make it bigger, because it's not two percent is just wrong.”

Carnell and his adherents instead believe that the first target should be the rate of credit growth, with inflation becoming only a secondary target. This is not a completely new idea either.

The former Federal Reserve Governor Robert Heller (who served from 1986-1989) opined that the two percent inflation target was not a part of the Congressionally set goal for maintaining price stability. Rather he thinks that the goal should be to hit zero percent inflation:

“If the Fed and other central banks say they want two percent or less, that's fine with me. The closer to zero you get the better it is.”

This does not mean that the two percent inflation target will be easily discarded in the near future. Former Bank of Japan Governor Shirai Sayuri reminded that:

“Almost all central banks have adopted it. They worry if they change the framework, it'll have an impact on inflation expectations. As a central bank, it's not a good idea to drop a target that they've already introduced.”

The Corner Which Central Banks Have Backed Themselves Into Argues Strongly For Gold In Your Retirement Portfolio

Yet even the proponents of keeping the inflation target, such as Japan's Sayuri, agree that such enormous monetary easing programs like in Japan and the European Union are not sustainable. They are also extremely concerned about the market distortions this is causing.

You should be worried as well. One day these market distortions which have led to historically unprecedented bubbles in asset prices (including the two most traditional investing asset classes of stocks and bonds) are going to violently explode.

When they do, you will not want to be holding a portfolio heavy on either of these ever-popular asset classes. This is where gold comes in. Its price moves differently from both stocks and bonds. Now is the time to investigate the Top five gold coins for investors and to consider the best IRA-approved gold to hedge and safeguard your own investment and retirement portfolios before the market distortions created by the central banks of the world massively unwind all at once.

David Crowder
David Crowder

W.D. Crowder is an American published author. His background and areas of expertise include history, economics, expatriate living, international relations, investments and personal finance. A widely read and top of his class graduate of Stetson University, he obtained his bachelor of arts degree in History with minors in Latin American Studies and International Relations and a special emphasis in Economics. He was President of his Phi Alpha Theta (National History Honors Fraternity) Stetson University chapter and a Phi Beta Kappa (National Honors Fraternity) member.

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