Yes, we have a problem, and claims of a lower CPI cannot inflate away the reality that inflation hurts consumers. To start with consider the argument inflation is much higher than the government reports. That said, Jay Powell is most likely very serious about ending the Fed put which has been a huge contributor to the wealth effect and inequality. This has also been a big driver of financial and economic growth.
If Powell accomplishes his goal it is expected to result in a more “responsible” and less speculative financial system. As things stand, most Americans are watching their wages falling behind the price of goods. As people are forced to buy less economic growth slows. This would of course extend down to falling prices as the wealth effect slams into reverse. All this brings with it risk and probably a lot of pain. This issue is intensified because the ability to simply roll over debt and refinance has been greatly diminished. Both liquidity and rates reduce this possibility. Trends are not friendly to growth anywhere in the world.
| Lower CPI Does Not Signal Growth Ahead |
Even if inflation drops like a stone, that does not mean it will not return with a vengeance or signal growth will pick up. Feeding into this is that many people today do not want to work. The five-day service sector office work week became a thing of the past when people were told to stay home during the pandemic. Mediocre production on the part of workers coupled with the potential that Geo-political issues may soon create a slew of new commodity shortages. Supply chain problems and disruptions tend to limit the supply side of growth.…click on the above link to read the rest…
NEW YORK – Inflation rose sharply throughout 2022 across both advanced economies and emerging markets. Structural trends suggest that the problem will be secular, rather than transitory. Specifically, many countries are now engaged in various “wars” – some real, some metaphorical – that will lead to even larger fiscal deficits, more debt monetization, and higher inflation in the future.
The world is going through a form of “geopolitical depression” topped by the escalating rivalry between the West and aligned (if not allied) revisionist powers such as China, Russia, Iran, North Korea, and Pakistan. Cold and hot wars are on the rise. Russia’s brutal invasion of Ukraine could still expand and involve NATO. Israel – and thus the United States – is on a collision course with Iran, which is on the threshold of becoming a nuclear-armed state. The broader Middle East is a powder keg. And the US and China are facing off over the questions of who will dominate Asia and whether Taiwan will be forcibly reunited with the mainland.
Accordingly, the US, Europe, and NATO are re-arming, as is pretty much everyone in the Middle East and Asia, including Japan, which has embarked on its biggest military build-up in many decades. Higher levels of spending on conventional and unconventional weapons (including nuclear, cyber, bio, and chemical) are all but assured, and these expenditures will weigh on the public purse.
…click on the above link to read the rest…