Tag Archives: Rising prices

The Economic Doom Loop Has Begun, by Adam Mill

Generally a central bank must try to raise interest rates higher than the prevailing interest rates for inflation to recede. That’s not what’s happening now. From Adam Mill at amgreatness.com:

No communist was ever as dedicated to economic suicide as the current class of idiots who rule us.

High inflation, overregulation, and a general sense that things are going in the wrong direction remind us of the late 1970s and early ’80s. But today the underlying problems that were responsible for our woes in that time are vastly worse. The coming reckoning for Washington’s insanely irresponsible monetary policy may dwarf the troubles from all recent recessions and periods of inflation.

The Federal Reserve has created a doom loop between the housing market and inflation. For years it has printed tens of billions of dollars each month to buy sketchy securities meant to subsidize the housing market and favor bond traders. This continues even now, in spite of inflation and a red-hot housing market. But the housing market has become dependent on unearned, newly printed money, and stopping the flow might cause a catastrophic correction. If it doesn’t stop, however, inflation will explode.

Let me walk you through some of the math.

Inflation closes the gap between money earned and money spent. Since the financial crisis of 2008, the Federal Reserve expanded M2 money supply from just under $8 trillion to around $22 trillion today. During that time GDP has increased from around $14.6 trillion to around $24.5 trillion today. We’ve gone from a ratio of one dollar chasing $2.20 in goods in services to an almost 1 to 1 ratio today. Inflation during the same period, according to the government, has eroded the dollar by a mere 33 percent.

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Why Food Prices Are Expected to Skyrocket, by Dr. Joseph Mercola

Famine looms in many parts of the world and the situation will get worse. From Dr. Joseph Mercola at theburningplatform.com:

Story at-a-glance

  • Food shortages and skyrocketing food prices now appear inevitable. The global food price index hit its highest recorded level in March 2022, rising 12.6% in a single month. On average, food prices were one-third higher than in March 2021. In the U.S., food prices rose 9% in 2021, and are predicted to rise another 4.5% to 5% in the next 12 months
  • Inflation was already ramping up well before Russia went into Ukraine, thanks to the uncontrolled printing of fiat currencies that occurred in response to the COVID pandemic. Governments’ COVID responses have also wreaked havoc with global supply chains, causing disruptions that continue to this day
  • Ukraine has ceased exports of wheat, oats, millet, buckwheat and cattle, and Russia has banned exports of fertilizer

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Peter Schiff: The Inflation Tsunami Is Just Getting Started, by Tyler Durden

We probably haven’t reached full-throttle inflation yet. From zerohege.com:

After CPI came in hotter than expected yet again in January, Peter Schiff appeared on Fox Business along with Chief Investment Officer and Portfolio Manager of Solutions Funds Group Larry Shover. Peter said that the inflation tsunami is just getting started and the Fed is powerless to fight it.

With the hot inflation print for January, the markets are now pricing in a 50 basis point rate hike in March. Peter said that won’t be enough.

If we still measured inflation the way we did 40 years ago, it would be 15%, not 7.5%. And the rate hikes they’ve proposed are completely inadequate. In fact, the Fed is intending to pursue an accommodative monetary policy. Even if they raise interest rates to 1 or 2%, that is highly accommodative. That’s the same type of interest rates they had when inflation was below 2%. You’ve got inflation at 7.5%, even the way they measure it – and rising. The only way to put out this fire is to have positive real interest rates. The Fed needs to get above the inflation rate. We’re not even going to get close. So, they’re going to continue to pour gasoline on the fire. And so, the entire time the Fed is inching up rates, inflation is actually going to be moving higher. Inflation is going to be worse in 2022 than it was in 2021, and real interest rates are going to continue to fall even as the Fed raises nominal rates.”

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The Fed Has Triggered A Stagflationary Disaster That Will Hit Hard This Year, by Brandon Smith

The smart money bet is that the stock and bond markets don’t cope well with a stagflationary disaster. From Brandon Smith at alt-market.com:

I don’t think I can overstate the danger that the U.S. economy is in right now as we enter 2022. While most people are caught up in the ongoing drama of Covid-19, a REAL threat looms over the nation in the form of a stagflationary tidal wave. The mainstream media is attempting to place the blame on “supply chain disruptions,” but this is a misrepresentation of the issue.

The two factors are indeed intertwined, but the reality is that inflation is the cause of supply chain disruptions, not the result of supply chain disruptions. If we look at the underlying stats for price rises in essential products we can get a clearer picture.

Before I get into my argument, I really want to stress that this is a precarious time and I suggest that people prepare accordingly. In just the past few months I have seen personal expenses rise at least 20% overall, and I’m sure it’s the same or worse for most of you. Stocking necessities and safe-haven investments with intrinsic value like physical precious metals are a good choice for protecting whatever buying power your dollars have left…

Higher prices everywhere

The Consumer Price Index (CPI) is officially at the highest levels in 40 years. CPI measurements often diminish the scale of the problem because they do not include things like food, energy and housing which are core expenses for the public. CPI calculations have also been “adjusted” over the past few decades by the government to express a more positive view on inflation. If we look at the inflation numbers at Shadowstats, calculated according to the same methods they used in the 1980’s, we see a dramatic increase in CPI which paints a more dire (but more accurate) picture.

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“Bidenflation” Is Systematically Destroying The Middle Class, by Michael Snyder

The guys and gals in the middle’s wages almost never keep up with rising prices. From Michael Snyder at theeconomiccollapseblog.com:

Americans have more money in their pockets than they ever have before. That sounds like really great news, but it isn’t, because the cost of living is rising much faster than our incomes are. In addition, much of the “new wealth” that has been created over the past couple of years has ended up in the hands of the very wealthy, and this has caused the gap between the rich and the poor to grow even wider. As for the middle class, it is being systematically hollowed out by “Bidenflation”, and that process is only going to accelerate during the early stages of 2022.

Personally, I don’t like to use the term “Bidenflation” too much, because it is not entirely accurate. Without a doubt, the Biden administration has taken actions over and over again that have made the inflation crisis even worse. But it isn’t as if Joe Biden and his minions are the only ones responsible for this mess.

The creation of the Federal Reserve in 1913 started us down the road that we are on today. Of course we could have exited this path at any time if U.S. voters had sent politicians to Washington that were committed to abolishing the Federal Reserve, but they didn’t do that.

In 1971, we reached “the beginning of the end” when President Nixon took the U.S. off the gold standard. Today, the value of the U.S. dollar is only a very small fraction of what it was back then.

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Oops…Is the Crack-Up Boom Here, by Ron Paul

The primary beneficiaries of inflation are those who are first in line for the newly created money, at the top rather than the bottom of the financial ladder. From Ron Paul at ronpaulinstitute.org:

Bloomberg News recently solicited advice from Argentinians who lived through that country’s high inflation on how Americans should cope with rising inflation. The Argentinians suggested Americans spend their paychecks as fast as possible to avoid future price increases. They also suggested taking out loans that can be paid back later in devalued currency.

These strategies may make sense for individuals. However, encouraging debt and discouraging savings is disastrous for the country. Relying on debt and spending one’s paycheck immediately encourages people to seek instant gratification instead of planning for the future. This depletes both economic and moral capital.

November’s 9.6 percent increase in the producer price index, combined with the consumer price index’s increase to levels not seen since the early 1980s, shows why fears of inflation have become the public’s number one concern. Even the Federal Reserve has acknowledged that inflation is not just “transitory.”

The Fed recently announced it is accelerating the timetable to reduce its monthly purchases of Treasury and mortgage-backed securities. The Fed also announced it is planning three interest rate increases next year. However, the Fed plans to increase rates by no more than one percent. So even if the Fed does follow through on its promise to hike rates, it will do little if anything to combat rising prices. If the Fed allowed interest rates to rise to anything approaching market levels, it would make the federal government’s debt servicing costs unsustainable. This puts tremendous pressure on the Fed to maintain low rates.

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The Solution to Inflation, MN Gordon

The deflation of the money supply necessary to cure raging price increases would send the economy into a depression. From MN Gordon at economicprism.com:

President Biden and his cohorts in Congress and at the Federal Reserve have delivered an early Christmas present.  They’ve given Americans the gift of raging price inflation.  The cost of just about everything has gone through the roof.

Consumer prices, as measured by the consumer price index (CPI), have increased 6.8 percent over the last year.  This marks the largest 12 month surge since the period ending June 1982.  In truth, the CPI is rising at more than double the rate of what’s officially reported.

Can the Fed stop raging price inflation without triggering a deep recession?

Former U.S. Treasury Secretary Larry Summers doesn’t think so.

Summers, if you didn’t know, has an axe to grind.  He always fancied he’d be Federal Reserve chairman one day.  But he’s too much of a dirty fellow to ever get the job.

Summers is better suited to the ivory tower of Harvard academia.  There, sequestered from public life, he can play Fed chairman from the ease of his lounger.  He’s good at it.

Summers is also a paid contributor to Bloomberg.  For entertainment purposes, Bloomberg makes a habit of dripping out utterance from Summers when the time is right.

Last week, for example, in anticipation of this week’s Federal Open Market Committee (FOMC) meeting, Bloomberg treated the world to Summers’ tedium.  From Bloomberg:

“Former U.S. Treasury Secretary Larry Summers said inflation has become entrenched, lowering the probability that the Federal Reserve will be able to tame price increases without causing a recession.

“Summers now sees 30 percent to 40 percent chances for a recession over the next 24 months.  The Harvard University economist also estimates that the odds of a so-called soft landing, in which tighter monetary policy doesn’t sharply constrict economic growth, at 20 percent to 25 percent.”

How Summers came up with these odds was not disclosed.  We put the odds of a recession much higher and the likelihood of a soft landing much lower.

By our back of the napkin calculations we estimate a 100 percent chance of a recession over the next 24 months.  We also put the odds of a soft landing at 0 percent.

We’ll have more on why we’re headed for an epic crash and burn scenario in just a moment.  But first, some context is in order…

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Inflation Devastation for the Democrats, by Kurt Schlichter

Somebody will pay the political price of rising prices, and it’s going to be the Democrats. From Kurt Schlichter at theburningplatform.com:

Inflation Devastation for the Democrats

Most of you whippersnappers were not even Planned Parenthood targets back when inflation was last a thing. It was the late-seventies, which you people associate with funky clothing and disco music. Most of us who lived through that miserable decade associate it with economic malaise, notably including massive inflation and 18% interest rates.

Yeah, think about 18% interest, all you folks with an adjustable rate loan. You’re spoiled by cheap money and low inflation. You are about to learn a lesson in economics. See, when Uncle Sucker prints lots of money and there are fewer things to buy, you get inflation. Prices rise. And your standard of living falls.

Despite the economic insights of Joe Biden and his cast of mutants, there’s no changing it. And no, inflation is not evidence that all is well. That’s like a leper saying “Well, now that my big toe fell off, there’s less stuff to be infected. I’m cured!”

You are already seeing the results of the flood of fiat money wished into being by a liberal Congress. We have not gone full Weimar yet, but if they pass this BBB thing, life will be a cabaret.

If you have a car right now, good for you. It’s worth a lot more than it was six months ago. You can sell it and maybe make a profit. I scored by buying out a lease for a price set pre-inflation three years earlier – you should have seen the dealer wince. But if you need a new or used car, uh oh. Between the supply chain problems getting new vehicles (the manufacturers can’t get parts to build them, and once they do there’s the nightmare of moving what cars they do have to the dealers) plus the shortage of old ones to sell used, it’s a nightmare. 

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Inflation Invades Household Budgets, by Bill Bonner

Who are you going to believe, the government or your own wallet? From Bill Bonner at rogueeconomics.com:

YOUGHAL, IRELAND – We have all been reassured. Inflation can be easily defeated by the Federal Reserve. And according to economist Paul Krugman, it is already in retreat.

“The current wave of inflation is real,” concludes Adviser Investments, “but it’s not a long-term trend.”

Today, we look at reports from the front.

Whoa! Here’s CNN:

America’s factories are struggling with supply chain issues and material shortages. Now, that’s showing up in prices: in June, manufacturers reported the biggest price jump in 42 years.

The Institute for Supply Management’s manufacturing price index rose to 92.1% last month, up 4.1 percentage points and hitting its highest mark since July 1979. It was the 13th straight month of price increases in the sector.

“Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Timothy Fiore, chair of the ISM’s manufacturing business survey committee.

And what’s it like in the trenches? Let’s check with our dear readers. Here’s Marius M.:

My company […] builds high-pressure washers for the oil industry. Beyond having to wait two or three months for components, like pumps, motors, and engines, prices for them went up, on average, 250%. Steel, which we use to build the structure on which we assemble an installation, went up 220% so far.

Even when we complete such an installation, that should be shipped to the customer, the wood to build a pallet went up 320%. And the cost of shipping itself went up 400%. That’s inside the U.S. We have installations ready to ship to Dubai and Abu Dhabi, but we cannot find a shipper at any price.

Finally, who do you think is gonna pay for all this mess? Granma Yellen? Just look in the mirror and find out!

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“Things Are Out Of Control” – There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next, by Tyler Durden

Accelerating inflation looks like as close to a sure thing as you ever get in economics. The question then becomes when do rising interest rates torpedo massive debt and nominal growth? From Tyler Durden at zerohedge.com:

In Wednesday’s press conference, Jay Powell confirmed that the Fed is setting off on a historic experiment: welcoming a conflagration of red-hot inflation for an indefinite period of time in an overheating economy, with the underlying assumption that it’s all “transitory” and that inflation will return to normal in a few years, and certainly before 2023 when the Fed’s rates will still be at zero.

There is a big problem with that assumption: while FOMC members, most of whom are independently wealthy and can just charge their Fed card for any day to day purchases of “non-core” CPI basket items, the vast majority of the population does not have the luxury of having someone else pay for their purchases or looking beyond the current period of runaway inflation, which will certainly crush the purchasing power of the American consumer, especially once producers of intermediate goods start hiking prices even more and passing through inflation.

Many readers may not recall, but one such instance of “transitory” inflation that proved to be anything but and led to the infamous Volcker Fed and its double digit rate hikes, was the price of oil which took off in the Arab oil embargo and then refused to come back for over a decade.

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