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What is MDEF™ Investing? Strategy before tactics. Strategic investments dictate tactical actions in the Metals, Defense, Energy & Food sectors.

- Jeffrey C. Borneman

IMF Warns US - Very Serious Inflation Implications

Jeffrey C. Borneman | June 16, 2014

Inflation is the goal. Let's all say it together: INFLATION is the GOAL. The IMF was established to create a new international monetary system (from the ashes of WWII) that would stabilize currency exchange rates without backing currencies entirely with gold. That's it ...

Mission Creep

The IMF now see fit to dictate both monetary and fiscal policy in its member states (180 at last count). Today's comments by IMF Chief LaGarde began by lowering the 2014 US GDP estimated growth rate from 2.8% to a mere 2% (she's late to the party), and suggesting (not dictating yet) the US increase its minimum wage, increase infrastructure spending and limit (eliminate) itemized deductions. This is far, far beyond the IMF's original mandate and would be comical - unless our leaders agree. The US has encourage the IMF mission creep since 1946 and now the IMF guns are pointed at it.


If any of the IMF "suggestions" are acted upon, it will introduce the next leg up in the Inflationary cycle. The cycle is simple: Capital always chases DEMAND so reduce DEMAND by high Energy costs which causes DEMAND for goods and services to contract resulting in higher unemployment. Capital seeks a return so bids up all stock prices: essentials and non-essential alike. Tax revenues decline which cause a further strain on government services provided now by borrowing/printing, which pushes Inflation higher. Consumer DEMAND dwindles for non-essentials as consumers are forced to choose between need and want. And this is the Inflation cycle the IMF (and NYTs) sees as necessary to maintain the status quo. It is helpful to stop here and understand that world wide DEMAND is weak (or negative) based on US consumer weakness; and all Inflation of Energy and Food prices in the US are exported to poorer countries who have limited or no choices to adjust. World history is replete with examples of what people do when hungry. 

Investor Options

If you noticed above the culprit of dwindling DEMAND is high Energy prices. I've stated before that Energy prices cannot be allowed to fall (too many countries are reliant on high Energy prices for military and social needs). The USD, although not backed by a Gold standard, is in fact the backed by Energy. It is not surprising the US will not allow a Manhattan-like project to easily produce its own Energy as fossil fuel in the ground is understood as money in the bank. And, the cheaper the Energy, the weaker the USD. The MDEF™ Investing strategy is based on an understanding of these (an other) factors. If you'd like to know more about MDEF™ Investing; its performance and management in this cycle, contact us directly.

Here's a money quote from ZeroHedge (full article follows) - spot the IMF hubris, low Inflation comment and the hint the US Fed is overwhelmed:

The Washington-based IMF now sees the world’s largest economy growing 2 percent this year, down from an April estimate of 2.8 percent. The IMF left a 2015 prediction unchanged at 3 percent, and said it doesn’t expect the U.S. to see full employment until the end of 2017, amid low inflation. For the Fed, the forecast means “policy rates could afford to stay at zero for longer than the mid-2015 date currently foreseen by markets,” the fund said in its annual assessment of the U.S. economy.

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