Taps Coogan, January 18th, 2021

Enjoy The Sounding Line? Click here to subscribe.

Luke Gromen, founder and president of Forest for the Trees, recently spoke with MACRO Voices’ Erik Townstead about his outlook for markets in 2021. Mr. Gromen describes a conundrum that he sees the Fed facing in 2021: a choice between continuing to provide stimulus to financial markets or defending a plunging dollar.

For those who have wondered what the ‘end game’ of ever more deficits and monetary accommodation looks like, the interview below is a detailed discussion of exactly that. Mr. Gromen expects further widening of the federal deficit to necessitate a re-acceleration of QE. If the Fed doesn’t provide more QE, they’ll blow up financial markets. If they do, they’ll further sink the dollar and perhaps incite pernicious inflation. Mr. Gromen expects that they’ll end up providing the liquidity and that the Fed is trying to inflate away current over indebtedness by getting real rates negative and weakening the dollar.

Along the lines of what Mr. Gromen describes, when you look at the likely increase in the national debt for FY 2021 (~$4 to $5 trillion) and compare it to the Fed’s current pace of ‘just’ $1.44 trillion of QE per year, we’re headed for tightening financial conditions unless the Fed dramatically increases QE-Infinity.

We are crossing the debt & money printing event-horizon.

Would you like to be notified when we publish a new article on The Sounding Line? Click here to subscribe for free. The Sounding Line is now ad free and 100% reader supported. Thank you to everyone who has donated.