Big Changes In Inflation And Government Finances

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Calafia Beach Pundit
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Summary

  • The economy is loaded with unwanted cash, and the return on that cash (and the return on almost all fixed-income instruments) is hugely negative.
  • Inflation this year will take about $2 trillion out of the pockets of those owning Treasuries and give it to the federal government.
  • Cash has traditionally been the best port in a storm, but that is most definitely not the case today, and neither is holding any short- or medium-term Treasury security.

Inflation sign in front of financial report
triloks/iStock via Getty Images

Today's data releases brought some real surprises for the market, both good and bad: consumer price inflation in June came in much higher than expected (+0.9% vs. +0.5%) and federal revenues surged.

I've been predicting

This article was written by

Calafia Beach Pundit profile picture
56.31K Followers
Scott Grannis was Chief Economist from 1989 to 2007 at Western Asset Management Company, a Pasadena-based manager of fixed-income funds for institutional investors around the globe. He was a member of Western's Investment Strategy Committee, was responsible for developing the firm's domestic and international outlook, and provided consultation and advice on investment and asset allocation strategies to CFOs, Treasurers, and pension fund managers. He specialized in analysis of Federal Reserve policy and interest rate forecasting, and spearheaded the firm's research into Treasury Inflation Protected Securities (TIPS). Prior to joining Western Asset, he was Senior Economist at the Claremont Economics Institute, an economic forecasting and consulting service headed by John Rutledge, from 1980 to 1986. From 1986 to 1989, he was Principal at Leland O'Brien Rubinstein Associates, a financial services firm that specialized in sophisticated hedging strategies for institutional investors. Visit his blog: Calafia Beach Pundit (http://scottgrannis.blogspot.com/)

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