This Could Lead to the Biggest Bubble Ever…

This Could Lead to the Biggest Bubble Ever…

Recently, two of the world’s most influential central bankers sent a critical signal to investors…

Bank of England (BoE) governor Mark Carney and Federal Reserve Chair Janet Yellen both revealed their desire to let their respective economies “run hot.”

They’re going to allow inflation to go higher than usual as a trade-off for economic growth.

That means the central banks’ long-standing 2% inflation target is effectively being tossed aside.

That spells bad news for workers, savers and consumers as rising inflation reduces the purchasing power of their earned and interest income. By design you’re going to be squeezed in a vice grip.

But there’s a silver lining…

Inflation’s Winners and Losers

Central banks use short-term interest rates to control the rate of inflation.

In theory, keeping rates low increases demand for credit, helping boost economic activity and, therefore, inflation. And that’s just what Carney and Yellen are trying to do.

They would both rather be too slow in raising interest rates than too fast.

Carney says he wants to err on the side of higher growth and inflation to help cushion the impact of Brexit.

Yellen claims she’s trying to create a “high-pressure economy” to heal the damage caused by the Great Recession.

So what may happen to the major asset classes if this central bank scheme to abandon the 2% inflation target succeeds?

Well, that depends…

Let’s start with stocks. Keeping rates pinned to the floor in order to get inflation no matter what could end up leading to the biggest bubble ever.

As for bonds, when consumer prices rise, the interest investors get from them is worth less in real purchasing power terms. That makes them less attractive, putting downward pressure on prices.

With regard to the dollar, inflation typically results in domestic currency devaluing.

On the flipside, a weak dollar means higher returns can be found overseas. That means higher returns in emerging markets.

Continue Reading/Daily Reckoning>>>

Originally published at Daily Reckoning

 

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The Daily Coin

Rory Hall, The Daily Coin and Gospel News Network. Beginning in 1987 Rory has written over 1,400 articles and produced more than 500 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Gold Seek, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Dr. Warren Coates and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Gospel News Network to enjoy some of the best economic, precious metals, geopolitical and preparedness news from around the world.