Why Everyone Should Hedge Against Coming Inflation

Board, Blackboard, Economy, Inflation, Money

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Mainstream media coverage of inflation — and the forces that drive it — tend to be superficial and limited. That’s why I want to highlight three recent stories. They all revolve around inflation in some way. And together they emphasize the need for every investor to have some hedges in their portfolio. Let’s get started.

  1. U.S. Money Supply Soars

First, let’s talk about the country’s M2 money supply. M2 is a measure of how much money is circulating in the economy. It includes cash, checking accounts, money markets and other forms of liquid dollars. And current M2 levels are at incredibly high levels — the highest we’ve seen since the 1970s. M2 growth is up 25.8% year-over-year right now.

That’s unprecedented in recent history. Inflation would likely be a lot higher if not for the fact that the “velocity of money” is quite low today. Monetary velocity measures how quickly cash moves throughout the economy. The higher the velocity, the higher inflation can be. But monetary velocity is low right now. So even though we have huge M2 growth, inflation remains somewhat muted — for now.

However, I have no doubt that we’re just getting started in terms of money printing and “creative” Federal Reserve policies. Eventually, more harmful levels of inflation seem nearly certain. 

  1. Bloomberg Says Bitcoin Is Displacing Gold

A recent Bloomberg article by John Authers questions whether increased bitcoin adoption is hurting gold’s status as an anti-inflation hedge. Here’s an excerpt.

The Joshi argument is that bitcoin has risen as an alternative anti-fiat asset. It has been popular because of the libertarian anti-government ideas that have accompanied the digital currency since its inception. Bitcoin’s increase in scale to become better known and much easier to obtain now makes it a much more viable competitor for the shiny metal. 

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