2021 was a wild year for the world of finance: Inflation soared to unthinkable levels; Bitcoin hit a new all-time high of $69,000; A worldwide pandemic continued to ravage the economy; The S&P 500 Index hit it’s all time high of 4,800 and US Government Debt skyrocketed. In this article we provide our 2022 Predictions in relation to money and investing in the United States. Although some of these predictions will probably be off, note that many of the predictions are based on real economic principles. If nothing else, we hope that our predictions will provoke thoughts and questions that will help you make better financial decisions.
The Beginning: A Pandemic Sets the Stage for Spending
In reaction to the COVID-19 pandemic, The U.S. Government borrowed Trillions to pay for stimulus and infrastructure. This included payments to governments for supplies, individual payments to citizens and loans and grants for businesses affected by the pandemic. At the same time, the U.S. Treasury and the Federal Reserve Bank worked overtime to print money.
“It works like magic. With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually “printing” money and injecting it into the commercial banking system, much like an electronic deposit. By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities with these newly created dollars…” – USA Today Article, May 13, 2020
Economic Cause For Concern
Here are some statistics that point to problems for the economic future. America has kicked the can down the road so many times, with limited damage. However, our economic problems are flashing red and we ignore them at our own peril.
- The US National Debt is now almost 30 Trillion
- Total Debt to GDP for the United states is over 120%
- The Federal Reserve currently owns approximately 20% of all mortgages in the U.S. today (approximately $2 Trillion)
- Interest rates are at an all-time low and can’t go much lower (we’re out of ammo)
- Inflation is approximately 6.8% and climbing
The US Dollar Has Declined in Purchasing Power Since 1913
The US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to approximately $90 today. That means that in the 60 years prior to 2020, the dollar has suffered a nearly 900% inflation rate.
Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic that may be a harbinger of hyperinflation in 2022.
In late 2021, The US Bureau of Labor Statistics reported that inflation rose to a surprising high of 6.8%. While this number doesn’t sound all that high, many economists are concerned that the Federal Reserve will not be able to control inflation any longer. Historically, when inflation began rising, the Federal Reserve Bank could simply raise and lower interest rates to tamp things down. Currently, US Government debt is at an all-time high, and raising interest rates at this point could put pressure on an already over-leveraged balance sheet. Many economists now believe that the US is caught between a rock and a hard place. With rates at record lows, they can’t go much lower; yet, if the US raises rates too high, it could tank the economy and make Uncle Sam’s interest payments impossible to payback.
Recently the Fed has indicated that it may raise interest rates slightly in the next 12-24 months (2022-2023). This will likely be short-lived and we predict that rates will come back down to where they are now. The government will continue to spend, deficits and debt will rise and inflation will continue on for the foreseeable future.
As stated previously, the Fed will no longer be able to use interest rate changes to keep inflation in check, given the precarious state of debt in the United States.
Debt is Skyrocketing, Interest Rates Low and COVID-19 Strikes; The Stock Market is Soaring – Something is Wrong
According to Experian data, consumer debt has grown to around $14 Trillion in 2019. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.
In addition, Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy. The December 2021 unemployment value is estimated to be approximately 6-12 million Americans. Although this is much lower than the double-digit unemployment numbers from 2020, Americans are still struggling to find employment. In addition, employers are still struggling to find people willing to work.
The pandemic has lasted for almost 2 years (as of early 2022). Life in the business world has permanently changed, with labor shortages, supply chain disruptions and many other issues. Prices have increased, fewer people are working and products have become scarcer. As a result, it seems clear that these problems will continue into the future. Expect slow shipping time for products, higher labor and product costs and other problems related to these issues.
Gold & Silver
Unemployment, Debt, 0% Interest and Fed Money Printing Drive Gold Prices Higher
It seems clear that gold and silver have a bright future. Holding a real money asset such as gold will always be highly regarded by investors. In addition, having gold in your investment portfolio is considered by many to be a safe and secure option. Specifically, gold is a real, tangible money that can be a store of wealth for a lifetime.
Four Gold Price Predictions: $2,300, $3,000-$8,000, $15,000 and $26,000.
Goldman Sachs raised its gold price forecast in July 2020. The investing firm believes that gold will hit $2,300 per ounce as investors flee other falling price investments such as real estate.
Jeff Clark, Senior Analyst at Gold Silver is predicting $3,000-$8,000 gold in the next 5 years.
In an interview with Kitco News in mid-2020, Investor Jim Rickards predicts that gold will rise to $15,000 per ounce before 2025. He bases his prediction on inflationary forces.
In the same interview with Jim Rickards, Investor Peter Schiff predicted gold will rise as high as $26,000 per ounce. He bases his prediction on extrapolating DOW Jones trading values in relation to gold in 1932 and currently.
Silver has an even greater potential upside. Many people are calling for $100/oz silver in the next few years. Unfortunately, these prices will likely reflect how bad inflation is (the weakening dollar), instead of an increase in value.
Bitcoin and Ethereum
Anthony Pompliano and Max Keiser, two well-known investors in the Bitcoin space believe that Bitcoin price will exceed $100,000 in the next few years. Other investors like Mike Novogratz and Chamath Palihapitiya believe Bitcoin price is destined to go even higher to levels like $400,000 and $1,000,000, respectively.
Future Bitcoin Market Capitalization $1 – $5 Trillion is Reasonable
According to the Visual Capitalist, the world gold market is valued at approximately $10.8 Trillion. Less than half of the value is in jewelry. Therefore, we can assume that gold, the world’s favorite “store of value,” is a $5 Trillion market. Bitcoin, a new “digital store of value” has a market cap value of only $775 Billion (7% of gold’s value). Imagine what Bitcoin will be valued at when it begins to realize it’s place as the world’s new store of value. A Bitcoin with a market capitalization of $1-$5 Trillion is not beyond reasonable calculation.
As for Ethereum, investors are optimistic about its future price as well. Ethereum’s market capitalization is was only $40 Billion in 2020. It has recently reached $450 Billion in market cap and is rising. Continual adoption of Ethereum by institutional investors could easily lead to a $1 Trillion market capitalization, equating to a $4,000-5,000 ETH price. Investors such as Nigel Green and Blockfyre co-founder Simon Dedic predicted much higher prices ($2,500 – $9,000) for Ethereum in the future.
Real estate has a long history of maintaining its value over time as compared to the Dollar. However, many believe that there is currently a price bubble in the United States real estate market. Prices for real estate in many cities today are considered to be over-priced and inflated. Yet, prices for residential homes continue to skyrocket in many parts of the United States.
Although it appears that real estate is over valued in bubble territory, prices may continue to increase for the near term because of demand and inflation. The old maxim, “what goes up must come down” is still true. However, it seems clear that for as long as inflation is present, real estate prices are likely to also continue upward.
Overvalued and Over Leveraged Stock Market
Currently, Wall Street stock prices are at record-breaking levels. Prices are high, interest rates are low, and everyone is cheering the mania. Many are questioning whether this will end badly like in 2000 and 2008.
One economic concern in the stock market is stock buybacks or “share buybacks.” Stock buybacks are when a company uses cash to repurchase their own stocks. The result of buybacks is usually an artificially high price for their stocks. When many companies on Wall Street conduct stock buybacks, it can appear as if we’re in a “bull market” and prices are climbing higher.
In addition, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have had an oversized impact on Wall Street. These tech companies are enormous in size and their movements on the stock market can sway whether the market, as a whole, is up or down. For example, Apple has a valuation now of approximately $2 Trillion, higher than any other publicly traded company.
Investors may get the impression that the market is doing well overall, when in fact, only the FAANG stocks may be up in price. This gives the impression that prices for the market are higher, even though many other much smaller industries may be in decline.
What It All Means: Asset Bubble
It is impossible to predict what will happen in the stock market. All signs seem to indicate that prices are at all-time highs and we may be in a bubble. As a result, this may be a dangerous time to be buying stocks.
Even something like real estate can have a deflationary affect when compared to US Dollars. Real estate has a long history of maintaining its value over time as compared to the Dollar. However, choose wisely; many believe that there is currently a bubble in the United States real estate market. Prices for real estate in many cities today are considered to be over-priced and inflated.
Final Thoughts on 2022 Predictions
Seek Shelter in Deflationary Assets Such as Gold, Silver, Bitcoin and Real Estate.
There is grave concern that in 2022 inflation will continue to ravage traditional investments. As a result, there are investments and things that you can own that hedge against inflation in 2022. For example, for hundreds of years, owning gold and silver has been a way to avoid currency inflation. Gold and silver both have a long history of maintaining their value when currencies became inflated.
In addition, owning cryptocurrency and real estate may be places where gains are possible. It will be difficult to overcome the drag that inflation puts on traditional investments. As a result, investors must get creative when thinking about how to obtain greater returns.
Last Word on Investments
Hopefully this article has helped you understand the financial risks that may present themselves in 2022. Although Piggy Bank Coins cannot give you financial advice, it seems clear that the economy is in bubble territory and it may be smart to be conservative with your money at this time. Consider your personal risk tolerance and assess the situation carefully as we move forward.
It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.
In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, in order to help you make the best choice for you.