Tag Archives: Inflation

Doug Casey on Robinhood, Hedge Funds, and Class Warfare

The Federal Reserve has turned financial markets into casinos so we’ll see more “all in” crazy action like we saw with GameStop and Robinhood. From Doug Casey at internationalman.com:

International Man: We seem to be entering a new paradigm in the financial markets. Social media has allowed a large number of small investors to band together and move markets in ways that were previously inconceivable.

What are your thoughts on this and what lies ahead?

Doug Casey: To start with, most of the people on Robinhood are ultra-unsophisticated—mostly unemployed kids living in their mothers’ basements. A lot of the money that the government sent them—the COVID checks—went into the market.

Of course, Robinhood itself is somewhat problematic with its commission-free trading and no minimum trade size. How can a company make money if it doesn’t charge its customers anything? It does so by having cozy arrangements with hedge funds. In essence, you get what you pay for, and if you don’t pay anything, you can expect to be treated like you’re a product, not a customer. I don’t have any problem per se with Robinhood’s business model, but Robinhood’s real customers are probably the hedge funds, not the public.

I don’t have any sympathy for anybody involved in this—hedge funds, the brokers, or the public. In the markets, eventually, everybody gets what they deserve. Still, the fact that some hedge funds have lost billions is front-page news. And the stock running from like $3 before collapsing from $450 to under $50 at the moment means plenty of late-arriving small fry will have been wiped out on the way down.

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By Big Government For Big Government, by MN Gordon

Inflation is a tool of big government. From MN Gordon at economicprism.com:

One of the notable byproducts of the current age of unreason is the popularity of lies as a matter of public policy.  We’ll clarify this claim in just a moment.  But first, some context is in order…

On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.3 percent in January.  Not bad, so long as you didn’t have to drive anywhere.  If you did, you may have noticed your dollars didn’t get you as far.  The gasoline index increased 7.4 percent in January.

What’s going on?

Over the last 10-months the price of oil has quietly recovered from an extreme negative in April of 2020 to over $58 for a barrel of West Texas Intermediate (WTI) crude.  And the UN Food and Agriculture Organization’s food price index is at its highest level since July 2014.  The main factors contributing to its rise are increases in grain prices.

Our hunch is that consumer prices will rise much further and faster in 2021 than the bean counters at the Bureau of Labor Statistics anticipate.  In the interim, manufacturers of consumable products can mask price inflation by reducing product size, while keeping price the same.  The ruse of shrinkflation is not new to the marketplace.  However, when governments over issue their currency it becomes much more prevalent.

Just last week, for instance, Nutella confirmed that it will reduce its 400 gram jars to 350 grams due to rising production costs.  But that’s not all.  In 2020, packages of Nathan’s Pretzel Dogs were reduced from five hotdogs to four.

Other common products that shrunk in 2020 include: Downey Unstoppables (10 oz to 8.6 oz), Charmin Ultra Strong (286 sheets to 264), Dawn (small bottle, 8 oz to 7 oz), Lay’s Potato Chips (party bag, 15.25 oz to 13 oz), Keebler Club Crackers (13.7 oz to 12.5 oz), Charmin Mega roll (reduced by 20 sheets), Powerade (32-oz to 28 oz), Puffs (56 tissues to 48), and Hershey’s kisses (family size bags reduced from 18 oz to 16 oz).

Of course, manufacturers are just playing the hand they’ve been dealt.  They know consumers are more likely to limit purchases due to a rise in price verses a reduction in weight.  They’re merely reacting to the rising price of raw goods and materials.  But what’s driving this?

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What Happens When All Our Wealth Is Gone? by Dennis Miller

Governments have often impoverished their citizenry. From Dennis Miller at theburningplatform.com:

When I was dating my wife Jo, her 10-year-old daughter Holly learned I was a glutton for chocolate chip cookies.

This adorable little lady grinned, loaded in the chocolate chips and baked an entire batch by herself. As she put the cookies on the cooling rack, I began to devour them. They were soft, moist and yummy!

Holly yelled, “Mom he is eating them faster than I can bake them.” Not surprising, I soon gained 25 pounds.

Today Holly owns a small business. Over the holidays she complained. Much like Dennis and chocolate chips, our wealth is being gobbled up faster than it can be created. She is spot on.

The Big Heist

On 1/1/2000 10-year treasuries were paying over 6% interest. 21 years later, they paid .93%. They are guaranteed wealth destroyers.

The government spends recklessly, bails out banks and debt soars.

Bank borrow and lend cheap money; commercial loans have skyrocketed. Untold billions went to binge-borrowing corporations buying back their stock to hype the market price, yet their debts remain.

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With apologies to drunken sailors everywhere. . . by Simon Black

Spending other people’s money, or just money manufactured at the Fed, is even better than drunken sailors’ shore leave—there are no hangovers. From Simon Black at sovereignman.com:

The year was 1977.

Disco was in. Star Wars was the biggest movie of the year. The world’s first personal computer was announced– the Commodore PET, which came with 8 kilobytes of memory.

And the Gross Domestic Product of the United States reached $1.9 trillion– more than double what it had been just ten years prior.

As you probably know (or possibly remember), though, most of the GDP “growth” during the 1970s wasn’t because the US economy was strong. Quite the opposite, actually.

The 1970s was a period of economic stagnation and inflation. The economy was in such bad shape that, between January 1, 1970 and December 31, 1977, the S&P 500 grew exactly ZERO percent.

Yet food and fuel prices kept spiraling out of control. This is a big reason why GDP kept rising in the 1970s despite such a weak economy.

We’ll come back to 1970s inflation in a moment; for now, I’ll point out the coincidence that the latest COVID stimulus bill which Congress seems ready to pass, is also $1.9 trillion.

In other words, the amount of money they want to spend in a SINGLE legislative package is the same as the size of the entire US economy in 1977. And 1977 is still fairly recent history.

Even today, $1.9 trillion is nearly 10% of the size of the US economy, and roughly 50% of expected federal tax revenue this fiscal year.

Before this COVID spending plan was announced, the Congressional Budget Office estimated in early January that the budget deficit this year in the Land of the Free would be $2.3 trillion (up from their $1.8 trillion estimate a few months before.)

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Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On, by Wolf Richter

Screwed up supply chains from the coronavirus response and out-of-control fiat debt instrument creation and debt monetization are leading to inflation. From Wolf Richter at wolfstreet.com:

For now, the story is that it’s just temporary.

For now, the story is that the sudden and massive shifts in the economy in 2020 have caused shortages and distortions in the goods-producing sectors and in shipping and trucking, as consumer spending has shifted from services – such as flying somewhere for vacation and spending oodles of money on lodging and restaurants and theme parks – to goods, particularly durable goods.

The story is that prices are rising because components and commodities are in short supply, and supply chains are dogged by production issues, and are facing transportation constraints, as demand for those goods has suddenly surged. And that all this is temporary.

And the Fed has said it will ignore inflation for a while, that it will allow it to overshoot, and only when it overshoots persistently for some unknown amount of time and becomes “unwelcome” inflation – “unwelcome” for the Fed – that it will try to tamp down on it.

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Nixon Closed the Gold Window and All I Got Was This Lousy National Debt, by Michael Maharrey

Money backed by nothing goes to its intrinsic value—nothing. FromMichael Maharrey at schiffgold.com:

 

This year will mark the 50th anniversary of President Richard Nixon severing America – and the world – from its last tie to the gold standard. The rapid devaluing of the dollar is the most obvious result. But another consequence has been an enormous national debt that continues to grow at a staggering pace. Most people don’t realize it, but this is a direct and intentional result of the current fiat money system.

In 1971, Nixon put the final nail in the coffin of the gold standard, but President Franklin D. Roosevelt put us on the path. On April 5, 1933, Roosevelt signed Executive Order 6102. It was touted as a measure to stop gold hoarding, but it was in reality, a massive gold confiscation scheme. The order required private citizens, partnerships, associations and corporations to turn in all but small amounts of gold to the Federal Reserve in exchange for $20.67 per ounce.

This infamous executive order was just one of several steps Roosevelt took toward ending the gold standard in the US.

With the dollar tied to gold, the Federal Reserve found it difficult to increase the money supply during the Great Depression. It couldn’t simply fire up the printing press as it can today. The Federal Reserve Act required all notes have 40% gold backing. But the Fed was low on gold and up against the limit. By stealing gold from the public, the Fed was able to boost its gold holdings.

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Inflation Is Spreading Broadly into the Economy. Amid Surging Costs, Companies Raise Prices, and Customers Pay them, Despite Weak Economy, 10 Million Missing Jobs, by Charles Hugh Smith

Oodles of fiat debt are making their way into the real economy. From Wolf Richter at wolfstreet.com:

“Not only have the last two months seen supply shortages develop at a pace not previously seen in the survey’s history, but prices have also risen due to the imbalance of supply and demand.”

The signs of inflation building up in the economy are now everywhere. IHS Markit, in its release of the Flash PMI with data from companies in the services and manufacturing sectors, added to that pile of evidence.

For companies, inflation happens on two sides: what they are having to pay their suppliers, and what they can get away with charging their own customers, which may be consumers, governments, or other companies.

And increasingly, companies are able to pass higher input prices on to their customers – meaning, their customers are not totally balking at paying higher prices and they’re not switching to other sources to dodge those price increases. That’s a mindset that nurtures inflation.

This PMI data is based on what executives said about their own companies (names are not disclosed) and the conditions they face in the current month. No quantitative measures or dollar amounts are involved.

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Inflation Breeds Even More Inflation, by Thorstein Polleit

Inflation is a slippery, one-way slope. from Thorstein Polleit at mises.org:

I. Warning against Fiduciary Media

Early in the 20th century, Ludwig von Mises warned against the consequences of granting the government control over the money supply. Such a regime inevitably creates money through bank credit that is not backed by real savings—a type of money that Mises termed “fiduciary media.”

In 1912, Mises wrote,

It would be a mistake to assume that the modern organization of exchange is bound to continue to exist. It carries within itself the germ of its own destruction; the development of the fiduciary medium must necessarily lead to its breakdown.1

Mises knew that breakdowns of economic activity were the inevitable outcome of government interference in the monetary sphere. However, public opinion has not correctly diagnosed the root cause, regularly blaming instead the free market system—rather than the government—for the malaise. In times of crisis, people call for more government intervention in all sorts of markets, thereby setting into motion a spiral of intervention which, over time, erodes the liberal economic and social order.

It is therefore a rather discomforting truth that today’s governments the world over produce fiduciary media, the very kind of money Mises had warned us against.

It is an inflationary regime. The relentless rise in the money stock necessarily reduces the purchasing power of money to below the level that would prevail had the money supply not been increased. Early receivers of the new money benefit at the expense of those receiving it later.

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Doug Casey on Whether the US Dollar is Headed for an Inflationary or Deflationary Collapse

The answer is all of the above. From Doug Casey at internationalman.com:

dollar collapse

International Man: In the past decade, the Fed’s money printing has created bubbles in stocks, bonds, real estate, and other many areas. It’s likely that the stimulus and money printing will not only continue but accelerate at breathtaking speeds in 2021.

What do you think the prospects are for what the great Austrian economist Ludwig von Mises called a “crack-up boom?”

Doug Casey: First of all, we have to define what Mises meant by a “crack-up boom.” It can occur when the public realizes that money is being printed at a great rate, and it’s likely to continue being printed at a great rate. The public then starts moving out of money to buy anything of real value. All that money is passed around faster and faster, like an old maid card, causing a “crack-up boom.” It’s not a real boom. It’s caused by fear, not prosperity. The desperation of trying to get into real goods and get out of the US dollar creates what you might call uneconomic economic activity.

They won’t try to put the money into productive enterprises, rather just tangible assets that will defend them from inflation. The most famous crack-up boom in modern history, of course, was in Weimar Germany during the early 1920s.

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Economic and monetary outlook for 2021, by Alasdair Macleod

SLL doesn’t do end-of-the-year review and preview articles, or compile a list of predictions. My prediction for 2021 is that it’s going be a whole lot worse than 2020. Alasdair Macleod agrees. From Macleod at goldmoney.com:

The most important event in the new year is likely to be the Fed losing control of its iron grip on markets. The dollar’s declining trend is already well established against other currencies and commodities, leading to this outcome.

Events in 2021 will be the consequence of a developing hyperinflation of the dollar. Foreign holders of dollars and dollar assets — currently totalling $27.7 trillion — are sure to increase the pace of reducing their exposure. This is a primal threat to the Fed’s policy of using QE to continually inflate assets in the name of promoting a wealth effect and continuing to finance a rapidly increasing federal government deficit by supressing interest rates.

Bubbles will then pop, leaving establishment investors exposed to a combined collapse of fiat currencies, bonds and equity markets, which could turn out to be very rapid. The question remaining is what will replace collapsing fiat currencies: limited issue distributed ledger cryptos, such as bitcoin, or precious metals, such as gold?

Clearly, when the dust settles, it will be gold for no other reason that central banks already own it in their reserves, and it has a long track record of success as money in the past.

This article examines the 2020 economic and financial background to likely developments in 2021 before arriving at its conclusions.

Introduction

It is that time again when we reflect on recent events and what might be ahead of us in the new year. 2020 was dominated by a pre-March descent into a financial slump, when the S&P500 index lost a third of its value between January and March, until the Fed cut its funds rate to zero on 16 March and followed up with a statement of intent to expand QE without limit on the following Monday.

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