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Transitory Inflation Takes Hold of the Economy – How Long Will It Last?

Just a couple of weeks ago, Bloomberg reported that Federal Reserve Chairman Jerome Powell sold investors on the idea that rising inflation wasn’t going to last. Officially, as of May 2021, inflation had risen 5%, the highest since August 2008.

Here’s how we know investors bought it: while the CPI is running at 5%, the yield on the 10-year Treasury languishes around 1.5%. For comparison, back in 2008, the 10-year Treasury yield stayed above 3.5% from January through November (and even broke 4% on a few occasions).

Bond buyers do not want interest rates to rise. A 10-year bond yielding 1.5% looks pretty pitiful if interest rates rise to, say, 3.5% (like back in 2008). So clearly bond investors aren’t expecting interest rates to rise in response to this little blip of inflation.

Maybe you remember the specific term Powell used to describe a temporary period of excessive inflation?

“Transitory.”

Whew, that’s a relief! At least we won’t have to tolerate this way-over-target inflation situation forever.

Today’s inflation: how high is too high?

We know that real-world inflation is somewhere between 9-12%, depending on which Federal Reserve methodology is used to calculate it. Either way, it’s quite high.

That’s right, we can get a closer look at the realities of inflation using methods developed and employed by the Federal Reserve itself.

In the 1980s, the Fed was aware that Americans spent money to maintain their standard of living (in other words, your level of income, comforts and services like healthcare you purchase). Official inflation calculations took this into account.

Using the 1980s formula, you can see how today’s Fed “official inflation” stacks up on the chart below:

If you thought 5% inflation was bad, 13% is much worse.

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

How to Buffer the Fallout from America’s Third World Death Spiral

How to Buffer the Fallout from America’s Third World Death Spiral

“What the hell?!” – President Joe Biden, June 16, 2021

Out of Control

American workers are trying to make their way in an economy that’s rigged against them.  We made this claim many years ago.  Today, for fun and for free, we revisit this assertion…starting with the latest from those doing the rigging.

This week, after a two day meeting, the Federal Open Market Committee (FOMC) released their statement.  Nothing material changed.  The Fed will continue to hold the federal funds rate near zero.  The Fed will also continue to create at least $120 billion per month from thin air to buy Treasuries and mortgage-backed securities.

Bond yields spiked and the price of gold dropped because 13 Fed officials now plot dots that project two hikes to the federal funds rate in 2023.  Fed Chair Jay Powell also mentioned the Fed is “talking about talking about” bond tapering.  These technocrats likely know – though they won’t admit – they’ve already lost control.

Consumer price inflation is ‘officially’ rising at a 5 percent annualized rate.  However, the ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 13 percent.  This rate of inflation is remarkably destructive to household budgets.

‘Talking about talking about’ tapering and telegraphing federal funds rate increases some two years from now will do little to contain consumer price inflation.  The fact is, it has already veered out of control.  We expect gas prices to top $5 per gallon in California this summer.  Many Americans are not prepared for sustained, unrelenting price inflation.

Here’s the hard, back of the napkin math they are facing…

Sour Grapes

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

Two Pins Threatening Multiple Asset Bubbles

Two Pins Threatening Multiple Asset Bubbles

“Powell Says Fed Policies “Absolutely” Don’t Add To Inequality” -Bloomberg May 2020

The headline above is but one of countless times Fed Chairman Powell and his colleagues confidently said their policies do not result in wealth or income inequality. Their political stature and use of complex economic lingo give weight to their opinions in the media. Nevertheless, a deep examination of the Fed’s practices and their consequences leaves us to think otherwise.

In our opinion, the Fed’s contribution to wealth inequality is significant and grossly misunderstood. We have written articles explaining why QE and low interest rates generally benefit the wealthy and harm the poor. This article backs up those prior arguments with quantitative muscle.

Timely for investors, we also draw some lines between wealth inequality and financial stability and their relationship to monetary policy. We think it is becoming increasingly possible wealth inequality, and in particular, the outsized effect inflation has on the poor, could be the needle to pop many asset bubbles. The other possible needle is the Fed’s wanting for financial stability.

**Due to the importance of monetary policy from economic, societal, and market perspectives we are breaking this article into two. We will share part two next week.

Background

More inflation and financial stability (rising asset prices) are two of the three core tenets backing monetary policy. A strong labor market is the third objective. We focus on inflation in this article and financial stability in part II.

In our article Two Percent for the One Percent, we explain why inflation is detrimental to the poor, while rising asset prices (financial stability) primarily benefit the wealthy. The following paragraphs from the article explain:

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

Surging Inflation Might Be the Rumblings of an Economic Tsunami

Inflation in the U.S. is on the rise, may have started heating up last year, and is now on the cusp of spiraling out of control.Gasoline prices pushing $5 per gallon are concerning bad, and will strain family budgets across the country following on the heels of the COVID-19 pandemic.

The 400% increase in lumber prices isn’t helping either, and as Business Insider reports: “Certain food items, household products, appliances, cars, and homes are all seeing prices surge” thanks to supply chain issues.

So the economic situation is already pretty dicey.

But what if the situation is much worse?

What if the Fed has played such a good “shell game” with inflation that something bigger is actually brewing?

Former Treasury Secretary Larry Summers is worried because of how fast inflation is heating up:

“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers said in an interview with David Westin on Bloomberg Television’s “Wall Street Week.” “That has to make us nervous going forward.” [emphasis added]

And this fast-rising inflation still seems to be flying under the Fed’s radar. Robert Wenzel didn’t mince any words, calling Chairman Jerome Powell’s Federal Reserve “clueless.”

Based on Powell’s previous track record, Wenzel’s comment might be reasonable. That Powell seemed to be “ignoring” parts of the entire story behind inflation last year further supports Wenzel’s argument, and adds uncertainty.

Inflation surging and the Fed failing to even acknowledge it, let alone live up to their inflation-control mandate? This is a recipe for a frightening situation. Bloomberg spotlighted one fact that raises at least one serious question:

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

Why Is Billionaire Investor & Former Gold Skeptic Sam Zell Buying Gold?

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Another billionaire turns to gold, Arkansas no longer to tax sales of gold and silver, and Minnesota as a possible source of abundant gold ore.

Billionaire investor and gold skeptic Sam Zell buys gold ‑ here’s why

There has been no shortage of stories of big-name investors touting or turning to gold over the past few years, and especially over the course of last year as the Federal Reserve sparked widespread inflation concerns with its multi-trillion-dollar stimulus. Sam Zell, chairman of Equity Group Investments and a billionaire investor whose portfolio spans across a wide range of industries, recently shared that he, too, has embraced gold primarily over inflation fears.

Speaking to Bloomberg, Zell noted that he previously counted himself among investors who viewed gold as a suboptimal investment compared to higher-yielding assets. But now?

Obviously one of the natural reactions is to buy gold. It feels very funny because I’ve spent my career talking about why would you want to own gold? It has no income, it costs to store. And yet, when you see the debasement of the currency, you say, what am I going to hold on to?

Zell now finds gold to be a safer option to hold over unbacked currencies, with governments around the world experimenting with aggressively-loose monetary policies.

Indeed, Zell said that the Fed is far from the only central bank causing commotion in the global economy, and that all sovereign fiat currencies should be met with a watchful eye…

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

Peter Schiff: The Box That the Federal Reserve Is In

Peter Schiff: The Box That the Federal Reserve Is In

Jerome Powell and Janet Yellen testified jointly before the US Senate last week. Inflation was a big topic of conversation. The Fed chair continued to insist that the central can fight inflation if necessary, but that it really isn’t a problem we need to worry about right now. In his podcast, Peter Schiff said the truth is inflation is a problem. And when it comes to dealing with that problem, the Fed is in a box. It will never pick a fight that it can’t win.

The Federal Reserve balance sheet has swelled to a new record of over $7.72 trillion. It was up another $26.1 billion on the week last week. Peter said he expects this number to continue increasing at an even faster rate in the near future.

I would not be surprised to see the balance sheet hit $10 trillion by the end of 2021 because we have a lot of deficit spending in the pipeline and there is no way to pay for it other than the Federal Reserve.”

One of the questions directed toward Powell was about the Federal Reserve’s independence. Powell talked about how important it is. But Peter said the actions of the Fed chair show there’s really no independence at all.

There’s independence in form only, but not in substance. We pretend we have an independent Fed, but in reality, the Fed acts as if it’s just a branch of the US Treasury Department. The fact that both the secretary of the Treasury and the Fed chairman are testifying together shows a degree of cooperation. They’re working together and it seems that they are trying to coordinate their policies.”

The reason the Fed is keeping interest rates so low and expanding its balance sheet is to accommodate the US government as it spends more and more money.

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

peter schiff, schiff gold, jerome powell, janet yellen, fed, us federal reserve, us treasury department, us senate, inflation, balance sheet

There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

There’s a Serious Flaw to the Team Powell-Yellen Inflation Scheme

If you’re a wage earner, retiree, or a lowly saver, your wealth is in imminent danger.

A lifetime of schlepping and saving could be rapidly vaporized over the next several years.  In fact, the forces towards this end have already been set in motion.

Indeed, there are many forces at work.  But at the moment, the force above all forces is the extreme levels of money printing being jointly carried out by the Federal Reserve and the U.S. Treasury.

Fed Chairman Jay Powell and Treasury Secretary Janet Yellen have linked arms to crank up the printing presses in tandem.

This is what’s driving markets to price things – from copper to digital NFT art – in strange and shocking ways.  But what’s behind the money printing?

Surely it’s more than progressive politics – under the guise of virus recovery – run amok.

Where to begin?

The U.S. national debt is a good place to start.  And the U.S. national debt is now over $28 trillion.  Is that a big number?

As far as we can tell, $28 trillion is a really big number…even in the year 2021.  How do we know it’s a big number, aside from counting the twelve zeros that fall after the 28?

We know $28 trillion is a big number based on our everyday experience using dollars to buy goods and services.  You can still buy a lot of stuff with $28 trillion.  In truth, $28 trillion is so big it’s hard to comprehend.

Nonetheless, $28 trillion is not as big a number today as it was in 1950.  Back then, the relative bigness of $28 trillion was much larger.  It was unfathomable.

Crime of the Century

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

economic prism, mn gordon, janet yellen, inflation, jerome powell, fed, us federal reserve, central bank, stimulus, government stimulus, united states

Weekly Commentary: Powell on Inflation

Weekly Commentary: Powell on Inflation

The Treasury yield spike runs unabated. Ten-year Treasury yields rose another 10 bps this week to 1.72%, the high since January 23, 2020. The Treasury five-year “breakeven” inflation rate rose to 2.65% in Tuesday trading, the high since July 2008. The Philadelphia Fed’s Business Survey Prices Paid Index surged to a 41-year-high. In the New York Fed’s Manufacturing Index, indices of Prices Paid and Received both jumped to highs since 2011.
While crude oil’s notable 6.4% decline for the week spurred a moderate pullback in market inflation expectations (i.e. “breakeven rates”), this did not translate into any relief in the unfolding Treasury bear market.

Chairman Powell was widely lauded for his adept handling of Wednesday’s post-FOMC meeting press conference. He was well-prepared and could not have been more direct: The Federal Reserve will not anytime soon be contemplating a retreat from its ultra-dovish stance. It was music to the equities mania, as the Dow gained 190 points to trade above 33,000 for the first time. Treasury yields added a couple bps, but without any of the feared fireworks. Markets were breathing a sigh of relief.

Labored breathing returned Thursday. Ten-year Treasury yields spiked another 10 bps, trading above 1.75% for the first time since January 2020. And after trading as low as 0.76% during Powell’s press conference, five-year Treasury yields spiked to almost 0.90% in increasingly disorderly Thursday trading. The Nasdaq100 was slammed 3.1%, with the S&P500 sinking 1.5%.

The Treasury market would really like to take comfort from the Fed’s steadfast dovishness. It’s just been fundamental to so much. It’s worked incredibly well for so long. Not now. This raises a critical issue: Paradigm shift? Regime change? What’s driving Treasury yields these days? What is the bond market fearing? If it’s inflation, is Fed dovishness friend or foe?

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

credit bubble bulletin, doug noland, inflation, price inflation, fed, us federal reserve, jerome powell

Powell, Do You Even Know What The Economy Is?

Powell, Do You Even Know What The Economy Is?

To Clarify, Main Street Is Not Wall Street

After all the destructive policies we have seen coming out of the Eccles Building, it may be time to ask Fed Chairman Jerome Powell, “Do you even know what the economy is?” All the easing and stimulus has taken us to a place we could call Bubbleville. It has bolstered asset prices and speculation but done little to help Main Street or generate a strong economy. This destructive force was unleashed long before Covid-19 came into the picture and hanging our economic misfortunes on the pandemic may sound reasonable but is far from accurate.History shows that misguided financial policies often end in  a crisis, in this case, it is likely to play out in massive inflation. Milton Friedman knew a bit about this, he said; The government benefits the first from new money creationmassively increases its imbalances, and blames inflation on the last recipients of the new money created, savers and the private sector, so it “solves” the inflation created by the government by taxing citizens again. Inflation is taxation without legislation. 

https://www.youtube.com/watch?v=PeIeFUJ9EY

A comical Progressive Insurance commercial has a smooth-faced fella going on about his beard and apologizing for how he looks. Finally, a coworker asks him, “Jamie, do you even know what a beard is?” Over the months we have watched Fed Chairman Jerome Powell time and time again cut rates and increase the Fed’s balance sheet. This has hurt savers, forced investors into risky investments in search of yield, damaged the dollar, encouraged politicians to spend like drunken sailors, and increased inequality.

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

bruce wilds, advancing time blog, jerome powell, fed, us federal reserve, bubble, financial policies, fed balance sheet, inflation, taxation, inequality

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

Rabo: If Powell Does Nothing, We Will See Godzilla-Sized Shockwaves Across Markets Everywhere

“Quadzilla is approaching Tokyo!”

[Cue epic music] “Up from the depths; 30 trillion high; Breathing fire; Its name in the sky — Quadzilla! Quadzilla! Quadzilla!” [Sudden switch to comedy music] “…and Godz-EU-ki.”

They’ve already agreed to a joint Covid vaccine plan, where US vaccines will be produced in India, and Japan and Australia will help with the finances and logistics to distribute this throughout Asia. That’s powerful PR and diplomacy (even if India was already doing most of this alone, overlooked by Western media). Moreover, the Quad countries have pledged to ensure emissions reductions based on the Paris climate accord, as well as to cooperate on technology supply chains, 5G networks, and biotechnology. There are also defence agreements between most of them. It doesn’t take Austin going along for the ride to realize this is all about countering that other economic giant, China – which is as big and powerful as King Kong. So Quadzilla vs. Xi-ng Kong? That’s a movie already supposed to be released this year, coincidentally.

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

 

Jerome von Havenstein: Inflation Or Bust

Jerome von Havenstein: Inflation Or Bust

This week brought forth new evidence that – to be perfectly frank – we’re all screwed.

On Thursday, the yield on the 10 year Treasury note topped 1.55 percent.  Subsequently, the Dow Jones Industrial Average, after hitting an all-time high on Wednesday, dropped 559 points.  Wall Street must not be listening to Federal Reserve Chairman Jerome Powell.

Earlier in the week, Powell, in testimony to the Senate Banking Committee, confirmed that the central bank would keep the federal funds rate near zero until maximum employment is achieved.  In addition, the Fed, in its recently released semiannual Monetary Policy Report, confirmed it would continue to create credit from thin air to buy $80 billion per month of Treasuries and $40 billion per month of mortgage backed securities (MBS).

What’s more, the Report specified the Fed’s purchases of Treasuries and MBS “…will continue at least at this pace until substantial further progress has been made toward its maximum employment and price stability goals.”  The operative words being, “at least.”

What to make of it…

Central banking is a form of central planning.  And central planning is a form of state control.  And state control, as practiced in the United States, pertains not so much to the economics of producing income; but, rather, the methods for redistributing it.

State control, through inflationism, takes money saved and earned by individuals and covertly redistributes it to the central authority – i.e., Washington.  There it is consumed by ever expanding government social programs and colossal pentagon budgets.  What remains is wasted away by the endless array of bureaucracies and agencies.

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

 

Yellen Challenges Powell’s Unlimited Control of the Markets

The Fed attempts to maintain control of various rates (including inflation, unemployment and long-term interest rates) through its monetary policy decisions. In the past, poor choices arguably led to both the dot-com bubble and the Great Recession. But that’s old news.

Today, Fed Chairman Jerome Powell is trying to get the U.S. economy moving. A combination of near-zero interest rates and “quantitative easing,” which means buying bonds directly. Both these interventions increase the amount of money in circulation. Ultimately, this would lead to inflation, as you’d expect.

And of course, inflation is closely tied to market rates. In response to the pandemic, the Fed rate policy that Powell currently advocates is keeping money market rates close to zero for an extended period of time. The Fed also seem to intervene quite a bit, attempting to maintain tight control on those rates.

Powell has to balance economic recovery and employment against market bubbles and excessive inflation. That’s a lot of balls in the air… What if one drops?

Unleashing a “tsunami” of cash

Enter Treasury Secretary Janet Yellen, who just threw a big monkey wrench in Powell’s plans to maintain any semblance of tight control over rates. What did she say? As Newsmax reported:

Already low short-term interest rates are set to sink further, potentially below zero, after the Treasury announced plans earlier this month to reduce the stockpile of cash it amassed at the Fed over the last year to fight the pandemic and the deep recession it caused.

That sounds sensible, right? There’s just one problem: the Treasury is planning to “unleash what Credit Suisse Group AG analyst Zoltan Pozsar calls a ‘tsunami’ of reserves into the financial system and on to the Fed’s balance sheet.”

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

 

The Foundation for Potential Price Hyperinflation is Being Laid

The Federal Reserve sure seems to have a tough time finding and reporting signs of rising inflation — especially when it’s hidden in other sectors like a lack of demand for energy.

A recent example of the Fed’s “inflation blindness” comes from a speech Chairman Jerome Powell gave to the Economic Club of New York. According to a MarketWatch piece that reported on that speech:

Powell said he doesn’t expect “a large nor sustained” increase in inflation right now. Price rises from the “burst of spending” as the economy reopens are not likely to be sustained.

It’s odd that Powell would say he doesn’t expect a sustained increase in inflation, because food price inflation has consistently run 3.5 to 4.5 percent since April last year. That sure seems like a sustained increase in food prices.

What Powell seems to have “forgotten” is that some of the overall inflation includes negative energy price inflation (as low as negative 9 percent at one point). But now that the demand for fuel is returning, the official gasoline index rose 7.4 percent in January.

It will be much more challenging for Powell to keep downplaying the risk of hyperinflation once energy price inflation rises back to “pre-pandemic” levels.

In fact, Robert Wenzel thinks the main inflation event is “just about to hit.” If it does, and inflation does rise past Powell’s two percent target, it isn’t likely to stop there. Jim Rickards thinks that’s when hyperinflation can gain momentum:

If inflation does hit 3%, it is more likely to go to 6% or higher, rather than back down to 2%. The process will feed on itself and be difficult to stop. Sadly, there are no Volckers or Reagans on the horizon today. There are only weak political leaders and misguided central bankers.

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

 

Dear Governments, Spend as Much as You Can

Dear Governments, Spend as Much as You Can

This week we heard further details about more trillions in upcoming spending and even changing monetary issuance laws (for CBDCs) worldwide.

The International Monetary Fund (IMF), what critics might call a supranational leveraged buyout bank, was out this week making calls for governments worldwide to spend as much as they can.

The IMF also noted that monetary issuance laws would need to be changed in 104 nations to directly issue fiat Central Bank Digital Currency or CBDC for fuller global fruition.

Sounder money advocates yet to banned off of Twitter are predicably pissed off.

Global Government Bonds

SDBullion Market Update

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

Federal Reserve Chairman Jerome Powell had the following statement this week worth highlighting in our market update video.

There is nothing in any definition about how fiscal dominance, which considers our still having the dominant fiat currency of the world, utilizes yield curve control, with suppressed real interest rate yield, rigging inflation and unemployment data, while still dominating the world in most price discovery powers. 

Yet on the cusp of losing economic output dominance to over 2.5 billion Chinese and Indian residents, they tend to stack physical gold and silver as they get wealthier increasingly.

Another week of up then down spot price action for silver and gold. As we head into this Monday’s thinly traded Martin Luther King holiday, note that the spot gold price sits just below its 200-day moving average.

During gold bull markets outside of the global financial crisis, that is typically an excellent time to add to bullish and betting long positions.

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

The Hazards of 4 More Years of Jerome Powell

Whether Trump or Biden is elected in November, they will have to decide whether or not to appoint Federal Reserve Chair Jerome Powell to another term.

And if he is appointed again, the way he continues to handle the continuing ripple effects of the COVID-19 “shutdown” economy will be critical.

So let’s examine why the decision to reappoint him is important, then take a quick tour of some of Powell’s recent performance.

piece from Paul R. La Monica provides a take on the importance of Powell’s re-appointment, beginning with the response to the market’s plummet earlier this year:

The Fed quickly lowered rates to zero in March and has since launched trillions of dollars worth of lending programs… Powell’s swift actions have won him praise from many economists and investing experts on Wall Street.

“Powell should get a second term if he wants it. He deserves credit for the speed and magnitude of the Fed’s response to Covid-19,” said Larry Adam, chief investment officer of Raymond James.

Mr. Adam and the article are correct on one point. The Powell-authorized “moon shot” in response to a dramatic market drop was certainly a fast move.

George Calhoun, professor of quantitative finance at the Stevens Institute of Technology, agreed with Powell’s quick decision to print trillions:

When the crisis hit, Powell went all out and opened the spigots. I’m not sure what rationale would be to have someone totally different at the Fed. Monetary policy has been effective.

Any person in Powell’s position could have made the same call, of course. We just have to hope that the long-term ripple effects don’t eventually reveal that his reaction was too much, too fast, or perhaps unnecessary.

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

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