How to grow your wealth during the coming collapse?

THE THREAT OF DEFLATION 69

The Fed has an announced an inflation target of 2%, al-
though in December 2012, they said a short-term goal of
2.5% expected inflation was reasonable. Privately, I was told
by Charles Evans, president of the Federal Reserve Bank of
Chicago, that he wouldn’t mind seeing 3.5% inflation for a
short period of time.
Evans is now a voting member of the Federal Open Market
Committee, the group that sets Fed policy, so his views count.
But whether they target 2%, 2.5% or 3.5%, the fact is that infla-
tion as measured by the Fed has been about 1% — well below
the Fed’s targets. The Fed has tried rate cuts, quantitative easing,
forward guidance, currency wars and Operation Twist over the
past five years and none of it has worked. Mick Jagger was right.
The reasons the Fed wants inflation are straightforward.
There is a stated reason and an unstated reason. The stated
reason is that the Fed occasionally needs to cut rates to stimu-
late the economy. If rates are at zero, there’s nothing to cut.
If you have 2% inflation, you can have normalized interest
rates of 2.5% or higher. This gives the Fed something to cut
when needed. This rationale is like someone saying they will
steal your money so they can lend it back to you later, but the
Fed hopes that 2% is low enough that investors won’t notice
the theft.
The unstated reason is that inflation reduces the real value of
the U.S. debt. Right now, the U.S. has about $18 trillion of Treasury
debt outstanding and the highest debt-to-GDP ratio since the end
of the Second World War. With the economy near stall speed, the
U.S. is moving closer to a sovereign debt crisis every day.
If the Fed can achieve, say, 3% inflation for about 20 years,
the real value of the debt is cut in half, to about $9 trillion in
today’s dollars. The trick is to keep interest rates low while infla-
tion does its dirty work. The Fed can do this through financial
repression, bank regulation and quantitative easing. Of course,
inflation of this slow, steady kind is a form of unseen theft from