Since the global financial crisis, and particularly during the COVID-19 pandemic, fiscal and monetary policymakers have operated as if there are no tradeoffs to their expansionary policy programs. Now that economic conditions have changed, they may soon have to relearn old lessons the hard way.
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The End of Free-Lunch Economics
Inflation Is The Kryptonite That Will End Our Decades-Long Monetary Policy Ponzi Scheme
Inflation Is The Kryptonite That Will End Our Decades-Long Monetary Policy Ponzi Scheme
“It means buckle your seatbelt Dorothy, because Kansas is going bye-bye.”
The linchpin that allows the world’s nefarious central banking model to be so effective is that the commonfolk – the plumber, the electrician, the teacher, the bartender, bus driver or barber – don’t understand it.
Countless times, I have reminded my readers and listeners that the inflationary “machinery of night” blankets the most regressive tax possible upon the people who can least afford it, and does so in an extraordinarily convenient way for elites, politicians, central bankers and central planners whose titles and “jobs” hinge upon nobody questioning them and/or figuring out how the system works in the first place.
Today, the fabric of our modern banking world is held together by a logical fallacy of a system, wherein central banks are afforded the asinine luxury of being able to print infinite amounts of “money”, which is then disproportionately distributed toward the ruling class, billionaires, and elites, instead of the people who need it the most.
This shows up, literally, as a widening gap between the “haves” and the “have nots” that has widened consistently since the late 1970’s.
As a result of the most recent re-distribution of purchasing power disguised as “monetary stimulus” during the Covid-19 “crisis”, billionaires amassed an additional $4.1 trillion of wealth during a period of time in which the World Bank estimates that “some 100 million people have fallen into extreme poverty,” Bloomberg reported, in conjunction with the World Inequality Report, in December.
As I have asked many times, when the Fed considers stimulating by printing trillions: why not just divide up the money evenly amongst everybody in the country? Why must it be re-balanced and then deployed in a fashion that benefits those who already own financial assets?
…click on the above link to read the rest of the article…
Is America Heading for a Systems Collapse?
A woman walks a dog near the ruins of an ancient Roman aqueduct, in a park in a suburb of Rome, on July 28, 2017. (Andreas Solaro/AFP via Getty Images)
Is America Heading for a Systems Collapse?
In modern times, as in ancient Rome, several nations have suffered a “systems collapse.” The term describes the sudden inability of once-prosperous populations to continue with what had ensured the good life as they knew it.
Abruptly, the population cannot buy, or even find, once plentiful necessities. They feel their streets are unsafe. Laws go unenforced or are enforced inequitably. Every day things stop working. The government turns from reliable to capricious if not hostile.
Consider contemporary Venezuela. By 2010, the once well-off oil-exporting country was mired in a self-created mess. Food became scarce, crime ubiquitous.
Radical socialism, nationalization, corruption, jailing opponents, and the destruction of constitutional norms were the culprits.
Between 2009 and 2016, a once relatively stable Greece nearly became a Third World country. So did Great Britain in its socialist days of the 1970s.
Joe Biden’s young presidency may already be leading the United States into a similar meltdown.
Hard Left “woke” ideology has all but obliterated the idea of a border. Millions of impoverished foreigners are entering the United States illegally—and during a pandemic without either COVID-19 tests or vaccinations.
The health bureaucracies have lost credibility as official communiques on masks, herd and acquired immunity, vaccinations, and comorbidities apparently change and adjust to perceived political realities.
After decades of improving race relations, America is regressing into a pre-modern tribal society.
Crime soars. Inflation roars. Meritocracy is libeled and so we are governed more by ideology and tribe.
…click on the above link to read the rest of the article…
Canada ranked 6th-most miserable country by think tank
Canada ranked 6th-most miserable country by think tank
Toronto’s Lakeshore Boulevard pictured during a snowstorm in February 2007 (Colin McConnell/Toronto Star)Due to its high rates of inflation and unemployment, a conservative-leaning think tank has ranked Canada the sixth-most miserable country in the world.
On Tuesday, the Fraser Institute revealed where 35 countries rank on its Misery Index, an economic measure based on inflation and unemployment rates.
With its Misery Index score of 10.88, Canada was the sixth-most miserable country, thanks to its 3.15 per cent inflation rate and 7.7 per cent unemployment rate in 2021.
Spain was the most miserable, with a score of 17.61, followed by Greece with 15.73, Italy with 11.96, and Iceland with a score of 11.26.
Japan and Switzerland were the least miserable countries, with scores of 2.61 and 3.57, respectively.
France, the U.S., Australia, and the U.K. were all deemed less miserable than Canada.
“Canadians are rightly concerned about the country’s high inflation and unemployment rates, and, when compared to other developed countries, Canada is not doing well,” said Jason Clemens, the Fraser Institute’s executive vice-president.
Ideally, a healthy economy scores six to seven per cent on the Misery Index, according to Balance, a personal-finance website.
The index fell out of Canadian favour in the 1990s after the country brought inflation under control, the Fraser Institute says.
“The fact that we are again discussing the Misery Index and Canada’s high ranking on it is bad news for all Canadians, who will suffer as a result,” Clemens said.
“Governments across Canada, particularly the federal government, should prioritize policies that will make Canadians less miserable by lowering inflation and unemployment,” he continued.
In 1991, Ottawa and the Bank of Canada introduced inflation-control targets. The bank’s job is to either raise interest rates to cool inflation or cut them to encourage spending and borrowing.
…click on the above link to read the rest of the article…
It Has Been 7% Inflation Since 1996
It Has Been 7% Inflation Since 1996
And so finally, now fiat $USD financial authorities are being forced to admit we have at a minimum 7% price inflation annualized.
The issue, as per usual, is the real value loss truth is like twice that amount in terms of real purchasing power disappearances over the last twelve months.
To attain shreds of credibility, even some in the mainstream financial media now have to report how rigged the Bureau of Labor and Statistics (BLS) inflation tracking methodology is.
Of course, yet another deflationary global bankruptcy phase is likely to come about this decade.
Look for perhaps some cyber-attack excuse to cover yet more derivative bet loss insolvencies to come.
And when it does, it will likely turn these increasing-price inflationary pressure downwards for a brief timeframe as it did during the 2008 GFC and briefly, and too at the start of the 2020 pandemic.
Yet our financial authority’s most predictable response mechanism will likely be more seemingly ∞fiat currency∞ creation.
Ultimately and also by major central banks’ pre-meditated ‘Go Direct‘ actions. Secular inflation should remain persistent, reaching levels already now larger than perhaps ever before experienced in most of our lifetimes until significant structural issues of too much record-level fiat currency-denominated debt and unsaved promise piles get reckoned.
Over 7% Inflation Since 1996
US Consumer Prices Soar At Fastest In 39 Years, Real Wages Tumble For 9th Straight Month
US Consumer Prices Soar At Fastest In 39 Years, Real Wages Tumble For 9th Straight Month
Consensus was convinced – with barely any outliers – that this morning’s consumer price index would print with an astonishing 7.0% YoY (and notably 7 of the last 9 releases have come in above consensus) and they nailed it with the 7% print at its highest since June 1982 (when ET was launched in the US)…
Source: Bloomberg
That is the 19th straight monthly rise in headline CPI and Core CPI also surged to its highest since Feb 1991 (printing hotter than expected at +5.5% YoY)…
Source: Bloomberg
Under the hood, commodities, shelter, and new-and-used cars and trucks saw prices jump the most. Energy actually saw a modest 0.4% retracement (that will not be the case in January)…
Source: Bloomberg
The cost of putting a roof over your head is accelerating once again. Shelter inflation rises to 4.13% Y/Y from 3.84%, the highest since Feb 2007…
In fact, while Services inflation rose to +3.7% – its highest since Jan 2007 – Goods inflation soared 10.7% YoY – its highest since May 1975…
Source: Bloomberg
Finally, and perhaps most importantly for Main Street, real average hourly earnings fell (down 2.4% YoY) for the 9th straight month…
Source: Bloomberg
So the next time a politician tries to tell you to be grateful that your wages are going up or you can move to a new higher paying job, just remind him that the surge in the cost of living is outpacing wage gains, thanks to The Fed’s money-largesse and Congress’ lockdown policies and helicopter money have crushed the quality of life for millions.
Arguing The Un-Consensus On Today’s Macro & Inflation
Arguing The Un-Consensus On Today’s Macro & Inflation
In a YouTube video Mike Green, Chief Strategist at Simplify Asset Management, attacks the idea of hyperinflation and inflation. He is not alone in pushing back on the idea inflation is about to run rampant. Despite the price rises we have been seeing, many economists claim that while inflation is likely to remain elevated for the near future we are now seeing projections it will peak in the first half of this year.During an amazing, almost two-hour video interview, Green shares his macro view of the economy, inflation, markets, and the dynamics of today’s equity and fixed income markets. In the video titled; The Un-Consensus on Today’s Macro & Inflation, Green claims the base effects driving inflation are becoming more challenging and will not allow for it to remain elevated. He also shares his view of how stock markets have become less efficient and more ‘inelastic’ due to the proliferation of passive index investing, and where that might lead.
While price is said to be located at the intersection of supply and demand, manipulation and interventions have muddied this picture. Green keys in on the fact that price shocks and distortions have a way of working through the system, when prices rise in the capitalist system, we generally see an increase in the supply of that commodity or service. He also points to the strong role demographics play in the economy. It is important to remember while price hikes can appear inflationary they are not a big issue if they last only a short time. The price of gas from 2000 until today is an example of how wildly prices can swing. In short, if prices do not stay elevated or continue to climb, they do not add to inflation.
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| We Have Witnessed Wild Price Swings In Gas Prices Over The Years |
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What I See for 2022: Interest Rates, Mortgage Rates, Real Estate, Stocks & Other Assets as Central Banks Face Raging Inflation
What I See for 2022: Interest Rates, Mortgage Rates, Real Estate, Stocks & Other Assets as Central Banks Face Raging Inflation
An extra-special cocktail of three powerful ingredients with no cherry on top awaits us in 2022.
Super-inflated asset prices such as housing, stocks, and bonds; massive inflation; and central banks that have started to react.
Many central banks have started pushing up interest rates; others have ended asset purchases. And Quantitative Tightening (QT) – central banks shedding assets – is on the table.
Rising interest rates in the US won’t catch up with raging inflation in 2022 – CPI inflation is now 6.8%, the highest in 40 years.
But unlike 40 years ago, inflation is now on the way up. In the early 1980s, it was starting to head down. We need to compare the current situation to the 1970s, when inflation was spiraling higher. So we’re entering a new environment where the economy will be doing things we haven’t seen in many decades. It will be a new ballgame for just about everyone.
As is always the case, the year-over-year inflation figures will fluctuate. CPI could go over 7% or 8% and then fall back to 5% only to jump again, providing moments of false hopes – as they did during the waves of inflation in the 1970s – only to race even higher.
Inflation has now spread deep into the economy, with services inflation picking up, and there are no supply-chain bottle necks involved. This includes the inflation measures for housing costs. Those housing inflation measures have begun to surge.
We know that the figures for housing inflation, which account for about one-third of total CPI, will surge further in 2022, based on housing data that we saw in 2021, and that is now slowly getting picked up by the inflation indices. They started heading higher in mid-2021 from very low levels, and they’re going to be red-hot in 2022.
…click on the above link to read the rest of the article…
How Inflation Could Crash The Economy In 2022
Photo by Alyssa Kibiloski
It’s understandable if you’re tired of hearing about rising inflation. But it has become an economic mainstay in the Biden Administration. And each month seems to bring fresh records not experienced in decades.
For Baby Boomers who lived through the Carter years, 2021 might feel like déjà vu. That’s because inflation rose 6.8% again in November 2021, which is the highest level since June of 1982.
That’s bad enough. And that’s not the worst of it…
When we look higher up the product pipeline, inflation at the manufacturing level is even higher. U.S. producers are dealing with inflation of their own, clocking in at an incredible 9.6% in November. That means prices on all manufactured goods, from coffee mugs to SUVs, are still going up. And we haven’t even experienced the sticker shock yet. Producer prices are a forecast of rising prices just down the road.
Things have gotten so bad that Bloomberg recently published an “inflation survival guide” after interviewing a number of Argentines (who routinely struggled with 50% inflation). Those who survived Argentinian hyperinflation know paper money is worthless.
Here’s their advice, lightly edited for clarity:
- Spend your paycheck immediately (particularly on big-ticket items like houses and cars in the U.S.) – In a high-inflation economy, money that sits in the bank is losing value. Each day, those dollars on deposit buy a little, or a whole lot, less.
- Borrow as much money as you can – When we borrow money to finance those big purchases, we’re getting credit at a rate below That means all the debt we take out is actually being devalued month after month. Eventually, we can always pay it off with otherwise-useless paper money.
…click on the above link to read the rest of the article…
#219. The unravelling begins
#219. The unravelling begins
THE REALITY OF SCARCITY, THE SCARCITY OF REALITY
In nineteenth-century England, pictures of great events and famous personages could be purchased “penny-plain or tuppence-coloured”.
Where the world economy is concerned, the price of flattering colouration has soared into the trillions, but the value of a “penny-plain” view has never been higher.
The penny-plain picture now, of course, is that a vast gap has opened up between the consensus expectation of continuity and the hard reality of a post-growth economy. This gap is the counterpart of the chasm that exists between the ‘real’ economy of goods and services and the ‘financial’ economy of money and credit.
Our understanding of these dissonances sets an outline programme for ongoing analysis. The best routes to effective interpretation are those which (a) compare reality with perception, and (b) calibrate the relationships between the ‘two economies’ of money and energy. In the coming months, the aim here will be to add interpretive and statistical detail to the picture that is emerging as the aquatint wash of delusion fades away.
The divergence between expectation and reality isn’t – in itself – a new development. Many of us have long known that, over a very extended period, most economic “growth” has been a cosmetic product of breakneck and hazardous monetary expansion, that the underlying economy has been faltering, and that the confidence placed in ‘continuity’ lacks a basis in fact.
We can go further, recognizing that even the simulacrum of “growth” can’t last much longer, that the real prices of assets are destined to fall sharply in a context of broader financial distress, and that the balance of political power might be poised to shift, perhaps in a direction that, once upon a time, used to be called “left”.
…click on the above link to read the rest of the article…
The Economy May Be Finally Peaking, and the Fed Won’t Help Matters
Here we go again it may seem to many. The Fed is preparing us for a policy tightening just when a powerful growth cycle upturn is faltering. Or is it in fact an example of another well-known type of error from Fed history—getting behind the curve of rising inflation? The most plausible answer is that it is neither.
Instead, the huge monetary inflation shock which the Fed has administered so far in this pandemic means that the “normalization steps” now in prospect for 2022 are all but irrelevant to macroeconomic prospects or asset market price trajectories.
The more Federal Reserve chief Jerome Powell has been huffing and puffing, since his renomination (November 22), about normalizing policy, the steeper has been the fall in long-term interest rates. In the first two trading weeks following the renomination, the ten-year yield on US Treasurys was down by thirty basis points to 1.35 percent. A coincidence, surely, explained in part by the possible Omicron menace? Yes, perhaps in part, but not altogether.
The chief’s performance is now in the theater of the absurd. Many in the marketplace have deserted the audience, though the noise still irritates them. Instead, they focus on the drama of monetary reality. The title? “Lost Illusions on the Journey from Mega Pandemic Inflation to Great Depression.” The evolving mood of the audience here will have a powerful effect on financial markets and ultimately the global economy.
Toward understanding the theater of the absurd and its triviality, recall the story of the natural history museum renowned for its dinosaur relics. The guardian there, quizzed by a child as to the age of those specimens, answers: 5 million years and 90 days. How so? Because when he started work there, around three months ago, he was told their age was 5 million years!
…click on the above link to read the rest of the article…
Peter Schiff: There Is No Ceiling on Inflation
Peter Schiff: There Is No Ceiling on Inflation
Gold closed out the week before Christmas above $1,800 an ounce, despite rising bond yields. The $1,800 level has been viewed as a ceiling for the price of gold. In his podcast, Peter Schiff said people need to start thinking of $1,800 as a floor. And he said they will once they realize there is no ceiling on inflation.
We got the personal income and spending data for November last week. Incomes grew at a slower pace than projected — 0.4%. Meanwhile, spending was up 0.6%. Obviously, if spending is outpacing income, the difference has to come from somewhere. It appears Americans are dipping into their savings to cope with rising prices. The savings rate declined to 6.9%. That is the lowest level since December 2017.
We also know that consumers are turning to debt to make ends meet, with credit card balances growing at a fast pace.
The savings rate shot up and Americans paid down their credit cards when the government showered them with stimulus. Peter said it appears the stimulus has run out.
Obviously, Americans have now exhausted that windfall. They’ve depleted that savings war-chest that was built up with stimulus money, and now it’s gone. And so, they’re having to go into debt.”
Consumers have a double problem. They’ve run out of savings and consumer prices keep going up. That is robbing people of their purchasing power.
That robber is the government, because it’s the government that’s creating the inflation that is causing the cost of living to go up. But the cost of living is going up, yet consumers have even less savings to afford that increase in the cost of living.”
…click on the above link to read the rest of the article…
Inflation In 2021 Far Different From What We Had In 1979
Inflation In 2021 Far Different From What We Had In 1979
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The inflation of today is a starkly different creature than what we faced in 1979. The world is massively different and presenting us with a strain of inflation that will most likely be stronger and more difficult to combat without major disruptions to our economy. This article is an attempt to highlight the differences and why today the position we find ourselves in is much more precarious.New data released by the Bureau of Labor Statistics showed price inflation in November rose to the highest in forty years. Allianz Chief Economic Advisor Mohamed El-Erian warned the Federal Reserve is losing credibility by not tapering its balance sheet to rein in inflation. Appearing on CBS’ “Face the Nation” he stated the most significant miscalculation in decades is the Fed’s inability to characterize inflation correctly. It was only on November 30th that Fed Chair Jerome Powell finally retired the term “transitory” and opted to label inflation as persistent.
President Biden responded to rising inflation has been to call upon Congress to pass his Build Back Better plan. Biden claims this will lower how much families pay for health care, prescription drugs, child care, and more.” In reality, of course, the passage of BBB would increase inflationary pressure throughout the economy and only transfer these soaring costs from the individual to the government.
The idea the economy of 2021 is strong enough to allow a rapid and huge surge in interest rates such as those imposed upon America in 1981 is false. During America’s prior bout with inflation 40 years ago the economy was able to withstand the shock…
…click on the above link to read the rest of the article…
3 Reasons Why 2022 Will Be Unforgettable
Photo by Milan Seitler
After the crazy year we’ve just had, one good question to ponder for a moment is: What does the U.S. economy look like as we head into next year?
To answer that, this article will examine three sectors by looking at economic activity (including Wall Street), the inflation situation, and of course physical gold.
So brace yourself, because if this plays out the way we fear it might, the economic storm on the horizon is less than one week away.
Here we go…
Economists still can’t come to grips with an astronomically overvalued market
It’s amazing how long a virus can be blamed for “Economic Woes.” But that’s exactly how economists summed up 2021:
U.S. economic activity resurged in 2021 after a year marked by lockdowns and stay-in-place orders, with the rebound fueled by a combination of monetary and fiscal stimulus, as well as firm consumer spending.
However, against this backdrop, the second half of this year especially has seen an economy grappling with supply-side constraints and rising price pressures. Lingering virus concerns have compounded with still-elevated demand to push up inflation.
When the government hands out free stimulus money, and also places a moratorium on mortgage payments, it would be natural to expect increased consumer demand for products and services as a result. (Along with a little market mania for good measure.)
But thinking that these pressures and demand would ease early next year, as those same economists surmised, ended up complicated by Omicron jitters.
From the same article:
Goldman Sachs: The emergence of the Omicron variant increases the risks and uncertainty for the economy anticipates GDP will grow 3.8% on a full-year basis in 2022, or down from the 4.2% clip it saw previously.
…click on the above link to read the rest of the article…
Inflation Is a Policy That Cannot Last
Inflation Is a Policy That Cannot Last
Are we heading toward a Fed policy that fixes inflation at a permanent rate of five to six percent?
We could be.
But inflation is a policy that cannot last.
We’re currently experiencing a massive wave of price inflation. This should come as no surprise. The Fed has increased the M2 money supply by around 40% since the end of 2019. The US government showered that newly created money on American consumers in the form of stimulus. Meanwhile, governments effectively shut down the US economy. That led to a big drop in production. This created the perfect inflationary storm. We have more money chasing fewer goods and services.
Prices are rising.
Now the Federal Reserve has a big problem. It needs to tighten monetary policy to take on inflation. But the economy depends on easy money. Economic growth is built on borrowing. Any significant tightening of monetary policy will pop the bubble and the whole house of cards will fall down.
The Fed has finally abandoned the “transitory” inflation narrative and it appears to be getting more serious about addressing the issue. But how will the central bank really play this?
In an article published by the Mises Wire, economist Thorsten Polleit asserts there are basically two scenarios in play.
(1) The Fed means business; it really wants to lower consumer goods price inflation back toward the 2% mark.
(2) The Fed just wants to keep inflation from spiraling out of control, but it does not want to abandon the new regime of increased inflation.
Scenario (1) is not impossible, but it is relatively unlikely. Under the prevailing economic and political doctrine, the Fed is not meant to curb inflation at the expense of triggering another economic and financial crisis…
…click on the above link to read the rest of the article…
CHICAGO – Smart economic policymaking invariably requires trading off some pain today for greater future gains. But this is a difficult proposition politically, especially in democracies. It is always easier for elected leaders to indulge their constituents immediately, on the hope that the bill will not arrive while they are still in office. Moreover, those who bear the pain caused by a policy are not necessarily those who will gain from it.
That is why today’s more advanced economies created mechanisms that allow them to make hard choices when necessary. Chief among these are independent central banks and mandated limits on budget deficits. Importantly, political parties reached a consensus to establish and back these mechanisms irrespective of their own immediate political priorities. One reason why many emerging markets have swung from crisis to crisis is that they failed to achieve such consensus. But recent history shows that developed economies, too, are becoming less tolerant of pain, perhaps because their own political consensus has eroded.
Financial markets have become volatile once again, owing to fears that the US Federal Reserve will have to tighten its monetary policy significantly to control inflation. But many investors still hope that the Fed will go easy if asset prices start to fall substantially. If the Fed proves them right, it will become that much harder to normalize financial conditions in the future.
Investors’ hope that the Fed will prolong the party is not baseless. In late 1996, Fed Chair Alan Greenspan warned of financial markets’ “irrational exuberance.”…
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