Why Inflation’s Here to Stay

Why Inflation’s Here to Stay

Robert Kiyosaki

Brian Maher

Contributor, Freedom Financial News
Posted Jan 21, 2025

Dear Reader,

Reseated once again at Washington, President Trump pledges to Make America Great Again.

I wish him each and every success.

Yet macroeconomist Peter Schiff fears the United States economy will foil and thwart him:

  • There will be some successes during the Trump presidency. Unfortunately, economically, there’s going to be a lot of failures. And it’s not necessarily because of what Trump’s going to do. It’s… preordained. It’s baked into the cake.

Precisely what economic evil is “baked into the cake?”

The answer is inflation. Elevated commodity prices constitute his evidence:

  • Commodity prices really started to boom in the second half of 2020. [At the time], I was talking about… how we were going to have a big move up in inflation just looking at commodity prices… They’re a leading indicator.
  • Now we have soaring commodity prices… CPI was up 2.9% last year. So what’s the odds that the CPI is going to be up less in 2025 than it was in 2024 before we had this big run up in commodity prices?

I bet high that the odds are low. Commodity prices are — as Mr. Schiff observed — a leading inflationary indicator.

Commodities Are on “An Absolute Tear”

If the essential inputs of goods are dearer, goods themselves… all else proving equal… will likewise be dearer.

And FX Empire reports that:

  • Commodity prices have started 2025 on an absolute tear with everything from the metals, energies to agriculture notching up explosive gains!

Thus I believe inflation will represent a lingering menace. And that it will keep consumer prices high aloft in 2025 — and very likely beyond.

I believe the bond market vindicates the inflationary thesis.

The flighty birds of the moment congregate in the stock market.

Yet the owls — the wise owls — nest in the bond market.

The bond market will tell you where the economy is heading, they say.

It is not so easily foxed by the Federal Reserve’s garish and gaudy tricks.

With knowing eyes it penetrates the magician’s secrets… and exposes the fraud upon the stage.

The bond market knows where the rabbit came from. It knows where the vanished gal is.

It observes the wires holding the levitating subject aloft.

New York Times economics reporter Neil Irwin:

  • Savvy economic analysts have always known the bond market is the place to look for a real sense of where the economy is going, or at least where the smart money thinks it is going.

6% Treasury Yields?

And I believe the smart money — the bond market — presently foresees inflation.

Reports TD Securities:

  • Treasury yields have repriced sharply higher over the past month, with selling momentum accelerating since the start of the new year. Nominal 10-year rates have moved 60 basis points (bp) higher since early December 2024, with 5-year, 5-year real rates rising 51bp during the same period…
  • President Trump’s re-election and ongoing uncertainty over the extent of new tariffs has also pushed inflation expectations higher. While the extent of new tariffs remains far from clear, we expect tariffs to leave inflation 1 percentage point (pp) higher by mid-2025 at approximately 3%. Treasury Inflation-Protected Securities breakeven rates (TIPS BEs) have widened by 19bp in the 10-year sector since early-December 2024…

The bellwether 10-year Treasury note presently yields 4.63%.

“Is a 6% 10‑year Treasury yield possible? Why not?,” asks T. Rowe Price’s Arif Husain.

Why not indeed? Mr. Husain:

  • The U.S. budget deficit for fiscal 2024 is 7.0% of gross domestic product (GDP), according to the Congressional Budget Office. With the Trump administration promising to cut taxes, there is little chance that the deficit will meaningfully decrease. The Treasury Department will need to continue to flood the market with new debt issuance to fund the budget deficit, pressuring yields higher.

More:

  • Many policy initiatives are pro‑inflation as well as pro‑growth… tariffs are likely inflationary. But of all the campaign promises of the new U.S. administration, the prospective immigration policy changes would likely be the biggest driver of inflation…
  • [Meanwhile], without help from the Middle East, it will be hard for U.S. oil suppliers to create an offsetting deflationary impulse through the energy channel.  

Stagflation?

I believe the United States economy may endure stagflation.

Stagflation. The word is as ugly as it sounds — a ghastly portmanteau of stagnation and inflation.

It conjures the grimmest days of the disco 1970s.

Stagnant economic growth, skyshooting prices, gasoline lines and bell-bottomed trousers were the era’s high menaces.

Dormant for decades, many considered stagflation permanently licked.

Yet many have acquired its grisly scent… and detected its approaching footfall.

2025 is not 1979 of course.

Unlike in the 1970s, official unemployment is low. Gasoline lines have no existence.

Popular fashions — through God’s mercy — take far different form.

Yet today we witness slackening economic growth and determined inflation.

Worse Than the 1970s?

It appears the United States economy is down with a wasting disease. Consider:

The real gross domestic product — that is, the inflation-adjusted gross domestic product — expanded 38% between 1969 and 1980.

This span stretches across the deepest hells of the stagflationary epoch.

Yet between the years 2012 and 2023 the United States gross domestic product expanded a combined 27.6%.

That is, in real terms — in real terms — the stagflationary 1970s economy outran the 2012–2023 economy.

It is my sincere hope that President Trump’s economic policies invigorate the United States economy.

Yet I fear structural economic impediments are against it.

The United States economy is too debt-laden to push along much… like an obese tick overly laden with blood.

Deep Into the Danger Zone

Economists Carmen Reinhart and Kenneth Rogoff have ransacked the economic data.

Their researches indicate that annual economic growth declines 2% each year when the debt-to-GDP ratio attains 60%.

When the debt-to-GDP ratio attains 90%… they conclude one dollar of debt yields less than one dollar of output.

Debt no longer lifts… but drags.

The United States’ debt-to-GDP ratio runs presently to 123%.

The Congressional Budget Office estimates that ratio may scale 132% by 2034.

Thus I wish the freshly seated president every last ounce of luck.

To make the United States economy great again… he will likely require it.

Regards,

Brian Maher

for Freedom Financial News