Tag Archives: Monetary inflation

David Stockman on Why the Great Reckoning Has Begun

The Federal Reserve has suppressed interest rates for decades, such that the economy can only function on what are historically very low rates. Now inflation is raging and interest rates are spiking. The Great Reckoning has arrived. From David Stockman at internationalman.com:

Well, that should have been a wake-up call. The 30-year mortgage rate soared by 24 basis points recently to 6.18%. So the latter now stands at well more than double the 2.65% rate which prevailed just 18 months ago in January 2021, and at the highest level since the tail end of the Great Financial Crisis in 2009.

In a word, the Fed’s fake economy based on ridiculously unsustainable ultra-low interest rates is coming to a thundering end. And far more abruptly and violently than the Fed and its Wall Street megaphones ever remotely imagined.

Not surprisingly, the eruption of the mortgage rate depicted above has sent housing “affordability” into the drink. In fact, housing affordability is now at the lowest point on record going back to the late 1980s.

Needless to say, household budgets are about to get hammered and the housing market is fixing to experience another great implosion. It would actually take a 30% drop in average home prices to reverse the affordability plunge just since the pre-Covid levels.

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Concurrent Deflation and Hyperinflation will Ravage the World, by Egon von Greyerz

FLATION is the suffix for the various phenomena that occur in fiat-debt systems. From Egon von Greyerz at goldswitzerland.com:

FLATION will be the keyword in coming years. The world will simultaneously experience inFLATION, deFLATION, stagFLATION and eventually hyperinFLATION.

I have forecasted these FLATIONARY events, which will hit the world in several articles in the past. Here is a link to an article from 2016.

With most asset classes falling rapidly, the world is now approaching calamities of a proportion not seen before in history. So far in 2022, we have seen an implosion of asset prices across the board of around 20%. What few investors realise is that this is the mere beginning. Before this bear market is over, the world will see 75-90% falls of stocks, bonds and other assets.

Since falls of this magnitude have not been seen for more than three generations, the shockwaves will be calamitous.

At the same time as bubble assets deflate, prices of goods and services have started an inflationary cycle of a magnitude that the world as whole has never experienced before.

We have seen hyperinflation in individual countries previously but never on a global scale.

Currently the official inflation rate is around 8% in the US and Europe. But for the average consumer in the West, prices are rising by at least 25% on average for their everyday needs such as food and fuel.

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A Triple-Barreled Gun Is Destroying African Economies: Inflation, Government Debt, and Taxes, by Manuel Tacanho

You can lump the three under the general category of statism. That philosophy always has and always will destroy, not build. From Manuel Tacanho at mises.org:

Today it is conclusive that Africa’s socialist experiments failed, as did the state-led development approach. Not only was the heavily statist approach unable to develop African economies, but it made poverty worse. In this context of repressive state-driven economic systems, most African countries are trapped in a morass of high inflation, high debt, high taxation, high dependency, worsening poverty, food insecurity, chronic mass unemployment, and other pervasive problems.

Barrel One: High Inflation

Africa’s unstable and inflationary currencies have been a significant impediment to economic development because of their destabilizing and impoverishing effect. Organic and lasting economic growth must necessarily be driven by savings, not by debt, deficit spending, or money printing.

In the long run, inflation ends in the breakdown of the currency. This is what happened in Angola in the 1990s and in Zimbabwe in the first decade of the 2000s.

Evidence from the past and present, from developed and developing countries, unequivocally shows that inflation is a government and central bank policy that cannot go on forever and that does come to a catastrophic end, however long the run may be.

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No, Inflation Is Not A Product Of Corporate Greed, by Ranen Aschemann

Strictly speaking, “inflation” means expansion of the medium of exchange. That’s the province of the government, the central bank, and the banking system. Everyone else, and that includes mega-corporations, are just along for the ride. From Ranen Aschemann at mises.org:

Seventeen months ago, as the keys to the oval office changed hands, for all of the political animus and theatrics, one thing seemed a given: the US economy would roar back to vitality in historic fashion, a point of optimism in a nation of discord and incertitude. Yet hope would give way to ambivalence, which, in turn, gave way to serious doubt. Today, a pathetic 23 percent of Americans feel economic conditions are even “somewhat good.” The primary reason for such abysmal economic sentiment? Inflation.

As consumer prices have accelerated out of control over the past year, a new political narrative on inflation has emerged, one that alleges corporate impropriety as the primary catalyst. The motive for such a messaging shift from select members of the political apparatus is clear: a need to shirk accountability for evidently inflation-inducing policies. Unfortunately, the corporate greed narrative has apparently paid dividends to its progenitors, garnering increasing acceptance among the body politic at large. Indeed, according to one poll from Data For Progress, a majority of likely voters now believe price-gouging is a major contributor to heightened inflation. However, that inflation is brought about by corporate greed is a sophistic political lie in every respect.

Yes, corporations are greedy. People are greedy. It turns out that greed is a natural characteristic of the human condition. It always has been. Why, then, has inflation only recently exploded after 40 years of calm, now clipping along at better than four times the Federal Reserve’s target annual rate of two percent?

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Is Corporate Greed Behind High Gas Prices? By Michael Maharrey

Politicians love to point the finger at corporate greed for high prices, mostly to obscure theirs and their central bank’s role in fiat debt creation, which is the ultimate engine for higher prices. From Michael Maharrey at schiffgold.com:

There is a meme floating around social media that seems to prove greedy corporations – specifically oil companies – are the root cause of inflation.

How does this meme stack up to reality?

Short answer — it doesn’t.

The meme tells us that ExxonMobil earned $5.5 billion in the first quarter of 2022 compared with $2.7 billion in Q1 2021. The meme goes on to conclude “We’re not paying for gas, we’re paying for greed!”

This meme is a great example of the fact that trying to draw conclusions based on a couple of numbers pulled from any context will likely lead you to the wrong conclusion.

The meme uses ExxonMobil’s net income as the basis for its assertion. If you look at the company’s income statement, you will find the data is correct. The company reported a net income of $5.48 billion in Q1 of this year and $2.73 billion in Q1 2021.

First, it’s important to understand exactly what these numbers represent. Net income accounts for revenue minus all expenses, including operating expenses. taxes, interest, debt service, etc. This number is highly susceptible to accounting manipulation. This number is often reported as “profit.”

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The Fed Isn’t Fighting Inflation, It’s Fueling It, by Mike Whitney

The Federal Reserve is taking baby steps to combat the price inflation it has caused. From Mike Whitney at unz.com:

Credit: Jesse’s Cafe American – https://jessescrossroadscafe.blogspot.com/
The media would like to believe the Fed is doing everything in its power to fight inflation, but it’s not true.

Yes, the Fed raised rates by 50 basis points in May and, yes, the Fed is trying to sound as “hawkish” as possible. But these things are designed to dupe the public not to reduce inflation. Let me explain.

The current rate of inflation in the US is 8.6%, a 40-year high.

At its May meeting, the Fed raised its target Fed Funds Rate to 1%. Here’s the scoop:

“The Federal Reserve recently announced that it’s raising interest rates by half a percentage point, bumping the federal funds rate to a target range of 0.75-1.00%.” (The Spokesman-Review)

Got that? So the Fed’s rate is still a measly 1%. That’s what the media is trying to hide from you, and that’s why you might have to read 9 or 10 articles before you find a journalist who provides you with the actual rate.

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They Plan On Repeating “Putin’s Price Hike” Until People Believe It, by Caitlin Johnstone

A lie repeatedly repeated doesn’t become the truth. From Caitlin Johnstone at caitlinjohnstone.com:

President Biden used the phrase “Putin’s price hike” again in a reaction to Friday’s Consumer Price Index report revealing continued high inflation, showing once again that the US government believes Americans are idiots.

“Make no mistake about it: I understand inflation is a real challenge to American families. Today’s inflation report confirms what Americans already know: Putin’s Price Hike is hitting America hard,” Biden said in a statement. “My administration is going to continue to do everything it can to lower prices for the American people.”

Which is of course absurd. Prices were already soaring and inflation was already at a 40-year high before Russia invaded Ukraine on the 24th of February, and there was never anything inscribed upon the fabric of reality which said the US needed to respond to that invasion with an economic war that has made everything worse. The US initiated these unprecedented acts of economic warfare in response to an invasion it could easily have prevented with a little diplomacy, and has managed to do so without even hurting the strength of the ruble at all.

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How Inflation Got Away from Washington Screw Ups, by MN Gordon

It’s a close call between which group is more plentiful in Washington—liars or incompetents, and of course there’s a great deal of overlap. From MN Gordon at economicprism.com:

Sometimes I think of all the places I don’t want to go
Then I think of all the things I never want to do
Think of all the people I never want to meet
I close my eyes and I go to sleep

Green Corn, NOFX

Prayers for the ‘Big Guy’

Being a government hack has its advantages.  You get eleven paid holidays per year.  You get promoted for poor performance.  The benefits are superb.  Best of all, you can get remarkably rich…even if you’re a screw up.

President Joe Biden, for example, has worked for the federal government for nearly 50 years.  His net worth is about $9 million.

Yet Biden and his wife Jill really made the big bucks between 2017 and 2020, when Biden was out of office.  Together, they hauled in $17.3 million in book deals and speaking fees.  These are some of the fringe benefits of having been a government bigwig.

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Will Punch-Drunk Biden Take America Down with Him? By James Bovard

America itself is punch-drunk: 9/11, Afghanistan, Iraq, Syria, the financial crisis, bailouts, Obamacare, Russiagate, Covid, and now Ukraine. It’s on the verge of collapse that’s been decades in the making. From James Bovard at mises.org:

President Biden often looks like a punch-drunk old fighter sent into the ring once too often. At this point, the only thing lower than Biden’s approval numbers is his energy level. Is Uncle Joe too old to rebound?

At this point, Biden is running on little more than fumes and righteousness. In his televised antigun speech Thursday night, Biden proclaimed that he expected most people “to turn your outrage into making this issue [assault weapons] central to your vote.” Biden’s histrionic spiel was far more likely to turbo-charge gun owners than gun banners and could be another coffin nail for Democratic candidates in middle America. Biden perennially tells audiences that banning assault weapons is justified because the Second Amendment didn’t permit Americans to own cannons—a falsehood that even the Washington Post has repeatedly derided.

Inflation is the top issue by a wide margin for Americans nowadays. Biden’s inflation will soon have inflicted a 10 percent cut in the purchasing power of Americans’ paychecks. But Biden is indignant at criticism of his policies. When Peter Doocy of Fox News asked about the impact in January, Biden called him “a stupid son of a bitch.” In a March speech to Democratic members of Congress, Biden raged at being blamed for inflation: “I’m sick of this stuff! … We have to talk about it because the American people think the reason for inflation is the government spending more money. Simply. Not. True.”

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Respect the Fed? No, End the Fed, by Ron Paul

A central bank and an honest monetary system are mutually exclusive concepts. From Ron Paul at ronpaulinstitute.org:

President Joe Biden has unveiled a three-part plan to fight inflation — or at least make people think he is fighting inflation. One part of the plan involves having government agencies “fix” the supply chain problems that have led to shortages of numerous products. Of course, any attempt by the government to solve the supply chain problems (which were caused by prior government interventions such as shutting down the economy for over a year) will not just fail to solve the supply shortages but will create new problems.

Deficit reduction is another part of Biden’s anti-inflation plan. However, Biden is not proposing cutting welfare or warfare spending. Instead, his deficit reduction plan consists of “tax reforms to increase revenue,” which is DC-speak for tax increases. History shows that tax increases unaccompanied by spending cuts end up increasing the deficit.

The last and most important part of Biden’s inflation plan is recognizing that the Federal Reserve “has the primary responsibility to control inflation.” President Biden has pledged to “respect the Fed’s independence,” unlike former President Trump, who Biden accused of “demeaning the Fed” by subjecting the central bank to mean Tweets.

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