text: (AC: Adding on here, the worst case scenario for the American consumer would be a deflationary bust followed by an inflationary or hyperinflationary scenario. A deflationary spiral would drive down prices, equity values, wages, and demand, and then potentially bankrupt highly-indebted corporations, small businesses, and consumers who would have lower earnings to pay off debts still priced in previous-value dollars. In a worst case scenario, a deflationary spiral is followed by rapidly rising inflation as the Fed again loosens monetary policy and prints more money. Not only would most Americans get wiped out from the deflationary bust, but they’d also be left struggling with increasingly higher prices. This deflationary spiral, by the way, is what the Fed was trying to avoid post-2008 by keeping interest rates low and maintaining loose monetary policy. The Fed has maintained since then that the US is in a deflationary environment, a commitment that likely led them to believe inflation would be transitory. A scenario like this is not likely, but I don’t believe it’s impossible. It truly does represent a worst case scenario. – M.S.)IRS budget cuts pose challenges for 2021 returnsBudget cuts to the Internal Revenue Service (IRS) have reportedly decreased the service’s ability to process tax returns, likely leading to delays during the filing season. The IRS still has over five million unprocessed individual tax returns from last year, and ended the filing season in April of last year with over 35 million unprocessed returns from previous years. Budget cuts have resulted in a 25% reduction to the workforce at the IRS. With fewer than 15,000 employees, the IRS is still the size it was during the 1970s. Since then, the population of the US has grown over 60%. (AC: The Biden administration hopes to increase the IRS budget from $12 billion to $92 billion, an increase that will address the shortage of auditors to ensure taxes are being paid. Right now, estimates show that hundreds of billions of dollars each year are not being paid in taxes. – T.W.)Hedge funds: Oil price to increaseHedge funds are set to rebalance their portfolios more heavily into oil, indicating a bullish outlook on prices. Investment into the sector has increased alongside a reduction in concern over the Omicron variant’s interference with economic activity. Hedge funds purchased over 100 million barrels of oil equivalents via futures and had previously, during November and December of 2021, sold over 325 million barrels. The Commodity Futures Trading Commission (CFTC) shows that long positions currently outnumber short positions more than 5:1. (AC: Every recession since 1970 has been preceded by spikes in the price of oil. A potential 2022 recession would be no different. – M.S.)The information provided by Forward Observer in this report is for informational purposes only. It should not be considered financial advice. You should consult with a financial advisor to determine what may be best for your financial needs.— END REPORT