When we first started publishing the Money Forecast Letter back in the 1970s, very few investors understood the importance of the Federal Reserve. Back then, most investors – and most economists – believed that money did not matter.
Today, of course, everyone understands that the health of the economy depends largely on how well the Federal Reserve does managing the money supply, inflation and interest rates. Yet, despite this newfound understanding of the Fed’s actions, most pundits and investors still fail to understand how these actions will impact the economy, and by extension, the markets.
The Money Forecast Letter has been without peer when it comes to explaining how Fed actions will affect both the economy and your investments.
Take, for example, the various rounds of Quantitative Easing that have taken place since the Financial Panic of 2008. The Fed’s efforts to buy bonds and lower interest rates massively expanded the Fed’s balance sheet, which in turn produced an explosion in the U.S. money supply. Most Fed watchers, politicians, and investment advisors immediately began warning that the Fed’s efforts to “print money” would inevitably lead to a surge of new inflation.
Because we understand money, we informed our readers that talk of hyperinflation was both reckless and wrong. We told our readers to ignore the growth in Monetary Base and instead concentrate on the rise in excess reserves on deposit with the Federal Reserve. These deposits let us know that the Fed’s efforts to spur economic growth by rapidly expanding the money supply would not work. The Fed was hoping the banks would use this newly created money to make new loans, which they hoped would spur new growth. Unfortunately for the Fed, as fast as the Fed shoveled money into the banks, the banks turned right around and gave the money back. The banks did not send the money back because they did not want to loan the money out, rather they returned it because they could not find many people willing to borrow it – regardless of how low interest rates fell.
We saw the rise in excess reserves and immediately understood that the Fed’s effort to push new money into the real economy was not working. That enabled us to predict that the Fed would fail in its efforts to promote faster growth and that inflation would not become a problem.
Because the Money Forecast Letter constantly produces timely insights like the one above, we have accumulated an intensely loyal group of readers – some who have subscribed to the letter almost from the beginning. We take pride in our longstanding connection with loyal readers and we consider them part of the family. Some sons and daughters have taken the time to share their stories of how a loved one bequeathed their subscription to them – urging them to continue to read the letter. We can think of no greater testament to our efforts to provide unbiased and accurate information to our subscribers.