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When we look at upside down wealth pyramid at the left, I have a big problem with the picture it promotes. It is clearly based on someone’s opinion of what investments are safe. The one thing it does well is to scream that some investments have a high degree of risk and it is best not to put all our eggs in the same basket.

Another issue is how a 401 or pension will fare during hard times or if we do see a huge number of defaults. Consider this an indication that placing your wealth into paper promises means it has the potential to vanish or be converted into something to would never agree to. Again, the devil is in the small print or the fact “they” can change the rules at any time.

While a great deal of speculation has been showered upon us concerning inflation turning to deflation, we will not know the true direction of things until they occur. One thing to keep in mind is that government employs a tremendous number of people that will never accept a cut in pay. This will put a solid net under falling prices. Combined with the refusal of many workers to consider working for anything near minimum wage helps push away the notion of deflation. In fact today, my local paper announced the City Council in Fort Wayne, Indiana just approved retroactive COVID-19 hazard bonuses for all city workers.

It is important to move towards forecasting based on probability rather than predictions. Keep in mind a great deal of how we deal with the options before us is centered on how we position ourselves…

…click on the above link to read the rest of the article…

Ukraine and the Next Wave of Inflation, Part I

March 11, 2022

Ukraine and the Next Wave of Inflation, Part I

Inflation from Useless Ingredients

The cause of rising prices is not always monetary. Before Covid, we wrote a lot about mandatory useless ingredients. This is when regulators and taxinators force producers to add things to their products, which buyers do not care about (and often do not know about).

There has been a steady march of added useless ingredients over the decades. But, like watching a child grow taller every day, you may not always think about the big change compared to five years ago (or 50 years ago, in the case of useless ingredients). It would be very difficult to estimate how much useless ingredients have added to the prices of each good.

How much do all the required airbags add to the cost of every new car? How many costs are added by all the emissions gizmos, and safety devices? The same is going on, in the fuel you pump into the car, the tires you drive on, and everything you put in the trunk when you go shopping.

The cost of these useless ingredients is high and rising. Before Covid, this was the biggest driver of inflation.

Image via rte.ie

Inflation from Trade War

For a few years prior to the virus, another driver began to emerge. Trade war. For us, this is a broader term than just tariffs. Though, there have been many tariffs added in recent years. Some readers may assume these are targeted at China due to its military threat, but there have been American tariffs imposed on Scotch whiskey, Canadian lumber, and many other things. Like useless ingredients, the consumer is often unaware of tariffs and how they drive up the price of the 2×4’s they buy. So they assume that the cause is simple money printing.

…click on the above link to read the rest of the article…

Even the Fed’s Lowball Inflation Measure Goes WOOSH: Fodder for 50-Basis-Point Rate Hike in March

February 26, 2022

Even the Fed’s Lowball Inflation Measure Goes WOOSH: Fodder for 50-Basis-Point Rate Hike in March

The most reckless Fed ever is still just watching – and fueling – the consequences of 23 months of policy errors as the Inflation Monster gets bigger and bigger.

The Fed’s official yardstick for inflation, the “core PCE” price index, which excludes food and energy and is the lowest lowball inflation measure the US government produces and which understates actual inflation more than any other inflation measure, spiked by another 0.5% in January from December, and by 5.2% year-over-year, the worst inflation spike since April 1983, according to the Bureau of Economic Analysis today.

The Fed’s official and inexplicable inflation target is 2%, as measured by this lowest lowball inflation measure. And now even this lowball measure is 2.6 times the Fed’s target:

But back in 1982 and 1983, inflation was on the way down; now inflation is spiking to high heaven. Back in 1982 and 1983, the Fed’s policy rates were over 10%; now they’re near 0%.

Several Fed governors have put a 50-basis-point rate hike on the table for the March meeting. Yesterday it was Federal Reserve Board Governor Christopher Waller who said that “a strong case can be made for a 50-basis-point hike in March” if we get hot readings for today’s core PCE index, and the jobs report and CPI in early March. The first of the three conditions has now been met with panache.

“In this state of the world, front-loading a 50-point hike would help convey the Committee’s determination to address high inflation, about which there should be no question,” he said in his speech.

The overall PCE price index, which includes food and energy, spiked by 0.6% in January from December, and by 6.1% year-over-year, the worst reading since February 1982.

…click on the above link to read the rest of the article…

Inflation – Cassandra Speaks

February 17, 2022

Inflation – Cassandra Speaks

Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

“The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation.”

This Morning: Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

Contrary to expectations, World War Last didn’t break out yesterday. Either the Russians are stepping back or they are retreating in a forward direction while adding thousands of new troops… Who knows..? Who to believe? In the absence of evidence or a credible reason for Putin pressing the auto-destruct button while he’s winning, (er, yes, he probably is as the West discomboffulates around the issue, beset by leadership crises, division, energy prices and distrust), can we now look forward to Spring?

And get back to worrying about real stuff. Like inflation?

The news this morning is UK inflation hitting a 30-year high, home price rises in the US and UK earning more than the average working wage, and the Fed Minutes – yawn. Put these together and it looks torrid. Yet the market seems unbovvered… There is a strong likelihood the Fed will hike 50 bp in March and up to 10 times in the next (whatever length of time) years/months/minutes… Whateva… Expectations of aggressive moves in rates have doubled in recent weeks.

Commentary in the bond market ranges from the risks of over-aggressive policy mistakes, arguments about how long “transitory” inflation might last, and the risks of further supply and wage driven inflation hikes…

…click on the above link to read the rest of the article…

Inflation Lowered By Investment In “Intangible Goods”

February 16, 2022

Inflation Lowered By Investment In “Intangible Goods”

Inflation ahead will be contained in certain sectors of the economy. How much inflation we see is still up in the air. From a Main Street perspective, people and businesses are saying that inflation is here to stay and is not a short-lived or transient issue. Still, it is also important to remember that as supply and demand have taught us, what goes up can and often does come down. I contend and envision most of the inflation that takes place will be in hard assets and it will be the result of people losing faith in fiat currencies.When money is created or printed it has to go somewhere, and it has been fueling the “everything bubble.” While feeding the “wealth effect” and inequality, a bubble is not necessarily inflationary. All this can be a difficult concept to grasp. The important point to remember is that everything is relevant and values and prices change. Up until now, much of the newly created money has not resulted in massive inflation. This is because it has been diverted from goods everyone needs to live and into intangible assets not included in the consumer price index.

The way people view fiat currencies way be about to change in a big way, they are generally a poor place to store wealth. To be clear, I view the dollar as the best of the four fiat currencies, however, I expect all of them to come under more pressure in the near future with the yen and euro being the biggest losers. The amount of interest in cryptocurrencies and other inflation hedges is an indication many investors are losing faith in the central banks and fiat currencies. The result may be a monetary crisis and chaos that shifts people into tangibles and a self-feeding inflation loop.

…click on the above link to read the rest of the article…

The Fed Just Guaranteed a Stagflation Crisis in 2022 – Here’s How

January 14, 2022

The Fed Just Guaranteed a Stagflation Crisis in 2022 – Here’s How

Chair Powell leads a two day meeting of the Federal Open Market Committee (FOMC) held January 29-30th, 2019. Public domain photo courtesy of the Federal Reserve

I don’t think I can overstate the danger that the U.S. economy is in right now as we enter 2022. While most people are caught up in the ongoing drama of Covid-19, a real threat looms over the nation in the form of a stagflationary tidal wave. The mainstream media is attempting to place the blame on “supply chain disruptions,” but this is a misrepresentation of the issue.

The two factors are indeed intertwined, but the reality is that inflation is the cause of supply chain disruptions, not the result of supply chain disruptions. If we look at the underlying stats for price rises in essential products, we can get a clearer picture.

Before I get into my argument, I really want to stress that this is a truly dangerous time and I suggest that people prepare accordingly. In just the past few months I have seen personal expenses rise at least 20% overall, and I’m sure it’s the same or worse for most of you. Safe-haven investments with intrinsic value like physical precious metals are a good choice for protecting whatever buying power your dollars have left…

Higher prices everywhere

The Consumer Price Index (CPI) is officially at the highest levels in 40 years. CPI measurements often diminish the scale of the problem because they do not include things like food, energy and housing which are core expenses for the public. CPI calculations have also been “adjusted” over the past few decades by the government to express a more positive view on inflation…

…click on the above link to read the rest of the article…

Money supply and rising interest rates

January 8, 2022

Money supply and rising interest rates

The establishment, including the state, central banks and most investors are thoroughly Keynesian, the latter category having profited greatly in recent decades from their slavish following of the common meme.

That is about to change. The world of continual Keynesian stimulus is coming to its inevitable end with prices rising beyond the authorities’ control. Being blinded by neo-Keynesian beliefs, no one is prepared for it.

This article explains why interest rates are set to rise substantially in this new year. It draws on evidence from the inflation crisis of the 1970s, points out the similarities and the fact that currency debasement today is far greater and more global than fifty years ago. In the UK, half the current rate of monetary inflation for half the time — just for one year — led to gilt coupons of over 15%. And today we have Fed watchers who can only envisage a Fed funds rate climbing to 2% at most…

A key factor will be the discrediting of this Keynesian hopium, likely to be replaced by a belated conversion to the monetarism that propelled Milton Friedman into the public eye when the same thing happened in the mid-seventies. The realisation that inflation is always and everywhere a monetary phenomenon will come too late for policy makers to stop it.

The situation is closely examined for America, its debt, and its dollar. But the problems do not stop there: the risks to the global system of fiat currencies and credit from rising interest rates and the debt traps that will be sprung are acute everywhere.

…click on the above link to read the rest of the article…

What Will Surprise Us in 2022

January 4, 2022

What Will Surprise Us in 2022

What seemed so permanent for 13 long years will be revealed as shifting sand and what seemed so real for 13 long years will be revealed as illusion. Magical thinking isn’t optimism, it is folly.

Predictions are hard, especially about the future, but let’s look at what we already know about 2022. Viewed from Earth orbit, 2022 is Year 14 of extend and pretend and too big to fail, too big to jail and Year 2 of global supply chains break and energy shortages.

The essence of extend and pretend is to substitute income earned from increases in productivity–real prosperity–with debt–a simulation of prosperity –that doesn’t solve the real problems, it simply adds a new and fatal problem: since productivity hasn’t expanded across the spectrum, neither has income or prosperity.

All that happened over the past 13 years is that debt–money borrowed against future productivity gains and energy consumption–funded illusions of prosperity in all three sectors: households, enterprise and government.

The explosion of debt and interest due on that debt could not occur if interest rates still topped 10% as they did 40 years ago in the early to mid-1980s. We couldn’t add tens of trillions of dollars, yen, yuan and euros in new debt unless interest rates were pushed down to near-zero (for the government, the wealthy and corporations only, of course–debt-serfs still pay 7%, 10%, 15%, 19%, etc.)

This monetary trick was accomplished by making central banks the linchpin of the entire global economy as central banks created “money” out of thin air and used the currency to buy trillions in government and corporate bonds, artificially creating near-infinite demand which then drove the rate of interest into the ground.

…click on the above link to read the rest of the article…

What I See for 2022: Interest Rates, Mortgage Rates, Real Estate, Stocks & Other Assets as Central Banks Face Raging Inflation

January 3, 2022

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…

Weekly Commentary: 2021 Year in Review

January 3, 2022

Weekly Commentary: 2021 Year in Review

Books will be written chronicling 2021. I’ll boil an extraordinary year’s developments down to a few simple words: “Things Ran Wild”. Covid ran wild. Monetary inflation ran wild. Inflation, in general, ran completely wild. Speculation and asset inflation ran really wild. More insidiously, mal-investment and inequality turned wilder. Extreme weather ran wild. Bucking the trend, confidence in Washington policymaking ran – into a wall.

Covid running wild. With the hope for vaccines and a waning pandemic, few anticipated the tragedy of more than 475,000 Covid deaths (exceeding 2020). As the year comes to its conclusion, we are shocked by daily new cases exceeding 500,000 – and two million for the week. Globally, daily cases exceed two million.

Inflation running wild. CPI surged 6.8% y-o-y in November, the strongest consumer price inflation since June 1982. Core PCE, the Fed’s favored inflation gauge, rose above 6% for the first time since 1983. Surging food and energy prices, in particular, punish those who can least afford it.

Monetary inflation running wild. Federal Reserve Credit expanded $1.391 TN over the past year, or 19%, to a record $8.742 TN. The Fed’s balance sheet inflated an astonishing $5.015 TN, or 135%, in the 120 weeks since QE was restarted in September 2019. Federal Reserve Assets have now inflated 10-fold since the mortgage finance Bubble collapse.

M2 “money” supply inflated another $2.478 TN (12 months through November) to a record $21.437 TN – with egregious two-year growth of $6.185 TN, or 40.6%. Bank Deposits surged $1.957 TN over the past year (12.1%), with two-year growth of $4.812 TN (36%). Money Fund Assets rose another $408 billion y-o-y, or 9.5%, to $4.70 TN. The myth that QE effects remain well contained within Treasury and securities markets has been debunked.

In the seven pandemic quarters through Q3 2021, Non-Financial Debt surged $9.183 TN, or 16.8%, in history’s greatest Credit expansion.
…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

December 29, 2021

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…

Ellen Brown: The Real Antidote to Inflation

December 29, 2021

Ellen Brown: The Real Antidote to Inflation

The Fed has options for countering the record inflation the U.S. is facing that are far more productive and less risky than raising interest rates.

The Federal Reserve is caught between a rock and a hard place. Inflation grew by 6.8% in November, the fastest in 40 years, a trend the Fed has now acknowledged is not “transitory.” The conventional theory is that inflation is due to too much money chasing too few goods, so the Fed is under heavy pressure to “tighten” or shrink the money supply. Its conventional tools for this purpose are to reduce asset purchases and raise interest rates. But corporate debt has risen by $1.3 trillion just since early 2020; so if the Fed raises rates, a massive wave of defaults is likely to result. According to financial advisor Graham Summers in an article titled “The Fed Is About to Start Playing with Matches Next to a $30 Trillion Debt Bomb,” the stock market could collapse by as much as 50%.

Even more at risk are the small and medium-sized enterprises (SMEs) that are the backbone of the productive economy, companies that need bank credit to survive. In 2020, 200,000 more U.S. businesses closed than in normal pre-pandemic years. SMEs targeted as “nonessential” were restricted in their ability to conduct business, while the large international corporations remained open. Raising interest rates on the surviving SMEs could be the final blow.

Cut Demand or Increase Supply?

The argument for raising interest rates is that it will reduce the demand for bank credit, which is now acknowledged to be the source of most of the new money in the money supply…

…click on the above link to read the rest of the article…

My “Wealth Effect Monitor” & “Wealth Disparity Monitor” for the Fed’s Money-Printer Economy: December Update

December 28, 2021

My “Wealth Effect Monitor” & “Wealth Disparity Monitor” for the Fed’s Money-Printer Economy: December Update

Billionaires got more billions, bottom half of Americans got peanuts and inflation.

My “Wealth Effect Monitor” uses the data that the Fed releases quarterly about the wealth of households. The Fed, after having released the overall data for the third quarter earlier in December, has now released the detailed data by wealth category for the “1%,” the “2% to 9%,” the “next 40%” (the top 10% to 50%) and the “bottom 50%.”

Wealth here is defined as assets minus debts. The wealth of the 1% ($43.9 trillion, according to the Fed) is owned by 1% of the population. The wealth of the “bottom 50%” (only $3.4 trillion) gets split across half the population. My Wealth Effect Monitor takes this a step further and tracks the wealth of the average household in each category.

The average wealth in the 1% category ticked up by only $121,000 in Q3 from Q2, after skyrocketing over the prior five quarters, to $34,478,000 per household (red line). In the bottom 50% category, the average wealth ticked up by $6,800 $53,600 (green line). And get this: About half of that “wealth” at the bottom 50% is the value of consumer durable goods such as cars, appliances, etc. Even the top 2% to 9% (yellow), have been totally left behind by the explosion of wealth at the 1%:

Note the immense increase in the wealth for the 1% households, following the Fed’s money-printing scheme and interest rate repression in March 2020.

A household is defined by the Census Bureau as the people living at one address, whether they’re a three-generation family or five roommates or a single person. In the third quarter, there were 127.4 million households in the US, per Census estimates.

…click on the above link to read the rest of the article…

Peter Schiff: There Is No Ceiling on Inflation

December 27, 2021

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

December 27, 2021

Inflation In 2021 Far Different From What We Had In 1979

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…

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