Email of the day - on money printing
Comment of the Day

January 22 2021

Commentary by Eoin Treacy

Email of the day - on money printing

As an American investor, it has occurred to me that as we enter an era of money printing the likes of which we probably have never experienced, I really don't have a good handle on the potential risk. It is virtually impossible to allocate one's assets appropriately without a good understanding of a "best case/worst case" scenario. I watch as those in charge in Washington salivate at the prospect of writing checks, checks, checks, and assume that the currency will depreciate, but wonder: how bad might this possibly get? With a pistol to your head, if you had to take a guess at it, what do you see as the range of possibilities here? Might we be another Greece? Thanks for all you do for us - day in and day out.

Eoin Treacy's view

Thank you for this question which helps to express the uncertainty many people feel after a year of outsized volatility across assets…everywhere. Trillions of dollars in deficits will need to be funded somehow. Right now, the plan is to print the money and devalue the currency. Comparisons with Greece, Zimbabwe or Venezuela miss the point. The USA prints debt in its own currency. It will never default. All of the pressure will be borne by the Dollar.

The Dollar’s Purchasing Power peaked in 1933 and halved by 1948 (15 years). It halved again by 1974 (26 years). It halved again by 1983 (9 years). It halved again by 2007 (24 years) and is well on its way to another halving.  

There is a cottage industry in worst case scenarios and I am reluctant to indulge in that kind of speculation. The one thing we know for sure is investors are being forced to speculate. Cash is a wasting asset when devaluation is in play. That is creating demand for hard assets and preferably those with strong cash flows.

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