The Coronacrisis hit unexpectedly, but the economic damage could be predicted because of the flaws in our financial system. Economic predictions and commentary here have, for years, faithfully pointed out the fatal flaws the Fed set up during its Great Recovery from the Great Recession. Accuracy is why numerous readers have offered and maintained their financial support.
Beware that I’m an equal-opportunity critic toward Republicans and Democrats because both parties are packed with the pocket politicians of the bailout banksters who broke our world. Prevailing windbag economists are no better. They didn’t see the Great Recession coming or the depression that would develop from the Coronacrisis shutdown.
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Not even close to transitory. After giving its turkey advice for Thanksgiving, the Federal Reserve finally gave up completely on the “Inflation is transitory” chorus it has been singing all year. Chairman Powell of the People’s Bank of Amerika stated outright today that inflation is not transitory after all, confirming what I have been preaching all year, and he stated that inflation may likely force the Fed onto an even faster tapering path than the it already laid out, confirming the second part of what I have said all year:
Wall Street’s main indexes closed lower on Tuesday after Federal Reserve Chair Jerome Powell signaled that the U.S. central bank would consider speeding up its withdrawal of bond purchases as inflation risks increase, piling pressure onto a market already nervous about the latest COVID-19 variant. In a testimony before the Senate Banking Committee, Powell indicated that he no longer considers high inflation as “transitory” and that the Fed would revisit the timeline for scaling back its bond buying program at its next meeting in two weeks
And, so, with that the stock market also responded in the manner I have said it will when the Fed actually starts tapering and speeds up its tapering because inflation grows to be so searingly hot the Fed cannot avoid speeding up its tapering of QE. Just talk that the Fed will be thinking about picking up the pace at its next meeting, sent the Dow down more than 600 points today, after having plunged more than 800 on what I’ll call Dark Friday. While the market recovered a mere third of its losses on Monday, it lost more than double what it recovered today, putting it already halfway into a correction (down 10% from a previous high).
“Powell’s comments threw a monkey in the wrench in market thinking in terms of potential taper timing. You’re seeing as a result of that, risk-off across the board,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles…. Whether … more headline risk or reality risk … it’s having a significant impact on oil, and everything that’s tied to economic growth.
“The principal contributor to the decline in stock prices today is the Powell commentary, regarding the upcoming Fed meeting, about accelerating the tapering of their bond buying program, which obviously leads to the prospect that rate hikes come sooner next year,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia. “That somewhat hawkish shift in tone caught the market flatfooted,” Luschini said.
It wouldn’t have if the market listened to me, but for some reason some people — a great many in fact — found this readily predictable news entirely surprising. So, some of the market’s denial broke today. Whether that is a significant break that sets in the market’s demise that I have been predicting inflation will cause or just another shiver, remains to be seen. Denial dies hard, but it was a pretty deep shiver:
The declines were broad-based, with all the 11 major S&P sectors down…. “The market is clearly in some treacherous waters right now. You’ve had two significant pullbacks out of the last three trading days. This is certainly shaking some of the complacent longs in the market,” said Wedbush’s James.
Powell explained in his warning,
I think you what you’ve seen, is you’ve seen our policy adapt and you’ll see it continue to adapt to we will use our tools to make sure that higher inflation does not become entrenched.
Yes, they will because, as I’ve recently started claiming, inflation has reached the point where it is now burning up the Fed’s backside, leaving the Fed no room to retreat on the tapering if things go bad and pressing it to even pick up the pace, in spite of the fact that it risks all the more that things do go bad.
“The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond buying program as early as the first quarter of next year,” says Charlie Ripley, senior investment strategist for Allianz Investment Management. “Ultimately, the transitory view on inflation has officially come to an end as Powell’s comments reinforced the notion that elevated prices are likely to persist well into next year. With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.”
Well, it’s not exactly uncharted because I’ve been charting this path and saying what the turning points would be (the causes to look for) for more than a year. But, I guess it is uncharted if you don’t read here … or do, but don’t believe me. So, let me tell you for clarification how that chart goes from here:
The Fed will pick up the pace of its tightening. The market will strongly revolt, and the Fed, badly as it wants to slow tapering down to save the market will have its back up to the wall, making that very difficult if not impossible to do because the price tag of that choice is even hotter inflation for longer, forcing much more intense tightening further down the path.
The Fed’s last experience with inflation of this kind when it let inflation run this far out of control back in the seventies was painful for the entire nation for a few years. I can guarantee you the Fed well remembers the incident. Most of them were around back then, so muscle memory will make it hard for them to do their usual reflexive withdrawal of tightening when the market revolts.
Thus, the waters ahead are more treacherous even than the articles above indicate. What they respresent is more like the best-case scenario if all goes well. In this fearful new Covid-plagued world, does that seem likely to you? It does not to me.
The US central bank has apparently taken on a new mandate — being your dietary coach, advising Americans to fight the inflation it helped ignite by eating tofurkey and other soy-based foods for Thanksgiving, instead of turkey.
From the FRED Blog: A Thanksgiving dinner serving of poultry costs $1.42. A soybean-based dinner serving with the same amount of calories costs 66 cents and provides almost twice as much protein https://t.co/qmyjwZd7aUpic.twitter.com/pHv3ZR9o6u
They say, “If you can’t take the heat, get out of the kitchen.” Unable to take inflation’s turkey-roasting heat, now running at 6.2%, the Federal Reserve has decided to turn that advice on its head and get into the kitchen — your kitchen. Putting its brightest and most forward-thinking economists to work to help you out, the Fed has calculated that a single serving of America’s favorite holiday bird now costs $1.42 while a substitute made from soybeans can be had for a mere 66 cents and offers the same number of calories.
As if the real reason you eat Thanksgiving dinner is just to pack on calories! Leave it to a bunch of rich, glass-eyed, tasteless bankers not to get why we eat turkey on Thanksgiving.
Why do we do this to ourselves? Because it tastes good!
I don’t think anyone will be inviting Uncle FRED to dinner. In the very least, they won’t be letting him be the one who brings America’s favorite centerpiece dish. Some Americans aren’t swallowing the Fed’s advice and have retorted against their advisors:
I don’t think anyone is looking for nutrition advice from a central bank.
It would be easier for you all to curtail the persistently high inflation that you created, rather than take on a national nutrition campaign.
Imagine how cheap a picture of dinner would be and just pretending you ate!
— Richard Heart raised $27M for SENS.org. Founded: (@RichardHeartWin) November 22, 2021
Americans are already Fed-up
We have no appetite for what the Fed is stuffing down our throats. We’re already sick of the fact that turkey dinner is going to cost 14% more this year than last … while Christmas dinner will be 15% more at the present actual rate of inflation. The cost of at the average turkey alone has gone up five bucks (up 25%)!
And why shouldn’t we be sick of it? Look at who is seated around the nation’s Thanksgiving table.
First, we have Papa Powell who is thankful this Thanksgiving that he got to keep his job. He reminds me of that turkey President Biden pardoned several days back.
Then there is Gramma Yellen, who should be yellin’ about inflation, but she ain’t. Instead, she was happy just to assure us all on Monday that the inflationary oven will cool off in about a year; so, for now, the Fed can keep overfeeding the nation on free money, which mostly goes to the rich.
Of course, Gramma Yellen is the same doddering Fed head who told us blithely a couple of years ago that the Fed’s tightening of its belt back in 2018 would be so easy it would happen on autopilot. It would be as boring as watching paint dry, she said. Instead, the market crashed three times that year to where the Fed had to abruptly pull the autopilot plug. As the Fed’s economic tightening commenced, the stock market experienced bad post-holiday indigestion in January and February of 2018, which turned into the worst start of a year in Dow history. Then the FAANG stocks, which had led the market for years, crashed about 40% in the summer as the Fed redoubled its tightening. Then, when they intensified their diet even more, the market plunged 20% in December, more than wiping out any gains it had made in the year. It looked like the Fed kept banging its head all year long like a bunch of stumblebums running down a staircase with a low ceiling.
Gramma Yellen is also the one who promised us there would never be another financial crisis in her lifetime. Apparently, she didn’t intend at the time to live much longer, given her age, because about a year after she spoke, the Covidcrash came along and was such a severe financial crisis that the Fed had to create more money to bail the nation out from that self-destruction than it did during the entire recovery period from the Great Recession … and it’s still bailing.
So, when Gramma Yellen comfortingly assures you now that inflation will be tamed in about a year, just remember smiling Gramma is apparently a little senile.
Next at the table of blame. We have sleepy, creepy Uncle Joe who has restfully assured the entire dysfunctional US family he is making inflation his top priority now that it has hit its highest level in about forty years. He announced he’s getting on the ball just as inflation hit almost 1% per month (as opposed to the Fed’s old target of 2% per annum). Of course, Uncle Joe promised us between L-tryptophan naps that he’d get right on the gasoline price problem half a year ago. He, then, called up his friends in the Middle East and begged them to pump more oil, but apparently calling for favors doesn’t work as well as it used to because gas continued to climb to near-record heights of $5 a gallon in some parts.
We’ve been inflating our bellies for a long time
I think the Fed should stay away from dietary advise and get busy with actually fighting the kind of inflation they are supposed to fight since they haven’t been doing any better with their own diet than many of us have been doing with ours.
Economically, our nation is morbidly obese because we are already overFed and overstuffed with excess money. At this rate, the US may soon look like that other Turkey — the nation — whose lira has crashed 35% relative to the US dollar this year, surpassing the declines of other banana-republic money due to President Erdogan’s gross mismanagement of the currency. Turkey has decided to outmaneuver the Federal Reserve in devaluing, not just the comparative value of its currency, but the purchasing power as well in order to keep stimulating its flaccid economy.
“We were either going to give up on investments, manufacturing, growth and jobs, or take on a historic challenge to meet our own priorities,” he said after a cabinet meeting in capital Ankara, his comment adding another 9% nosedive to the Lira. Score! In the race to the bottom.
According to Erdogan, he is engaging an “economic war of independence.” Independence from reality? Anxious to take the path of Zimbabwe or Venezuela in recent years? Or just trying to beat the Fed in a downhill turkey trot? Its banks may soon join the run because Turkey is going to eat the value of its currency to nothing — gobble, gobble.
Have no fear, Father Fed is here … just in time to eat your dinner! So, tofu up!
We have just entered those days of heady inflation that I have said will kill the stock market and bond funds. There is a tipping point at which inflation and the interest changes that respond to inflation matter, but it has never been a clearly defined point.
One or two dimwits told me I was stupid to be thinking inflation would be the driving force of 2021 due to shortages and Fed money printing. The cockiest one even assured me his second-grade education in economics said inflation wasn’t even happening, yet inflation has relentlessly surged higher every month to finally now hit a forty-year high:
A little virus and a big set of misguided responses to it are sinking the unsinkable world.
While third-quarter GDP growth came in a little higher than the Atlanta Fed was predicting, it still came in below the consensus of economists, which averaged at 2.6%. The Bureau of Economic Analysis came out with 2.0%:
One thing I did not expect from Biden was that he would become more dangerously divisive than Donald Trump. That is a high bar for high drama. Turning health decisions into political wedges is foolish and detrimental to the nation’s well-being. I hoped Biden had more sense than that; yet, he is making the vaccine as political as Trump made masks.
Biden, who promised before the election that vaccines would not be mandated by his administration, now repeatedly and unjustly blames the unvaccinated for causing the Delta variant to infect everyone. In order to manipulate peer pressure across the nation to support his vaccine mandate, he is deliberately driving a wedge between the vaxxers, whom he presents as a righteous majority that cares about others, and the new pariah class he is creating out of those who refuse vaccination, whom he blames and shames for inflicting everyone with COVID. It’s a stigmatizing us-and-them argument:
We’ve been patient, but our patience is wearing thin, and your refusal has cost all of us.
As I wrote in my latest Patron Post, hospitals were already seriously understaffed, and COVID fatigue is imperiling their ability to provide care:
Hospitals taxed by the pandemic over the last 20 months have a new problem: Labor strife and a wave of resignations have people waiting longer for care.
Months of marathon shifts, an onslaught of verbal and even physical abuse from patients and the public, and perennial complaints over low pay and staffing shortages are stirring unrest at a particularly critical moment in the pandemic….
More than a half million health care workers quit in August, the last month for which data is available. That’s the most in a single month in more than 20 years.
Now Biden and some governors are stripping critical medical staff down even further with their vaccine mandates, while some hospitals are denuding themselves on their own volition just because of their AMA/CDC obsession over COVID vaccines:
New York State’s largest healthcare provider, Northwell Health, has fired 1,400 employees who refused to get COVID-19 vaccinations….
Northwell announced its vaccine mandate in August, weeks before the state requirement….
Political officials cite that around 16% of the New York state’s hospital workers, representing about 83,000 people, aren’t completely vaccinated. Roughly under 10% have not received a single shot. They’re demanding for employees to get their vaccinations—or else face the consequences….
New York-Presbyterian Hospital fired about 250 employees who refused to get vaccinated….
A North Carolina-based hospital system announced this week that roughly 175 unvaccinated employees were fired for failing to comply with the organization’s mandatory coronavirus vaccination requirements
Biden’s mandate madness is making us all less safe from COVID by cutting our skeleton crews of healthcare workers to the bone just as the months arrive when flu season will likely amplify COVID contagion!
As a result, hospital workers who were lauded as heroes prior to the vaccines are now being forced out with no dignity or thanks because of their refusal to vaccinate. If they were considered a great help back then when they were unvaccinated, why are they deemed now as being more hinderance than help because of their unvaccinated condition?
Biden’s jabs at unvaccinated healthcare providers became personal for me
My own daughter-in-law, a diligent surgical tech in a hospital obstetrics ward, has been relegated to the new pariah class. She’s pregnant and won’t risk her unborn baby girl on a vaccine now required for pregnant women. The hospital where she has worked for years is terminating her for refusing the vaccine, even though no studies have been done on the vaccine’s effects on developing fetuses. The hospital demands she risks her baby’s development based on nothing but blind assurance all will go well. That is in spite of the fact that the vaccine’s mRNA causes the body to create spike-proteins that have been shown to accumulate in the ovaries — to what damaging effect no one knows.
Naturally, my daughter-in-law rationally fears those accumulating bits of vaccine-caused detritus could affect the development of her daughter’s ovaries, perhaps leaving her daughter sterile for life. My daughter-in-law won’t roll the dice on an unknown gamble like that so she is being flushed out of her livelihood just as she adds a child to her dependents.
As a healthcare worker, she’s far from being an antivaxxer. She has vaccinated all of her children against many diseases that are more deadly than COVID over the years, but those vaccines have all been given longterm testing. She’s not about to vaccinate her unborn daughter with something known to aggregate in ovaries that has had no longterm testing on anyone, much less on unborn children.
I witnessed the mandate damaging the local medical establishment in another way when my wife’s top-notch doctor just resigned, rather than get the vaccine. Obviously, not all medical professionals are confident of the vaccine’s safety if they’ll walk away from high-paying professional partnerships to avoid vaccination.
These are martyrs to the madness.
Biden’s mandate madness hits home
And now I have become one of the new pariah caste. I chose not to vaccinate because I already had COVID (like the immunologist at the link above who refused the vaccine because past infection with COVID increases your risk of an overreaction to the vaccine). My immune response was excellent, leaving me completely trouble free two weeks later. That left me with no need to take any vaccine risk for the sake of calming other people’s apparently terrified minds.
The vaccinated pushers are so hysterical with fear they fired me in belief that I am putting them and others at risk even though they have been vaccinated and claim to believe in the vaccine. How hypocritical to their own claim is that? If what they believe is true, then the only others I could put at risk are those who have also chosen not to vaccinate and, therefore, chose to take the same risk I have chosen to take! That reduces the fears of the vaccinated to nothing but mass hysteria. If some of us want to take that risk with our own lives, while their lives are fully protected, what should they care? Shouldn’t that be our own choice?
Here are some more facts. My naturally enhanced immunity is scientifically proven to be greater than theirs in breadth and in longevity for protecting both against future infections and reducing my risk of hospitalization more than the vaccine reduces theirs. Several studies by major medical institutions have now demonstrated that.
(See this huge study in Israeli, one of the most highly vaccinated nations on earth, for verification: https://www.science.org/content/article/having-sars-cov-2-once-confers-much-greater-immunity-vaccine-vaccination-remains-vital )
Next time I get COVID, I should fight it off even more easily since my body now has an enduring memory of what it did last time that was already extremely effective and is much superior to the longevity of vaccinated immunity. (See the study above.)
I took no drugs or treatments of any kind to fight the illness, just use good nutritional support — D3, zinc and melatonin, the widely known natural helpful measures. I would say 50% of the colds and flus I’ve had in the last twenty years have been worse. So, I’ll take my chances with natural immunity over experimental chances that have never had long-term testing of any kind. My choice has nothing to do with politics, but I won’t be controlled by the politics either if I can avoid it.
I also told my employer that I chose not to vaccinate because I have a major health condition that gives me more than a 30% likelihood of a major setback from the vaccine? This summer a survey of thousands of people with my condition revealed 27-36% (depending on the vaccine used) of those surveyed suffered “major setbacks” from the COVID vaccines. (See: https://www.healthrising.org/blog/2021/07/14/coronavirus-vaccine-chronic-fatigue-syndrome-better-way/ )
The CDC allows immunocompromised people to receive emptions, and my immune-compromising condition was diagnosed and treated for years by one of the nation’s leading experts in that condition at Harborview Medical Center in Seattle, an experimental-medicine hospital run by the University of Washington. Because I was part of a government-funded research program, my diagnosis had to be rock solid in order to preserve the integrity of the research.
Yet, I was terminated for saying, “Because I’ve had COVID, I don’t need this experimental vaccine that has had no long-term testing, and I actually have strong reason to believe it could cause a serious setback in my underlying health condition, so I need you to accommodate that medical need.”
Joining the chorus of unsung heroes
I suppose, since I have a Class-A commercial driver’s license, I could always change careers to get a job driving a truck for a small company that is not under Biden’s mandate … until Biden or my governor closes that door, too. If I elect to do that, I’ll be helping the economy through one of its biggest problems right now — supply shortages due in large part to a lack of truck drivers (which Biden’s mandate will make worse).
A shortage of [truck drivers] has jammed up railyards and kept shippers from unloading in a timely manner at their warehouses, increasing gridlock…. Trucking companies say that the Biden administration’s impending requirement that most employers mandate Covid-19 vaccinations will further hurt their hiring efforts, but the president has shown no indication he’ll retreat or soften the rule for firms in the supply chain.
Becoming a trucker at a company small enough to avoid the Biden mandate should make me an unvaccinated hero for getting the things people need to them, but I wouldn’t hold my breath for that praise, even if I did wind up delivering medical supplies. Neither will I capitulate to all of this as Biden’s bashers fear my dust-of-the-earth kind of natural immunity even as they claim they are fully protected from me by their high-tech vaccines while arguing that I must conform to the protection they have so they can feel safe again.
If you are a truck driver who delivers medical supplies who is terminated for refusing a vaccine, expect the vaccinated to become enraged with you when essential medical supplies are not making it to hospitals this winter just because you wouldn’t vaccinate. You are a leper. You are pariah — one of the Great Unwashed who is fouling up society’s supply lines by your refusal to cooperate with the agenda because you refuse a vaccine that has had no longterm testing.
Even if you’re a trucker who has already had COVID, don’t expect them to praise you for your prudent choice if your preference for retaining health diversity via natural immunity leaves you as one of the healthy minority down the road who are struggling to carry a decimated society along. Their minds allow no such nuance for diversity in approaches. And when they fire you over the vaccine this fall, the lack of food on their tables this winter will be your fault, too. If you had only submitted to the vaccine, you could have delivered the food they need to eat.
Another university doctor takes stand against “Nazi totalitarianism”
The last time I included a particular indicator of where temporary inflation and permanent inflation are headed, the indicator had risen in rather threatening manner to look like this:
BlackRock’s Jean Boivin just said there are not apparent signs of stagnation — just inflation. What Bovine foolishness:
Prices have climbed around the world, with commodities prices surging and U.S. inflation hitting a 13-year high. It’s the first time since the 1970s that a supply shock is the main culprit. This is where the comparison ends. There’s no risk of 1970s-style stagflation, in our view. Economic activity is increasing briskly and has room to run.
How dense do you have to be as an economist to see so much of the following so well and, yet, not see at all what it is you’re looking at:
We have long held that inflation was one of the market’s most underappreciated risks. Now it’s here. This year’s surge is primarily driven by a major supply shock: the vaccine-driven restart of economic activity from the pandemic’s shutdowns. Producers have struggled to meet resurgent demand, clogged ports have increased shipping costs, and surging commodities have added to price pressures. These dynamics mark a sea change from the environment many of today’s investors know best: decades of low inflation on the back of deepening globalization and technological advances.
This reminds me of how only a tiny handful of economists could see the Great Recession coming when it was already here. Most economists could not see the recession when they were already standing in the middle of it. What abject failures at their own profession they were. So, let me point out the obvious, just as I had to do back then.
First, let me note that BlackRock even manages to see the most obvious correlation with the stagflation of the seventies (a condition that isn’t even necessary but that has suddenly risen all around the world to be as strong now as it was back in the seventies):
The last time a major supply shock drove up inflation was in the 1970s, when an oil embargo by producers triggered a spike in oil prices. Today’s oil price surge naturally raises the question of whether the economy is headed for 1970s-style stagflation, a period of high inflation coupled with weak growth.
The oil/energy crisis is already massive and global: (Just because it has not fully hit the US yet, does not mean it is not very bit as huge as what was seen in the seventies … or even worse.)
Power shortages are turning out streetlights and shutting down factories in China. The poor in Brazil are choosing between paying for food or electricity. German corn and wheat farmers can’t find fertilizer, made using natural gas. And fears are rising that Europe will have to ration electricity if it’s a cold winter.
The world is gripped by an energy crunch — a fierce squeeze on some of the key markets for natural gas, oil and other fuels that keep the global economy running and the lights and heat on in homes. Heading into winter, that has meant higher utility bills, more expensive products and growing concern….
It’s hitting the Italian food chain hard, with methane prices expected to increase sixfold and push up the cost of drying grains. That could eventually raise the price of bread and pasta at supermarkets, but meat and dairy aisles are more vulnerable as beef and dairy farmers are forced to pay more for grain to feed their animals and pass the cost along to customers.
The article above goes on to lay out manifold problems throughout the world in supply chains that will result in diminished food and supplies of all kinds already certain for months to come. While some dimwits claim the problem is purely due to high demand (to put a grand spin on it), other writers are smart enough and honest enough to state most of the problem comes from people being unwilling to return to work at ports and in transportation even after extended and enhanced unemployment benefits ended, and due to foreign ports being closed down, and especially due to a longtime and growing shortage of truck drivers.
With energy now in a global crisis, all the ingredients of the last stagflation are solidly in place, except for declining business in the US, according to BlackRock. However, hold on a minute! If you look at US GDP, as I did in my last article, you’ll see that even business is ALREADY rapidly plunging, too, leaving BlackRock’s statement that we don’t have stagflation because business is booming a projection without the support of a trend:
As a reminder, here is what I wrote about the actual trend last week,
To see proof that we are entering the stagflation I said this would turn into, let’s look at how Goldman Sachs has also revised its predictions for economic growth (annualized as what it would be if it held at that quarterly rate for a year):
Prior to July, GS’s forecast for the second half of 2021 was +9.5% for Q3 and +6.0% for Q4.
In late July, GS revised its forecast down to +8.5% for Q3 and +5.0% for Q4.
On August 18, GS revised its forecast down to +5.5% for Q3 but raised its Q4 prediction to +6.5%.
Last weekend, they revised Q3 down again to +4.5%, and decided their previous upward revision for Q4 was bassackwards and dropped Q4 to +5.0%.
Finally, this weekend GS cut its GDP growth forecast to +3.25% Q3 and +4.5% Q4.
Plunging week to week by that much, it seems Goldman’s number runners just can’t keep up with the nation’s speedy decline. The Atlanta Fed predicts much worse. Now at a pre-recessionary 1.3%, the Fed’s predictions have plummeted continually as you can see:
Merely a nip above recession.
With so much evidence that GDP is declining faster than one can keep up with the fall, BlackRock is without excuse for failing to see the decline. In fact, a much broader array of bad conditions is in place than existed in the seventies. Yet, BlackRock predicts central banks will (and should) help save the day, even as they admit there really isn’t anything central banks can do about all of this:
We believe central banks with credible inflation frameworks will largely look through the restart price pressures – and avoid a premature tightening that hurts growth but does nothing to address the bottlenecks.
The fact is, nothing central banks do can address the bottlenecks, and the fact is, as I also pointed out in that last article, the Bank of England and European Central Bank have already started tightening, and the Fed has already indicated it will start to reduce the amount of slack it is creating in the system in November or December.
BlackRock’s ability to see everything around them but completely inability to understand what it all clearly means almost implies something darker than mere opacity of thought. Do they have a book of goods they need to offload to retail investors whom they need to energize in order to have a ready market to sell into? I don’t know, but I cannot explain, otherwise, how their economists can fail to see rapidly sliding GDP projections that others in their profession are reporting. Even if you grant them excuse for that particular blindspot, they cannot be excused for believing business will continue to boom just because demand is remaining solid! Continuing solid demand in the face of failed delivery of goods and services only assures that inflation will continue to boom, not GDP and not business. You cannot sell what you don’t have! You cannot sell what you cannot transport to market either.
On the basis of this obvious and rapid deterioration in GDP due to globally gargantuan supply-chain troubles and clear evidence that there is little to no hope of that reversing for months to come (for the reasons I and the videos below are about to remind people of), I predicted “What few of the gurus are telling you, which I will, is that we’ll be in a recession by sometime this winter.“
The winter of our discontent is already forming
Winter’s business chill is already here and is being reported everywhere. There is no excuse for being oblivious to something so obvious.
We all know at this point that supply-chain problems are increasing, not shrinking. That is what I claimed without hesitation over a year ago we would most certainly see. We also KNOW central banks can do NOTHING about that. Creating money won’t solve the supply-chain issues, it will only increase the prices for scarce goods. One of the big broken links in the chain is enough truckers, but President Biden already made absolutely certain that thousands of truck drivers will be fired in December for their refusal to get vaccinated, and truckers overall are not likely to be strong-armed by liberal presidents.
BlackRock notes the problem but denies its significance:
Supply capacity has been slow to come back online, resulting in bottlenecks and price pressures. Second, growth has room to run, we believe, with global activity well below its long-run potential. Supply will eventually rise to meet demand, instead of the 1970s experience of demand going down to meet supply.
Sure, supply will eventually come back online to meet demand, but when? As the last video above notes, if everyone does their best in a perfect world, the problem will not be resolved until the second quarter of next year! That is in an ideal world, best-case scenario. What likelihood of that is there in this new COVID world a a plague of surprises every quarter and in which politicians are deliberately adding to the wreckage with new vaccine mandates that will shut down hundreds of thousands of individual workers?
Even if those mandates do not make the problem worse (extremely unlikely), you’re going to see more empty shelves, more restaurants that cannot cook meals for lack of a few key ingredients; and the problem will not resolve until the second quarter of next year, at earliest, leaving businesses in the red well beyond “black Friday” if they cannot deliver the goods. Demand remaining strong will not solve the problem of more businesses failing because they don’t have enough products on their shelves or enough key ingredients for dinners to put on their tables. It will exacerbate it. It will make those things that are available cost a lot more, but it won’t do a darn thing to get more truckers vaccinated and on the road or more trucks built for them to drive, and more containers unloaded from ships at the docks and more ships moving away from ports.
In fact, when the president and the Port of Los Angeles announced a deal to start running the port around the clock, I could only say, “Well, that sounds nice, but where are you going to get all the extra workers needed to fill those extra shifts when you cannot fill the shift you already have, and where are you going to get all the extra truckers to haul those extra loads that are processed if you do miraculously fill entire extra shifts, and HOW MUCH extra are you going to have to pay in order to entice so many people into those newly created positions, amplifying the cost of goods sold? Especially when you are about to vaccination vacate nearly 10% of the workers you already have???
Is there no sense left in this world at all?
These vain promises are just like our pledge in the US to change to all electric cars by 2025. Where is the all-electric electricity going to come from with California going into brownouts already due to wildfires, hydro reservoirs running critically low already in the West due to drought, and Texas going into brownouts due to a single pipeline shutting down in a cold winter. Add to that the energy crisis building all around the world already, and how are you going to power those cars? Much electricity still takes oil. It sounds to me like our central planning means we are going to have a lot of cars that cannot move off the car lots due to electrical brownouts becoming blackouts once those cars start hitting the roads in greater numbers.
So, you have to think brighter than the low-wattage bulbs that put the “black” in BlackRock. The supply-chain breakdown all over the world not only raises prices due to shortages, it also assures that “booming business” will rapidly implode, not due to lack of demand, but due to inability to get things produced and inability to get the things that are produced to market. It doesn’t make any difference how strong demand remains if you cannot produce to fill that demand or cannot ship what you do produce to customers in order to make money off that production.
All you have, in that case, is costs and backups, so production will quickly be turned back down because product cannot be moved out of factories, nor resources moved in to make products. Sales will decline rapidly for lack of supply, which is already so apparent on shelves in numerous stores that it is stunning that someone at BlackRock cannot see it coming when it is ALREADY HERE! I suppose that is because they have people who do the shopping for them. Obviously, their name speaks to their opaque nature.
The result is clearly that the economy stalls because things are not MOVING. And “not moving” is the very definition of “stagnant” — “having no current or flow.” When blockages to flow all happen on the supply side, as is now already the case, that is also the very formula for high inflation, especially if central banks do as BlackRock says would be wise to do, which is to keep up their financial largesse! Too much money chasing too few goods! Great! Let’s print even more of it, knowing full well it cannot solve the core problems. What it really all adds up to is a GUARANTEE OF stagnation because nothing is moving, so nothing can be sold. And you have guaranteed inflation. That’s STAGflation by definition.
If you think it isn’t already building all around you in ways that far exceed the seventies, you need to get out more often or look beyond your narrow enclave because some shelves are already going bare in stores everywhere, and the holidays haven’t even begun. How many businesses will rapidly close down if they cannot get the goods to sell? How many producers will cut back production within a quarter if their production from this quarter doesn’t MOVE?
How can the people of a major investment company miss the writing on the wall when it is writ so large? It has to be denial, at best, or outright deception at worst. I’ll let you decide what BrainRot’s excuse is. I claim no knowledge of that; I only point out that it looks terrible on their part either way.
To the extent that you don’t see inflation information in the bond market, ignore the bloody bond market!
The bond market knows nothing right now. It has been rendered brain dead by central-bank lobotomy even though people in the market know exactly what to expect with inflation. That is because the Fed’s interference has chopped the bond market’s head off. So, the thinking part in the market gives no direction to what the flailing body does. Here its how that works and reason to believe a lot of horror will strike sometime after Halloween, especially as we observe with BlackRock how the big boys don’t have a clue about the obvious:
The Fed wholly owns the treasury bond market. Period. It currently buys up more than half of all US bond issuances, and it has been doing that for a year-and-a-half across the full maturity spectrum. As I have pointed out repeatedly, that makes the Fed THE price-setter of the bond marketplace. It means treasuries have NO ABILITY to convey accurate inflation pricing information because they sell at the yield the Fed determines for each maturity level by soaking up whatever it takes from each maturity level to maintain the yield curve within a range the Fed wants to allow.
That’s called “yield-curve control,” and it’s something I warned my patrons we’d see coming from the Fed many, many months ago. The Fed began, not long after that warning to engaged in yield-curve control without any overt word about it, which it has done for well over a year. If the Fed doesn’t like the yield on bonds at one point on the maturity curve, it will buy more bonds at that point and less at others. Simple. It doesn’t have to announce it is controlling the yield curve in order to do it.
WHEN THE FED TAPERS ITS US TREASURY PURCHASES, it will also be tapering its control over treasury pricing. Treasury pricing has a strong impact on all bond pricing. So, as the Fed relinquishes its control over US treasury pricing by backing out of that market, ALL bonds will start to more accurately price in inflation. For now, the Fed is holding back the tide, and it is big enough to do that; so, there is no true price discovery in the bond market. However, real inflation, regardless of what bond yields/prices say, is forcing the Fed to pull away. As it does so, the game is going to get real again over the next half year, and that is going to be UGLY!
Prediction: To the extent the Fed actually follows through with pulling out of the treasury bond market, the whole bond market is going to get ugly. However, to whatever extent the Fed chickens out because of how ugly things are getting, it assures inflation will keep getting worse. We’ll likely start to see that struggle by the end of this year and certainly by the first quarter of 2022, BlackWatt’s dimwits not withstanding.
While some of those in deep denial of reality said last spring that inflation could not possibly be happening in any significant way because bond prices were not falling (yields rising), those same restricted thinkers said last spring that inflation couldn’t possibly be happening for another reason, too, much less run hot, because copper prices stopped rising in the late spring and started to fall (put in a top).
Think again:
I responded at the time that there is no straight line to anything in either economics or markets, and copper was merely taking a rest after a dizzying climb. Nearly all commodities, copper included, have been on a tear ever since. Once the Fed stops controlling bond prices, they will plummet as yields rise to reflect the inflation that is really happening in commodities, which go into everything, affecting consumer prices down the road. For now, bonds are in bondage, held there by the Fed.
My next patron post will go into greater detail on the specific shortages that are already developing and what to look out for.
The economic gurus and magic-chart advisors who told you inflation was going to be transitory or that it wouldn’t amount to much or even the dimmest of all who proclaimed it wasn’t happening at all could not have been proven more foolish and blind to the obvious all around them. Now they are revising themselves faster than I can write about it.
Before talking about what you can do the easy way to protect yourself a little, let’s review the track-record of some of the so-called experts who couldn’t see what they don’t want to see by looking at just one major bank’s predictions for inflation this year and how they have had to revise their prediction skyward month after month.
The great and squidly Goldman Sachs has struggled all year to catch up to where I have been saying for the past year inflation was clearly headed this year, and its latest forecast is still lower than where I believe inflation is headed, but the experts at GS will get there as their trail of errors demonstrates. Just look at how they have revised their forecasts for 2021 from month to month as inflation has become more clearly NOT transitory and more clearly NOT a mere “symmetrical” move above the Fed’s target of 2%: (In fact, GS’s starting position early last spring was well above the Fed’s target.)
Actual inflation ran ahead of their forecasts about as quickly as they could revise them, and it will do so again. To see proof that we are entering the stagflation I said this would turn into, let’s look at how Goldman Sachs has also revised its predictions for economic growth (annualized as what it would be if it held at that quarterly rate for a year):
Prior to July, GS’s forecast for the second half of 2021 was +9.5% for Q3 and +6.0% for Q4.
In late July, GS revised its forecast down to +8.5% for Q3 and +5.0% for Q4.
On August 18, GS revised its forecast down to +5.5% for Q3 but raised its Q4 prediction to +6.5%.
Last weekend, they revised Q3 down again to +4.5%, and decided their previous upward revision for Q4 was bassackwards and dropped Q4 to +5.0%.
Finally, this weekend GS cut its GDP growth forecast to +3.25% Q3 and +4.5% Q4.
Plunging week to week by that much, it seems Goldman’s number runners just can’t keep up with the nation’s speedy decline. The Atlanta Fed predicts much worse. Now at a pre-recessionary 1.3%, the Fed’s predictions have plummeted continually as you can see:
Put all of those rapidly deteriorating predictions together (inflation and GDP), and you have stagflation — rising or high inflation in a decelerating economy. In fact, you have rapidly rising inflation in a rapidly decelerating economy. It is, of course, when you get into an actual recession (negative GDP “growth”) that you have true stagflation.
Prediction: What few of the gurus are telling you, which I will, is that we’ll be in a recession by sometime this winter.
In fact, I think Q4 growth will prove to have been negative when we see the numbers in print next year. If not, then very close.
The descent in GDP toward actual recession is happening quickly. The shortages talked about in my recent posts are spreading like a flood tide across a wide, shallow beach. People are not returning back to work in near the numbers some predicted they would (not I) when enhanced unemployment ended for the reasons I laid out months ago. Soaring inflation will now curtail spending and result in more businesses closing and rising unemployment.
This is stagflation — going down the drain hole where you have that dichotomy wherein prices rise even though people buy less (demand is falling) because they cannot afford as much. Prices rise because supply is already falling faster than demand. (Remember the formula for price inflation is too much money chasing too few goods.) What happens in such dire return to rising unemployment during high inflation is often the opposite of what helps. Government leaps in with rescue money so the unemployed can keep buying, in spite of the high prices, which results in everyone bidding up the prices of scarce goods even further. It rapidly becomes a vicious vortex if you try to solve shortage-induced inflation with more money because that doesn’t get to the heart of the problem and create more goods.
The scariest thing this Halloween
As hard as higher prices will make things, the real scare this fall and winter will be the shortages that push prices upward. You can make moves to save money and can prioritize your spending to create room for the expensive essentials, but what if you can’t even get the essentials?
I foresee a winter at some times and places where you’ll feel for the first time in American life like you have slid down the rabbit hole and ended in a version of the USA that looks and feels more upside-down than the old USSR where stores have a lot of empty shelves, and complaining can do nothing to fill them.
I think we can all share some of the foreshadowing that we’ve already seen in our own locales (and it might be interesting if you do in the comments). My latest experience was to walk into a Rite-Aid drugstore to look for some Halloween decorations for the school kids and find the selection unusually thin because the store is having a hard time getting seasonal items shipped to it in time.
But it wasn’t just the seasonal stuff. I also wanted a basic computer cable, and found Rite-Aid’s computer supply section had half an aisle with the shelves removed from their supports and posters all along the support saying the space was empty due to the chain making stock adjustments to serve you better in the future. In other words, stock was out for the present, and they’d try to find some way in the future to secure similar supplies from other sources.
I expect Christmas decorating supplies will be equally lacking this year, as well as availability of gifts. So, shop now for Christmas gifts and consider buying your frozen turkey for Thanksgiving now. There might be enough turkeys, especially at Goldman Sachs, but not enough rides to get them to market so we can eat them.
We can all handle a lack of large seasonal stock. In fact, we can pretty easily handle no decorating supplies at all; but do you really think it is going turn out any different for food and fuel and other essentials?
Easy evasive moves that might afford some protection
You cannot prepare for it all to make yourself bulletproof to stagflation. If fuel runs low, for example, having an extra barrel of gasoline laid away in your garage is risky and won’t get you very far down the road for long anyway, and gasoline doesn’t store well through the winter because it deteriorates. So, you can’t easily prepare for everything, but I’m going to lay out a really simple plan that will help with exactly what you really need and will use that costs you nothing extra over the course of the winter.
Since you cannot do much about the energy shortage, other than make sure to lay away plenty of firewood if you have a wood-burning option, food is your biggest concern. Everyone has heard the preppers’ advice to “store lots of canned and dehydrated goods” that you never really want to eat that will stay good for a decade or longer, but I’m talking about something more practical and with no net cost as a form of insurance.
When you are encouraged to store all kinds of emergency-shelter goods that you can dine on for the next ten years because they last almost forever, you may be like me and think, “What if the shortages don’t materialize, and then I have to eat all this dehydrated crap?” There is a better way that provides a buffer, and here it is:
Each time you go to the store in the weeks ahead, buy 2-4 times more of the things that are on your normal grocery and household-supply list than you need to restock the kitchen and other parts of the house. However, buy extras only of those things that will last through the spring. Put the normal amount of restocked items in your kitchen, bathrooms, etc. as you normally would, and then store the rest away in your garage, basement, or whatever works for you, and leave it alone.
When you run low again in the next week or two and would normally go shopping, don’t go to the basement and use your stash, make another grocery run like you did when you didn’t have the oversupply. Treat the extra supply like a rainy-day fund in the bank that you don’t touch until you actually find that the things you need or want are not available. Each time you restock rooms in your home this fall, buy 2-4 times more than of those things that will preserve through the winter (depending on what your cash flow can manage) so long as they have shelf lives that will take them through the spring.
You’re not planning for the apocalypse or a take-over of the USA by the Chinese. Thinking that catastrophically defeats many people from preparing at all. You’re planning for a hard winter that may likely have shortages, and you simply don’t know what items will run short in the nation. So, you stock up on all of them that will keep Here is the beauty of this simple plan. You are buying only the things you like and that you will be using and normally purchasing anyway. So, if I’m wrong, and there are no shortages at all, you can stop shopping for a couple of months in the spring and slowly use up the stock of items you squirreled away in the fall. No harm done.
You don’t wind up doing any extra work or spending any extra money, and all you have stored away is the things you like and eat or use regularly. In fact, because inflation is a certainty, you will have saved yourself money by purchasing items now. You do it a little at a time so it’s not some huge effort or cash-flow burden and doesn’t strip the shelves bare for others. It’s just a little extra effort each time you go to the store while supplies last. Never dig into your cache, even when prices rise to horrible levels, until you can see the problem with shortages is fading in the rear view mirror or until things are getting a little too close to their shelf life.
It’s a buffer, not a Mad-Max end-of-the-world-living-in-a-bomb-shelter plan.
To prepare financially, I’m avoiding stocks and bonds and moving out of cash somewhat and into commodities and real-estate-investment trusts that are not too heavily into commercial real estate (and I’m going light on the real-estate trusts because the whole real-estate market could tip sideways when all the forbearance programs are finally ended; but for now prices are still rising). I would consider investing our 401Ks in energy and mining stocks, but ours don’t have options that are tilted heavily toward those sectors.
I’m not a financial advisor, and I don’t write an investment blog. This is an economics blog. I can tell you what I’ve done, but those are just ideas for you to weigh on your own. I believe most stocks and bonds are ultra-high-risk right now, and even cash is nothing but a planned loss due to inflation. Bond funds that invest in inflation-protected bonds may provide a safe parking lot, but that is all. Cryptocurrencies could rise by more than enough to help you through this winter, but they can (and often have) just as easily crashed by 50% like the stock market, so don’t use crypto as the resource you can depend on for the winter. It may rise after it crashes, but that won’t help you if supplies are short when crypto comes up short, too. From a retirement standpoint, the crypto currency you’ve invested in may not even exist when you’re ready to retire — so I’d keep crypto a side bet.
There are lots of stocks you might individually pick if you have that acumen, but I am speaking mostly to those who have 401Ks they seek to protect and who have limited options in those plans that only allow them to choose between major types of funds because that is the only plan their employer provides.
This is all for you to weigh, but those are moves I’ve made in our 401Ks where options are limited. (Of course a service like Perpetual Assets, which advertises in my sidebar, can help you convert everything to a self-managed IRA where you have a huge range of options, but I am neither recommending them with this article nor not recommending them, as I have no personal experience with their service. I am just saying there is a path there that one can work out on his or her own or get some help with setting it up right legally to keep the tax man quiet.)
Outside of 401Ks, I’m not someone who invests in stocks at all. Our investment, other than retirement funds, has been real estate. For example, investing in the home you’re going to live in for years by owning it as close to free-and-clear as you can is a good safe-haven investment because it is something you will always need and have to pay for anyway. Though rents could drop in bad times, saving you money, while a payment on a home your buying remains the same, rents have usually been a drain hole and have usually risen, making them generally the riskiest option in the shortterm and always the worst over the longterm. Usually rents rise and mortgage payments, at least, remain stable for decades to come. Secure the home front.
Those are simple low-risk, low-energy things you can do to help yourself weather through this long, cold, energy-short, possibly food-starved (for some) winter that cost you nothing over a period of months but can save you money and hardship.
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