The Great Deflation Of 2022

Back to the U.S., the Fed facilitated Washington’s unprecedented largess by printing over $4.1 trillion since the outbreak of COVID-19—doubling the size of its balance sheet in 18 months, from what took 107 years to first accumulate. 

But all that is ending now. Next year has the potential to be known as the Great Deflation and stock market crash of 2022. This will be engendered by the epiphany that COVID-19 and its mutations have not been vanquished, the massive $6 trillion fiscal cliff will be in freefall, and the Fed’s tapering of $1.44 trillion per annum of QE, down to $0 will be in process. 

Then, the economy will be left with a large number of permanently unemployed people and businesses that have permanently closed their doors. And, the $7.7 trillion worth of unproductive debt incurred during the five quarters from the start of 2020, until Q1 of this year, which the economy must now lug around.

All this should lead to a stock market that plunges from unprecedentedly high valuations starting next year. And, in the end, that is anything but inflationary. Indeed, what it should lead to is more like a deflationary depression. But the story doesn’t end there. Unfortunately, that will cause the government to change how it approaches Modern Monetary Theory. It will go from just a theory to a new mandate for the central bank. And hence, the inflation-deflation, the boom-bust cycle will continue…but with greater intensity. The challenge for investors is to stay on the correct side of that trade.

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,  more

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