Tag Archives: Inflation

Why Bonds Are Behaving Like Risky Assets, by MN Gordon

Bonds are always risky assets. People just forget that after an almost 40-year bull market. From MN Gordon at economicprism.com:

“When the [credit] delusion breaks, people all with one impulse hoard their money, banks all with one impulse hoard credit, and debt becomes debt again, as it always was.  Credit is ruined.”

– Garet Garrett, 1932, A Bubble that Broke the World

Down, Down, Down

Third quarter 2022 ends today [Friday].  We’re entering the year’s home stretch.  Thus, we’ll take a moment to observe where money and markets have been, so we can conjecture as to where they’re going.

To begin, United States stock markets are in an epic battle between bulls and bears.  For most of the year, the bears have been delivering heavy blows.  But the bulls have not taken their punches lying down.  Here’s a quick review of the three major U.S. Indexes…

After peaking out on January 4, 2022, at 4,814.62 the S&P 500 declined 24.46 percent to an interim bottom of 3,636.87 on June 17, 2022.  The DJIA fell approximately 19.71 percent over this time.

The NASDAQ’s decline commenced on November 22, 2021, at a peak of 16,212.23.  It then cascaded to an interim bottom of 10,565.14 on June 16, 2022, for a top to bottom decline of 34.83 percent.

The indexes then rallied into mid-August.  Many investors thought the bear market was over.  They invested accordingly.  But, alas, it was merely a sucker’s rally.  September was ugly.

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What Did We Do About Inflation Before Economists? By John Tamny

Inflation is a currency problem, not a growth problem. Very high rates of growth have occurred with low or no inflation or even deflation. Production increases supply, which lowers prices. From John Tamny at realclearmarkets.com:

What Did We Do About Inflation Before Economists?

(AP Photo/Rick Bowmer)

In their new book America In Perspective, David Sokol and Adam Brandon report that in 1700, what eventually became the United States had a population of 250,000. By 1770 it was 2.1 million. One hundred years later there were 40 million Americans. By 1914, the number had ballooned to 99 million.

What explains the surge of humans from all over the world? It’s a waste of words to answer the question, but for those still a little bit sleepy, the answer to the question is economic growth. Word travels fast on the matter of prosperity. Abnormally fast growth logically proved a magnet for the world’s strivers in search of something better.

Was all the growth a driver of inflation? It’s a waste of words to answer this question too, but the words will be wasted owing to a growing desire among members of the Left and Right to re-define inflation as a consequence of too much “demand” born of, yes, growth. What a laugh.

Indeed, the surest sign the U.S. didn’t have an inflation problem was the growth itself. Figure that the latter is an obvious consequence of investment (not the “demand” bruited by conservatives and liberals who’ve replaced common sense with textbooks), and investment is all about the production of more and more for less and less. Yes, investment is generally about productivity enhancements meant to produce abundantly and cheaply what used to be expensive and scarce. If you’re wondering if an economy is growing, just look at prices. If once pricey items are becoming more and more accessible, you know there’s growth.

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It’s Worse Than Anyone Wants To Admit, by Jeffrey A. Tucker

The economy is worse than the Biden administration will admit, and it’s going to get a lot worse. From Jeffrey A. Tucker at The Epoch Times via zerohedge.com:

The news on July 28 was entirely consumed in the throes of another definition change. What everyone understood is that what it means to be in a recession has been suddenly changed by government edict. It’s not a recession, they say.

The great economist Frédéric Bastiat in the 19th century emphasized that the real costs of policy-inspired destruction is not what you see but what you do not see. (Steve Johnson/Unsplash.com)

Everything is going just great, they say, unless you are among the troglodytes who desire plentiful and low-priced energy, food, housing, and overall human thriving. Once you understand the beautiful world on the other side of the “transition”—to use the favorite word of the White House—you would see this suffering as actually beneficial in the long run.

These broken eggs are making omelets.

We can argue all day about the definition of recession, but it doesn’t take us to the intellectual place we need to be. The bottom line is that what we are experiencing now includes anomalies from previous downturns precisely because it is much worse. Only a few months ago, many worried that we were going back to the 1970s. That box has been checked. Then, we worried we were going back to the 1930s. My fear is that we might wish that were true.

The White House talks about the low technical rate of unemployment without referencing the falling labor participation rates that never recovered from lockdowns because so many people just left the workforce. Millions of previously employed Americans are living off legacy largesse from families or tapping plentiful unemployment benefits just to get by month to month. Real wages and salaries have been slammed, savings rates are sinking, and credit card debt is exploding.

It’s all hard to put in a picture but we can try, nowhere more saliently expressed than the change in real wages and savings, versus savings as a percent of personal income. The stable public data here go back to 1960 and here we see just how shocking these times truly are. Personal savings is half what it typically was from the 1960s through the 1990s, and even as recently as 2012. Real disposable personal income is falling dramatically.

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ShadowStats Visualized

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h/t The Burning Platform

In Biden’s Annual Economic Report, The Word “Gender” Is Used 40 More Times Than The Word “Inflation”, by Michael Snyder

Different genders must pay different prices for stuff. From Michael Snyder at themostimportantnews.com:

I think that the phrase “out of touch with reality” doesn’t even come close to describing what we are witnessing here.  We all knew that the Biden administration was completely out of touch with what is going on in Real America, but it appears that things are even worse than we thought.  Right now, inflation is the number one political issue in the entire country, and the persistent shortages that we have been experiencing are right up there as well.  But the Biden administration apparently has other priorities.

The Biden administration has just released the “Economic Report Of The President” for 2022, and you can find it on the official White House website right here.  But unless you are a glutton for punishment, I would strongly advise against reading the entire thing, because it is dreadfully boring.

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Perception vs. Reality, by Michael Snyder

The mainstream media doggedly pursues its mission to make itself completely irrelevant. From Michael Snyder at theeconomiccollapseblog.com:

If you only get your news from the mainstream media, you would be tempted to believe that global conditions are relatively stable right now. Yes, there is a war between Russia and Ukraine, but the mainstream media is assuring us that Ukraine is winning that war. Other than that, the mainstream media seems to think that everything is just fine. Of course the truth is that our planet is facing a whole host of extremely challenging problems at the moment. The UN has warned that we are entering the worst global food crisis since World War II, inflation has started to spiral out of control all over the world, the war in Ukraine is making our supply chain nightmares even worse and an absolutely horrifying bird flu plague is killing millions upon millions of chickens and turkeys.

But if you flip on one of the corporate news channels tonight, they will be focusing on other things.

And you probably won’t even hear them talk about the food riots that have suddenly begun erupting around the world at all.

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Fast-Food Meal Costs Family $100 After They Idle In Drive-Thru For Ten Minutes

From The Babylon Bee:

FRESNO, CA—A local family ended up spending over a hundred dollars on their fast-food meal Monday when they got stuck idling in the drive-thru for ten minutes. Due to high gas prices, what used to be a convenience has turned into a crippling expense for millions of American families.

“Oh no!” exclaimed Suzy Williams as she steered into the drive-thru lane. There were five cars ahead of her. “This is going to take forever! It’s going to cost me a fortune!!!”

She quickly put the car in reverse and was ready to put the pedal to the metal, but another vehicle came from behind and blocked her in.

“NOOOOOO!!!!!” she cried. “I can’t afford this!”

According to sources, the entire family became upset. Suzy’s husband, who’d passively opted for the passenger seat, was now regretting his decision.

“We’re going to go bankrupt!” he grumbled. “If I was driving this would have never happened!”

“Don’t you think I know that!” she screamed. “MOOOOOOOOVE!”

Witnesses report Suzy Williams then laid on her horn as if it would help matters. Unfortunately, it did not. Now the Williams family may not be able to afford rent this month.

The Williams family filed for government assistance later that day, knowing they would continue to experience hardship related to rising gas prices. Unfortunately, their application was denied because they failed to buy an electric car.

https://babylonbee.com/news/family-spends-100-on-dinner-after-idling-in-drive-thru-for-10-minutes

One Mad Market & Six Cold Reality-Checks, by Matthew Piepenburg

There are some commonly held notions out there that in no way comport with reality. From Matthew Piepenburg at goldswitzerland.com:

Fact checking politicos, headlines and central bankers is one thing. Putting their “facts” into context is another.

Toward that end, it’s critical to place so-called “economic growth,” Treasury market growth, stock market growth, GDP growth and, of course, gold price growth into clearer perspective despite an insane global backdrop that is anything but clearly reported.

Context 1: The Rising Growth Headline

Recently, Biden’s economic advisor, Jared Bernstein, calmed the masses with yet another headline-making boast that the U.S. is “growing considerably faster” than their trading partners.

Fair enough.

But given that the U.S. is running the largest deficits on historical record…

…such “growth” is not surprising.

In other words, bragging about growth on the back of extreme deficit spending is like a spoiled kid bragging about a new Porsche secretly purchased with his father’s credit card: It only looks good until the bill arrives and the car vanishes.

In a financial world gone mad, it’s critical to look under the hood of what passes for growth in particular or basic principles of price discovery, debt levels or supply and demand in general.

In short: “Growth” driven by extreme debt is not growth at all–it’s just the headline surface shine on a sports car one can’t afford.

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“Supply Bottlenecks” as an Excuse for Inflation, by Daniel Lacalle

The real cause of inflation is monetary, not supply bottlenecks. From Daniel Lacalle at mises.org:

One of the arguments most used by central banks regarding the increase in inflation is that it is because of bottlenecks and that the recovery in demand has created tensions in the supply chain. However, the evidence shows us that most commodities have risen in tandem in an environment of a wide level of spare capacity and even overcapacity.

If we analyze the utilization ratio of industrial and manufacturing productive capacity, we see that countries such as Russia (61 percent) or India (66 percent) are at a clear level of structural overcapacity and a utilization of productive capacity that remains still several points lower than that of February 2020. In China it is 77 percent, still far from the 78 percent prepandemic level. In fact, if we analyze the main G20 countries and the largest industrial and commodity suppliers in the world, we see that none of them have levels of utilization of productive capacity higher than 85 percent. There is ample available capacity all over the world.

Inflation is not a transport chain problem either. The excess capacity in the shipping and transport sector is more than documented and in 2020 new capacity was added in both freights and air transport. Ships delivered in 2020 added 1.2 million twenty-foot equivalent units (TEUs) of capacity, with 569,000 TEUs of capacity on ultra large container vessels (ULCV), ships with capacity for more than 18,000 TEUs, according to Drewry, a shipping consulting firm. International Air Transport Association (IATA) chief economist Brian Pearce also warned that the problem of capacity was increasing in calendar year 2020.

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The Sources of Rip-Your-Face-Off Inflation Few Dare Discuss, by Charles Hugh Smith

There are many highly skilled jobs for which AI is completely unrealistic. There is shortage of people who know who do such jobs, and their wages are reflecting the shortage. From Charles Hugh Smith at oftwominds.com:

We’re getting a real-world economics lesson in rip-your-face-off increases in prices, and the tuition is about to go up–way up.

Inflation will be transitory, blah-blah-blah–I beg to differ, for these reasons. There are numerous structural sources of inflation, which I define as prices rise while the quality and quantity of goods and services remain the same or diminish. Since the word inflation is so loaded, let’s use the more neutral (and more accurate) term decline in purchasing power: an hour of your labor buys fewer goods and services of lesser quality than it did a decade ago or a generation ago.

While the conventional discussion focuses on monetary inflation, i.e. expansion of money supply, the real rip-your-face-off sources have nothing to do with money supply. The rip-your-face-off sources are scarcities that cannot be filled by substitution or globalization.

Consider skilled hands-on labor as an example. Let’s say some essential parts in essential infrastructure require welding. There is no substitute for skilled welders. But wait, doesn’t economic dogma hold that whenever costs rise, a cheaper substitute will magically manifest out of a swirl of dust? That dogma is false in cases such as skilled labor.

The only substitute for a skilled welder is another skilled welder, and while theory holds that there will be cheaper welders who can be brought in from elsewhere, this is also not true: due to deficiencies in education and a cultural bias against manual labor, there is a shortage of skilled welders virtually everywhere.

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