America is witnessing a mammoth increase in the money supply. According to the U.S. Federal Reserve, seasonally adjusted M2 has gone from $7.25 trillion in July of 2007 – to over $8.37 trillion today. That’s 15.44% more money circulating around the economy in just two years, a colossal $1.12 trillion increase. This phenomenon will push price inflation much higher, giving you an opportunity to profit on the “reflation trade” that will play out over the next decade.
M2 is calculated by totaling up the value of cash held by the public, checkable deposits, household savings deposits, small time deposits, and money market mutual funds. M2 is an important economic indicator used to forecast inflation. If you have too much money or M2 awash in the economy chasing too few goods and services, the result is higher inflation.
Since the start of this global economic crisis, the U.S. government has been injecting massive amounts new currency into the financial system to prevent deflation and stimulate economic growth. This is referred to as reflation.
This large injection of currency into our economy will certainly lead to higher inflation, which will be further amplified due to our fractional reserve banking system. In a fractional-reserve banking system a new sum of money is created whenever a bank gives out a loan. Here’s how it works…
A U.S. based bank is required to keep only 10% of deposits in reserves. They can loan out the remaining 90% of the deposits. This money multiplier effect tends to enlarge money in circulation by tenfold. For example, if you deposit $10,000 in a bank, the bank is required to keep only $1,000 of your money on reserve and it can lend out the remaining $9,000.
Essentially, the bank has turned $10,000 into $19,000 by giving you a $10,000 credit on your deposit and then lending the additional $9,000 out to someone else.
Now, if the bank does this over and over, your original $10,000 deposit can become $100,000 under our 10% fractional reserve banking system. Here’s how:
You deposit $10,000–The bank loans someone else $9,000
That person deposits $9,000–The bank loans someone else $8,100
That person deposits $8,100–The bank loans someone else $7,290
And so on…
Eventually, your initial deposit of $10,000 can grow into $100,000 under a 10% reserve requirement. Every new dollar that is injected into our economy can essentially become ten dollars.
Bottom line: The massive amounts of new currency being dumped into the U.S. economy will be multiplied under our fractional-reserve banking system, which will lead to higher inflation. This will be a disaster for savers, whose nest eggs will be devalued. But it can be quite profitable for those who are prepared.
What is the reflation trade?
We will see a large spike in prices for goods and services when we finally emerge from this global economic crisis, which could be within a year. Hard assets like oil, gold and agricultural products will see substantial price increases in the coming high inflationary environment. Commodities will be one of the strongest sectors over the next decade or more.
This huge underpinning force in the equities markets opens up an once-in-a-lifetime trading opportunity. Here are my top reflation plays:
HAP - This ETF closely tracks the Hard Assets Producers index which consists of over 250 companies engaged in the production and distribution of hard assets and related products and services.
GLD - This gold tracking Exchange Traded Fund (ETF) mirrors the price of gold.
SLV - This silver tracking ETF mirrors the price of silver.
DBA – This ETF tracks widely traded agricultural commodities like corn, wheat, soy beans and sugar. As agricultural prices rise the price of this ETF goes up.
MOO – This ETF comprises a basket of companies engaged in various sectors of agribusiness, like agricultural chemicals, livestock operations, agricultural equipment and ethanol/biodiesel.
PCL – One of the best timber producer stocks. Historically, timber prices have done exceptionally well under inflationary circumstances.
FCX - Freeport McMoRan is one of the world’s largest copper producers. This stock goes up when copper prices rise.
XOM – Buy Exxon Mobil stock to invest in oil. XOM is well positioned to benefit from higher crude oil prices and is one of the best managed companies in the energy sector. XOM has increased its dividend for 26 consecutive years and has excellent earnings, dividend growth and stability.
Best Wishes,
Ted Peroulakis, MBA
P.S. Make sure you a portion of your portfolio allocated to the “reflation trade”. Plus, check out my Options Power Trader where I will recommend stock options on equities that will benefit from this trend. This is a way for you to make 100%, 200% or 300% gains on the reflation trade… Click here to read more
(6 votes, average: 4.33 out of 5)
Loading ...
Fractional Reserve Banking is THE plague of monetary transactions and any exchange of value employed by anyone using a Bank.
Most individuals who use a bank have no idea of what happens to their property (say Money owner ) given in trust.
What banks do is totally immoral.
Banks take Money and utilize it without consent.
They assume control and lend MY money to others leveraging on a ratio of 1/10.
I reiterate… they do this without my consent.
They do it without due diligence. With a reckless abandon, whilst remunerating themselves very well for doing so.
Then Government bails the greedy buggers out with tax-payers (workers) money!
When THEY lose MY money what do I get???
There is a very serious issue here!
It appears to me that the GREAT BEARER OF MORALS (US) around the Globe needs a few lessons in Moral Precepts.
The “great bearer” needs to reexamine those values expounded by the Founding Fathers.
Hey thanks Ted. The information you supplied makes good sense. But when I’ve gotten involevd with options in the past I’m about as lucky as when I play Texas hole em. The results aren’t pretty. But this article you wrote does make sense. Thanks again.
Go knowles,
Terry
Can you pls send me more info on reflation trade, how do I start the trade right now, I want to get involved as soon as possible
It was nice reading about currency reflation in your column. I would
like to learn more about this type of investment. Is there actually
risk involved here? I have been told that there is none. Also, how
does one go about getting involved in this? Are brokers involved?
I find the subject very interesting and would like to learn all that I can about it before I put any money into it. Can you send me
any and all information that you have on currency reflation? I have received
literature from EuroTrust AMG regarding reflating currency. They
claim to have endorsements from The Wall Street Journal, The London
Times and The Chicago Tribune. Those three publications say that
EuroTrust AMG has backed up all claims they have made. I would be happy to
hear your comments on them.
Thank You - Vincent M. Shade
Your article makes sense. The EyuroTrust AMG sent me an offer to deposit a Immediately refundable $35.– fee and promises huge savings from Reflating practices. Do you have any information about this company’s actions, testimonials, etc?. Thank you for any information you may send me.
Sincerely,
Clifford Koekoek
I received a similar offer from EuroTrust AMG. What have you been able to find out about this company and it’s methods of currency reflation?
Sorry, I have no information on EuroTrust AMG. I’m not familiar with that firm.
Thank you,
Ted Peroulakis
i have sent 2 payment for eurotrust amg program and i haven’t receieved anything in 45 day’s .
Like everyone else I would like to know how to get started in trading currency reflation
This company has to be a scam. I too fell prey to this “get rich offer” and sent in my $35.00 and have not heard from these people since and I even followed up with a letter asking what was going on but have gotten nothing in terms of a reply and have certainly not received the so called manual that one is supposed to receive. If you’ll notice whoever this person or persons are he/they are hiding behind a P.O.B and I’ve noticed that alot of these mailer opportunities are coming from either phoenix,az or los angeles, ca and they are all asking for $35.00 and will supposedly send you manuals and everything you need to get started but you get nothing and supposedly the legitimacy of this EuroTrust program has been verified by some very prestigous publications or maybe that was what they listed just to make it sound legitimate but at any rate we are being ripped off and it doesn’t appear that anything can be done about it so word to the wise don’t waste your money it’s a scam and these guys are getting away with this whoever they are but if anyone has any updated information about this either way please say something. I also tried to call a company called Euro Trust Global which is based out of New York and some lady answered the phone and when I asked her what the company did she said that they were a direct marketing company but when I asked her about the Euro Trust AMG company she called not to know anything about it and when I got alittle terse with her she put the “Vice President” on and some lady came to the phone and I did not go any further and knew from there that it was a scam as they wanted to show no connection nor association with the other company so I just hung up.
Hi, I’m the author of this article — Ted Peroulakis.
Apparently this web article is becoming a place where people can talk about a company named EuroTrust.
I have never heard of the company before, but apparently they do something dealing with reflation. This article is on reflation, but our company has nothing to do with EuroTrust.
To me, EuroTrust sounds like it has lots of unhappy customers so I would be carefully before dealing with them…
Thank you,
Ted Peroulakis