• Tariffs are a major concern, but inflation remains a significant economic threat, intensified by tariffs, impacting interest on national debt and annual deficits.
• The national debt interest is growing uncontrollably, potentially exceeding $1.5 Trillion, reducing funds for other spending and increasing the national debt.
• The money supply is above historic norms, and increased velocity could trigger significant inflation, influenced by economic expansion, higher interest rates, and technological advancements.
• Protection against inflation includes TIPS, precious metals, certain real estate, natural resources, cryptocurrencies, consumer staples, and some hedge funds.

Recently stock market losses are being blamed on tariffs, so they have become our biggest concern, but inflation has not gone away. Inflation continues to be an economic threat that is intensified by tariffs.

Here are a couple updates on overhanging inflation concerns that exist with or without tariffs.

Interest on our national debt is growing out of control.

We (taxpayers) are paying more than $1 Trillion per year currently on our current $36 Trillion outstanding debt. That’s a blended interest rate of 2.74%, which is well below current interest rates that are above 4%. Even if the national debt does not increase – which it won’t – interest expense will rise above $1.5 Trillion as the blended interest rate moves above 4%, making it our second largest expense.

Interest on our national debt takes away from other spending and it increases annual deficits. Deficits are spending minus revenues (taxes) and currently exceed $2 Trillion per year. Deficits are added to our national debt.

We might only “feel” inflation in egg prices, but inflation is threatening to erupt into a debt spiral. Imminent increases in interest on our debt starve out other spending and increase the national debt.

Money supply is well above historic norms

We’ve  pretty much forgotten the “cure” that eased the pain from the 2008 stock market crash. We printed money, and it worked – there was no recession, and the stock market recovered big time. But now that extra money we printed is still floating around in the economy. Based on the Federal Reserve’s balance sheet, it’s about $5.8 Trillion.

So far, this money supply has not triggered massive inflation because velocity – circulation – has been low, but that can change. According to Perplexity AI, velocity will increase when:

1. Economic expansion: During periods of economic growth, consumers and businesses tend to spend money more readily, causing the velocity of money to increase.
2. Higher interest rates: Rising interest rates can increase velocity by reducing real money balances relative to personal consumption, encouraging more frequent transactions.
3. Improved payment systems: The availability of credit and electronic banking can reduce barriers to transactions, leading to increased velocity.
4. Consumer behavior: When consumers prioritize spending over saving, the pace of transactions accelerates, increasing the velocity of money.
5. Inflation: Higher inflation rates are often associated with increased velocity, as people tend to spend money more quickly to avoid losing purchasing power.
6. Technological advancements: Innovations that facilitate faster and easier transactions can contribute to higher velocity.
7. Increased economic activity: More transactions occurring throughout the economy naturally lead to higher velocity.

 We’ll “feel” more than egg prices when velocity increases, and the causes for increases are definitely in play.

Conclusion

Tariff concerns go hand-in-glove with inflation concerns because tariffs cause prices to increase. Protection against inflation can be achieved in a variety of ways including:

• Treasury Inflation-protected Securities: TIPS
• Precious metals, especially gold
• Some real estate, like farmland
• Natural resources
• Cryptocurrencies
• Consumer Staples
• Some hedge funds
• Etc

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