Interestingly, you’re about to find out that the fall in housing prices and home sales may power us further into high inflation for longer. We are entering a situation that could turn into a true oxymoron where lower prices equal higher prices as early as this week at the Fed’s Federal Open Market Committee meeting. I’ll tell you how that works.Read the remainder of this entry »
Whenever I predict the market is going to crash or (as I recently have) that inflation is going to soar and then it does as I predicted, I get naysayers who claim — with no research to know what they are talking about — that I’m just a broken clock who happens to be right twice a day by dumb luck. It’s time to prove the naysayers wrong with an article I will refer everyone to in comments whenever they make their demonstrably false claims.
Every time I rightly predict the stock market’s plunge, for example, these kinds of people will say that I’m a permabear even though they’ve barely skimmed my blog (and often not even done that much) so they have no real knowledge regarding what I’ve written about the market over all the past years. It is just a convenient broad-brush attack that fits their own bias.
More than one careless writer has leaped to that conclusion without any fact-checking just because he sees by article titles (or by the name of my blog) that my blog sounds bearish. It is bearish, but not on the stock market. My blog is permanently “bearish” about the Federal Reserve’s recovery program since the Great Recession. I have always said the Fed has no end game to its plan, and the longer we wend our way down this ruinous road of debt, the worst our nation’s eventual economic collapse will be. I’ve said many times that Fed cannot tighten without crashing its recovery, and the only time it tried, it crashed its recovery and had to backpedal extremely hard.
Having clarified what I am permanently bearish about, let me add, yes, I am SOMETIMES bearish about the stock market, too, and I point out along the way when it will fall, and have usually been right about that. Sometimes I was right in timing but off in degree, but only because the Federal Reserve leaped in with a massive rescue plan each of those times (or the announcement of one because sometimes just the announcement of a future plan was enough to turn the tide). And some years I say I do not think the market will crash.
Some may think I am always bearish on the market because they never see me writing articles saying the market will rise. That’s because I’m not an investment advisor, nor is the stock market even my interest. I write about the economy, but when I see trouble for the market, I raise a warning. I’m more interested about those junctures where even the Fed with its infinite money cannot get it up … about when the market will dive because the next episode in the Fed’s long list of failures is about to play out.
I don’t ever tell people when to get back in. I have always written that the market, since the Great Recession, is rigged to rise by the Fed. That clearly means it is likely to rise a lot more often than it falls. I don’t personally like rigged markets, however; so, I don’t want to advise people to jump into one. The market has always risen after every fall, no matter how historically large the plunge. So, of course, I always believe the market will rise again after each crash. When it is safe to get back into the water to play with the sharks is all up to you and your comfort with risk!
You’ll notice I also don’t ever tell people to buy gold or silver or make other investments. I’m not a licensed investment counselor.
A case in point
For some reason, one particular guy has become obsessed with me. He reads nearly every article I write just to poke his head up and make blind assertions in the comments section without merit. He frequently quotes things I’ve said in his own articles — albeit only to ridicule me. I’d be OK with that if what he said about me was true, but he shows no evidence so far that he has even the slightest interest in researching his points to provide evidence in support of his blind and reckless attacks on my integrity. His latest criticism exemplifies the kind of broad slice he regularly makes against all of my writing:
I have read a certain author whose ENTIRE PREMISE since 2011, when he began writing publicly, is that inflation is going to kill the stock market.
I’m going to counter this guy’s baseless claim that states I’ve written since 2011 “inflation is going to kill the stock market” as well as his equally false claim that such a belief has been the premise of all of my articles from 2011 to the present. In fact, inflation of that kind has been the premise of almost no articles during that entire time until just recently.
I’m going to lay this out as an example of what I could do with all lazy perma-whatever claims by people who don’t even have fleeting knowledge of what I’ve written over the past decade, which, by the way, is not when I began public writing; it is just when I began my blog. I’ve written for newspapers and publishers for twenty years prior to this blog. I’m going to do that so I can link to this article as proof of their lack of truthfulness any time they make such claims because proving the error of such sweeping condemnation against the entirety of my writing requires a great deal of time laying out what I actually have said in articles over the years — too much to put in a reply in a comment section. (If you’re not interested in all of this, I understand and hope to see you with my next article.)
This is my nay to the naysayers who claim whenever I am right, as I have been about the scorching hot inflation we are now actually seeing this year, “Oh, you’ve always said that and just finally got lucky.” In not one instance have the people who say such things been following me in the past long enough to even know what I’ve said. Nor have they ever shown any evidence of serious research into what I’ve said. It is just a lazy argument on their part.
To cover one claim, for example, I don’t call my site The Great Recession Blog because I always think we are headed into a stock market crash that will cause a recession or a recession that will cause a stock market crash. I called it that because it fit at the time when I started writing it, and I had no idea I’d be writing it this long. I have stayed with the title because it still works in this sense: I believe we’ve never done what it really takes to rid ourselves of the problems that brought on the Great Recession. We’ve just doubled down and then tripled down on the very drugs that got us into a depression in order to prop ourselves along on a plan that is not sustainable. As is the case with all addictions, our dope-pushing central bank has the nation dependent on its drugs in a way that requires ever larger doses of the same medicine to retain the high. We are now on continual megadoses at a level we never thought we’d EVER see before the Great Recession hit and the Fed took us down the QE trail of bailouts.
The permabear claim comes at me mostly because permabulls can’t stand to hear me say their beloved market is about to crash or because the people who say it are analysts who have wrongly written the market is going to rise or, in the present situation, wrongly stated that inflation will not rise or agreed with the Fed that it will be transitory. Whenever I’m right about the market taking a big dive, they pull out the “perma-bear” claim as their stock response.
The best they can do to counter my contrary view is make a big mud ball and throw it at me, claiming I always predict whatever the particular thing is that I’ve been claiming that year once it starts to come about. (This year it has been my prediction of incendiary inflation and my prediction that the flames of inflation will keep rising until they burn the market up.) To know what I “always” do these critics would have had to always read me, which has never been the case. IF they actually did that, they would know there are entire years where I have not said the market will fall and almost a decade in which I never said inflation would run hot.
If they had actually read me long enough to be qualified to make blanket statements — or just done their due diligence — they would also know that the vast majority of times when I have said the market will crash, the market fell so hard the Fed had to create a new bailout program to save it or even suddenly reverse its entire policy in order to arrest the market’s headlong plunge — policy the Fed had promised would be as boring as watching paint dry. When the market stops falling because of absolutely MASSIVE Fed intervention, the naysayers say, “See, it didn’t fall nearly as hard as you said it would.” However, in each such case, the only reason the market did not crash as hard as I said it would was because the Fed leaped in with hundreds of billions of dollars to rescue it — sometimes even trillions of dollars. My naysayers OUGHT to be smart enough to recognize that the size of the rescue effort, all by itself, should tell any honest, thinking person how bad the crash would have been, had there been no massive rescue effort! You don’t do a trillion-dollar rescue effort to stop a billion-dollar market fail.
Each of these rescue efforts has been nothing but a bailout of the Fed’s original bailout program, which has never ended since the Great Recession. (Except the one time they tried to end it briefly in 2018, and crashed the market so hard repeatedly through the year that they had to swear off their tightening plan and eventually return to full-on quantitative easing to stop the longterm damage they had already done — as was still being seen in the 2019 repo crisis that developed even after their change of plans arrested the market’s plunge.) It’s in that sense that the Great Recession is still haunting us. To really put it behind us, we would’ve had to do some massive economic restructuring. We also needed to let a lot of corruption and greed die the death it deserved in order to flush it out, not help it out.
I’m writing this article now because the present inflation problem is going to be a such a big deal down the road that I’m going to make it clear to all present and future naysayers that I have never said inflation will kill the stock market or the economy until just before the first background hints of our present serious inflation actually started to develop. From this point forward, any time some dunderhead makes unsupported statements about how I’ve always been doing this or that, I will just send his readers here. I’m keeping the present mocker nameless just because I want future mockers to be able to fill in the blank and put themselves in his shoes if and when they make such baseless attacks. That’s why I’m presenting a large body of evidence to what I have ACTUALLY written about inflation over the years and clear paths for others to check me out because there is not one word of truth in this recent statement:
I have read a certain author whose ENTIRE PREMISE since 2011, when he began writing publicly, is that inflation is going to kill the stock market.
Claims without evidence
The person who wrote that claim has never presented any evidence to support his meritless attack. He’s also made it in comments to my articles, where I have denied it. That leads me to think he either recklessly hasn’t bothered to look for any evidence or that he couldn’t find it when he did look (since it would certainly help his claim). I ask you, “Doesn’t integrity require anyone to investigate a little before making sweeping statements of ridicule?” I certainly always research the claims I make against others. If I didn’t and was wrong, I would certainly deserve their ridicule in response.
What do you even call someone who cannot (or, at least, does not) ever present any evidence for his ridicule yet keeps repeating it, apparently hoping repetition will make it stick? Worse yet, what do you call someone if he keeps doing it without evidence even after you tell him several times you’ve never predicted inflation would crash anything until last year when you finally indicated it was likely to happen in 2021? I’ll let you be the jury on what you call it when someone keeps repeating a claim without providing evidence in apparent hope that sheer repetition will make it a fact in some people’s minds.
I know in the present situation that some of my accuser’s readers know who I am, even though he doesn’t identify me in the text of his articles, because some of his readers have stated who I am in the comments to those articles. Making the connection is easy (almost inevitable) because we share some readers and my adversary writes the same things in comments to my articles, almost word for word, before publishing his own articles with those ridiculing comments. It is not hard to connect the dots. He is aware of the crossover in readership because I’ve pointed it out to him and because we’re published on the same site. Of course, once someone identifies me in the comments section to his articles, everyone who reads the comments knows who he’s talking about. Therefore, whether this guy identifies me by name or not — notice I’m giving him the same “respect” he accords me — is almost immaterial.
My beef is not that he is obsessed with writing about me in many of his articles. I’m glad I’m popular, but I’ve told him many times his claim is completely untrue, yet he keeps stating it and other claims like it. So, it’s time to hold him accountable because I take what I write seriously, and I don’t want others to think the above claim might be true just because I allowed it to stand without providing my own evidence to the contrary (though the burden of evidence actually lies squarely on the person making the accusations).
To be more than fair, I also gave my detractor a chance to retract his misrepresentation of my writing, himself, and even made it easy for him to do the research just in case he was lazy, and then I even forewarned him I’d retract his statements for him in an article of my own for truth sake if he did not retract his accusations in his very next article, which he did not. He just doubled down on his ridicule. (As an alternative, I suppose he could have attempted to support his claim with evidence, but he didn’t attempt that either … or he did and failed to find the support.) The following is from a direct message I sent to him, letting him know I expected a retraction:
I have NEVER said inflation is going to kill the stock market until 2021, not even back in 2011 when I wrote a little bit about inflation, as I told you in my comments. In 2020 I warned for the first year in my writing to WATCH OUT FOR extreme inflation as a real possibility that might start developing. Eventually, I said it was developing, but even then I did not predict it would kill the stock market…. Then, in 2021, as inflation rapidly moved from the producer side to the consumer side, I stepped up to finally predict inflation will kill the market. (A full decade after you said I started continually making that claim and that it is my “ENTIRE PREMISE” for my writing.)
This guy boasts about being a lawyer! You’d think even a parking attendant would understand the importance of presenting evidence (EVEN IN THE COURT OF PUBLIC OPINION) when you publish brash and broad accusations, knowing it is easy for people to connect the dots as to whom you are writing about. This lawyer, however, repeatedly brags about his credentials as if that is a form of argument that rises above fallacy and substitutes for actual evidence. I’ve noticed him bullying others with this kind of browbeating. Here’s an example of this boasting from his latest article, which is almost verbatim to what I’ve seen him do after insulting the intelligence of others (behavior I can readily provide evidence of he asks me to substantiate that in the comments below and to which others can testify in the comments).
I graduated college with a dual major in both economics and accounting. I went on to pass all four parts of the CPA exam in one sitting, something that only 2% of those taking the exam are able to achieve. I then went on to complete law school in two and a half years, and graduated cum laude and in the top 5% of my class. I then went on to NYU for a Master of Law in taxation. I became a partner and national director at a major national firm at a very young age, where I worked to organize very large transactions. So, when I tell you that I understand the fundamentals of economics, business, and balance sheets, you can believe me.
Since he likes to brag that he graduated cum laude, let’s just name this lawyer of evidence-free (so far) swipes against my writing since 2011, Laude-Da. Laude-Da struts proudly like this in his arguments against others (not just me), using this bio byte to tell them they don’t know what they’re talking about because they don’t have his self-professed brilliant education. In fact, Laude-Da’s credentials are often his primary argument against me and others as if polishing his medals somehow proves he’s right. To prove he knows best, Laude-Da also likes to reference the size of his … audience.
Oddly, Laude-Da actually claims truth matters to him in his latest article:
Truth, by contrast, will always prevail, even if it takes time. Noble, courageous and pure, expressed with all the fiery zeal of conviction and with all the clarity of sure awareness, stated again and again at every opportunity, truth will ultimately gain respect and admiration even of those who do not accept it.
Well, the following article is a little truth expressed with the fiery zeal and conviction and clarity of sure awareness he wanted. I certainly agree the truth will prevail, so let it prevail here in the evidence I actually bring to my argument v. the lack of evidence Laude-Da brought to his. (I notice Laude-Da does, at least, practices the “state it again and again at every opportunity” principle, but is he trying to make truth stick or make falsehood stick by endless repetition. You be the judge based on evidence, of which he, so far, has provided absolutely none. I’ll even help you just as I helped him with a link that makes the fact-checking easy as pie.
Just the facts, please
First, let me provide you with the easy link I provided to Laude-Da, which has always been on my website. It goes to all the articles I have written that talk about high inflation: hyperinflation. I’ve used that tag whenever I have written an article to say high inflation MAY become a problem down the road or even just to talk about hyperinflation or high inflation in general without making any prediction. The first thing you can see is that, out of the 715 articles I’ve written on this blog over the years, there aren’t many on that topic. Right away, that should call into question the claim that high inflation is part of any premise for my writing since 2011. I have barely written about high inflation at all! That available link always made a little journalistic due diligence before publishing claims quite easy.
You can also tell I haven’t written about high inflation much because the link is fairly small, and WordPress (the software I use to create my site) automatically sizes links in that sidebar by how significant that topic is on my website. There is nothing I can do to make that link look more or less significant within that list of topics, other than write about it more or less. In fact, that topic is so insignificant on my site that the link was actually the smallest one in the sidebar until I started writing about high inflation this year and last. (I’ll note here that, AFTER I started predicting high inflation, it became one of the biggest topics in financial news, as I said it would. I think Laude-Da wants to claim I’ve always said inflation will be high because my prediction is proving right. He wants to deploy the broken-clock argument.) Even with my frequent writing on the topic this year and last, the link remains fairly insignificant. (It will probably grow a lot in size in the months ahead, however, so if you first see this article months after I publish it, this comment will no longer be applicable; but for now, people can check it out to see how significant high inflation has actually been in my writings as a way of assessing whether it is the premise of all I write).
There is also a search engine in the sidebar where Laude-Da (or you to verify what I’m saying) could enter the term “high inflation” in quotes to catch the exact phrase, but that will bring up every place that phrase appears on my site … even when it’s in someone else’s quote and is not what I was writing about. Even if you go that broad, you won’t find many articles that mention high inflation among my many writings.
(If you just type “inflation” in the search box, you’ll find every occurance of the word “inflation” in previous articles, but that includes places where I was talking about how data gets adjusted for inflation or how the Fed targets inflation, particularly the Fed’s change in policy to start targeting inflation above 2% in order to hit an average of 2% or inflation, or where I describe inflation in other nations like Venezuela and Brazil and Greece, but you’ll especially see that I often said there would be NO SIGNIFICANT INFLATION due to the Fed’s monetary expansion, except in assets. In other words, many occurrences of the word “inflation” are about low or no inflation. If you do all that work, you’ll find it corroborates the representative highlights below.)
Because Laude-Da didn’t write the retraction nor provide anything to substantiate his ridicule, let’s now dig into the truth about what I’ve written in the past on inflation to examine the veracity of Laude-Da’s claim that my “ENTIRE PREMISE since 2011 … is that inflation is going to kill the stock market.“
If you click the link provided, you’ll see (if you click, then, beyond that on any of the articles that pop up) that all the articles on the first page were written recently. By clicking the little link at the end of the list on the first page that says “older entries,” you can dig back to the second page, which goes all the way back in one page to the oldest articles I’ve written on high inflation. (Some are locked for only patrons to read, but clicking on those will still show you the date they were written in order to verify the facts I am about to lay out.) You’ll find a huge gap between the current articles and the few older articles. Again, I don’t know if Laude-Da was too lazy to do this fact-checking before publishing his ridicule, or if he just couldn’t figure out how to do it; but I do know he didn’t offer to back his case up with facts even after I pointed out this easy path. You’d think, before launching yet another attack in his most recent article, he would, at least, back up what he had already said in his previous article, but he didn’t; and that’s just a fact.
What you’ll see (exactly as I’ve told Laude-Da a few times in comments) is that, way back in 2011, I did write a little bit about high inflation. If you READ what I wrote back then, though, you’ll also see that even that little was mostly because a friend named “Stan” occasionally emailed me articles about hyperinflation to which I was merely responding with my thoughts on the matter. The topic was all the rage back then when QE was in its infancy, though not a big concern for me. What little interest I had in it didn’t carry beyond 2012 until just recently when I stated it was now a major concern because the Fed started re-inflating money supply at a greater rate than ever, AND, for the first time, the government was doling it out to citizens by the trillions (called “helicopter money”). Hence, why I’ll be writing more on it.
Here’s what you’ll find. Prior to late 2019, I only wrote NINE articles that are tagged as being about high inflation or “hyperinflation.” (I used the same tag for both.) If they’re not tagged, then high inflation was not a concern in the article or was barely mentioned in passing, as I’ll explain below.
That’s not many articles, and even one of those few was about historic hyperinflation in Germany and Zimbabwe. That leaves eight articles spanning the entire decade prior to my present interest in inflation. After two articles in 2012, I stopped writing on the topic until recently. (One of those two was about quantitative easing that included a paragraph about the POSSIBILITY of hyperinflation IF QE ever escaped bank reserves and financial circles to get into the general economy.)
Of the original eight that were not just historic, five were emails I wrote to Stan, who was once a Wall-Street stock broker, to respond to his comments about hyperinflation. Apart from his inquiry, I wouldn’t even have written those! When I started writing the blog, I decided to publish them in a section of the blog titled “Letters to Stan” just to get some initial content on the site. (I’ll send Stan a link to this article, so he can come here and let you all know, if wants to, whether I am misrepresenting anything I’m saying here and, especially, whether I ever sounded particularly concerned about inflation.)
That actually leaves only three articles that I wrote out of my own interest on high inflation in all those years prior to the present, and one of those was actually written for The Hudson Valley Business Journal and a few other publishers in a series of articles I titled “Downtime” all the way back in 2009 when QE first began and the risk of hyperinflation was on a lot of people’s minds. Three articles on the topic prior to the present that were not just a response to a friend’s inquiry, all of which are decade old, hardly supports the claim that inflation high enough to kill the stock market has been part of the “entire premise” for my writing over the past decade.
Moreover, if you actually read any of those articles, you’ll see that even they treaded lightly on the topic, but what does that matter if someone wants to make sloppy generalizations, right? Or if someone else is too lazy to go back and see what I actually wrote before ridiculing me with a claim that it is the premise of EVERYTHING I’ve ever written since 2011? Does the truth even matter?
Here is how high my concern about about high inflation was even back then. Notice the articles clarified that significant inflation wasn’t likely to happen anytime soon: (The first was one of my letters to Stan, talking about those conversations we’d had.)
For the past two years, we’ve talked of how Fed policy would ultimately create hyper-inflation, but also how the very reason that would happen dictated that IT WOULD TAKE QUITE AWHILE TO HAPPEN: banks were hoarding the vast money the Fed was printing so that it created little liquidity in the marketplace, but sooner or later banks would release that money, and it would likely become an unstoppable flow.https://thegreatrecession.info/blog/economic-crisis-pile-up-worse-than-kicking-the-can-down-the-road
Inflation is still lurking, though it may be late in coming. For some time I have noted that the Federal Reserve’s creation of trillions of dollars out of nothing did not create any inflation for the simple and obvious reason that nearly all of that funny money is being hoarded on bank balance sheets, as many major banks remain cash-starved. I’ve pointed out that this created money cannot cause inflation when it is not in circulation.https://thegreatrecession.info/blog/economic-predictions-for-2012/
That hardly sounds like — even back when I was corresponding with a friend who inquired about it — that I had any concern or strong belief that inflation would be a problem anytime soon. Early in the QE years, I realized it was not going to be a problem for a very long time. Because I saw that the money continued to remain in financial circles even after 2011, I stopped writing entirely about inflation as a potential problem for anything (let alone the stock market) by early 2012. In fact, as I’ll show below, I wrote a number of articles in ensuing years stating high inflation would not likely happen. Other than touching on some concern twice in 2018, I didn’t pick the topic up again as being problematic until the new ramp-up in QE at the end of 2019. Therefore, it certainly cannot be part of any theme that has been the premise of everything I’ve written between 2011 and now!
I almost always stated the opposite of what Laude-Da claims!
Having dealt with what tiny bit I wrote that did say high inflation might someday become a problem, let me offer numerous proofs that I have actually said the opposite of what Laude-Da claims to be my guiding premise throughout most of the years of my writing on economics. (And let me note at this point, that the other sweeping generalizations about my writing that he likes to make from time to time haven’t been grounded any better in reality or evidence than this one.)
The important thing you’ll discover is that NOT ONCE IN ANY ARTICLE did I predict inflation would run hot during ANY of those years going all the way back to 2011! Never said it! Never thought it! Never believed it would, and often argued it would not. Even more to the point, I challenge Laude-Da to find where I said prior to 2021 inflation would kill the stock market, as he now repeatedly tells my readers I did in his comments to my articles and in his own article.
There was only one year in which I said inflation COULD run hot and cause problems but even then I did not say it WOULD (and I’ll cover that passing statement below). In fact, almost everything I wrote prior to 2019 about my own views on inflation was DEflationary or was noting that not much inflation was happening. (And I have told Laude-Da that several times in comments, but I guess he didn’t care to check it out before repeating his claim in an actual article of his own.) For example, you’ll see statements like …
The Fed would be aiming for inflation above 2% in what Powell termed a “make-up” strategy for the years when the Fed couldn’t get inflation up to save its life. The Fed hoped to run the economy hot…. Declining inflation provides the ready excuse for Powell and the boys and girls at the Fed to do what stocks and bonds are both demanding in order to avoid a tantrum they do not want to be seen as being responsible for…. Look for his comments to start focusing on falling inflation so that Powell can say at the end of July the Fed is cutting rates due to [low] inflation.https://thegreatrecession.info/blog/chairman-powell-moves-toward-my-recession-prediction-and-helps-trump-trade-war/
Finally, inflation also FELL back sharply from 1.9% annually to an annualized 1.4%, which is certainly an economic change more typical of a looming recession than a hotly expanding economy. In the very least, the DIVE in inflation looks like it is time for the Fed to cut interest rates again just to drive inflation back to the Fed’s 2% target. Oh, hold it. The Fed only starts doing that when the economy is going into recession!https://thegreatrecession.info/blog/us-gdp-not-so-good/
Inflationary pressures are BACKING OFF, but DEflationary pressure is more indicative of a recession than inflation as DEflation happens when demand recedes and growth stalls. Lower inflation also presses the Fed back to interest reduction and more quantitative easing.https://thegreatrecession.info/blog/24-points-toward-recession/
-OR- (quoting someone else, to make my point
They [the Fed] have almost no inflation (by their measure). So, they must now figure out how to unwind in a situation of borderline stagnation….https://thegreatrecession.info/blog/2018-2019-economic-predictions/
Instead, they [the Fed] find they have, at best, a nearly stagnant economy where borderline stagnation promises to be the best they can hope for throughout years to come, and they have almost no inflation (by their measure). So, they must now figure out how to unwind in a situation of borderline stagnation.https://thegreatrecession.info/blog/untying-the-gordian-knot/
Their only struggle this time to stay within their M.O. is that they have failed to create inflation in the general economy … and inflation didn’t cooperate this time to “force” them to tighten into recession….https://thegreatrecession.info/blog/federal-reserve-causes-all-recessions
[Euro] Nations are falling into recession together, even while bank interest is already subzero and even while inflation is already stuck near zero after unprecedented money creation.https://thegreatrecession.info/blog/hell-week-for-global-economy/
I can go on and on throughout those years with examples that prove 1) I was never an inflationista, 2) I always tended toward thinking we were, for any particular year, in an deflationary environment, and 3) I NEVER said inflation would kill the stock market ever at all until very recently.
I did once say,
Rising inflation COULD press the Fed to continue in tightening mode.https://thegreatrecession.info/blog/beat-the-establishment
But notice the “could.”
And, yup, I did screw up on this subject ONCE:
Rising inflation and rising interest APPEAR to be merging into the perfect storm for 2017.
With US inflation skyrocketing at 0.6% in just the month of February from an already high 0.3% in January, the Fed MAY be forced to raise interest rates even more aggressively than it had forecast in December…. How is the Fed going to have any power to keep a lid on any of those interest-based problems IF January and especially February are true indicators of where inflation is going this year?https://thegreatrecession.info/blog/2017-economic-forecast/
This is the one time I said inflation COULD be a problem in the year ahead. Notice I said, in this brief comment, that inflation “appeared to be” a developing problem, and I only predicted the Fed “MAY” have to deal with it and only “IF” things continued as they had been going in the previous two months. I think saying inflation might happen with that many ifs once in a decade hardly makes it my guiding premise for the entire decade; but, alas, why quibble about truth, right? I could just let people make the claim and repeat it until it becomes accepted as truth, especially if I don’t take the time to contest it. (Now, I’ll just link to this article whenever anyone makes sweeping false statements of any kind.)
Until we approached the current period of scorching inflation, that conditional “MAYBE” was the boldest prediction of POSSIBLE inflation I EVER MADE, and I still did not tie it to the stock market at all.
I did say inflation was supporting the stock market
I even stated a number of times over the years that inflation would only happen in asset prices, not as consumer price inflation, and not in any way detrimental to the stock market. In fact, my claims for the market were always the opposite of saying for years inflation would “kill the stock market.” Rather, I stated repeatedly that any inflationary effect from the Fed’s money printing was helping the market because of how narrowly the Fed’s money printing during all those years was distributed. I said repeatedly new money only creates inflation where money circulates.
Whether or not the market implodes now depends entirely on whether central banks let it fall. If they decide to continue to buy up all the slack, they may be able to keep it artificially afloat a lot longer because they can create infinite amounts of money so long as they keep it all in stocks so that it only creates inflation in stock values, as it has been doing, and not in the general marketplace. We have certainly seen that not much of it trickles from Wall Street down to Main Street. So, there is little worry of creating mass inflation from mass money printing.https://thegreatrecession.info/blog/central-banks-rigged-stock-market-ready-crash-schedule
The new money doesn’t trickle down. It exists all on paper and just creates huge inflation of stock values, none of which is getting plowed back into the corporations’ capital equipment or research and development. It just gets reinvested in other stocks in the world’s biggest casino where only the wealthy can afford to roll the dice.https://thegreatrecession.info/blog/rich-pay-80-percent-of-taxes-not
We created trillions in new money anyway through zero-interest expansion of our money supply and quantitive wheezing. That didn’t create any of the customary inflation we were concerned about because it all went to banks to invest in stocks and bonds and barely entered regular circulation.https://thegreatrecession.info/blog/has-there-ever-been-a-more-selfish-generation/
ALL the inflation people thought would happen from printing so much money out of hot air all happened in the stock market where no one commonly calls it inflation.https://thegreatrecession.info/blog/chinas-bubble-burst/
For some reason the Federal Reserve does not consider the huge inflation in housing prices or in stock prices to be a form of inflation. As a result, they naively believe they are creating money without creating hyper inflation. They are simply looking for inflation in the wrong places. If they were printing cash in large currency amounts, it would be happening where people spend their coins — on the smaller stuff. Because they are creating all the new money as ones and zeros inside the reserve accounts of major banks, the inflation is happening where major banks spend their money — on major assets.https://thegreatrecession.info/blog/housing-market-collapse-near
“You can’t do that!” the indoctrinated will argue. “Money printing is a certain path to economic collapse!” Maybe so, but money printing is all we have been doing throughout the Great Recession, and it caused no hyperinflation, except in the stock market.https://thegreatrecession.info/blog/economic-vision-real-recovery
The reason that the Federal Reserve’s quantitative wheezing has not created any general inflation is that none of the Fed’s free money is going out to the general populace. It’s all getting invested in the stock and bond markets by rich banksters.https://thegreatrecession.info/blog/wealth-inequality-in-america
So, the only thing I ever said inflation would do to the stock market, until now, is support it! As you can see, it has been a major tenet of my blog that Fed money printing would not and could not create general inflation so long as it remained (as it was remaining for years) in financial markets. Moreover, it has been my regular argument that inflation from Fed money printing was feeding to the market, not killing it!
Finally, here is where I started talking about high inflation
My first brief prediction of problematic inflation came mid-2018 during the Trump Trade Wars:
Because tariffs get built into the cost of goods sold, tariffs will assure inflation for US consumers, and inflation will pressure the Fed to maintain its quantitative-tightening schedule, even if the economy starts to go down so fast that the Fed’s infamously blind eyes can see it is failing. IF inflation rises, the Fed will be caught in a corner, forced to continue tightening into a receding economy. (For the Fed, that is their nightmare stagflation scenario in which we will all be facing rapid inflation and tightening liquidity at the same time.) … US inflation (CPI) is rising per the Fed’s long effort to make it do so. Inflation hit 2.9% last week (year on year), its highest in six years. When you consider that the CPI measure of inflation intentionally factors out some of the worst inflation (the volatile stuff that consumers actually have to pay), that official inflation number is scorchingly hot!https://thegreatrecession.info/blog/economy-is-cracking-up/
As I started finally seeing an inflation problem creep into the picture, I jumped the gun a little on timing, but not much. The inflation I was predicting started on the producer end the next year but took all the way until 2021 to show up on the consumer end (a lag I stated all along we could expect). By then, the Fed was out of its tightening mode and back to easing. I wrote one other article in 2018 noting minor inflation above the Fed’s norm:
Currently, the Fed’s targeted inflation has already risen above its goal of 2% annually. (CPI, the Fed’s yardstick, which understates real inflation, is now clocking in at 2.4% while other measures of inflation are over 3%.) With fuel prices poised to rise this summer, inflation on everything will go up even more because fuel factors into the price of everything. That will make it extremely difficult for the Fed to retreat from its presently aggressive policy back to lower interest targets or to increase money supply (via low interest and more QE) because increased money supply will tend to push inflation up even more and because the Fed has always maintained that its financial policy is data dependendent.https://thegreatrecession.info/blog/death-of-the-great-recovery-1/
So, I was seeing hints of an inflation problem rising, but it took another year for me to get interested in inflation concerns enough to pick it up as a regular topic. Even then I did not say one word about inflation killing the stock market. And, at this point, we’ve covered years to get pretty near the present time. So, again, hardly the driving premise of all my writing.
If all else fails, inflation will NOW become the ultimate killer of the market
Now, clear back in 2012 near the very start of my blog writing, I noted the dynamic that could someday come into play, but not as a prediction:
The natural end to this artificial market comes (even without a triggering event) when the free money that has stimulated these market gains in the face of each piece of economic bad news can no longer be created without creating hyper inflation, then the stock markets will crash because their value over the years has become detached from the real marketplace of products and people. That’s the natural end….https://thegreatrecession.info/blog/will-the-stock-market-crash-in-2012-or-2013
To be clear, I wrote that during one of the several years where I stated I did not think the stock market would crash that year. That’s why that article in 2012 also clarified I was not predicting anything imminent but talking about the ultimate point, whenever it might come, where inflation is the destroyer of last resort:
I don’t know if 2013 will become the year when the pyramid tops out. Really, no one can know how long this charade can continue because we have never seen anything like it.
Only this year, has it finally become my belief that the ultimate dynamic is coming into play. If nothing else hits the market first, high inflation will now continue until it takes down the stock market and the economy, and I’ve said, if I’m wrong on that, I’ll stop writing my blog. I’ve never been shy about my predictions, so if I had ever thought inflation would kill the market before, I would have just come right out and said it as I did this year. Even then, I haven’t said how long that will take, but just that inflation is going to remain high and likely rise even higher until it does take down the market and the economy. If inflation settles back down to normal for a few months, and the market hasn’t crashed, I’ll stop writing my blog, so sure am I that we have passed the point of no return for the Fed.
Long ago, I also noted once that
“Helicopter money” — Fed money going straight to the masses through the government — IF it ever happened would cause hyperinflation.https://thegreatrecession.info/blog/negative-interest-rates-not-tried/
Well, it finally happened in 2020. That is exactly what makes this time different. I laid that groundwork years ago, IF that were to someday happen, and only now the time has come. Having, finally, actually tried helicopter money last year and this, here our nation is with inflation already ripping as high as the seventies if calculated in the same manner as the seventies to compare oranges to oranges.
There you have it, my MOST inflationary content, showing a huge gap in any concern about inflation from my responses to a friend in the early days of QE to the present when inflation actually is shaping up to be exactly the concern I started seriously pointing out near the end of 2019, but particularly throughout 2020 and 2021, as I’ve laid out the development progressively step-by-step each month from the moment I told my Patrons it was time to finally start watching for it.
Any conclusions about Laude-Da’s truthfulness are YOURS to make
I merely lay out the facts of my writing against the statements he’s made about my writing while pointing out his total lack of effort to date to correct support his claim.
You’d think someone who loves to boast about being a lawyer would know that, even in the court of public opinion, you had better have evidence to back up your arguments. I’ve done my part. I took the time in order to support my credibility to actually go back through every article that had the word “inflation” in it this past week just to make sure there were no skeletons hiding in my closet that I had forgotten about. I didn’t find a one that would back up one word of Laude-Da’s sweeping and, therefore, totally misrepresentative claim.
In every place where I used the word “inflation,” other than those laid out above, it was just in talking about what the Fed’s target goals are or what the current official rate was or how inflation adjustments are calculated into various things — no predictions about inflation or based on inflation. Especially not a one saying inflation would negatively impact the stock market in any way, much less kill it! Just the nuts-and-bolts stuff people writing on economics routinely mention.
In his latest article, Laude-Da claims,
I think the truth of what we were teaching, along with the quality and accuracy of our analysis finally won many readers over.
Truth AND accuracy, huh? Rather than retract his own sweeping and unsupported published claims about my years of work out of a concern for accuracy, Laude-Da chose to use his next article to, once again, ridicule an off-the-cuff comment of mine that he has used many times in his articles. I’m fine with that. It doesn’t bother me at all. I said it, and it was a bit off the mark (in timing), which I’ve admitted in comments. I can easily own the fact that parts of my comment below were in error, though I believe the thrust of what it says about the market still taking another run below its March, 2020, low is still going to happen. That comment of mine (written at the market’s bottom in 2020), which Laude-da likes to repeat in almost every article now, is:
Coming from someone who still thinks the bull market of January is alive enough to carry us to 4,000, that’s highly unmeaningful… Here is the 2200 exactly that you said the S&P would bottom at before taking the trip back up to 4,000… What do you want to bet the ECONOMY is going to pull it down a lot further and that 4,000 is a lot further away than your charts ever said… THIS bull market did not ever come close to taking us to 4,000, and it is not taking us anywhere ever again because it is DEAD. OFFICIALLY and in EVERY way. Every index is DEEPLY into a bear market now. The bull is dead, and so it [THAT bull market] can NEVER take us to 4000. What you predicted can NEVER come true now… my own resolution is that this market has a lot further to fall because it is now following the economy, which it long divorced itself from; whereas [Laude-Da] doesn’t believe the economy ever means anything to stocks and has told me so several times last year… So, you have that common sense view, or you can believe [Laude-Da’s chart magic will get you through all of that and is right about a big bounce off of 2200 all the way back up to 4,000.
Obviously, I was way wrong about thinking the market would continue down below 2200 at that point. (In other comments and articles at that time, I actually said the market would bounce back up quite high, but then would tunnel on down. I was not as precise in wording this comment. Regardless, it kept on rising until the end of summer when it did some minor correcting.)
On the other hand, I fully believe my off-the-cuff comment (not one of my researched articles) is accurate about the bull market of 2009 dying in March of 2020. That is a mainstream belief, which Laude-Da battles by using his own novel definition of a bull market, according to which he claims to have accurately predicted the 2009 bull would not die until it hit 4000 on the S&P. OK, if you want to run with a novel definition of what starts and ends a bull market and you defined that somewhere outside of the article where I read your prediction, you can try to make that case. If others accept your definition, fine. That doesn’t make me wrong for using the standard definition and pointing out that, by the standard definition of a bull market, the bull of 2009 had died well short of 4000 on the S&P. However, if Laude-Da was always going by some alternate definition, I suppose that doesn’t make him wrong either.
I don’t claim to be without error, and I repeat his quote of my comment here, partly to concede the error (again) and partly to clarify what I meant when saying the bull was dead because Laude-Da likes to misrepresent this statement, too, as if I had said the market would not hit 4000. Never did I or would I say the market would never rise again to 4000 after the March 2020 crash, even if it went lower first. The market has always risen again to higher records, no matter how severe the crash. By common definition, the abrupt but severe crash of 2020 killed the bull of 2009, and that’s all I was saying. By the common definition, that bull could never hit 4000. As most people would understand his claim, and certainly as I did, he’d always be wrong about the bull of 2009.
As for Laude-Da’s repeated claim that all my writing over the past decade is premised on inflation killing the stock market, at least do your research before your ridicule, Laude-Da. It IS your burden to prove your flagrant accusation that my “ENTIRE PREMISE since 2011 … is that inflation is going to kill the stock market.” Having made the claim more than once and published it in an article, prove it.
Now here is what I find most peculiar: this self-esteemed scholar of economics has also spent a lot of time on my articles arguing against my inflation thesis over the last three months, which he says he knows is wrong because of his Economics 101 class. You can judge for yourself whether you need Laude-Da’s old-school theories to tell you whether inflation is actually happening in any significant way. It is such a bizarre claim to continue on with as he has in the face of the most searing inflation we’ve seen since the early 1980’s; yet he verbally attacked one of my readers recently for thinking inflation is coming in hot:
Until you get an understanding of the economic THEORY which is how we define “inflation,” all you are doing is providing anecdotal CONJECTURE based upon “your” experience. But, that is not how economic THEORY classifies “inflation.” Yet, you continue to argue with me. Sigh.
Sigh, indeed, on that reader’s behalf for a waste of time.
Before you tell us about “inflation,” maybe you need to understand how it is defined based upon economic THEORY and the signs that EVIDENCE it, beyond what you and David see in your LIMITED perspectives. In other words, learn what the dollar, bonds and gold are saying about it before you attempt to discuss it “intelligently….” Sadly, because of YOUR LACK OF UNDERSTANDING of “economics,” you think that David is knowledgeable and leading you down the correct path. The fact is that his narratives, while sounding good to you, are BASELESS and only that . . an unsupported narrative…. It is sad when those with a LACK OF KNOWLEDGE are able to sell themselves as gurus, and LEAD MANY DOWN THE WRONG PATH, while claiming victory at all times. Truly sad. And, I sincerely hope you learn the truth before it is too late for you.
Does anyone really need theory to tell you if a junkyard dog has your butT clamped in his jaws, which is where inflation has all of us right now? Of course, Laude-Da started his argument against my inflation thesis when consumer inflation was just getting started. Now he’s stuck maintaining it as real inflation rips his argument’s face off.
If a condescending and oh-so-scholarly kindergarten argument like that against high inflation is really the pit you want to keep digging for yourself, Laude-Da, then, by all means, keep digging! At this point, it’s laughable. I think the reader you were belittling had the truth about inflation solidly on his side, and each month ahead will prove him right. No matter what your theories tell you (which you’ve argued show there is no significant inflation building), you’re going to see a lot more trouble from inflation during the remainder of this year because inflation is here, and it’s angry. And it is not transitory. Just. Like. I. Said.
Whoever digs a hole and scoops it out falls into the pit they have made. The trouble they cause recoils on them; their violence comes down on their own heads.Psalm 7:15-16
When asked about where inflation is now and how it relates to how high the Fed thought inflation would reach and what the Fed’s targets for inflation really are, Powell made it clear that inflation is running much hotter than the Fed thought it would be and for longer:
This is not moderately above 2% by any stretch … This is well above 2% … and, of course, we’re not comfortable with that…. This inflation … is larger than we had expected or than anybody had expected…. To the extent it gets longer and longer, we’ll have to continue to re-evaluate the risks.— Powell, from the video below
Powell also said in his congressional testimony, when asked what tools the Fed has to curb inflation if additional planned government spending takes inflation even higher, that the Fed’s tools are to raise interest rates and take money out of the economy. The Fed has been assuring congress for some time they have the tools they need. What they are not candid in saying is that they cannot use those limited tools without crashing the recovery.
Always the tools we have in financial policy is to raise interest rates [and] to tighten financial conditions more broadly … and that’s how you get control of inflation.… That’s what we’ll do when and as we need to.(about 43 minutes into the video)
However, using those crude tools would crush stock and bond markets that have already shown themselves sensitive to taper talk. So, if inflation runs hotter for longer, the Fed will have to kill the recovery as the only means it has of wrestling inflation to the ground.
Powell even stated that the inflation we have today is unique in history and said candidly that the Fed isn’t sure how well it understands the current situation.
We’re humble about what we understand. We’re trying to understand both the base case and also the risks.(about 44 minutes in)
If the Fed is willing to humbly admit before congress that it may not even understand the kind of inflation we are experiencing because it is without precedent, then let’s not be too ready to believe they have this under control when their only two tools to combat inflation are a skull-crushing club and a broad axe. As, I’ll lay out later in my own video interview below, even a delicate use of these tools could be catastrophic under our present equally unprecedented debt loads.
Assessing the Fed’s ability to understand today’s unique inflation, one congressman noted how Fed officials have created skepticism about their ability to see what is happening with inflation this year by repeatedly playing a game of catch-up-to reality, stepping up their underestimated inflation predictions much more slowly than inflation has been rising.
The “inflation is transitory” meme
Powell tried to stake the Fed’s claim that inflation is transitory on the basis that all the over-reach in inflation is due to airlines and hospitality and automobiles, which are particularly facing reopening crunches because they were the sectors of the economy that got crushed the worst by the COVID lockdowns. He said the concern for the Fed would be if inflation spreads more broadly beyond that limited scope.
So, another congressman laid out for Powell a long list of areas where inflation is already spreading more broadly with rapid rises in food and minerals and energy. To this Powell responded,
I think we’re experiencing a big uptick in inflation — bigger than many expected, bigger than I expected, and we’re trying to understand whether it’s something that will pass through fairly quickly or whether we need to act. One way or another, we’re not going to be going into inflation for a long period of time because, of course, we have tools to address that…. We don’t want to use them in a way that interrupts the rebound of the economy.1:25:20
Sure, the Fed has those two tools — raising interest rates and removing money from the financial system — but, as Powell avers, using them will crush markets and the economic recovery we’ve had since COVID. He, of course, words its gingerly as “interrupt” because he knows all financial writers hang on every nuance of every world the Fed chair speaks. Regardless, if stimulus pushes inflation higher for longer, Powell is admitting the Fed will have to not only stop stimulus, but reverse it.
We’re very well aware of the risks for inflation. We’re watching very carefully…. If we see … the path of inflation moving up in a way that’s troubling, then we will react appropriately.1:26:05
Asked if he was concerned about this, Powell responded,
Night and day we’re all thinking about that and really asking ourselves whether we have the right frame of reference for understanding this.1:26:29
So, how much time does the Fed have to figure out if its massive experiment of record money printing during a time of scorching inflation that already exceeds anything the Fed anticipated is going to go awry?
Powell also admitted that the “bottlenecks” that are the basis for the Fed continuing to hope (let’s not call it “believe” anymore) that inflation will be transitory are “happening everywhere in the world.” I wonder how the Fed can believe bottlenecks all over the world are going to resolve in time for the Fed to avoid slamming the brakes on economic recovery with it big tools when inflation is already well in excess of what the Fed anticipated.
So, again, how much time does the Fed have?
Bank of America’s newly revised temporary and persistent inflation indicator has an answer for that: “Not much!”
BofA recognized persistent measures of inflation (PIM) were rapidly catching up with transitory measures of inflation, which had already pegged the needle on the gauge for two months, so it added a hand to its gauge to track PIM. Transitory inflation is as fired up as the BoA’s gauge was designed to read, and persistent inflation is hot on its heels.
The tachometer is redlined for both measures, yet the Fed says it’s keeping the pedal to the metal. This should get interesting, especially when our driver candidly admits,
First of all, a lot of humility is appropriate here. We don’t know what the trend labor-force participation is…. Presumably, if there’s less labor supply and if there’s less participation structurally, then you would see that in the form of higher wages and higher inflation. We would be able to see that.1:35:40
Well, Mr. Powell, we DO see that in the form of higher wages and higher inflation … all across the board. That burning oil is streaming out from the hood of our race car already. So, we’re there. But, hey, let’s run even hotter for even longer before we back off the gas!
Powell also noted at one point during the day that, in two weeks, the Fed will be meeting to talk about their path for reducing asset purchases (at 1:48:07), so maybe they are starting to feel the heat pouring off the engine and recognize they need to get to the conversation more quickly. We all recall that just two months ago Powell said he and his banking cohorts were not even thinking about starting to think about tapering stimulus. Inflation has already crowded them to where they have now scheduled a time to start thinking about it.
In the following interview by Bob Unger, one of the regular readers of my blog, I explain why the Fed is staying on this peculiar path of high money-fueling of the economy and extreme low interest lubrication, even as it says the economy is growing robustly and acknowledges that inflation is already far hotter than it anticipated:
As I promised in my last article, I’ll now lay out where inflation has gone since my June update. Because so much inflation has emerged in the last few weeks, I can hardly keep up with the number of ways in which it is soaring and the reasons it will be more persistent than the Fed claims, even after Chairman Powell was pressed to up his own prediction last month from “transitory” to “possibly persistent.”Read the remainder of this entry »
I’ve said inflation will rise much higher than the Fed believes and will persist much longer and that it will eventually kill the latest stock market bull and the economy. If these inflation predictions prove wrong, I’ll stop writing my blog. Simple as that. That is how firmly I believe what I am saying and how much I’d rather be accurate than convey false information or bedevil people with failed predictions of doom, even though doom makes great clickbait. I won’t continue writing economic doom if I am wrong.
The last and only time I made such a bet was in 2017 when I bet the stock market would plunge in January of 2018, then hit worse troubles in the summer, then crash much worse in the fall. It did all of that. The Dow experienced its worst January plunge in history (started in January, 2018, and continued through February). Then the long-leading FAANG stocks got their teeth busted off in the summer, falling as much as 40%! And, finally, the worst part of the crash happened in the final quarter of 2018 when the market fell so severely and relentlessly through the fall that it broke several daily records. It even forced the Fed to lose face in order to arrest the fall by reversing itself entirely on its promise that tightening would continue for a couple more years and would be as boring as watching paint dry. (And, of course, the Fed’s tightening schedule was exactly what I based all of my 2018 predictions on.)
Having brushed off hyper-inflation rants in prior years, I started giving inflation a lot of coverage in the last year because I believed inflation was likely to become the driver in our economic malaise in the months ahead. High inflation is a task master that will not be ignored, not even by the Fed, which tried ignoring inflation in the sixties and seventies to the great detriment of all.
As testimonial evidence that inflation is going exactly as badly as I said it would, numerous overly respected economists are finally catching up with me:
Economists surveyed this month by The Wall Street Journal raised their forecasts of how high inflation would go and for how long, compared with their previous expectations in April.The Wall Street Journal
Economists are still lagging economic indicators, though, refusing to believe inflation will run as hot as I’ve been saying for the past year. So, I also predict they will be catching up with more in the months ahead as they slowly raise their tepid predictions to where mine said a year ago we’d be heading. Just you wait and see. The only reason they are now adjusting their predictions upward from where they were is to catch up with reality, which has passed them by. Revision has been thrust upon them. They are predicting nothing. They are merely telling us what is already obvious.
We cannot expect economists to see what is coming further down the road with any clarity because, you have to remember, many of these same experts are the blind leaders in global economic thought who never saw the Great Recession coming, obvious as it was to some of us at the time. That was a major fail on the part of nearly all economists, which happened because their brains are fused with theories.
The Federal Reserve saw it least of all as Ben Burn-the-banky infamously said there was no recession anywhere in sight while standing knee deep in the middle of one. Yet, these are the blind leaders everyone turned to for answers after the Great Recession wiped us out, leaving the nation, as Speaker of the House John Boehner proclaimed, “broke.” After all, who better to tell us how to solve the catastrophe than those who foisted it upon us because they could not even see it when it was developing?
Yet, I also predict in the slightly more distant future, everyone will turn to them again. How dumb is that? (Why? Credentials over thinking. Always. People who cannot think for themselves or even recognize clear thinking when someone shares it with them rely on credentials, even when the highly credentialed people fail miserably at their primary task. As I’ve said before, we never learn. I keep writing hoping someday we will, but I think, at this point, it is an exercise in futility.)
You have to take a time machine to the seventies to find a time like the present
As an example of how flaccid the thinking among economic experts is, look at the graph and commentary near the start of the following video by the nation’s leading economic newspaper. It points out that inflation is not as high as it was in the seventies and says it will not get that high now. The brilliant economists in the video (and the commentator) entirely miss the fact that inflation already is that high because inflation in the seventies was measured much differently than it is now. We’ve already reached the double-digit inflation I predicted if inflation were measured honestly. (More on that after the video.)
The video is worthwhile, however, as a reminder (especially to any who were not alive in the seventies) of the degree to which inflation came to dominate political thinking and the public psyche for years. It shows how important inflation can become. It also shows you just how much inflation has already come to dominate this year’s news (as I have been saying it would):
As they were ridiculed for doing in the video, the Fed today is still saying, “Trust us, trust us. Inflation will not be that bad.” What I find striking in the video is how the stated causes of inflation back then are so similar to today, yet the economists in the video are still saying things won’t be as bad this time (even though they already are if measured the same way!). They argue that things are different now than during that time even though the video shows they are not different in the least! Here were the causes given in the video for what became known as The Great Inflation. See if they are different than today (other than being worse today):
- First, a rise in government spending under LBJ (which pales to utter insignificance when compared to the explosion in government spending in Trump’s final year and Biden’s first year).
- The government’s final move off the gold standard by President Richard M. Nixon. (Did we suddenly go back on the gold standard, and I missed it? And soon we’ll be going off Nixon’s paper standard and onto the digital standard, likely as our answer to economic collapse that is coming.)
- Pressure by the executive branch on the Fed to push more money into the economy and to keep interest rates low. (My gosh, those guys were pikers compared to today! Wow! Could we ever school those neophytes on how to print more money and keep interest rates low!)
- Strikes by workers for higher pay as a result of inflation, causing a vicious circle in unemployment that eventually reached 10%! (Are not 6,000,000 – 14,000,000 unemployed people today, depending on who you include, refusing to go back to available jobs unless they get much higher pay and other conditions they want? What difference does it make if the strikes are organized by unions or financed as a general strike by government provision under both Trump and Biden? Except that a general strike is bigger and worse, regardless of the cause.)
- As wages went up, companies started raising prices even more, creating “a game of leapfrog.” (Hello! Already in full swing!)
- The Fed being blind to the inflation that was happening and not willing to commit to price stability, allowed it to get even worse. (Ahem! This is different today only in that blindness doesn’t get to be recognized by nearly everyone until well after the fact when everyone finally wonders how the fools could have been so blind, as economists argue to save face, “No one could have seen this coming.” Yeah right! I am here to say you can see this coming and COULD see it coming all of last year!)
That looks as close to an exact repeat as you can get between two different time periods. Only, this one is firing up faster. The video even notes that consumers protested rising meat prices back then. (Have you seen the cost of meat lately??? My gosh! It’s gone through the roof! I had to downgrade my last group barbecue plans to a cheaper cut because the cost of meat had more than doubled from last summer!)
The coup de grâce came in the seventies under Carter when oil prices soared and fuel lines became commonplace. (Fuel lines at the pump due to production shortages are not here yet, but oil prices have certainly been on a tear with OPEC at the center of the news cycle just as it was back then, so today is not all that different from back then. With transportation bottlenecks everywhere, fuel lines could develop quickly, too.)
The economists in the video are blind to their own blindness because the comparisons the video gives between the seventies and today are obvious and everywhere in the evidence this Wall Street journalist lays down! You can check off every box, except the fuel lines, and they may well be coming soon to a gas station near you, depending on what OPEC does and whether transportation bottlenecks start to impact oil tankers, as they most likely will!
You have want to disbelieve inflation could be that bad and have to be willing to trust the Fed again based solely on its credentials in order to not see that we are already reliving the seventies. We just haven’t been living it long enough for everyone to catch on. Economists will be the last to catch on because they are looking at it all through theory, not through daily experience at the meat market and at the gas station like you are. Even their theories are messed up.
Fed and the Bureau of Lying Statistics cooked the books
Because inflation became so heated and hated in the seventies, the government and the Federal Reserve found ways to reduce official inflation numbers (which, coincidentally, helps the government reduce the increases it has to give in Social Security benefits as well as other things the government pegs to inflation) and improves the appearance of GDP by lowering the downward adjustment for inflation. All administrations appreciate that.
The biggest change in the calculous was to reduce the impact of fuel prices and to reduce the impact of housing prices — both of which are currently the most intense areas of inflation, now ruled out of consideration by revisionist thinking. All of which means, if we ever nominally hit the double-digit numbers of the seventies, we will be way worse off experientially than people were in the seventies.
If housing costs were realistically included in inflation, we’d already be at double-digit inflation because housing is weighted at about 30% of CPI, and national housing prices have leaped upward about 25%. However, CPI’s housing component is calculated by the best guesses (yes, just guesses) of ordinary home owners via a survey that asks them what their house would rent for. The CPI housing costs for homeowners are then pegged at that rent equivalent.
Need I point out that most homeowners, not having been in the rental market for years, have no idea what their homes would rent for! This means that home ownership costs in CPI are entirely provided by the least knowledgable people. (And there is no adjustment inputted for the ignorance factor!)
As much as those best guesses by many people who haven’t rented a house for a decade or more tend to downplay inflation, numbers are skewed even more right now due to an anomaly: The government has artificially frozen the rental market all across the nation with moratoriums on evictions and freedom from even paying rent. So, rents have been iced over. That means the rental portion of housing costs in CPI (as opposed to just the guessed homeowner portion) has also been frozen! Unless the government institutes further price controls when moratoriums come off at the end of this month, rental rates are likely to soar in the months hereafter as they catch up with skyrocketing housing prices.
That means ALL housing prices in CPI this year have been based on frozen rents. In spite of all of that, housing prices are already one of the biggest contributors to today’s rise in CPI just due to the number of people who did not opt for forbearance or who are guessing their houses would rent for more.
In my next article, I’ll lay out where inflation has gone since my last recent update because there is too much to include here just from the last two weeks. I can hardly keep up with the number of ways in which inflation is soaring and the reasons it looks to be more persistent than the Fed claims, even after upping their forecast last month from “transitory” to “possibly persistent.” You’ll see more adjustments to their projections, too, as they stumble to catch up with what is already happening.
Please don’t let them off too easily when their easy-to-foresee failure smacks them in the face and clobbers all the rest of us because of them.
The bond market is crazy weird right now. Inflation is soaring, and bond yields, which are supposed to price in inflation, are falling through the floor, causing many experts to scratch their heads as they try to figure out what on earth to make of it all:Read the remainder of this entry »
While the Fed’s current tightening is not exactly a well-kept secret, stock and bond markets seem willing to ignore what the Fed’s left hand is taking away as the right hand is giving. Reverse repurchase agreements, which I have been tracking here, have exploded to a trillion dollars in money that the Fed is sucking out of the financial system.Read the remainder of this entry »
The Fed candidly admitted today’s soaring inflation is not what it had in mind, though it certainly is exactly what I’ve had in mind:
At a news conference after the Fed’s statment [sic.] was released, Chairman Jerome Powell said he expects that inflation will be short-lived but acknowledged that it has run hotter than the Fed anticipated and could remain persistently hot.MarketWatch
The [resulting market] decline put the Dow Jones Industrial Average … on track to close below its 50-day moving average for the first time since March 3.
Meanwhile, the S&P remains hunkered near that 4200 level that has acted like a magnet to its highs and lows; while the bond market decided perhaps it should take inflation seriously again after all, with yields immediately spiking six basis points post-Powell, which put yields ten basis points above where the 10-year started the week:
Of course, the Elliott Wave people will say the market’s plunge within minutes of Powell’s comments had nothing to do with what Powell said or specifically with his admission that inflation may be just a tad more exciting than what the Fed anticipated and may be just, well, “persistent” — the new word that quickly replaced “transitory.” Because, by Elliott Wave Theory, market sentiment does not respond to the economic and monetary realities around it.
Nevertheless, as anticipated, the Fed said it will be holding its accelerator foot down to the floor for many months ahead (Fed dot plot says into 2023), apparently to see if it can get that inflation to run hotter still because surely the Fed could not be doing all this “money printing” (a.k.a. quantitative easing) just to fund the federal government’s massive debt rollover requirements or just to keep utterly dependent stock and bond market bubbles floating.
Whatever the Fed’s reasons, we know it certainly is not burning up the money presses because banks need more money in their reserves in order to build up a hotter reverse-repo crisis now that the economy is failing to soak up all the liquidity the Fed is creating.
Or, as ZH put it more precisely,
[The] Fed is holding rates at zero and buying $120 billion in bonds every month in the face of 17.4% export price inflation, 11.3% import price inflation, 6.6% producer price inflation, 5% consumer price inflation, [with] over 15 million Americans on government dole, over 9 million job openings for Americans, record high stock prices, record low homebuyer sentiment, [while] banks are puking excess cash back to The Fed at record levels.Zero Hedge
What could go wrong with keeping the accelerator floored for many more months as we fly through those curves in the road? Makes sense to everyone, right?
The Fed, as I’ve said it would do for the past year, has trapped itself between a rock and a hard place, and it is just now starting to see that, once again, this is not quite the situation it believed it would find itself in. (Just as the Fed once believed tightening would be as boring as watching paint dry (then, oops, stock crash and repo crisis). Tightening was supposed to leave us in a world that would never have another financial crisis during the Fed Head’s lifetime. (Oops again. Maybe Yellen meant her life as Fed Chair; she now has a different life as US treasurer.) Maybe Gramma Yellen just thought she wouldn’t live long enough to see the roaring 20’s for a second time.) The Fed never seems to have a workable end game for any of its big-think programs. Yet, people keep trusting it and thinking it is smart.
This time, the Fed has, on one side, created so much dependency on FedMed throughout the economy, including just about every market out there — stocks, bonds, housing, you name it — that it cannot end the drugs without creating massive withdrawal in all markets at the same time — the catastrophic collapse of the Everything Bubble. On the other side, the Fed’s Big Giant Head now has to admit he didn’t expect inflation to run this hot and that the intensity of the heat and the rate at which it is rising indicates inflation may run hotter and longer than the Fed’s earlier “transitory” guess. That means, if the Fed keeps pouring on the fuel, it risks cooking the everything bubble until everything explodes.
We’ve never experienced what that looks like either. (I would suggest likely a lot worse than the inflations of the seventies when there was no Everything Bubble to burst into tiny bubbles as we whine.)
To what degree are Fed FOMC members changing their minds as to how hot inflation is running? Here is the “dot plot” that shows when those with a vote on the FOMC believed the Fed would make its adjustments in interest rates back in March, and where they placed the likelihood of adjustments now. Each dot represents the view of one committee member as to what level the Fed’s interest target will have to reach in each year on the chart:
You can see that what has happened with consumer inflation since March has significantly changed where voting members believe interest targets will have to be set in 2023. The median dot in June is now two typical rate hikes above where March’s median dot was. The unusual and widening dispersion of dots also indicates there is now a lot less certainty between members as to where the Fed needs to be or what is going to happen with inflation. (Won’t they be surprised when the hot inflationary summer ahead puts even more heat beneath their feet?)
Nevertheless, the Fed is still not planning to raise interest rates before 2023. So, that means two more years of running pedal to the metal. The Fed obviously is a little slow on the uptake to realize their antiquated steamer is already careening over the edge of every inflation curve. Why? Because they dare not admit it. Admitting it and backing off on the fuel would crash all markets.
(Reminder that I’ll be covering my many reasons for thinking inflation is not going to be anywhere near as transitory as the Fed needs it to be in my upcoming Patron Post.)
Economists — including those at the Fed — were surprised by inflation again. With their consensus view being that inflation for June would print at about a 4.7% increase year-on-year, inflation barreled in at 5%. That took us back to the kind of inflation we saw in 2009 when the economy and stocks were falling apart:
Because of how quickly consumer inflation is rising, Bank of America (in trying to keep with the Fed’s view that inflation is transitory) quipped we’re moving toward a period of “transitory hyperinflation.”
That CPI number, however, was not the worst of it. The Fed prefers a different gauge for determining its economic policy — their “core” inflation rate, and that number, which strips out the most volatile price categories that are tracked, came in at 3.8%, which is the hottest core inflation has been in more than a quarter-century.
How bad is it?
Inflation is actually much worse than the headline numbers show. If we measure inflation the way inflation was measured in the seventies, we’re already there! Those who were around in the 1970’s remember inflation as being a big concern in every financial decision for years. If you calculate today’s inflation rate the same way it was calculated back then, inflation is already in the double-digits of the seventies.
The only difference in your experience of inflation now compared to back then is that you’ve only been experiencing it at seventies levels for a couple of months, and inflation does its corrosive damage over time. The high inflation that began in the seventies wore away at people for years.
The difference in how inflation is calculated happened because Fed chair Arthur Burns didn’t want to deal with inflation and crash the economy and markets. So, he ordered a revision in how inflation was calculated by removing volatile food and oil prices (two of the three biggest factors in anyone’s budget, the biggest being housing) so he could pretend it wasn’t as big a problem. As a result, the problem grew worse. (That’s not unlike the Fed’s denial today with its “transitory” narrative.)
Since then other changes have been made — the biggest of which was to take care of that nasty housing factor by replacing actual changes in housing prices with guesses by homeowners as to what their house would rent for.
So, that seventies show of inflation has already begun, and the Fed is promising it will do the same thing Arthur Burns did — ignore it by claiming it is transitory and will go away on its own. The Fed can stop the problem, of course, by raising interest rates drastically as was eventually done by Paul Volcker to end the seventies inflation cycle and by stopping QE (something that didn’t even exist back then), but that is exactly what I’ve said will crash the stock market.
(Note that my argument has not been that inflation will crash the market immediately, but that this inflation cycle will keep rising until it does crash the market, either by forcing the Fed to capitulate or by tearing the financial world apart because what we see right now is the mere beginning, which will grow worse for as long as it is denied. I’ll be explaining WHY this inflation will not prove transitory, as the Fed claims it will, in my next Patron Post.)
Going for broke
Because the financial system is flooded with more money than it knows what to do with, banks are actually asking businesses not to make deposits and are handing cash back to the Fed through its backdoor at almost the same rate that the Fed is continuing to expand money supply out the front door. The Fed denies this reverse repo crisis is a crisis at all, just as it denied, at first, the 2019 repo crisis was a crisis it couldn’t manage without restarting full QE. So, just as back then, the reverse repo crisis keeps breaking past records:
Just as then, the crisis will continue because of the Fed’s denial. Only the problem now is too much QE, and the solution now is to end QE. So, the crisis will continue to build. Here is how that works:
U.S. companies are holding on to billions of dollars in cash. Their banks aren’t sure what to do with it…. Because companies are reluctant to borrow from them, they can’t turn it into income-generating loans. That has weighed on banks’ profit margins, and some have started pushing corporate customers to spend the cash on their businesses or move it elsewhere.WSJ
Who would have thought we’d ever hear banks saying, “We don’t want your money! Take it somewhere else?” What a ludicrous world. “Please don’t loan us free money to work with because it costs more for us to store it than its worth to us.”
Bankers say they thought the improving economy would reduce companies’ desire for holding cash, but deposit inflows have continued in recent weeks.
Even, the Fed keeps pouring more fuel on the fire at a rate fifty-percent faster than its QE coming out of the Great Recession.
You see, banks don’t make money by collecting deposits. That does not become their money. It remains yours and is treated by the bank as a liability (a loan from you). They make their money by investing the money they’ve borrowed from you and making the return on that investment their money. In return they supposedly give you a tiny share in the form of interest they pay on your deposits, but we all know what a cute anachronism that has become! Now some banks don’t even want your money for free. That’s not far from where European banks were when depositors had to pay banks to hold their money.
Deposits are your loan or a business’s loan to the bank where traditionally the bank loans it back out at higher interest and pockets the money made from that carry. They cannot invest your money directly into stocks, and right now they cannot issue enough loans against your deposits, even at extremely low interest, so the money just keeps piling up on the liability side of their balance sheet.
The industry net-interest margin, a key measure of lending profitability, fell to a record low in the first quarter, according to the Federal Deposit Insurance Corp….
Top of mind for many big banks is a rule requiring them to hold capital equivalent to at least 3% of all assets. Worried about the rule’s impact during the pandemic, the Fed changed the calculation in 2020 to ignore deposits the banks held at the central bank, but ended that break this March. Since then, some banks have warned the growing deposits could force them to raise more capital, or say no to deposits.
“Raising capital against deposits and/or turning away deposits are unnatural actions for banks and cannot be good for the system in the long run,” Jennifer Piepszak, then-CFO of JPMorgan Chase & Co., said on a call with analysts in April.
The the reverse repo crisis broke out because the requirement for raising capital was reinstated in March. The Fed says it is not a crisis, but is going according to plan. Odd plan. Pump in more money than banks can use and then give them a back door to park it out of reserves via reverse repos. This the Fed now has to do in order to avoid that European situation where you have to pay banks (negative interest) to hold your money because the Fed has sworn off of negative interest; but it’s money creation is naturally pushing us there.
Either way, the reverse-repo situation reveals there is way more money in reserves than banks can use. If they cannot find people or companies to issue enough loans against their swelling reserves, then they want to remove those excess reserves so that they don’t have to raise more investor capital … or charge people to hold their money or just turn them away. Reverse repos allow them to do that temporarily and get the money back later if they find customers to loan to. Right now, it’s almost like money no one wants even at cheap interest.
This binge-and-purge bulimic environment is created by the Fed stuffing money down banks’ throats at one end and giving them laxatives to pass it through quickly and undigested out the other end. Via its reverse-repo enemas, the Fed has already extracted four months of the money that its quantitative easing stuffed to the financial system.
So, why is the Fed doing something that is damaging its own monetary policy by pressing banks toward negative interest? In spite of the obvious absurdity of this situation, the Fed maintains it must keep the QE up for the economy’s sake, but the economy is not utilizing the money. So, it really keeps it up for two very different reasons that have the Fed’s back to the wall: Stopping QE would put stock and bond markets into apoplectic death spasms, and stopping it would leave the government unable to finance the massive debts the government must endlessly roll over, much less add to them. Because the Fed has become the major buyer in the world of government treasuries, government interest rates would have to soar to attract enough buyer to replace the Fed.
You would think the Fed would recognize (and care) that they’ve plunged the banking world down the rabbit hole into another upside-down Wonderland; yet, the Fed continues merrily pumping money down the throats of banks with no hint of flinching on its promise not to taper its money creation or it low interest rates for a couple more years simply because it has to. It’s trapped.
Whether or not stock investors fully believe the Fed’s narrative that this inflation is “transitional,” investors do appear to believe that the Fed believes it, and that is all that matters because it means the Fed will not relent on its massive monetary agenda.
The Fed has clearly already stood the banking system on its head this year now that it has banks for the first time I can remember throwing cash deposits off to other banks as quickly as they can, saying to their own customers, “Please don’t make us store more of your money.”
Households don’t need loans. They have more money than ever, even though I’m sure most don’t feel that way:
You may not be feeling the wealth, and that’s because most of the average household’s rise in net worth is due to rise in real-estate values that don’t do most people any good because they don’t intend to cash out their house, and if they sell, it will cost them more to buy something of equal quality a week later because real estate is inflating so quickly. Meanwhile, higher home values mean higher property taxes. Some of the rise in household wealth is due to a rise in the value of retirement funds, but most people don’t feel the value of that right now either.
You also may not be feeling the rise in net worth because an inordinate amount of the new wealth went, as always, to the top 1% due to the inflation in stock values as usual. So, very few households are getting much of a share. (Yet, the Fed does not believe it creates wealth disparity, or, at least, it denies it.)
Household savings are up, too, and many are using their government checks to pay down credit cards (though student loans and auto loans have risen some). Net savings rose by half a trillion in the first quarter and by 3/4 of a trillion in the last quarter of 2020, but that, too, went mostly to the 1%. That leaves the banks with fewer loans to make and means many people have more cash that they can use to bid up the price of goods and services that are in shortage due to people not going back to work.
You may remember that a year ago when employment started to recover quickly, I said it would stall out about halfway back to normal, and that is where we are, and I said that would all end in product shortages that would push inflation up for the first time in years.
There is also not a lot of room for banks to reinvest deposits by issuing home mortgages because the government has completely seized the real-estate market via its mortgage forbearance and rent forbearance programs. Because of the real-estate market being held in suspended animation until later this month (and that can may get kicked down the road again as it has twice already), there isn’t much inventory turning over on which to make new loans. Houses are selling for a lot in many places and selling at a record pace, but that is mostly because very few homes are selling at all because inventory is locked up.
Inflation’s catch-22 for markets
I believe inflation will become catastrophic for the economy and the stock and bond markets. We have seen how the market is already edgy about the Fed staying on plan, but it is willing to accept all the Fedspeak that is telling investors what they want to hear. For example, even though inflation came in a little hotter than economists expected last Thursday, the market did fine because the numbers were not radical enough to cause the Fed to change course.
So long as investors are convinced that inflation is temporary or simply convinced that the Fed is convinced inflation is temporary in order to keep the easy money flowing, the markets will be OK because the Fed will stay with its plan not to taper. The transitory belief, however, is a blinder that will cause the Fed to run too hot for too long (which it has already done) until inflation rates are much higher than present (I’ve said probably double-digit). The stock market may keep rising so long as the Fed remains on plan and the Fed doesn’t start changing its tune. But when the rates get higher, it will become harder for the Fed to convince everyone it still has this all under control, and markets will get edgier.
Tapering talk among Fed officials has already begun, which is even sooner than I thought it would begin. Those officials will increasingly waver as we reach higher inflation numbers. We are certain to reach them because the Fed won’t back off full QE and zero interest until we do, and most product and service shortages are not going away soon enough to avoid causing higher inflation either. These nervous Fed officials will not outlast either the long rise of inflation or the long period of shortages to come, and markets will grow more nervous as Fed chatter grows more jittery until things fly apart or the Fed caves in to inflation’s demands and crashes markets by tapering. The gist of my belief is simple: inflation and shortages have more longevity in them than the Fed has guts or room to run because the Fed will need a lot of both, and they are worsening faster than the Fed or other economists thought they would.
(As I mentioned, my next Patron Post will lay out my reasons for believing inflation and shortages are not going to be anywhere near as transitory as the Fed needs them to be.)