But it’s a lot worse than it appears.
By Wolf Richter for WOLF STREET.
The Consumer Price Index jumped 0.6% in May, after having jumped 0.8% in April, and 0.6% in March – all three the steepest month-to-month jumps since 2009, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 2.0%, or by an “annualized” pace of 8.1%. This current three-month pace of inflation as measured by CPI has nothing to do with the now infamous “Base Effect,” which I discussed in early April in preparation for these crazy times; the Base Effect applies only to year-over-year comparisons.
On a year-over-year basis, including the Base Effect, but also including the low readings last fall which reduce the 12-month rate, CPI rose 5.0%, the largest year-over year increase since 2008.
In terms of the politically incorrect way of calling consumer price inflation: The purchasing power of the consumer dollar – everything denominated in dollars for consumers, including their labor – has dropped by 0.8% in May, according to the BLS, and by 2.4% over the past three months, the biggest three-month plunge in purchasing power since 1982:
On an annualized basis, the three-month drop in purchasing power amounted to a drop of 9.5%, and this eliminates the Base Effect which only applies to year-over-year comparisons.
That plunge in purchasing power is “permanent” not “temporary.”
Yup, the current plunge in purchasing power is permanent. And the plunge in purchasing power in the future is also permanent.
The only thing that might make a small portion of it “temporary” is if there is a period of consumer price deflation, which has happened for only a few quarters in my entire life, for example in the last few months of 2008, which is indicated in the chart above. So I’m not getting my hopes up.
The rest of the time, we’ve had lots of decline in purchasing power. And that has proven to be rock-solid “permanent,” and we never got that lost purchasing power back.
Durable Goods inflation exploded by 10.3% from a year ago.
And it jumped by 3.0% in May from April, the biggest month-to-month jump since 1980. The problem is across the board, but the biggest biggie is used vehicles.
Used Vehicle CPI exploded by nearly 30% year-over-year, and by 7.3% just in May. I have long been fuming about and dissecting the reasons behind this price surge, based on data from the auto industry. And it is now seriously showing up in used-vehicle CPI.
This chart shows the actual CPI as a price index, not the year-over-year percentage change of that index. This eliminates the issue of the Base Effect.
But “hedonic quality adjustments” over the years have held down the CPI for used vehicles, producing this astonishing chart above, where the index in 2020 was below where it had been 20 years earlier, even as in the real world, used vehicles got a lot more expensive. Only the scary-crazy price spikes in May and April pushed the index above its level 20 years ago.
These hedonic quality adjustments are applied to account for improvements in vehicles over the years, such going from a three-speed automatic transmission to a 10-speed electronically controlled transmission. The price increases theoretically associated with “quality improvements” are removed from the CPI.
In theory, CPI attempts to measure price changes of the same item over time; and when the price change is based on improvements, it is not inflation because you’re getting more as you pay more.
In practice, this has led to a consistent, purposeful, politically convenient, and bipartisan understatement of inflation as measured by CPI.
New Vehicle CPI repressed by hedonic quality adjustments. The adjustments have practically eliminated the appearance of inflation as measured by CPI in new vehicles, even though new vehicles have gotten a lot more expensive, with the cheapest cars disappearing from the automakers’ lineups.
Nevertheless, year-over-year new vehicle prices rose 3.3%, the biggest increase since 2012, despite vigorous hedonic quality adjustments. Note how the index used to rise into the mid-1990s, at which point the hedonic quality adjustments were applied and forced the index back down:
For a dose of reality, data from the auto industry shows that the “average transaction price” (ATP) of new vehicles sold to retail customers in May jumped to $38,255. The ATP is a function of the price of new vehicles sold and of the mix of new vehicles sold. Based on data provided by J.D. Power, the ATP has jumped by 28% over the past seven years since 2014. Note the huge jump since June 2020:
Services CPI jumped 3.1% year-over-year, held down by fake homeownership cost index.
About two-thirds of the overall CPI is for services. They include the biggest biggie of all: housing – more on that in a moment. They also include healthcare, insurance, education, subscriptions for services such as broadband, cellphone, streaming, etc.
The CPI for services rose by 3.1% year-over-year and jumped by 0.5% in May. Over the past three months, the CPI for services rose 1.3%, for an annualized increase of 5.2%.
The actual plunge in purchasing power is even worse.
Housing costs – rent and homeownership costs combined – account for about one-third of overall CPI – it’s the biggest category in CPI.
The rent component of CPI, called “rent of primary residence” (=7.7% of total CPI in May) has been rising month after month this year at a constant 0.2%, including in May, and is up 2.2% over the 12-month period.
The homeownership component, called “Owners’ equivalent rent of residences” (=23.8% of overall CPI in May), ticked up just 0.3% for the month and a mind-bendingly low 2.1% for the 12-month period, despite the explosion of home prices over the past 12 months.
The reason this homeownership component completely misses the red-hot inflation in housing – the loss of the dollar’s purchasing power with regards to homes – is that it’s based on surveys of homeowners’ estimates of how much their home would rent for. It is a measure of rent, as guessed by the homeowner (red line in the chart below).
The Case-Shiller Home Price Index is a more realistic house-price inflation measure. It’s based on the sales-pairs method, measuring the price changes over time for the same house, soared by 13.2% year-over year, the red-hottest increase since December 2005 (purple line):
The loss of purchasing power is “permanent.”
So, hedonic quality adjustments for durable goods, such as new and used vehicles, plus the elegant fiction of “Owners’ equivalent rent of residences” for housing costs, plus some other CPI reduction methods, such as “substitution,” see to it that the actual loss of purchasing power of the consumer dollar – and of labor that is paid in dollars – is far worse than even these very ugly inflation data released today.
And this loss of purchasing power is permanent. It won’t suddenly come back, except fractionally during these minor bouts of deflation we get every now and then.
What’s “temporary” is the pace of the loss of purchasing power, in the sense that it changes every month.
For sure, the spike in used vehicle prices cannot go on infinitely. At some point it will have to back off. But then other prices will spike, such as airline tickets, hotel bookings, restaurant meals, or insurance.
Inflation is a game of Whac-a-Mole. One pops up as another backs off. So it could very well be that CPI inflation may be 4% next May, down from 5% now, and we’ll be celebrating that the 5% was “temporary,” and was replaced by 4%, hahahaha. But the purchasing power of the dollar that is lost every month is lost permanently.
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As many have commented here, if forced to either crash the markets or destroy the dollar, the Fed will choose to crash the markets.
So then where is this threshold where the Fed will be forced to act?
Or, when do politicians want to dial up a financial crisis for their own political gain?
We are witnessing the blatant failure of the Fed to abide by her inflation mandate.
eastern bunny…
I am stunned, shocked, that a Fed Chairman can stand at a podium and say he is promoting inflation. He is mandated to “stable prices”.
THEN…we get 5% inflation and they do not lift a finger to raise rates.
Fed Funds typically for 75 years…..equaled or exceeded inflation. This was the model, this was what was at least a “hold your own” rate against inflation.
https://www.bourbonfm.com/sites/default/files/users/PatrickBourbon/fedfundsratevspriceinflation.jpg
Now, fed funds 0, inflation 5%. Never ever happened before.
People are getting slaughtered in the real world….and the wealth gap widens between the workers and the “nicely invested”.
But the nicely invested are mostly benefiting because of the historically out of whack relationship between rates and inflation, courtesy, manufactured, FORCED by the Fed.
Who is the Fed to ignore the mandates/agreements/instructions that ALLOW THEIR EXISTENCE?
Who is Powell to promote inflation, lay this tax on the People?
Money products are inflationary. Savings products are non-inflationary. Money products decrease the real rate of interest. Savings products increase the real rate of interest.
There are c. 16 trillion dollars in bank-held savings that are frozen. Banks don’t lend deposits. Savings are not synonymous with the money stock. Banks aren’t intermediaries.
The complete deregulation of interest rates (for just the banks, as the nonbanks were deregulated prior to 1966) impounded an increasing volume and percentage of all bank deposits. This is the reason for the fall in velocity since 1981.
Inflation creates “millions” of jobs and asset bubbles are caused by vaccines. I think Adam Smith said that.
“Inflation produces jobs”
This is the argument they used during the Weimer hyperinflation. They kept inflating in order to prevent civil unrest and riots. It worked until it didn’t work.
Can anyone explain the difference b/t loss of purchase power vs inflation? Imagine fx drives the former and M1 the latter but have never seen a clear analysis – best stk_detective
I believe the primary reason for the Weimar inflation was that Germany decided to borrow to fund WWI, believing war reparations would allow them to pay off the debt. However, they LOST and billions of reparations were charged to Germany by France and England.
At that point, Germany’s incentive was to print money in order to pay off the disastrously burdensome government debt. Without the giant external debt, the government policy might have been far different.
I think with the understatement of inflation especially with the rents vs sale prices of Real Estate, we are already in double digit inflation. It will get worse as all this money printing gets to work through the system, as there is always a lag.
“I am stunned, shocked, that a Fed Chairman can stand at a podium and say he is promoting inflation. He is mandated to “stable prices”.
THEN…we get 5% inflation and they do not lift a finger to raise rates.”
Really? I’m not stunned. It’s expected. Until an angry mob grabs Powell and chops his round melon off his body, expect more of the same.
RE “…stunned, shocked…”: it was sarcasm; refer to the movie “Casablanca.”
Not gonna happen. People are brainwashed beyond repair. As the movie the warriors went “I knew they were wimps”. Today we have a world of wimps scared of there own shadow and you think there gonna be a angry mob lol. Not gonna happen in a world full of wimps. People now need there hand held everywhere they go and look at the government to hold there hand. They believe anything the media propaganda machine dishes out without hestitation.
Like most things related to the government, the Fed expanded it’s role. Starting as being a lender of last resort to banks to now being the central planning committee for the Western world. If they fail, our accumulated savings go poof.
Have they not been doing everything they can to debase the dollar and inflate the markets? At what point do we say “Okay, NOW you’ve destroyed the dollar.”?
Next year at this rate.
Dollar is already getting destroyed for asset markets.
Thebenbernank is right. The dollar is allowed to suffer a slow destruction, because the issuer of the dollar is also its biggest debtor (US Govt.). But the dollar cannot be allowed to die either.
But most importantly of all, the people cannot allow the government (as the biggest debtor) to frame this discussion. Our money doesn’t belong to the government! Our money is their debt – they owe it to us. Should we allow them to get away with paying off those debts at pennies on the original value?
Wolf is dead right to talk about purchasing power destruction and show graphs of purchasing power falling 30%. The Feds want to talk about “2%” inflation vs. 3%, tiny little annual rates which hide the monstrous fact that they compound over time and destroy the incentive to for individuals and corporations to save and invest in the future of the country.
The Fed has no choice but to debase the dollar at ever increasing rates in order to bail DC out, among other institutions. Overt default by DC, which would also be the end of the US dollar, will be avoided at all costs. The default will be via severe price inflation ultimately. Tangible assets offer refuge.
Cruiser
The Fed does have a choice
Apparently they embrace MMT which suggests debt creation flows to the economy thus the negatives are allegedly offset by the positives.
Why cant that also be applied to increased interest payments with higher rstes?
The interest paid out goes into the economy does it not?
Thus the revelation that the Fed decides where the “flow” is directed.
What power to the unelected!!
“What power to the unelected!!”
Sounds like you’re talking about corporations and the 1% too!
And what good are the elected when they’re corrupt and incompetent?
Furthermore, if the voters are too stupid/apathetic to choose any good leaders…..the whole thing is doomed.
Gotta run, TMZ is coming on!
“voters are too stupid/apathetic to choose any good leaders…..the whole thing is doomed.
It hardly matters who is elected. 99% end up the same once they get there. Congressional term limits are sorely needed. One and done!
Voters are only apathetic when times are good.
The top 0.1% have now wealth equal to the total wealth of the bottom 92%. When Bernie kept pointing out that FACT, back in 2014 or so, at the Senate Budget Committee every single time he had a chance to speak, it was 90%. NOBODY put together anything denying it, all just ignored him, yawned, and voted.
It is simply CLASS WARFARE, nothing at all new in the history of civilization, that has gone way to far, and all the “aberrations” people face and talk and complain about in this society are, in one way or the other, the DIRECT RESULTS of it. But people don’t like blaming a number, they want other people to blame, they want causes and mistakes and “evil” doers. They want names named.
If a referendum were held at ANY time in our history, who in their right mind would vote for such a numerical situation?
Our laws give ONLY the government the power to PRINT and to TAX, but many many end runs have been made around those basic laws.
The facts we all REALLY need to grasp right now is how much of this attempt at DEMOCRACY we have?
It doesn’t appear to be very much at all, if any. But if people choose to chase only the aberrations due to it…..well, I guess we do that till social unrest begins to explode all over.
The best solution I can think of is a Constitutional Maximum Net wealth, somewhere around $10-$20M, and a powerful “bounty hunter” style IRS, which I’m sure will attract plenty of financially literate types with excellent investigatory skills. Naturally they would operate in a well regulated computer or military style “need to know” environment, preventing the sickest of the economic “pirate” community from exceeding the maximum.
We can then resume the studying/debating/deal making of economics, useful job creation, moral hazard, “pork” distribution, and other such agenda driven things, using the democratic principles we claim to adhere to.
It is a badly needed new paradigm, and probably too late, but why the hell not?
Does everyone really want to play Somalia, Mad Max, or Hunger Games? All seem likely outcomes of current path.
Perhaps the need for an immediate and massive Green New Industry and Conservation Program would become apparent, even to the CEO’s and owners of fossil fuel companies, no long seeing endless wealth increases in their futures?
The US government will be better off selectively overtly defaulting on its debts versus destroying the USD by inflation which will destroy both the currency and the bond market.
Before it reaches this point, I expect numerous actions. First, a selective default on entitlements. It’s already happened with Social Security by increasing taxes on benefits and playing with the COLA. Look for means testing next. Second, mandating purchases by retirement accounts, possibly in the name of “protecting” participants, especially if the stock market crashes first which is a virtual foregone conclusion. Third, unilaterally extending maturities at the coupon rate.
Destroying the USD will make the FRB irrelevant and drastically weaken US international influence.
It isn’t about to happen for the reason most believe, including to pay open ended bread and circus through MMT or UBI. The public will thrown under the bus first, again.
Tangible assets, yes, but the idea that public companies won’t be affected negatively be inflation is a joke. Stocks are not good hedges against inflation. Land and precious metals are.
It all depends on the Central Bankers and this enormous power they have…
from where?
by whom?
In depression my grandparents traded 800$ for 80 acres couldn’t get cash from bank went in broke worked ass off came out ok
Only until we reach a critical mass of people who feel they have nothing more to lose. Such people will take what they need by force. It has happened before in my lifetime. They will have an even more short term outlook than you.
But perhaps you are counting on being dead (by natural causes, of course) by then, leaving your heirs to protect that land and gold.
Pretty selfish, eh?
Tell that to a 16 yo working in hospitality to survive. That was me 30 years ago. Today’s nonsense will kill those young people who through no fault of their own are in that position.
I worked in restaurants for a decade: busboy, waiter, barback, bartender. It’s good training for people a Project Manager.
It won’t kill them…it will teach them one very important thing:
The public sucks and I don’t want to work in a restaurant/bar anymore.
But the owner of the twice bankrupt Taj was great.
“But the owner of the twice bankrupt Taj was great.”
Still got TDS, little fella?
“crash the markets or destroy the dollar,”
Actually, ZIRP has provided 20 years worth of evidence that the political class will happily risk destroying the dollar in order to pump empty air into the stock mkt.
But I agree that a timed crash for political profit is a possibility.
DC runs the gerbil wheel everybody else lives in…
Gut interest rates through money printing (which DC uses to purchase power)
A) Gutted rates minimize interest costs of huge accumulated DC debt. Literal ZIRP makes *any* debt level cost *zero* per yr in interest.
B) Gutted rates pump assets full of empty air per DCF/NPV formulas.
C) Use soaring asset values to vilify asset holders.
D) Implement asset/wealth tax on inflated asset values
E) Rinse repeat. DC profits coming and going. This bitch belongs to them and we just live here…in their gerbil wheel.
The system you describe also allows the corporate oligarchy to asset strip the public/little guy who cannot afford holding costs of real assets by using the free money created by their flunky Powell.
It’s a fascist move which will consolidate power in their court pretty much permanently and make the rest of us into peasants again, just where the new feudal lords want us.
A rusted gerbil wheel will seize up evenually, if OIL is to be found wanting …
The oil can will not be refilled, just depleated. Hollow Tin PetroDolarMan Go Boom, Dollar-stuffed Scarecrow catch inflation fire, and Cowardly Lyin pols scatter to the 4 Windsfor their lives! .. to be hunted by angry flying LowlyMokeMonkeys.
what is all the fuss about?
Historically the dollar peaked in 1694 with a value relative to today of 72.3 . Its vlaue in 2007 was somethig like 1.26 so in historical terms the dollar has been devaluing for 300 years and as far as I can see the world has not come to an end.
The dollar devaluates, so what?
Thebenbernank:
“So then where is this threshold where the Fed will be forced to act?”
When they get the “scent and sting” of grapeshot from the public!
In other words if and when they believe the public will be in revolt (same with the politicians).
So far the public is still not injured or suffering enough.
This is why bitcoin was created. 21 million bitcoins will ever exist. Each divisible by 100 million units called a Satoshi (like 100 cents make up a dollar).
The U.S. Fed has no interest in stable, steady monetary policy. The first serious snort of the crack cocaine of suppressing interest rates and conjuring money for their friends in the cocktail circuit, and never again will you get this unabashed Drug Addict clean.
The Fed has been in Denial for more than 20 years. You cannot Monetize economic growth. But you can create an illusion for quite a while.
I feel for savers and retirees.
The end game will be a changed society in ways no one can imagine.
Inflation destroys the moral values of the nation on top of their savings.
Which is a lesser evil. Hard times ahead.
here is the nightmare scenario
Rates stay zero, inflation stays 4 – 6%….
so those folks get murdered by the arrangement.
But then the stock market goes sideways or down.
So those folks start losing.
Then what happens when both groups are losing?
So far, it has been accepted that the one group (savers) are to be punished to the benefit of the invested.
But like Hayek said “When central planners decide, they INTENTIONALLY harm one group to the benefit of another.”
For 12 years, holders of currency have had historical norms dispensed with, not by economic forces but by decision making by the unelected who ignore the mandates under which they are allowed to exist.
The yield curve does not have a nice clean knee anymore…
It’s all getting very strange. Why is there so much demand for negatively yielding bonds in this inflationary scenario? Is it because the reverse repo overnight rate is 0% when it shouldn’t be?
Pension funds and insurers have to match their liabilities with longterm bonds. The negative rates in Europe are still better than the rates set by the ECB, so they will take -0.1 over -0.5
We should preferably have been in contracting economies ever since peak conventional oil was reached. But instead we threw ourselves on an exponential debt growth trajectory because we appear simply incapable of accepting that things go both ways, and that the party had by then already ended for most people.
But now we’re even increasing the rate of increase of debt growth as we attempt to paper over the empty space below that is in danger of being uncovered by each subsequent crisis that rocks our dangerously fragile systems of everything from credit to the value chains that put food on our tables.
The nightmare scenario is far worse than just getting poorer and living somewhat shorter lives. We’ve by now, due to our exponentially increasing activities, depleted and destroyed the natural world and the climate system balance so badly that it’s mostly a question of which storm of several approaching ones that hits us first…
Assuming, as Wolf’s first chart from the BLS shows, the price increases are not “transitory”, I’m reminded of Keynes’ observation: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” —John Maynard Keynes, British economist (1883-1946); “The Economic Consequences Of The Peace”
This is the essence of the problem. Although there are almost 450 PhD economists working for the Federal Reserve System, there are still only around 23,000 total employees. Far short of the million that Keynes estimates. We have a long way to go.
The average American is destined to become noticeably poorer in the future and so are those elsewhere.
I expect an asset crash first to end the all-everything mania followed by or coinciding with spiking prices for essentials. I never thought the asset mania would last this long but when psychology finally turns, no will be able to keep asset markets levitated.
Shouldn’t those on Soc. Security be getting a COLA? One result of fake CPI has been to put a break on COLA but now they are admitting and encouraging higher (closer-to-the-truth) inflation but I don’t see any adjustments being talked about. I don’t know how that works so if someone could clarify…
COLA calculated annually and paid. Then they raise your Medicare cost to pull it back. Pretty simple.
Oh, and if your SS + income (RMD, pension, etc) is high enough, you pay INCOME TAX ON YOUR SS!
Reagan pushed thru the law to make social security taxable.
But Reagan set the tax at $32,000 for a married couple, at which, everyone agreed, only a rich person would ever have to worry about.
Apple, that’s not correct. Clinton signed it into law in 1993. Never was adjusted for inflation though.
Moral values!? Sure…lots of those.
Sorry EB but that ship sailed long ago.
One third of the country is offended by somebody saying “My life matters.”
What’s the response to all the unnecessary death we distribute throughout the Middle East with endless, non-winnable wars? A yawn, a trip to McDonalds and flipping the channel to TMZ.
Most savers are pretty industrious. My washing machine just failed. I have never paid anyone to fix an appliance. I spent about a day in surgery before I found a failed gear in transmission. After a being sure I couldn’t find the gear. I priced a transmission. Too high.
Then the search for a second hand machine. Finally through word of mouth I find the guy in town that makes a living by bringing machines back to life from his bone yard. Problem solved for $150. He is happy. I am happy. A machine is kept out of the landfill and a $800 (cost of new appliance) problem is solved for $150. GDP suffers a little though.
So the way to survive the coming apocalypse is to open a junk yard and fix-it shop? Not a bad idea. :)
Lots of people have done jut that.
The system will self-correct. There are so many retirees (with savings or pensions) and people saving for retirement that not all these savings can find a productive purpose. This is what sends interest rates down, they were already decreasing before the major central bank interventions, and will be low for another while. In this sense, the inflation will need to happen before interest rates can go up, the amount of savings versus the real economy has to happen.
Note that if central banks raise interest rates sharply then these people will just lose most of their savings immediately instead of over time, since bond and stock prices will fall sharply and the economy will slow down cos investment will be expensive. There is no painless way out of the demographic conundrum
The amount of savings vs the real economy has to correct*, didn’t proofread it will, apologies.
Savers are being forced to spend their money. I am already buying up tools, old cars, trucks and motorcycles to sell for parts and property to store the junk. Sure I would be more comfortable sippin’ on a 40 sitting on bundles in a bank paying an interest income. My crystal ball is not clear when if ever that’s going to happen. The game is to hand the hot potato over to the next bag holder without a chair before the music stops.
I would reconsider in what I hold my savings. Perhaps a yellow metal?
Time to see Weimar Powell flex his gaslighting power all over again and still trying to convince the public inflation is “transitory”
Better yet, going to start calling P boy…Jedi Grandmaster Powell cause those Jedi mindtricks are mighty powerful..
“You’re not seeing inflation, everything is transitory, all is well my young padawan”
Powell has admitted that “perception” is key.
So he attempts to shade the perception with untruths…
Wait, is that lying? He should go work for the FBI.
The FBI are the criminals, ClownMan.
The FBI is filthy. See: James Comey to start.
Fed has gone from being a lender of last resort (on good collateral with proper penalty rate) to a manipulator of markets.
We’re destroying all the liberal societal gains (Liberal as in the traditional meaning, not what it has become) our elders have built for us. All the social movements of the early 1900s are getting swiped. The more I read and think about it, the more i find were going back to a mix of serfdom mingled with some illusion with a good dose of I don’t care. Not as dark as bladerunner, but somewhat having that kind of egotism. When people call the dark ages as being ancient, they truly don’t have any clue what they’re creating out of their daily choices…. The cumulative effects have still to show up… Anyways, thanks again Wolf.
UpNorth-in so many ways, we (‘Western Civilization’) won’t miss our water ’til the well runs dry…
may we all find a better day.
Liberalism and feudalism go hand in hand. When you reduce individual sovereignty and implement government by force, (socialism) you are instituting a feudal system. We have been on that course for more than 100 years.
That’s a rather unique usage of terms to interpret contemporary history. Here I thought we were headed towards a global neoliberal oligopoly kept in place by first-world fascist governments with neocolonial foreign policies.
Words!
IMO jpup, it’s been a long road AWAY from feudalism for the past several thousand years since we were all owned outright by the king.
Surely we can and will be able to bridge over ”temporary” bumps down on that road from time to time until we get to nirvana or utopia or whatever word each individual wants to call their own piece of peace, eh?
The ”occasional flash of brilliance” theory suggests that between each and every such flash there is a period of ”re grouping” needed to firm up the progress established or sometimes just revealed by the flash.
Did not know that feudalism was socialist.
Liberal’s traditional meaning is still what it means.
You’d have to be an especially mentally ill person to think PROGRESSive is a dirty word.
Progress….moving forward, making things better. Pretty easy to follow, right? Unless of course Tucker or Sean Hannity said something different.
I appreciate your comment regarding the word “Progressive”. The word “Conservative”… conserving things, has also been twisted. It is pretty easy to follow your logic… Except when we subscribe to one “news source” or the “other” in order to form our “own” opinions and claim a “team”. .. And all the while ignoring the fact opposing sides of those “news sources” are ALL owned by the same economic interests. It is such a waste of human potential…. a nation full of puppet wrestlers, all controlled by the same set of hands. And so I read Wolf and The Economist and Benjamin Franklin’s Autobiography and pretend I am above the fray. And occasionally appreciating the pearls I may find there.
There are only 2 states of personhood, either you own yourself which means you are sovereign, or Citizen, or you are not sovereign and owned, which means you are owned by a sovereign. This would make you a subject.
All politics evolves from that one question, are you sovereign?
The Revolutionary war was fought to establish the answer to that question.
If you are truly sovereign, and truly own yourself, and your life, then government is, and must be, very limited in its power, and what it can tell you to do.
There is nothing progressive about feudalism, it is the oldest form of government, and the one unfortunately most people in the world are most comfortable with….
Any sudden attempt to restore purchasing power will tighten financial conditions, motivate deleveraging and precipitate a recession.
So…
The pain is going to come either sooner or later, but there will be pain. The longer the delay, the worse it will be, and man, has it been delayed.
I agree with Up North, regrettably.
My question is, how much of this short term increase is due to the snafu in lumber supply affecting building materials prices? I see some large commercial builders going out of business because they can’t afford a 10+X increase in lumber prices.
They’re not going out of business because of lumber prices.
In 1979 YOY inflation rate was 13.3.
We survived that.
We’ll survive this.
This is very different from 1979 and we don’t have most of the advantages that existed then. While the inflation in the ’70’s wasn’t any of the following, this time it’s not going to be that simple, easy or pleasant.
Angel, slaying the inflation dragon in the late 70s was neither easy nor pleasant. The Fed under Paul Volcker essentially had to engineer the 81-82 recession through the raising of interest rates in order to put the brakes on inflation. Fixed 30-year mortgage rates reached a high of 18.63% in October 1981. Companies cease to raise their prices when workers are losing their jobs at the rate they were during that recession. There was nothing simple, easy nor pleasant about it. And the very same will ultimately be said for the recession the current Fed will need to induce in order to slay the current emerging inflation dragon…one they purposefully instigated themselves.
Phoenix, – I know hence why I stated “While in the inflation in the ’70’s wasN’T any of the following….” Sadly I remember both the ’70’s and the fall out from the ’82 recession. Clearly so do you and yes, there was nothing simple, easy or pleasant about it. I remember the stress, ends not meeting, foreclosures, bankruptcies, dislocations…. It was like being on the Titanic, watching people lose their grip and go overboard as you hung on by your finger tips. Looking forward, I can’t help but wonder if we will be able to hold on again and what will happen to our children’s futures.
Sorry Angel…re-reading your original post, I can now see what you were getting at in your retort to OutsideTheBox. You’re absolutely right, the 81-82 recession was definitely no picnic in the park for those of us who experienced it firsthand. It pains me to see and hear certain members of the current Federal Reserve be so cavalier about the impact of inflation on real peoples’ lives. “Oh, consumers will simply substitute cheaper products and services for the more expensive ones.” Really? Until their standard of living is no longer recognizable?
“Oh, consumers will simply substitute cheaper products and services for the more expensive ones.”
Try doing that with healthcare….oh wait, we did!….OBAMACARE!
Phoenix – No worries, it happens to all of us. I’m afraid you are right about the Fed’s expectation and they are all old enough to know better. In regard to “It pains me to see and hear…” You’re a bigger person than I am. At this point, I’m just angry and both hoping and dreading that is going to increasingly be the trend.
Strolling down memory lane, my first job out of college in 1977 paid $7500 a year- and I was able to support living on my own- and in 1981 my income had quadrupled to $30000. The next four years saw maybe a 15% increase, and the rest is history. I was too young to connect the dots but I can think of many grads today who would appreciate that 400% increase off the bat….
It certainly is different; inflation is much lower, following a freak 1 in 100 year pandemic that threw economies into chaos around the globe.
What was the balance of floating rate credit card debt in 1979?
What was the balance of floating rate student loans in 1979?
How much Libor + Margin loans did businesses have outstanding in 1979?
What was the US Governments debt to GDP in 1979?
What are all of the above in 2021? What would happen to all of these if inflation was solved in 2021 the way it was in the 70s?
I don’t remember the CC rates in the 1970s, but I do remember we had usury laws back then that capped the rates. Rates probably topped out in the 12-18% range.
Also Libor was not used in business loans back then, the prime rate was used. In the 1980s Libor began to be used because it was always higher than prime and it was easier to sell debt/paper abroad.
The good news is that with debt ratios so much higher now, it will only take a small rise in rates to generate the creative destruction required to slay the inflation monster.
But with the economy so much more sensitive, there might be substantially more destruction… and with policymakers far too interventionist, there will be more “destruction” and less “creative” in the process.
I lived then, the entire federal taxes coming in today would go to pay interest on the debt, on top of that they would have to borrow two trillion dollars more to pay the interest.
so they just lie and cheat us now, because it would be impossible to raise interest rates to 20%
we live in a country of 90% lies period
Yes we survived, after a very bad recession, and very high interest rates. As I remember drug and alcohol abuse spiked to very high levels, especially during work hours, and productivity crashed. The powers that be, would probably prefer to avoid another cycle like that one…
Perhaps the .gov is trying to do our own version of the Great Leap forward. We struggle for a bit then all the employers feel bad that their employees can’t afford food, shelter or the other basics (cell, internet, transportation etc..) and they will give more than 1% annual increases.
Maybe. You know corporations have feelings too
Outside.
We survived because Volcker saw his duty to the People, to snuff out the inflation….because inflation was bad.
Now, the mantra is “inflation is good”….and Powell is the cheerleader.
Quite a difference.
And if we survived in ’79 due to Volcker’s diligence, then what is the future with Powell’s opposite response?
Another Volcker will appear when YOY inflation gets high enough.
My bet…..that happens around 30% YOY inflation.
And we will survive that as well…..
Unless “they” don’t want “us” to survive it, that is. Things are changing, and because “they” want them to.
“Another Volcker will appear when YOY inflation gets high enough.”
Keep dreaming. Now they just lie and create a bogus inflation number and then don’t raise rates. They’ve got their knee on grandma’s throat and they’re busting out her gold fillings, while others laugh at the dirt poor people living on the sidewalk. These central bankers need to be arrested and charged with mass murder.
So at 30% annual inflation, today’s $50k pickup truck would cost $185k in five years. Sure, 30% inflation is the magic number the Fed needs to wait for before it acts.
No, we won’t. There will be bloodshed if this continues, I promise you.
Maybe from 6 or 8 people and it will last all of 19 minutes.
This is about “inflation” (consumer prices) and not “survival.”
Wolf – Point taken but… As I remember, for many folks there was significant damage and, as a result, life became about “surviving” it without ending up on the street and/or without food. I have to assume that it will be significantly worse and last longer this time. If you don’t think that will be the case, I would love to hear your thoughts.
Life was about survival or treading water during the late ’70s and the 81-82 recession….for some, (like for me and my immediate family). However, many did not miss one pay cheque, had no consequences, and had their wages tied to COLAs. Regardless, the experience turned me into a lifelong saver and into someone who has never done debt. Ever. I can weather anything that might happen financially, and what might disrupt society bar another pandemic. I won’t go into details here.
My folks survived the Great Depression, WW2, etc. We’re fat dumb and happy compared to those days. My mom had one dress and a pair of gumboots in rural very poor New Brunswick. There was no work and food was sketchy. My dad had enough to eat only because they lived in rural Minnesota. My father in law pretty much starved for 10 years in northern Sask, and how they survived winters I will never appreciate.
We’ll know it’s here when people lose their phones and start to play board games and cards again. Until then, it’s all noise and what ifs. This is nothing like tough times of past.
Some people hear you and understand.
Others are in a cult of animus/fear where every day is the likely the start of the End Times.
They’ve been obsessed with it so long, they’ve grown to want it to happen so all their finger pointing won’t have been for naught!
And so they lament day after tiresome day….
It’s almost like there is someone pushing this endless doom and gloom and misery. I’m pretty cynical myself but moreso on an existential level unlike the doomsday prepper types. You could make a lot of money selling beans bullets and bandaids to today’s US population. Lots of profit in having a fear driven population. Look at housing. Look at the markets when Yellen coughs and it sounds like “any financial term that could mean money isn’t free anymore.”
Emotions are good for cavemen surviving outsiders and lions. They’re not very compatible with prospering in a modern civilization. A good business model doesn’t have feelings or morals. Profit is all that matters at the end of the day. It was the best of times, it was the worst of times.
The common school of thought, is that the government and the Fed are acting in the countries best interests, and to preserve the present form of government.
But suppose for a minute, that is not the case. Suppose the real goal is to create a crisis that would necessitate the dissolution and the reformation of a new form of government….
That would certainly explain much of what seems now to be inexplainable…..
Is it unreasonable to expect the FED to telegraph their intentions to their banking pals or have they dropped the pretense and just call them?
The playbook hasn’t changed, just the communication techniques.
First the Fed has private chats with key bankers, so the banks (the Fed’s legal owners) can position themselves.
Then they telegraph via the media, so the wealthy elites can position themselves.
Then they screw the middle and lower classes.
P.S. We’re in the “telegraph” stage now, which is why rates are dropping even though Yellen is saying they will rise.
You forgot the step when they meet in Davos with the ultra wealthy and are told what the agenda is…..
Yet the dollar index is down only a tiny bit and gold hasn’t even managed to break $1900 again. Clearly no one believes that inflation is truly here because if they did gold would be pushing $2000 and the dollar index would be headed for 85.
The dollar index measures the dollar against US trade partners’ currencies. They’re all suffering purchasing power devaluation as well.
As for Gold, it is still the best inflation hedge, but it is no longer the only inflation hedge … and not everyone realizes yet that it’s still the best.
The question is not whether it is here, it obviously is. The question is how long before it causes recession and deflation in which gold will follow other commodities and decline in value along with all other asset classes.
Easy there, cowboy. Not everything under the sun gallops off over the horizon immediately due to one official metric being released. If you could successfully apply such straightforward logic to where prices go you’d be stonking rich in no time. From your example there you could also e.g. just as easily say that gold not moving is signaling that rates are going higher next…
Well, they could always increase taxes to suck up all the extra cash floating around the economy, the type of stuff being splurged on burkin bags, NFTs, and yachts with helipads by trust funders that don’t work, but god forbid we punch up to fix the system.
Some one should look into cutting off that child tax credit stimmies. Maybe those parents are spending too much time at home, or those kids are eating too much.
Prices in LA/OC suburbs are still going up fast. Everything is selling for 60K over asking. This is the upscale middle class Burbs at least. The appraisals are coming in. The government has driven the Chinese and Persians away. They were our big cash buyers and now a lot of Chinese are looking to sell. The Persians need a place to live and they are not going back to the native land so they are not selling. The American Muppets are struggling except for the public employees who are doing fine…..especially the two public employee couples…..the prison guard/nurse or DMV/Cop or the teacher/fireman. Looking at the graph it looks like we have to regress to the mean sometime. It won’t be pretty. I would say hold on to your cash and buy some real estate in five years.
A long time ago someone stated that communism is not a threat because when everyone has what they need no one will get out of bed.
What we are now learning is that when a true democracy exists no one can stop the masses from voting themselves comforts to the extent that no one will get out of bed. Jobs exist yet folks collect unemployment.
Unfortunately the end game is hyper inflation as the value of our store of value continues to lose value at a faster rate……and while Rome burns the party goes on in DC.
Substituting products and services is devious……so you substitute pork for ground beef with the belief no one will ever go back to eating ground beef?
Yes, cars have radio and air conditioning but realistically how much did that improvement cost the maker to install once they were universal.
Yes, the fed has an obligation to provide job opportunities….but….we used to consider 4% unemployment full employment and 6% unemployment as reasonable conditions…..so we steal the entire wealth of savers (and backbone of the country) to ensure that every illegal has 2 job openings?
I hope not to be here when it happens but someday there is going to be an armed march on Washington that even the 82nd airborne division will have trouble stopping……and when those bums turn to us for support they will be surprised by the empty faces.
Forgive my ignorance, but how mathematically does one get from an annualized increase in the CPI of 8.1% to an annualized decrease in the purchasing power of the dollar of 9.5%?
“Purchasing power of the consumer dollar” is a different metric the BLS publishes. It’s not just the right-side up version of the CPI. They’re never exactly the same (in reverse). Sometimes the purchasing power falls by more than CPI rises, and sometimes by less.
Here is a loss of puchasing power for you. I was looking through a little keepsake box I had and found the following. A pay stub from the summer of 1979 ( just out of high school) when I worked putting in hay for several local farms. My pay was $10 per hour. Next to it was a ticket stub to see the “Who” later that year in Buffalo which cost $10.00. So I was able to see one of the greatest rock and roll bands of all time for one hours labor. Now some poor kid who gets paid $15 per hour working fast food has to pay an average of $221 to see Taylor Swift (cough cough), which is 14.75 hours of labor to see an act that in no way shape or form can be considered a hedonic improvement.
How about measuring inflation by the price of local honey from the beekeeper?
Remember buying a 5 gallon tin, 60#s, for $12 in NorCal in fall of ’72.
Now $12 for ONE #…
Remember when a newspaper was a nickel? At least a dollar today,,, and that for less than half of what a nickel bought a few decades ago.
Retired folks on a budget are already taking it up the kazoo, right now.
Boomers and other such younger folks better have a cast iron plan to have a place to live paid off,,, property taxes fixed — or at least the rate of increase of those taxes limited — and a good garden including tons of ”food trees” with their roots into the aquifer established and flourishing.
Good Luck, and may the Great Sprits bless us all!!!
What they better have is very different than what they do have. The vast majority not only do NOT have that but they also don’t have the skills like growing a garden that eased some of the pressure in the ’30’s, & ’70’s. What they generally do have is a mountain of debt and the aquifer’s are drying up which is the exact opposite of what they and society need them to have. This will not lead to sunshine and roses.
Yeah, and the “hedonic quality adjustment” in value between the Who vs Taylor Swift is definitely off the scale for a modern era show with a slightly better sound system, more strobe lights and some big video screens
So …. it’s really ‘hedonistic’ adjustments we’re talking here.
here’s one, Seneca. In ’74 I made $7 per hour as a carpenter apprentice. The actual rate was $6.49 but my employer was a good guy and paid more. A 12 pack of beer was around $2.80 and a carton of smokes was $4.00 (Export A and Players). Draft was $.35 per glass at the pub after they raised it from $.25. Our dollar was also worth $1.03 US.
If I was to extrapolate a wee bit I would have to earn at least $50 per hour as an apprentice to maintain the same lifestyle. Oh yeah, a nice little 3 bedroom bungalow was just over 20K back then, about 1.5 years wages.
10$ an hour for a farming job in 1979???Total BS.I was paid 5$ cash to cut grass in 1991 in NJ.Most inmigrants were making 3$ at the factory in 1979.One engineer told me he was paid 15$ in Boston in 1979.
The way the CPI is rigged in USA it can be said that it mostly tracks purchasing power. For those that have purchasing power.
Kick out food, depress housing cost and a few other adjustments and the CPI track the purchasing power of the top 1% and a few more of the well of. Part of the rise in CPI might come because of this.
The CPI may no longer track the majority of consumers, it weight those with large income from capital gains most. With the end result that the CPI will trak monetary inflation;)
Doesn’t mean much but Pound to the dollar up to $1.42 from $1.26 last year
I think it probably does mean something…it’s not like the £ is the powerhouse it used to be…
A
Great isn’t it?
I hope all the remoaners are watching.
Gold has more Wall Street barnacles slowing it’s progress that a 80 year old tug boat. Commodities are shedding light on the inflation mess. BCI Aberdeen Bloomberg Commodity index is up ore 40% year to date. Gold will be the last to the party but will come through the wall and not the door.
Supposedly there will be a new rule coming this month that will destroy the paper gold market.
If that happens, Gold will go crazy pretty quick.
If Basel 3 goes through as written, which I’m doubting unless the powers that be want to see the system implode, gold will explode to $3,000 or higher before the summer is over. The amount of bullion bank interventions since last August is the most blatant market rigging I’ve ever seen.
Look at the price of physical goods in ounces of gold. It’s not cheap, it’s more historically overpriced than underpriced. Other commodities, the typical price of a new car, median priced home…it isn’t underpriced versus any of it. It takes fewer ounces of gold to buy most goods now than it has for most of the time anyone here has been alive.
Longer term, gold will go up measured in fiat currency but will more likely lose relative value than gain it, possibly noticeable value especially versus essentials.
Gold is not rising because its primary use, as jewelry, has dropped due to crime. Nobody buys gold jewelry anymore because it’s dangerous to wear it and it no longer conveys any status. Now fake jewelry with designer branding conveys more “value” to the consumer. Even in India, brides no longer have a problem wearing fakes.
I am not a gold bug, but this is just wrong. Gold demand in India last year was the lowest since 1994, but the price of Gold last year went up to 1773 from 1393 the year before.
Everybody was too ‘cooped up’ to buy!
I think most people last year had a reality check and realized how vulnerable their situation was. My guess is most were more concerned with investing their extra money in stocking their pantries and their ability to sustain crisis than buying gold.
Yeah, but Gold price WENT UP, cooped up or not. Not sure what we are debating here. That’s fact.
P
Gold is a metal you dig from a deep hole in the ground and weigh and put in another deep hole in the ground with locks and security guards.
To paraphrase J M Keynes, everyone’s favorite economist.
In other words less wasteful than how we treat other minerals..?
smh Petunia. your theories on gold are so wrong.
gold is sold out every year. every last ounce is purchased by someone. the price is total illusion. the price-changes in gold only matter when there is a systemic event a la 1933 or 1971. every day that goes by means we are a day closer to a breakdown of the current gold market. because all paper-gold markets will eventually fail. unlike for commodities, supply / demand is not a metric that applies meaningfully to gold. simple as that.
will you EVER try to understand this?
The charts tell the broad story, and it isn’t pretty. Economics certainly hits us all a little differently. I was trying to recall the price of some items I bought fairly often back in high school in 2004 to compare to today. These came to mind:
Small ice cream cone at local DQ – $1 Today $3.
Gallon of gas – $1.15. Today is $3.25
2x4x8′ lumber – $2 then. Today $9.50
7/16″ OSB Sheet $7. Today $35
Solid used 4-door, 4WD pickup truck w/ 50-70k miles – $12-15k. Now $25-30k.
McChicken $1 then. $2.29 now.
My wage in the local factory was $14/hr for the summer then. Now the same place is paying $18-20/hr. Not really keeping pace.
Our area doesn’t see a whole lot of boom and bust, because it’s always nearer to bust anyway…. but the only conclusion I can reach is that our standard of living is dropping. We’re trying to paper over it with more debt through all levels of the economy, but we’re just about out of room for that trick. Where does it go from here?
Random
“standard of living is dropping”
By decisions by the Fed, the unelected.
You cant even save your way along anymore…for to SAVE is to go BACKWARDS….another predicament created by the Fed.
When they decided we needed to compete with China, they decided the best way to do that was by bringing the standard of living for Americans down while the standard of living for Chinese went up. We’ll meet in the middle at some point – but then the trend will reverse. Standard of living for Chinese will continue upward and standard of living for Americans will continue downward. We are the undeveloping world.
So, I guess trade deficits DO MATTER
and self sufficient is good….
Another person with an amazing ability to see the future accurately.
Every other person on this site is omnipotent! :)
You must take you own advice, AntiChrist!! Move to China NOW and get ahead of the curve.
A
If you were 20, what would you rather be, poor in a country getting richer, or rich in a country getting poorer?
If you were 80, what would you rather be, rich in a country getting poorer or poor in a country getting richer?
With the Biden moves to satisfy the Green dealers, the US has already lost its energy independence. That is now fact. The pipe line has been abandoned by its developers.
The more the Administration penalizes oil, gas, and coal in favor of wind and solar, the higher fuel required simply for base line energy, is going. it has merely begun its rise. As that cost percolates through the economy and supply chains, the hyper inflationary cost of Green is going to shock everyone including the economy.
If you believe otherwise, please, make your case, might be interesting to see any facts to the contrary.
Oakland,
You nailed it. There could be a move to more rail transport with hubs for the short range electric trucking fleet, at least that’s why I think CN and CP are buying up US railroad companies. But people will be sorely disappointed if they think everything will run like today.
Regardless, Climate Change is fact and as it unfolds there will be vast disruptions and change. I think everything else will pale in comparison. And this is from a pro pipeline guy whose son works in the Alberta oil sector. :-)
Sorry climate change has always been fact because the climate always changes sometimes up and sometimes down. That why the 1930’s were warmer than today but the late 40’s were cooler. In the late 1920’s they were worried about all the glaciers melting but by 1970 they were worried about us going into an ice age and now back to worrying about melting. Remember ice ages always start when the temp is at it’s highest and they start to warm when they are at the coldest.
Yes the cycle fluctuates normally and all species on earth have adapted, died or relocated. This happened over millions of years.
The sudden, by comparison instantaneous explosion in the combustion of fossil fuels, beginning with coal, just over 200 years ago, lays a completely abnormal, one way influence, on top of the normal natural cycle.
The period of debate within mainstream science about atmosphere change, and its effect on climate is over. Glaciers known to be thousands of years old have melted within a decade or two ( revealing the Iceman, with copper tools and a bag of cannabis) The drilling of arctic ice permits testing of CO2 levels twenty thousand years ago.
One surprising thing about all this unprecedented combustion changing the atmosphere is that it’s surprising. About 8 people died of CO in the Texas cold snap, using barbecues etc. indoors.
Combustion changes the air in many ways.
may I suggest a book “unsettled” by Steve Koonin
very interesting fact based analysis, in depth , but explained so I can understand. The climate is changing, BUT how and why, and what are the solutions may surprise everyone.
Nick-well said. Climate fluctuations exist over myriad human lifetimes, which makes it hard for many to emotionally, if not intellectually, accept the fact, even as it happens around them. My person-to-person view of the current climate situation is not that climate wasn’t already fluctuating (it always has) but that 200+ years of industrial revolution fed a human population explosion demanding an endless expansion of the fruits/waste of that revolution. This has acted as a blasting cap on the dynamite of an accelerated (relative to the planet’s age) change. Massively inconvenient, with absolutely no easy remedies…
may we all find a better day.
Well…”With the Biden moves to satisfy the Green dealers…” I stopped right there. Instead try “Nothing will fundamentally change”
I have to agree…it’s all a big show.
I thought Covid Don made America “great”!?!
Wait, that was only 5 months ago….everything was perfect.
It was Utopia. The wall was done. He brought down the price of prescription medicine. ALL the jobs came back. It happened so fast, it made my “head spin” (like he said it would).
He was right! I got “tired of winning”! I don’t know what you people are talking about….Red Don fixed everything. Your complaints are all figments of your wild imaginations.
“Nothing will fundamentally change” Actually it will. Every political group has it’s financial supporters, and those supporters are rewarded when their political group is in power. History has shown that can mean huge swings in the agenda, where money is spent, who gets government contracts, and the costs of goods for the consumers.
Everything that happens, and how it effects you, is the result of political decisions made in the past.
OGB
I bet uncle Joe will also allow rates to go up to stop his big spend going to the rich via any more QE. This will stuff fracking overnight because it already costs for every btu recovered.
He’s pi**ed off Vlad by all his warmongering, so it looks like flogging missiles to Saudi Arabia again is his only option. Allies are getting very sceptical about following the ‘leadership’ of the USA. Wonder why?
The Formula for the Rule of 72
If an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Or, if inflation is growing at 8% annually, it will take 9 years for PRICES to DOUBLE.
Thanks Joe, we’ll make sure and remember you when it comes time to vote in the midterms.
The CPI’s bogus rent metrics are a large part of the index but don’t reflect reality. They also game the CPI by pretending that today’s cars (which cost more than earlier cars) are “effectively cheaper” because “more comfort” even though they don’t get you there any faster. Thanks to that all that statistical “black magic”, the “inflation” stated at “8%” actually means most actual prices will double in about 4 years.
The problem is inflation does not work like that. Inflation can only remain static at low levels. Once it reaches a certain point, inflation works like compounding interest, it begins to increase because of itself.
Unless they do what is necessary to get it under control now, it will get much worse before it gets better.
Wolf,
Thanks but no thanks just more perplexed now more than ever, see it in the tape, long and short, trying to push something down. Silly sanctions of an Iranian official lifted instead of oil sanctions lifted for Iran. A lot of noise, nowhere else to go. Too much debt, housing is topped. Vaccinations, people flying, and driving. Companies always get called out about their buybacks, but never the shorts trying to decimate share prices. Still have the up tick rule here.
1) Consumer Purchasing Power : asymptote.
2) Purchasing Power in 1997 @63, today @37.4, or 60% of 1997.
3) New car prices, ex improvements, including Model S,153 x 0.60 = 91.8.
4) New cars prices, ex pickup trucks approx : 75, or about half of 1997 ==> deflation.
5) Since 1990 @77 the Purchasing Power fell only to 37.4, thanks to China.
6) China exported deflation for decades, but since 2014, USD/CNY trend is up.
7) If USD/CNY will close the upper gap, we will produce “Made in US”
deflation.
8) If so, the whole will deflation will accelerate.
9) China silk road will be dissected.
We’ll all be pleased to pay our rapidly escalating property taxes. No need to vote; just let the Fed do their thing with a little help from NIMBYans.
Taxes? Why bother with them? I’m just going to let the Fed create more trillions to pay my local, state and federal taxes.
I mean, is there some reason that couldn’t work?
Only thing I see crashing is vehicle prices in the future once manufacturers have to push all the 2021s they are building, but not finishing into the market. Ford has tens of thousands of trucks sitting in parking lots because they have no chips to finish them.
Real estate too once it hits the brick wall.
Will they do reverse hedonistic adjustments on those vehicles now that the fancy electronic gadgets aren’t part of the package anymore?
They will deduct the price of the missing microchip, which is probably about $5 (being generous).
I was on holiday, in about 1994, in what is now Croatia, but back then was Yugoslavia. One day I went into a bar and brought a beer, in cash, Yugoslavia had almost no Credit card facilities at this time, the Barman held his hand out for my money, after I had paid, naturally i was reluctant to hand over more cash after a completed transaction, I didn’t speak Croat and he had very limited English.
After a while a German acted as translator and explained he doesn’t want to keep it, so still reluctantly I handed over the cash in my hand, the barman took a pen and crossed of the last three noughts of the denomination of each note, my 10,000 dinar note, about the price of a pint of beer, about 80p GBP, became a 10 dinar note.
I was obviously pretty furious but the German explained that the currency had revalued overnight, and since it was impractical to print enough cash for the whole economy overnight, the government had instructed every one to cross three noughts of the end of each denomination of note, (dinar), metal coins,change were just to be thrown away.
When I left the country, which was a beautiful country with really nice people, I found the airport quite literally full with dustbins full of money, anything less than 5000 dinar notes could not be changed back home as the commission was worth more than the note.
As I left I gave my maid who had looked after me whilst staying at the hotel a £5 Stirling note, she fell onto her knees and thanked me, I was astounded and somewhat embarrassed.When I relayed this incident to someone else they explained that I had given her 6 months of salary as a tip.
This could possibly be in your future, I have seen and experienced inflation first hand, it had no effect on me personally, but that may not always be the case, subsequently I have always kept a small amount of insurance in the form of gold.
Thanks for that illuminating account. Very interesting to have an on-the-ground observation of hyperinflation.
Haven’t you heard?
This is America or (insert name of) another developed country. Residents of America or another developed country have a birthright to minimum living standards, even if it has to come at someone else’s expense.
@2BFrank
This.
I regularly visited Yugoslavia in the late 80s and I had comparable experiences.
I went to a bank to change a travellers cheque for a modest amount (like 50USD or so) and received a pile of bundles of Dinar notes, still in their official currency straps. I put them in a plastic shopping bag and felt like a cartoon Al Capone when I left the bank.
Afterward, I filled up at a gas station, and counted out bundles for the attendant on the hood of my car. It felt absolutely surrealistic. I still have a photograph somewhere, handing over this pile of cash.
On another occasion I visited a remote village and there was a small shop that had a beautiful lady’s sheepskin coat on display. My then-partner fell in love with it. It fitted her perfectly but the dinar price came to about 500USD. That was not cheap and way above my financial means at the time. However, when I opened my billfold, the saleslady noticed a 50DM (German marks, about 25USD at the time) note left over from my crossing Germany to get to Yugoslavia. She was absolutely delighted to accept that as payment and even threw in a pair of gloves. With the raging Dinar inflation at the time, she only needed to hang on to that 50DM note for a year or so to end up with a phenomenal deal on that coat.
I wager that not many people nowadays have this kind of firsthand experience with runaway inflation and its consequences. If they did, they would certainly not sit idle while central banks are throwing the masses under the bus to the benefit of a small elite.
As it is, I feel like I’m the only one seeing a slowmotion trainwreck happening, while everybody else just sees trains running.
Trust me JO, you are definitely NOT the only one seeing the wreck!!
Remembering coming over the final hills into the Los Angeles valley a few decades back and seeing gas at $0.10 per gallon due to a ”gas war”,,, and now we see gas at $6.00+ there is a nightmare in the making.
Ditto with my apt at Cal at $50/mo now renting for $2,500.00
Crazy bad for everyone.
As others on here have said, I would be looking elsewhere except I am waaayyy too old to start over again, and everywhere else I have been for any length of time is as bad or worse than USA…
Really thought we were ”good to go” the distance til the bucket kick, but not at all sure anymore.
May the Great Spirits help us all!!!
The Balkanization of America may be happening on more than one front….
At some point, the politicians will change the Federal Reserve Act, and the Fed will be both the lender and spender of last resort. If that happens, we could move into hyperinflation.
Hyperinflation is always going to be the endgame because it helps the rich. No one has more debt than the rich.
You have it backwards. Most of the wealth of the rich is in financial assets because most of the “wealth” in the US and the developed world is financial and intangible. It’s not just owned by pension and retirement funds.
The wealthy will go along with hyperinflation to prevent a France 1789 repeat but aren’t about to volunteer to have much or most of their wealth destroyed.
Hyperinflation would also destroy the USD and with it, the imperial project.
Mote rich in real estate check it
You guys have been predicting hyperinflation for 50 years now….
Nobody here has mentioned the amazing Pro Publica reporting on the wealthy sticking a shiv in our collective backs by not paying their fare share.
I guess it’s more satisfying to moan and grown about “illegals” and “China”. Talk about snowflakes.
Read the piece…get with reality!
Jeff Bezos is going to space on his way to becoming the world’s first TRILLIONAIRE and somebody is complaining about illegals taking jobs. LOL!!
Dude. If an “illegal” takes your job….you got some weak skillz.
“Jeff Bezos is going to space on his way to becoming the world’s first TRILLIONAIRE and somebody is complaining about illegals taking jobs. LOL!!”
They’re both wrong.
Regarding the inflation report. Many of these items increasing in price are discretionary and some time ago were luxuries
Ex. Food away from home up 4% but people choose to eat dinner out every night or ordering thru seamless or grubhub
Car rentals and airfares why can’t people use their own car to drive to destination or use the subway or bus as millions do in NYC. Not only do people do people choose to rent and SUV because they can’t want to be seen in a sedan but they are choosing to pay $759:a week or more for privilege
And as was stated here a few weeks ago the majority of people go not need a new vehicle now. New cars are completely discretionary purchase or as stated above use the subway and bus system like millions do in New York City
NickL,
That’s why I’m so worried. It’s the discretionary items whose prices are skyrocketing. This shows that the inflationary mindset has changed. People are eagerly paying those higher prices. This is a really bad sign.
Soon CNN and marketwatch.com will be writing smarmy articles about millennials who don’t know the meaning of and when to use the word ‘Amazing’ are going to be traumatized since they never seen inflation before after being so ‘traumatized’ by the 2008 recession watching parents lose their jobs
When we order pizza, we are the only ones in the place picking it up ourselves, everybody else is from a delivery service. The delivery charges easily double the price of a couple of pizzas.
Homemade pizza is pretty cheap-n-easy to make if one has a high temp pizza stone (rated @ 550°F) at their disposal. We don’t buy take-out no more!
What if the reason for the change in mindset is related to pandemic fatigue (roaring 20’s) and stimulus money (play money from heaven), exacerbated by supply chain disruptions, rather than expectations of continued inflation like you might get in normal times? I’m just going off my own feelings here… happy to spend a little this summer to forget the bad covid year, and the feds gave me some cash to do it. How would that not be transitory? Supply chains recover. Stimulus funds get spent. Unemployment remains high, wages really haven’t grown much. How will people continue to eagerly pay inflated prices in 6 months when the stimulus is all spent out?
Wages are rising.
Wages are not rising enough to support $10 2×4’s.
Unemployment remains historically high.
Wages remain historically low.
I am not convinced.
I guess the economy is now like the government… you get the one you deserve…
Inflation is hitting manditory items as well. Just had a couple of dental implants. They were molars that were essential to be able to eat properly. Even with dental insurance (GEHA) the cost will be over $3,500 out of pocket for each one. I’m shelling out the money without hesitation. I created a medical savings account for this purpose. I’m lucky to be able to afford this expense. A lot of people can’t and get stuck with Dental loans which are then collateralized into CDO’s and sold to investors.
Jerome Powell is probably making a little passive income on those dental implant CDOs.
You can’t repossess dentistry…
“Perhaps” the best positions to be in financially are
A. Debt free and owning everything outright
or
B. Owing huge amounts of money and defaulting.
At 50% inflation, making minimum payments on credit cards at 29% is that a winner or loser? I don’t have the math skills to figure that out.
Wolf…
it’s called the “what the heck” syndrome.
Government math…….at the University of Illinois they built Memorial Stadium for 1.7 million dollars in 1923. For those of you who don’t know 1923 was a high flying year.
Taking government math the cost of that stadium today would be right around 26 million.
The stadium holds 60,000 fans when full. 26 million might…..might do the parking lot.
We can probably chalk that up to generous hedonic quality adjustments. Those stadiums have air conditioning now;-)
“improvements in vehicles over the years, such going from a three-speed automatic transmission to a 10-speed electronically controlled transmission.”
True hedonic adjustment lies elsewhere.And it totally justifies skyrocketing prices of the new cars.
Everybody had fun smashing Blue Screen of Death (frozen Windows OS).Imagine smashing a new car with a sledgehammer then torching it !!!
If it is not pure unadulterated Hedonism then I have no clue WTF is Hedonism.
4 days ago IEEE-Spectrum published an article
“How Software Is Eating the Car”
It is not behind the paywall,you may look it up.
International engineering organization enlightens ignorant peasants like me w/o pushing anything…
Salient quotes:
“EV + AI = Unmanageable Complexity”
“High end cars like the BMW 7-series with advanced technology like advanced driver-assist systems (ADAS) may contain 150 ECUs or more, while pick-up trucks like Ford’s F-150 top 150 million lines of code.”
“As of 2017, some 40% of the cost of a new car can be attributed to semiconductor-based electronic systems, a cost doubling since 2007.”
“Herbert Diess, CEO Volkswagen Group and now its Chairman, admitted that “hardly a line of software code comes from us.” VW estimates that only 10% of the software in its vehicles is developed in-house. The other 90% is contributed by tens of suppliers, and at some OEMs, this number reportedly reaches more than 50.”
“Nearly 60% of the labor costs to repair a collision involving a vehicle with advanced safety features results from the vehicle’s electronics. Even minor damage, say a cracked windshield that used to cost $210 to $220 has climbed to as much as $1,650 if the vehicle is equipped with a windshield-mounted camera for automatic emergency braking, adaptive cruise control.”
I am going to Home Depot to buy the biggest sledgehammer I could find ?
“Nearly 60% of the labor costs to repair a collision involving a vehicle with advanced safety features results from the vehicle’s electronics.”
And I bet this translates into much higher car insurance premiums for those ‘lucky’ folks with these high tech newer automobiles vs older, less complicated ones.
That basic consumer goods like housing (shelter) and vehicles (transportation) have become so expensive and overdone is a clear sign that this society is about due for a bitter day of reckoning.
It appears that all this luxury and technical wizardry in consumer goods are essentially mostly mindless but clever engineering and marketing strategies in action.
And, on a philosophical note, I just shake my head and shrug when I contemplate how exceedingly fragile our modern technological society really is. All it would take is one solar super flare or an EMP blast in upper atmosphere to make virtually all our modern electric power-based or electronics-driven devices and machines to become useless paperweights and hulks (electric grid destroyed scenario). Not a matter of if– just when.
Nuclear sub Nautilus circumnavigated the globe and sailed right under the North Pole covered with thick ice w/o a single chip.And her nuclear reactors were chip-less too.I guess back in 1958 people were much smarter.
It had lots of vacuum tubes :-]
It had lots of vacuum tubes :-]
And spares aboard!
?
So did every radio set & tiny B&W TVs which started appearing in the 50’s
It were USAF flyboys who in 1968 designed the first 20 bit microprocessor,installed it on F-14 and kept this fact secret for 40 years.
https://firstmicroprocessor.com/
And to think-in 1970 everybody was awestruck by the 4 bit Intel 4004
Tis my understanding that vacuum tube aren’t subject to the deleterious affects from an EMP event, unlike a chip.
And btw, that’s why I will NEVER agree to “smart” gun requirements.
A means of protection in a SHTF scenario should be entirely mechanical.
Actually that is wrong, the electronics are relatively cheap. It is the damage caused by airbags going off and destroying the interior of car that makes collision repairs so expensive.
Tell me please, in what way is the interior of a car damaged from the air bags? Up to now, I didn’t know there was any damage, except maybe to your lungs from breathing the air bag propellant.
One might argue that there is a market for dumbed-down cars at very affordable prices. I know I would like the opportunity to buy a new car at a reasonable price, even though it doesn’t wish me a good morning. But that’s me.
No.There is no such market.Thats why my next car will be Ford model A.Model T looks kind of obsolete…
Nowadays every new car from the cheapest to the most expensive one is full of chips.They all toe the line.
I read an article about how autodealers in Latin America asked GM to resume the production of one particularly popular model which was the perfect fit for local roads and peculiar driving habits of indigenous population.
GM flatly refused.
Brent – Yes there i. I’m with Petunia and Swamp Creature on this. If I don’t fully know where, what and how everything works and can find it with a blind fold within 2 minutes of sitting down, I wouldn’t buy it. The last time I bought a car, I refused to replace it with the same model because they had loaded it up with features. From what I hear, it wasn’t just me and the manufacturer managed to tick off the original target market.
To me this smells of monopoly pricing. No doubt involving coordination between manufacturers and their suppliers. We need some serious anti trust action, IMO.
Is there any car you can buy today that doesn’t have all this electronic crap that you may not want? I was thinking of trading in my 20 year old Toyota Corolla but noticed the new ones loaded with all this crap I didn’t want.
@Angel
@Swamp Creature
Gentlemen;
Remember “Die Another Day” ?
James Bond asked for a fast car and Raoul gave him 1957 Ford Fairlane.
Next moment Bond is barrelling down the highway,smoking Cohiba cigar,happy as a lark.
There is, it is called the classic car market.
DS
Nissan/Renault tried this ploy in Europe with a new cheap basic brand called ‘Dacia’. They didn’t want to tarnish their existing brands with status minded customers. The cars were perfectly adequate and sold quite well in spite of cheap label.
Last laugh for tech guys who knew mechanical- wise they were getting exactly the same platform as much more expensive main brand products.
VW did this with Skoda and Seat at the start but they have since pushed them both upmarket{dearer)
General price inflations are all about declining price of underlying currency in terms of goods and services. Declining price of a currency is, of course, a function of supply and demand as with any other asset. US Dollar supply has been increasing at an accelerating rate and now demand (i.e. confidence) my be starting to fall in earnest, for the first time in over four decades. Price inflation will surge and then rage as confidence in the Fed’s IOUnothings finally fails among the masses (inevitable at some point). Tangible assets offer refuge.
‘General price inflations are all about declining price of underlying currency …’
Want a pre-1933 US $20 gold coin?
That’ll cost you 107 current US $20 bills. (Source: APMEX)
How ’bout a nice, circulated US Silver $1.00 coin? Thirty-five dollar bills…
“.. 5% was “temporary,” and was replaced by 4%, hahahaha. But the purchasing power of the dollar that is lost every month is lost permanently.”
This is, and will continue to be – devastating – and IMHO a symptom ..
Many commentators, here and elsewhere, lament that “..the Fed is not sticking to its [inflation management] mandate.” Few seem to consider or comment on the Fed’s own inherent interest – or the interest of its member banks. To what extent is protection of its own balance sheet, and those of its member banks, aligned with “maximizing employment, stabilizing prices, and moderating long-term interest rates”? To what is extent is the Federal Reserve System’s public component effective in supervising the private component?
From Gilbert :-
The Formula for the Rule of 72
If an investment scheme promises an 8% annual compounded rate of return, it will take approximately nine years (72 / 8 = 9) to double the invested money.
Or, if inflation is growing at 8% annually, it will take 9 years for PRICES to DOUBLE.
Put another way it will take 9 years for the value of your Dollars to halve, and that’s assuming a constant rate of 8% without any increase.
If you have $50K in the bank on deposit as savings as of today’s date, in 2030 it will effectively be $25K.
Same could be said for your 401(k), which could end up a 201(k) except sooner.
Hedonics has always been, and intended to be, a jive.
“Hedonics has always been, and intended to be, a jive.”
Or to be more precise– hedonic inflation adjustments are mostly a nefarious scam perpetrated on an easily fooled public.
In other words – ‘If you know not the conjure … then YOU are the pea!’
“Sure, the guy I like took a dump all over the carpet, but the guy you like will probably take more dumps!”
My take — nothing matters right now more than housing.
In the current, convuluted central banking system, housing mortgages are a major way for the Fed’s cheap dollars enter local economies.
But housing is also how families form, which drives population growth, which is the only real way the economy grows (along with productivity). Housing is the backbone of true economic growth. And the Fed broke housing with their interest rate manipulation.
Prices are too high. First time buyers can’t buy. Current owners can’t move. Builders can’t build profitably. Prices on houses are just wrong vs. incomes.
And I’d bet the Fed and the BLS are colluding re: housing inflation data to keep the party going…. because they refuse to admit they’ve gone too far.
Get the rates back up. Stop manipulating the currency. Stop this debt ponzi, wealth effect housing nonsense.
If they want to stimulate the economy, fiscally funded, productive stimulus programs are the only sustainable answer.
Monetary policy just reallocates wealth between chosen winners and chosen losers. Argh!
You are the second guy saying this all began in Jan 21.
Read the archived columns on WS for the last 4 years.
Trump was no saint in this respect (attacking Powell on Twitter), but in my view, much of the current inflation lies solely at the feet of Biden and the Democrats, with their wasteful, unnecessary “stimulus” in March, when it was clear the pandemic was almost over.
LOL!
It’s funny you actually believe that.
The last stimulus was grotesquely irresponsible on so many levels. Just profligate money printing.
Presidents Johnson and Nixon created the inflation that Carter inherited. It was Carter who nominated Volker as chairman in 1979. Reagan dumped Volker in favor of Greenspan. The seeds were planted for the inflation we have today.
Revisionist history. Inflation had little to do with the actions of the government, and everything to do with the expansion of credit via credit cards and consumer loans.
In the 1960’s, having a credit card was not common, and was a sort of status symbol. By the end of the1970’s they were very common, and banks were giving them to anyone with a pulse.
There is a direct correlation between credit and inflation.
In the 1960s, no one had a “credit” card per se. They had “charge” cards. You couldn’t carry balances. You paid off the entire bill at the end of the month, and that was that. The card was to avoid having to carry cash. It wasn’t a way of buying things you couldn’t afford, because you couldn’t get away with that for more than a month or two.
So the banks are at fault for CC expansion? Well, the banks are controlled by the FED, who report to Congress.
Oil.
The increase in oil was to blame.
Nixon ended the gold standard. This was the proximate cause of 70s inflation.
Your history is not exactly correct. Ford had the “WIN” “Whip Inflation now” buttons. He eliminated inflation completely with those buttons. He was called Mr Veto for vetoing every spending bill from Congress. Carter created the inflation when he appointed Miller, a golf cart company exec to head the Fed and he started doing what J Powell is doing now.
Remind me, what was the global pandemic that preceded the Carter admin? How can we ignore the world we find ourselves in, and then try to paste on lessons from a completely different and unrelated time 40 years ago? Where would the impulse to do so even come from- just because one lived through it at a certain age?
Is the rekindling of the housing bubble in part on account of the proles getting rid of their $’s?
Real estate has never gone down in value (your rust belt may vary) over the long run, compared to anything else tangible in consumer goods, which in contrast all pretty much go down in value.
“Real estate has never gone down in value …”
Not true as history has shown us. At best, over the long run housing roughly keeps pace with overall inflation rate– or as I like to call it, the economy’s asset that can tread water.
When you factor in a house purchase’s large total interest payments over life of a mortgage, maintenance, taxes, and insurance real estate as an asset looks even less appealing.
Location, location, location….prime real estate will never go down in value (it may temporarily correct however).
You cannot separate the declining value of the dollar from the declining value of labor. Homes are not becoming more valuable, your labor is becoming less valuable. That is what inflation does. It eats away at the value of your labor and your paycheck.
^This. If I have to hear one more idiot say how low rates are such a “help” for homebuyers, I’m going to scream. ANY and ALL benefit of lower rates is completely wiped out by the corresponding rising rates. Lower rates benefit no one other than people who already own their homes. Period.
RightNYer
I think you meant rising prices.
Low rates are good for home sellers only. People who are buyers pay more than they would if interest rates were normalized. Those who are sitting on their homes and see the price rise see their property taxes going up also don’t get much benefit until they sell, or do a cash out refinance which is also a fools gold.
Best thing to do is to pay down your mortgage as soon as you can, especially with the loss of SALT deductions in the 2017 tax bill.
Yes, I meant rising prices. And you are correct on that.
They also benefit leveraged speculators who can take needed housing out of the supply.
And the Federal Reserve promotes inflation…
promotes the situation we are in..
and doesnt lift a finger for “stable prices”.
They are Illegitimate…they IGNORE their mandates/instructions/ the agreements under which they are allowed to exist.
AND NO ONE SAYS A WORD!!!
Everyone, plz keep in mind, that purchases that are made via debt, such as cars, houses, etc, can actually be less expensive for the consumer when they are inflated as long as interest rates have been reduced enough to offset.
What this means is the price of the good should be looked at in relation to it’s monthly payment, which is actually lower now for these consumers.
This is why consumers are willing to still buy these durable goods.
This impact can only work until interest rates reach zero percent, naturally.
Who this hurts though, are others in the market not wanting, able, or willing to take on additional debt.
When interest rates get to zero, I believe Marx said, we all become communists, anyway.
So go out and enjoy your discretionary savings while you still can!
What? Do you really believe this? Debt is never less expensive for the consumer.. NEVER. If you are more concerned with monthly payments than the deferred total cost you will never accumulate any real wealth…
Many of these prices will not/cannot hold.
Yes, and then other prices will spike. This has already started in services. Services are 2/3 of consumer spending — a lot bigger than durable goods. Inflation is a game of whack-a-mole.
I work for a major US airline. We have been forced to approve wage increases for our ground handlers (outsourced labor) because they can’t hire anyone at $10/hour anymore, and the vacancies have gotten so bad they are disrupting our operations (delays). Wages at many airports across the South and Midwest were increased to $15/hour over the past few months. It’s even worse in hot vacation markets where the labor shortage is severe. When the Fed has its Economic Symposium at Jackson Hole this August, they should ask the ground handlers how much they are being paid. When they hear the answer, they will realize inflation is a lot worse than they thought: entry-level starting wages at the airport serving Yellowstone National Park are now at $25/hour.
Labor inflation for these entry-level jobs has been averaging 30% – 50%, depending on the market.
Similar to a rolling blackout-the new inflation?
Can’t find my WIN (whip inflation now) pin or my Alfred Kahn wallet photo. Those were the days!
At least I’m not consciously afflicted with malaise just yet.
I try my best to fight inflation. Bought Los of beans and PM. Cooking at home and almost never dine out. Have a cheap small car (thanks to my small waist size).
Never understand why so many land whales buy trucks. Most can’t afford them and don’t need them.
Expect the unexpected. Just when you think you have this all figured out, you don’t.
Understand, the game is that there is a large professional team that always wins, and then there is the small amateur league that tries to compete.. just a little. When the amateur figure out a play to run around the pro team the fed changes the rules to route the game.
That’s all you need to know. So, now the little guy is rushing to increase solid assets and relieve himself of cash (like me) – What will the fed do to screw my advance in favor of the pro’s?
“Understand, the game is that there is a large professional team that always wins, ”
Understand here that there are people in authority at the Fed that COMPLETELY IGNORE their mandates/instructions/ the agreements that allow them to exist. ie, stable prices and moderate long rates.
Who do you call?
“Who do you call?”
Exactly. Who watches the watchmen? They watch themselves.
It was supposed to be “the press” which was the main reason for the 1st Amendment, but they are fully corporate owned now, too, just like the government and the new electronic media which has corporate censors who delete and ban anything not in sync with the official party line.
Let’s pretend we have an economy of two people, you and I. We both perform the exact same amount of work and you get paid $1, but I get paid $9. I assure you that of that $9, I’m only putting $1 into circulation. The other $8 gets buried in a secret location only known to me, so you see, despite the huge increase in money supply, the velocity remains low, so there’s no inflation. For all intents and purpose, we each get paid $1, and if I should ever cheat and cause your purchasing power to decline, I will make it up to you by raising your pay appropriately.
Well, this is the game we are all playing, except on a much bigger scale. Even if CPI inflation goes back down, the true inflation, the actual amount of money, has been increasing at over 6% for many decades. If you’re not growing your wealth by 6% a year, you’re losing. If you can get a 5% return, you are keeping up on a per capita basis. The Global Wealth Report by Credit Suisse also shows that total wealth increases by 6% every year on average over many decades.
Is it possible all of this economic distress is aimed exclusively towards the RMB. Its a fixed currency to the dollar, they are public enemy no. 1 these days. Trash the dollar to Trash an economic rival, domestic concerns be damned? Didn’t this happen to Japan back in the 80’s?
It’s commonplace to observe that inflation is theft, but Thomas Paine really put it on a personal level that hammered home the cruelty of such theft.
“Money, when considered as the fruit of many years’ industry, as the reward of labor, sweat and toil, as the widow’s dowry and children’s portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency.”
And he pulled no punches regarding fiat currency as a power grab.
“As to the assumed authority of any assembly in making paper money, or paper of any kind, a legal tender, or in other language, a compulsive payment, it is a most presumptuous attempt at arbitrary power. There can be no such power in a republican government: the people have no freedom — and property no security — where this practice can be acted”.
Okay so then, if you are heavy cash in this market, what do you do with it?
A. Flush down the toilet.
B. Wait for an opportunity (it will come but it might not be obvious at the time).
C. Spend it all NOW. The “What the heck syndrome,” as one of our wise commenters here explained to me a minute ago.
In January one of your articles about inflation scared the bejesus out of me. So, I have the property (good price) and I bought the truck fortunately a few months before. I’m locking it all down. Still, I have a little cash to do what with? Retirement and all that is good. So, do I invest in 2×4’s? Frozen pork bellies? Or do I just enjoy having the security of cash in an emergency?
Where to find a safe place to put cash– that is the question prudent and responsible savers and investors are all asking.
The answer to that is above my pay grade, but I hear those that can and will are hedging with TIPS, precious metals, foreign currencies and markets.
And for some people depending on their circumstances: stockpiling big-time on non-perishable needful/useful goods now to hedge against inflationary price increases that are sure to come.
Also, investing in personal infrastructure that will cushion your basic expenses for years to come against inflationary jolts– like extra house insulation, gardens and orchards, wells, small scale solar energy, and alternative heating equipment.
I’m playing a game of chicken with the FED. I’m betting that they blink before I do. I’m hoarding cash and saving every penny I can.
I’m torn between B and C but might inadvertently do A..
C is kind of Weimar thinking. Is your wise commenter paying for his meals when he places his order? Would C merely be buying at the top? Place your bets, but recall that hyperinflation is a political consequence, not a monetary one.
Before everyone goes running around like their hair’s on fire, let’s look back a few decades. Egg prices were pretty constant between 50-60 cents for almost 2 decades until Nixon closed the gold window. In 1972 eggs had jumped to 73 cents and never looked back. Closing the gold window is when when the fall in purchasing power started to accelerate.
Then came the Great Egg Bull Market of the 21st century with a blowout up to $3 in 2015 followed by a sheer drop by over 50% the next year. Did I miss the Chicken Shortage Crisis that started in 2000? Eggs still cost less than 2015, about $1.65. Same for milk. I hope those of you who were stacking eggs got out in time.
Lumber, pardon the expression, lumbered along fairly range-bound for about 30 years between the 90s and today, even showing a bit of the dwindles before the GFC, and then suddenly exploded higher this year. This is not how you establish that there’s a new trend, any more that the peaks in eggs and milk were in 2015.
Durable goods have been steadily increasing at a constant pace with a blip down during the GFC and in 2020, followed by a recent spike above the trendline.
Looking at a long-term chart (FRED) of the durable goods, this action is a wobble.
I know CPI has a lot of problems, but despite constant rigging and jiggling, the long term chart shows a doubling of CPI between 1950 and 1970. Over the next 20 years it tripled and the slope of the line has been steady. You can clearly see the inflection point in the early 70s.
So loss of purchasing power is not news, nor is inflation. It’s baked in the cake for now by decades of expansionary monetary policy. But there is no cosmic law that says it’s permanent and there will never be deflation.
I remain sanguine about this for now. Not only did I ride the inflation-recession roller coaster in the 70s and 80s, but I’ve lived through ten times as many horror scenarios that never happened, including the Ice Age of the late 20th century the Great Famine of 1975 (predicted in a best-selling book in 1967), and running out of oil, lead, tin, silver and gold by now.
My all time favorite was AL Gore’s “Inconvenient Truth” depicting cities awash in water by 2016. Then he bought an oceanfront house in LA. Maybe was following Plan C.
You make your money when you BUY not when you sell.
Swamp creature; TRUTH.
I’ve gotten lost in this thread so I’m not sure what this comment refers to.
In my experience you start losing money when you buy (taxes, maintenance, insurance, etc) and breathe a sigh of relief when you sell, especially when it’s a house, car, or boat.
Problem being that the correct choice requires something most Americans have in short supply, patience. We have been conditioned for the past 40 years or so to expect instant gratification….. I wonder why?
I’m just guessing here but . . . because it feels good?
Right now, there’s a lot of demand for workers and salaries are going up. People are moving to better paying jobs. Look at the rising quit rate. (Good luck getting a real raise without changing jobs.) If your raise covers inflation, there is no inflation. As in the 1970s, employers resent having to raise pay, so they’re making a push to trash the economy for a few more decades. They may succeed again. Wouldn’t want the workers to get uppity.
Have you noticed one of the first casualties of the worker shortage has been drug testing? ( Something they really never had a right to do in the first place ) So now that they need workers, they are willing to actually respect your right to privacy…. Funny how that works….
Employers always had the right to do drug testing, just like they can require proof of covid vaccination.
In the medical field not drug testing a patient receiving controlled substances is considered substandard care and opens you up to not only civil liability but criminal prosecution.
Back in the day the FBI wouldn’t hire anyone with a history of illegal substance use. Then it because something like “in the last 5 years”. As the candidate pool continued to shrink I believe it became “in the last 24 hours”.
A lot of my old college buddies who smoked weed, dropped acid, and other things have gone on to be attorneys, physicians, etc. One of my friends from med school used to grow his own mushrooms. He served as the head of emergency services in a major metropolitan area for years before he retired.
BTW, rumors that some of us realized that that the mass spectrometer used nitrous oxide as a carrier gas and then filled giant balloons with it to inhale out on the quad have never been confirmed by Snopes.
By whos rules? What gives any employer the power to delve into your private life? Unless the activity they are concerned with has a direct impact upon the job you are doing it is none of their damn business, and anyone who supports illegal invasion of privacy is a faux American and unworthy of Citizenship…
So if I dust off the m crystal 8-ball from the 1970s it says something like this:
-inflation runs hot, hotter, then out of control
-eventually it becomes a political issue (like it did in the 70s..I remember those days)
-interest rates get raised
-stocks and other assets crash back to earth and to more reasonable values
-big recession ensues
-upheaval, unemployment and despair in the cities and poor suburbs
-then things are reset, housing, stock prices / CAPE at sound levels again, debt is partially inflated away
-most people will be poorer in real terms though..
hmmm.
Tend to agree..
But what’s different?
The Fed and Treasury have embraced MMT….
so they envision debt as an economic stimulus…
they have Fed Funds at zero with 5% inflation and seem to be loving it…
In the 70s, there was concern and action…..
not here…not now…
Nonsense, MMT is a myth, the basic laws of physics, and supply and demand are still in force.
You are already seeing the catastrophic effects of the small amount of stimulus in the form helicopter money has had on the economy with the lower tier of workers unwilling to go back to work.
Money is not wealth, wealth is created by labor. Money is simply a way to keep score. When economic policy causes a loss in productivity, it is causing a loss of wealth, and that is contrary to the best interests of the ruling parties.
There have been a lot of stupid mistakes made by stupid people over the past few decades, but when it begins to cause the kind of problems you are seeing today, I guarantee you those mistakes will be rectified.
Thanks for the heads up on this Wolf, time to either tighten the belt or seek a pay rise – adopt frugal practices join the FIRE movement – retire early financial freedom.
Lets just see where pay and salaries go with current labour market shortage, some interesting demographic changes coming that will change values tastes and beliefs and peoples participation in the labour market.
This would make an interesting demographic study before and after the pandemic.
Maybe this is the catalyst to increasing pay scales, mmm I guess this will ultimately be passed on to the consumer in higher prices or increased efficiencies in production. Lots of food for thought we wait and see a very interesting perspective, Im gonna tighten my belt become frugal and save, a conservative approach just wondering the nature and extent of the present inflationary cycle.
Cheers for now thanks very grateful for your perspectives Wolf, cheers for now Pete
Re-think the FIRE part. If you used to earn a decent income it’s gone when you retire. Once you retire you’re relying on what you saved. If you allocate assets wrong you’re screwed. By wrong I don’t mean you made a mistake, I mean the strategy you picked didn’t play out.
That’s the one thing that I really worry about. I’ve spread all my markers across major asset classes – stocks, bonds, PM, real estate, and cash (no crypto – I have a long standing policy of not investing in anything I couldn’t explain to my friends).
The diversification definitely is a drag on returns but also a drag on losses.
Just a further comment on some news just in whether it reveals itself sooner or later we will see. Shipping is currently nearing a fragile state largely due to the high covid infection rate on these type of cargo vessels. A change is occurring here in that boat owners are having difficulty sourcing crew for these boats, – a shortage of these transport vessels is now becoming evident, – hopefully will be resolved when vaccines have been delivered to the crews that pilot them.
Be interesting to see what will occur with potential supply shortages that may occur down the track and very likely now. I would expect prices to rise and consumers selecting alternatives.
Cheers for now Pete keep shining stay safe where ever you are.
The pandemic is certainly a powerful disruptive force but not all companies are adversely affected. The pandemic has been good for many businesses that already looked good with a 3-5 year horizon in 2019.
Zoom, which I thought had good potential went ballistic during the quarantine but guess what? People are still using it for both business and social interactions. Are there competitors? For sure, but everyone knows how to use Zoom. It works and who wants to learn another platform? Plus, Jeffrey Toobin got caught masturbating during a Zoom conference. You can’t buy that publicity.
Same with Etsy, which Amazon unsuccessfully tried to Bigfoot in 2016 with its own version called Handmade (ever heard of it? Me neither). Etsy went into mask production big time because of mask shortages. 2020 was an incredible year for Etsy.
Just like with Zoom the pandemic pulled recognition and demand forward. Now when people think of handcrafted items they think of Etsy. Like Zoom it’s well off its high. It was up maybe 400% before the pandemic. The pandemic took it up to about 2500% before dropping back to about 1500%. That’s if you got in during 2016, which I did not. Still, riding it from 400% to 1500% wasn’t painful.
How about security? With all the data breaches and ransomware attacks how about Zscaler, Crowdstrike or Okta?
And Zoom and Etsy need someone to watch over their security just as much as JBS or Colonial Pipeline.
I would not be surprised to see the effects last 3 or more years.
In the meantime the pandemic has pulled forward companies like CRSPR, Illumina, 10x, Pactbio, and so on.
There might be a booby trap or two. Teladoc is all the rage due to the demand for telemedicine during quarantine. I did a lot of telemedicine in 2020. The level of service you can provide is minimal. You usually can’t do a physical exam.
That means short low-value for the money visits. The money will be in volume so visits will be brief. Medicare paid me $44 for a telemedicine visit. I usually just did med refills. That’s not high volume.
There’s also potential for abuse. I had a telemedicine visit to refill my BP med. They up-coded the visit to a level 3, which requires a physical exam. This guy couldn’t even check my BP.
They also coded the place of service as the office. This is simply fraudulent. The bill was $255, Medicare paid $114 and they balance billed me for the difference. I refused to pay it and they sent me to collections.
I explained to the collection agency that unfortunately for them they pulled this crap on someone who knows medical billing in enough depth to recognize the Medicare fee for a level 3 office visit on sight. . I told them they had already been paid almost triple what it should have been and gave then a choice: go away or we can take it up with the HHS Inspector General’s office. Never heard from them since.
Another Achilles heel for Teladoc is that insurers only started covering telemedicine because of the quarantine. No quarantine, no coverage?
So it’s a nice story stock but unless you want someone to check out your crotch rot by pointing your cell phone camera at your junk I’ll pass.
All our required Appraisal training is now done online via Zoom. Its a big time saver. Avoiding traveling trough Baltimore tunnels, with tolls, trucks spewing smoke and pollution to some remote location with bad food, crazy traffic, etc. Even after the pandemic ends this method of training will be the norm.
Goodby training facilities.
A lot of this article is just your opinion, isn’t it? Which seems much changed since I started reading. It seems like just more of the same Inflation Propaganda, currently championed by the rich and powerful in a desperate attempt to stave off the coming Everything Bubble Crash. Where did I learn this? i think it was somewhere really close. by.
The likes of Bloomberg are floating the Inflation bogeyman on an hourly basis now.
Nocko2,
Seems like there are STILL inflation deniers out there. On the basis: if you deny that there is inflation, then there is no inflation. Makes perfect sense to me.
Another thing that nobody ever points out is that inflation makes the USA less competitive.
Go back to the 1990’s and look at the Japanese yen vs US$ exchange rate. It is about the same today. However, compare CPI inflation. Japan had very little while USA had tons of it.
In other words: USA competitiveness has massively declined relative to Japan, because costs in the US have increased a lot vs Japan. The US$ is still very valuable outside the US, but for domestic use it’s value has collapsed.
You must be joking. Japan is in the midst of depopulating. They have deep, societal issues that quite frankly….may not be solvable.
Quite frankly, they have yet to establish microphones in cities so sources of gunfire can be located. In fact, in one remarkable recent year, the 120 million people had ZERO gun murders. You can leave your wallet in a MC D and a hour later it’ll be usually still be there. There are no regions talking about seceding. No mob has stormed the seat of govt.
Maybe a look in the mirror?
Japan has problems but that was not my point. The point is that doing things in Japan hasn’t become much more expensive, but in the US it has. With the exchange rate not having changed, that means that the US has lost competitiveness compared to Japan.
Nicko2,
Why don’t you go to Japan some day and live there for a while and get to know some Japanese there and find out what it’s really like over there. Highly recommended.
Your “depopulated” comment will be purged from your brain once you spend some time in the big cities. The deep countryside, sure, people are leaving. Urbanization continues.
A (very slowly) declining population means that Japan will be uniquely prepared for increased automation.
The roads in Japan are so smooth my import Z3 has the cushion suspension bushes swapped for solid, handles like a knife in UK but takes your fillings out even on motorways. The Japanese are incredibly fastidious people in everything they do.
Btw: the scary part today is not so much the high inflation itself, but the fact that monetary authorities have no intention at all to put it right.
The mission statement of the Federal Reserve is …
“It is the Federal Reserve’s actions, as a central bank, to achieve three goals specified by Congress: maximum employment, stable prices, and moderate long-term interest rates in the United States.”
Mandate #1 The Fed is supposed to promote maximum employment, yet what they have done with the interest rates has had the OPPOSITE EFFECT. The artificial rates provided by the Federal Reserve has allowed the Federal government to borrow at near zero and dole out the money in a fashion that dampers the will of workers to fill employment positions. If there had been real borrowing costs, historical borrowing costs, the doling out would either have been sharply curtailed or not implemented at all. Fail.
Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. We now have 4% inflation and they do not lift a finger to “promote stable prices”. Fail
Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs bonds almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. The Fed is buying $120 Billion a month in the market to promote these rates. Fail.
That’s 0 for 3. That is THREE STRIKES.
And who is watching the fiduciary short falls of the Federal Reserve?
Just about everyone is watching but the system is set up to try to keep the Fed isolated from external interference.
I’ve heard the stories about LBJ holding Fed chair Martin up by the collar and cussing him out, but you’re not going to find that in the rule book.
Didn’t he slam someone whom he disagreed with against the wall? He was a vulger SOB.
Yes Swampy, he invited Martin to his ranch and worked him over. That’s what I was referring to.
He grabbed Canadian PM Lester Pearson by the lapels over Canada’s objections or non-participation in Vietnam war ( Oz did participate)
On the plus side in my opinion, is his later refusal to run again based on US societal split over Nam. And lack of progress with 500 K deployed.
The mission statement is BS. Neither the Fed Banks, nor the Fed Board is accountable to Congress in any way so they are free to act in their own interests which is exactly what they do….
Intention or permission?
Amidst all the hoopla about billionaires’ net worth ballooning but paying little income tax, people seem to forget that asset appreciation isn’t income until the assets are sold.
So their huge collections of art, stocks, real estate, etc are their bank accounts. If you deflate the asset bubbles with higher rates or other liquidity-draining mechanisms you’re robbing the First National Billionaire Bank.
You also make the dollar stronger, which will make our exports less competitive.
In the meantime the stronger dollar will impair foreign debtors whose debt is denominated in dollars. If you own those bonds you aren’t going to be a fan of the subsequent defaults.
There is a lot of big money at risk and they are going to be looking out for themselves. If Powell’s secretary informs him Bill Gates is on line 1 and YuShan is on line 2, which call do you think hell take?
The litlle old lady with $300K in the bank. Zero return. 5% inflation. That’s 15K lost in purchasing power due to inflation used to fund all these spending boondoggles. Who is speaking up from her. NO ONE!
And for a billionaire with $1 billion in debt against assets (think a former president), that is a $50 million subsidy every year, basically paid for by people like that little old lady.
Nobody in the MSM ever makes that point.
Little old ladies are expendable in the lofty views of the Fed elites. They are looking out for their Number One– banking system.
Now now….most banks are giving 2%. And that little old lady probably has it in a 401k or annuity pulling in 5%. ?
Speaking as a little old man with a lot of cash I hope someone speaks up, but I’m not holding my breath.
Inflation eats you slowly. Market crashes chew off your limbs.
There’s nowhere to hide. If there was, everyone would be hiding there too and what would be the point?
Every asset class has its pros and cons.
RE: “What’s “temporary” is the pace of the loss of purchasing power, in the sense that it changes every month.”
GREAT-ABSOLUTELY best one liner I’ve seen or heard in the MEAN time!
which has been way too long in real time, not adjusted, correlated nor projected in any manipulated way, especially by models that don’t have a clue about any thing real.
question(s) . . . at what point during the calendar year is the government obliged to post the next year’s social security inflation adjusted increases?
what impact will current inflation numbers have on the COLA’s for retired gov’t workers? . . . and finally, to what degree have these (presumptive) cost increases been factored into gov’t fiscal projections going forward?
william moga,
To your #3: the Budged includes projections for interest rates (higher than now) and for COLA adjustments.
Sad to say, if inflation continues, it will be Trump’s ticket back into the White House.
T should dust off the Gipper’s speech he gave in 1980 where he talked about the Carter’s economic stew. His final line was:
” It is an economic stew that is turning the nations’s stomach”
Peeps
I don’t know if you know it, but the Masters of the Western Universe, I say Western because the Eastern Universe doesn’t listen to them anymore, are meeting this week in a quiet corner of coastal England. There are police at arms reach along every lane, that’s because Van der Whatsits has dared to set foot on UK soil after Brexit. I speak of the G7.
We citizens are being bombarded on an hourly basis by PR BS from the MSM.
Opening speech by Bojo, he says roughly, in getting back to normal we MUST avoid the MISTAKES following the last financial crisis in 2008 where our efforts to restore prosperity ended up causing LARGE wealth disparities in societies all over the world.
There are hints that Biden is pushing for MORE deficit spending for investment to fend of foreign (China) competition. Yellen had been clucking last week about how higher interest rates might not be a bad thing.
I’m getting a new picture here. I think they are going to spend even more, but I also think they are going to bump up as many taxes as they can, to make it look as though they are punishing the rich. I think they are going to sell more treasuries and let the natural market push up rates without QE at least at the start. If the deficit spending gets to the people via jobs and incomes and if higher rates take the cream out of the markets, they’ll be able to go to the voters and say look how we made the rich pay to fend off the pitchforks, which they must know are being polished up. Much as I hate PR I’m listening to as much as I can. I sense a change in the wind.
While the Trump Tax Cuts should have strengthened America’s competitive edge, no parameters were included and much of the corporate windfall was “invested” in stock buy backs and other market games… And all the while, the Peoples Republic of China continued to sharpen its edge… surpassing razor sharp to laser sharp.
I hope you “sense change in the wind”, otherwise we all may be waking up in a world, very soon, which we don’t much like.
Directly related to the subject matter, we always look first at the economist, Dr. Williams at Shadow Stats:
“Year-to-Year May 2021 ShadowStats Alternate CPI (1980 Base) Inflation also jumped to a THIRTEENTH YEAR HIGH (our emphasis) , at 13.0% in May 2021, up from 12.1% in April 2021, 10.4% in March 2021, 9.4% in February 2021 and against 9.1% in January 2021. The ShadowStats Alternate CPI-U estimate restates current headline inflation so as to reverse the government’s inflation-reducing gimmicks of the last four decades, which were designed specifically to reduce/ understate annual Cost of Living Adjustments.
Condition:
1. $ purchasing power eroded by inflation + forecasted high inflation
2. interest rate at historically low
3. monthly payment is NOT over-stretching
4. lock in 30y fixed rate, not affecting monthly payment even rate may go higher
Isn’t buying a house a wise decision under above conditions even price goes up a lot?