US Inflation is almost as hot as in Russia, but the Fed is still blowing it off.
By Wolf Richter for WOLF STREET.
Consumer price inflation in Russia is red-hot, having jumped 6.0% in May compared to a year ago, 2 percentage points above the Bank of Russia’s target of 4.0%. Polls in Russia show that food inflation is a top concern, currently running at 7.4%.
But inflation in the US isn’t lagging far behind: The Consumer Price Index (CPI) jumped 5.0% in May. Yet the central banks are on opposite tracks in their approach to inflation.
Federal Reserve governors keep jabbering about this red-hot inflation being “temporary” or “transitory,” and likely to disappear on its own despite huge government stimulus and the Fed’s huge and ongoing monetary stimulus, though some doubts are creeping in among a couple of them. So they’ll keep interest rates at near-zero until at least next year, and they’re still buying $120 billion a month in securities to push down long-term interest rates.
Russia has been on the opposite trajectory, “surprising” economists at every step along the way. This trajectory started on March 19 with a 25 basis point rate hike, to 4.5%, against the expectations of 27 of the 28 economists polled by Reuters, who didn’t expect a rate hike. On April 23, the Bank of Russia hiked its policy rate by 50 basis points, to 5.0%. On June 11, it hiked by another 50 basis points to 5.5%. The next policy meeting is scheduled for July 23.
Is a shock-and-awe rate hike next? Bank of Russia Governor Elvira Nabiullina is preparing the markets for this possibility – so it won’t be a shock, but just awe.
At the July meeting, the central bank “will consider” an increase in the range from “25 basis points to 1 percentage point,” she told Bloomberg TV in an interview.
“We see that inflation remains elevated” and that “inflation expectations are quite high,” she said. The initial factors in this surge of inflation were the weakening ruble last year and commodity and food price increases. They alone might not require a monetary policy intervention, she said.
But now inflation expectations remain elevated, which creates second-round effects, she said.
“That’s why we see that inflation acceleration is not transitory, as in many other countries, but more persistent,” she said. “That’s why we think we should act with rate hikes.”
“We signaled to the markets [at the last meeting] that further policy rate increases can be necessary to curb inflation, and now we see it is warranted,” she said.
The economy has recovered quite fast, she said. Demand growth has been outpacing supply growth. And this gap creates additional inflation pressures, and in combination with elevated inflation expectations provide us the need to neutralize our monetary policy, she said.
“Now policy is still accommodative, if we compare the policy rate [5.5%] with the current inflation rate [6.0%] and with inflation expectations,” she said.
This is the school of thought that negative real interest rates – interest rates below the rate of inflation – are accommodative, or stimulative for the economy. Under this theory for the US, a neutral monetary policy would be with the Fed’s policy rates at least at 3.4% if based on core PCE and at 5.0% if based on CPI.
Nabiullina said that the magnitude of the rate hikes and the trajectory will depend a lot on the incoming data “because there are a lot of uncertainties now.”
The Bank of Russia wants to “prevent the accumulation of inflationary risks,” but it also wants the moves to be “predictable” for the markets because sharp unexpected increases of rates can create some difficulties for markets to adapt, she said.
Hence, the interview with Bloomberg TV. She’s clearly trying to prepare the markets for a hefty rate hike in July, perhaps a Brazilian-type rate hike of 75 basis points, or even a shock-and-awe full percentage point, while the Fed will continue to cling to its doctrine of the moment that this red-hot inflation in the US is just transitory and will dissipate on its own.
There are whole generations who never experienced this type of inflation, this type of destruction of the dollar’s purchasing power. Read… Fed’s Lowest Lowball Inflation Gauge “Core PCE” Spikes Most Since 1983
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If Russia and China jointly get their act together, along with the backing of Gold, they now have the opportunity to create the new World Reserve Currency
Marco,
China maybe, some day, with lots of patience, could turn its currency into a top reserve currency. But Russia’s economy is smaller than California’s, and it has consistently trashed its currency. So that’s not a candidate in the “foreseeable” future.
China is the biggie, not Russia. But they do need each other: Russia has a lot of resources that China needs, from timber to natural gas; and China has the consumer and industrial products Russia needs. So they should work together, and they do, despite a history of grievances and mistrust.
Is that why Biden gave Putin Nordstream pipeline? Keep Russia in the fold?
German Chancellor Schroeder gave Putin the Nord Stream pipeline, and a few days after he left office started working for Putin and became chairman of Nord Stream and is now chairman of Rosneft. That’s where the scandal is.
DM
Personally, I’ve never understood why it is such a sin to buy oil and gas from Russia. The only thing I can guess, is that the USA (and for some reason the UK) doesn’t want competition. ???????
Russia was managing to bypass US sanctions by using EU sources:
German headline:
Nord Stream 2: Russia’s tricks to dodge US sanctions –
EU technology is being harnessed to help a Russian pipe-laying ship to complete the controversial Nord Stream 2 gas pipeline. A DW investigation reveals just how Moscow is bypassing US sanctions.
Not specifically directed to you but to many comments.
The only “crime” Russia has committed is refusal to accept subserviance to the American imperial state. Since the end of the Cold War, the US foreign policy establishment acts as if it has forgotten that Russia has plenty of the prior Soviet nuclear arsenal, doesn’t seem to act as if it exists, and acts belligerent with any country that doesn’t go along with US foreign policy objectives. I consider US foreign in Eastern Europe (what I know of it) totally “nuts”.
On the reserve currency question, I agree with Wolf.
The pipeline only had the small segment in German territory left to be laid. It completes the two-three routes that replaced the flow through the Ukraine-Poland pipelines. It’s likely that there will be demand for much more natural gas which have to come through Ukraine from Russia and by way of new LNG terminals (also Russia and US but a lot of other sources).
The whole dispute is over the uneconomic LNG from US requiring political interference.
In any event, these reverse repos have taken on the effect of securities lending by the Fed. Inject treasuries onto bank balance sheets to artificially reduce their leverage so they can buy more stocks.
Before Biden’s announcement I told a number of people it was inevitable and had nothing to do with US/Russia relations. You can’t try to mend the NATO based Western alliance while feuding with Germany.
DM
Nordstream is a fantastic story which takes ages to tell.
The gist is that Germany needs and wants Russian gas, which is much cheaper than shipped and fracked US gas. US is not happy about that. Russia doesn’t really care, they can sell their gas to anybody. The current pipe goes via Ukraine which adds a transit charge and can turn off or steal the gas without paying for it.
One half of Ukraine is trying to suck up to and join the EU to get easy money and Nato to get free defense. The other half of Ukraine would rather side with Crimea and Russia. US wants to keep Ukraine under it’s influence and toppled the Govt. to keep pressure on Germany to buy US gas as a fall back. Mr T totally pi**ed off the Germans big time, so Germany was more determined than ever to get a direct pipeline to Russia. Russia doesn’t care, it’s just another customer for gas to them. They’ll want to increase their supplies to US when fracking finally tanks.
Biden wants to run the World again, like the Obama and Clinton crew, so he gave in on Nordstream 2 to get Germany to join in with his ‘containment’ of China. UK is a US poodle.
Russia and China must be laughing out loud that the NORTH ATLANTIC Treaty Organisation is now planning to operate in the SOUTH CHINA Sea. Your guys are absolutely priceless.
Rumor is that the EU will pay to rebuild Syria through additional taxes from the Russian pipeline to the EU. Interesting if true.
California is the fifth largest economy in the world in numbers. Perhaps fluff service products many could do without, and/or that could be produced anywhere.
This indicates Russia is still a powerful force to reckon with. Then, add in its natural resources and military……meddling and alliances. Aligned with China they are formidable.
Paulo:
Russia only has about 140 million people spread out over a vast territory. Just like Canada. Actually exactly like Canada!
I worked in Siberia in 1983 and saw first hand that they faced the exact same problems Canada faces. Vast distances and few people.
I would hardly call Russia or Canada super powers!
The third-largest economy in the world, Japan, has a very well-respected currency (with near 0% inflation for decades), and yet the yen has only a 6% share as global reserve currency (#3). The euro has a 21% share (this includes the 4th largest economy, Germany, plus a bunch of other big ones); the dollar’s share has dropped to 59%. The Renminbi has a 2.2% share, slowly inching up. The ruble isn’t even on the list because no one wants to hold it due to high inflation and government debt defaults.
https://wolfstreet.com/2021/03/31/us-dollars-status-as-dominant-global-reserve-currency-drops-to-25-year-low/
The stupid thing is that the west is doing about all they can to drive Russia and China into each others arms while tje wise thing would be to try to keep them apart.
Russian technology and resources combined with Chinese production machinery and advances in tech, that is a nasty combination.
“The stupid thing”
The “stupid thing” makes MONEY.
China has proved the great truth of the old Soviet adage about what will happen when governments don’t prevent it as our BOUGHT government hasn’t: “A capitalist will sell you the rope you hang him with.”
Except in this case it’s: “A capitalist will fund your rope factory, allow you to steal IP, and then BUY the rope you hang him with all in the ignorant hope of access to your 1.4 billion body market when, in fact, he will be replaced with native CCP industries once they learn what they need to know.”
PLUS, as an added “benefit,” once the CCP has become a major military and geopolitical adversary because of that, you can get going with Cold War v1.1 (since Cold War v1 never really ended).
Any alignment will be on China’s terms. This is not an equal partnership.
Russia per capita GDP is about 1/7 of CA. Total GDP ~ 1/2-1/3 of CA. Economically they are feeble. Militarily, they are not.
China is by far the more powerful country. Together, of course the two are more formidable.
The whole “type of economy” that China has is very interesting. It is actually a big problem. Many, including myself, thought that by now China would have started drifting politically toward freedom.
Events in Hong Kong indicate otherwise- and are a very big deal.
Given long enough, China will run out of productivity to waste, as all of these experiments do. However, “long enough” can be a long time, and requires long periods of peace to happen. I hope we have that.
Wes: compared to Russia, Canada is an economic superpower. Yr comment ‘just like Russia’ is ironically true. Ironically, because they have roughly the same size economies, but Russia’s ‘pie’ is cut up for 140 million not 40 million. Result: only 28 % of the Canadian slice per Russian.
But it gets worse, WAY worse. Credit Suisse says inequality in Russia is so extreme it belongs in a class all by itself. The plight of the pensioners is especially dismal.
Exactly! Half of CA’s economy is fluff, clicks and likes. The other half is pot and veggies. Russia has enormous natural resources largely still untapped. The kind you can make real stuff out of.
@Augustus Frost
Great summary!
Nordstream was nearly complete. Germany needs natural gas to replace lignate coal and nuclear as it transitions to renewables. Blocking Nordstream2 blocked Germany’s climate policy and asks consumers to pay more. The U.S. has been fracking, and constructing costly LNG terminals to export natural gas, with huge costs to the environment.
If they did team up after China is victorious then Chinese would just take Russia Putin is smarter than that
Ron
Russia and China have tried for years to be ‘friends’ with the West but some ‘egomanics’ in the West won’t let them be friends unless they change their cultures to the wonderful neo-liberal model which has done so much to make the West such a successful and equal society. (for some)
Russia and China have now given up caring, and they are now going their own way, on their own terms and there is nothing at all the West can do about it. If we want to do business with them, fine if not fine, they no longer care.
Russia could make their currency be backed by those resources instead of gold.
They probably won’t snd natural fuel resources that are not renewable do run out.
when shtf we’ll just open up fort knox. I’d prefer gold over the so-called “new World Reserve Currency”.
Does anyone actually believe Fort Knox actually holds the amount of gold it is said to? Possibly another 9/11 to hide the truth.
Who honestly cares about gold as a currency? It was physical media like a telephone used to be on a cradle you could slam down when you were DONE with a conversation. Now you just get to push the button. Money used to be in your wallet and now is a ledger account in the global banking system. Gold is not going to return to its purpose it once served IMO
Nathan,
Gold is going to return to its purpose for precisely the reasons you give. We once manufactured telephones that could handle all the slamming any pro wrestler could apply to them. Today, our telephones – and our “money” – are extremely complex and deep devices that function in ways we don’t really always understand, and don’t always work for our benefit. Gold and similar real assets are simple, trustworthy, and immune to hacking by others. And gold is free of infrastructure. The only thing to fear when owning it is government (and government-backed) suppression, which can apply to anything and everything.
Marco,
Russia and China actually hate each other. They pretend to like each other and will sometimes cooperate, when there is mutual benefit, but liking each other is a weird act they put on. They are very different counties with different objectives and that will always cause them to clash.
As far as a new currency goes, China’s economy is smaller than claimed and real gdp growth, ended around 2015 in China. That combined with the many currency rules they break, would make a China dominated global currency impossible.
The only realistic way to replace the US dollar at this point, is simply to bypass it and just find ways to do trade in the currencies of the countries involved and other such tricks.
The collapse of fiat would be beneficial for Russia, but cataclysmic for China. China, would never be able to recover for decades and never under the reign of the CCP.
“Russia and China actually hate each other.”
Large powers sharing the same continent will always eye each other with massive distrust.
That may be the only thing to save degenerate America – Russian fear of Chinese power and expansion.
On the other hand, America’s political class has been working hard for 70 yrs to destroy the US…
China isn’t as a big as a threat as people think or as powerful as people think. China under CCP rule isn’t a potential replacement for America, nor the next soviiet union. China under CCP rule is more like a giant North Korrea, it will create chaos throughout the world, the pandemic is the perfect example of that. The way the CCP causes meat to be grown in China, is greatly growing the risk of antibiotic resistant germs (SuperBugs/Super Germs/Super Bacteria, as they are often called). Many more pandemics could come from China in the future, which could be far more deadly. These new potential pandemics will be named CCP-(insert start year here).
The CCP single-handedly ensures the survival of North Korrea, it provides it with all the everyday essentials such as fuel for their (North Korrean) cars/tanks/rockets, electronics, and much more. The CCP will arm many dangerous threats to the world. While the west, especially in the middle east, can create some chaos in the world. The west is also responsible for pushing the world forward, and does more good than bad for the world. China, under CCP rule, does nothing positive for the world. The pandemic they caused, has cost every participating country in the “Belt and Road Initiative”, far more than the CCP ever “”invested”” in them, this isn’t even counting the fact that most “belt and Road” projects are disasters in the making.
The CCP is single-handedly responsible for Russia not being able to trust them, last year alone, the CCP declared that someday they will take over the Russian city of Vladivostok, and the CCP even claims, that someday they will take over a large part of the Russian Far East. There are countless ways the CCP openly fantasizes of screwing over the world, it’s “allies”, and even Russia.
China is however, highly unstable under CCP rule, by simply countering the CCP influence operations and pulling essential factories from China, the west could exert force on the CCP and crack it from the inside. Even by itself, the CCP will eventually, possibly not long from now, come crashing down. Countering CCP influence, greatly minimizes the damage to everyone else.
New world reserve currency?
Rather ask, do we head for a world without a reserve currency?
Thu USA, what currency reserves do they hold? The gold reserve have been questioned, but the oil reserve is there. And no there is question about the stockpile in the arms arsenal. China hold US dollars, a strategic oil reserve and probably stockpiles of strategic raw materials. Then, in the last pandemic, what was most useful. Stockpiles of medical supplies or currency?
It could be that reserves of oil, raw materials and critical supplies partly will replace currency reserves. China might be just fine without a world reserve currency as long as they have the factories and stockpiles of raw materials.
The perceived value in the US economy is the reserve that stands behind the US dollar. It is an economy based on private enterprise, it is backed by the worlds most powerful military, despite the political dysfunction it is unrivalled by any other economy. The prediction that inflation will be temporary is looking more likely to be correct. Do not put it beneath Russia to be faking this inflation scare, or just being wrong in their analysis. Since when has Russian central bank policy become of much relevance to anything in the west?
LOL. Methinks you’re having nostalgia for a bygone era. America is only marginally based on private enterprise at this point, and the military is in the process of becoming “woke,” which makes me think it will not be nearly as effective as it once was.
The world’s largest army is an asset only in war.The US spends more on “defense” than the next 8 largest countries, all of them its allies. All this spending sucks the lifeblood out of the country. It could be spent on highways and bridges, the electric grid, education, health care, and a long list of underfunded needs. The Cold War was won by causing the USSR to go broke and collapse under the weight of military spending. Now China and Russia can use that same ploy against America.
“It is an economy based on private enterprise, it is backed by the worlds most powerful military, …”
That is a far-fetched, silly notion.
.Guv spending in US increased to a high of 44 % of GDP in 2020 (and it had been in upper 30s % since 2012).
That is hardly a stellar example of a country run by private enterprise.
A term that more accurately describes US economy to me is ‘corporatocracy’ that is rigidly centrally planned by a powerful central bank and run by an oligarchy.
Our military serves as a far-flung imperial army to enforce our sanctions and hegemony against other competing nations.
As far as military spending, the military does employ many people…military, civilians, contractors, college and high school students. In my area, it is estimated that 1 out of every 4 patrons in a small business is military affiliated. Where would these people work if the military was drastically downsized and how would surrounding businesses be effected?
Roddy: agree up until last. If ever there was an economy that can’t afford its military it’s Russia, with an economy the size of Canada’s.
Former head economic advisor Alexei Kudrin was fired by Putin for telling him Russia could not afford a 500 billion $ arms buildup. Kudrin was partially rehabilitated after a typical but big run on the ruble made Putin anxious to restore credibility.
You know all the probs the US is having with F 35? The Russians are having their own with their multi-billion air superiority fighter.
It is a rare month that Putin doesn’t make some reference to his nukes or some new missile. It’s all he has left, apart from his own estimated 40 billion, not bad for a guy with no advanced education, who has never invented anything or operated a business.
Historical rhyme: on his deathbed Lenin warned against Stalin. Stalin’s job with the Bolsheviks: security service.
To end on a positive note re: Russia. That Elvira N, head of central bank is quite the gal.
The world’s central bankers have an association and not long ago she got award for best. I assume based on her handling of a bad ruble crisis where she bumped overnite rates well into double digits. You could say she’s a good lawyer with a bad brief. Not bad looking either.
One of the reasons the dollar is the worlds reserve currency is the US imports so much. And other countries end up with the dollars. Only the US capital markets are large and stable enough to serve a repositories for all those dollars. The US has never defaulted on its debt or the dollar. Everyone else pretty much has.
Another reason is the US has a good reputation of patrolling the international trade routes keeping them open for use by all. Do you think anyone wants to trust that to China? Especially other Asian countries. I suggest you review recent news on what China has been doing to other Asian countries in the China Sea.
The Dollar is a reserve currency because the US participates to such a large degree in international trade both imports and exports. Other countries are happy to be an exporter but not so happy to be an importer. Exports will make some other country reserve currency and without imports you can’t be.
No, you have the cause and effect backwards. We import so much because the dollar became the reserve currency and people were willing to sell their manufactured stuff for dollars.
Nixon defaulted on Bretton Woods because de Gaulle was looting Ft Knox. The US then gained reserve currency status through Kissinger’s deal with the House of Saud.
The US will probably default on the current debt either through inflation or default lite, i.e., declaring special conditions to debt held outside the US, forced 401K investment in Treasuries, or a condition of war. If you have any better ideas, now is a good time.
To assist the US, you can write a check to the US Treasury for your part of the debt – $226,794. President Biden will thank you but probably spend it.
However my best guess what will happen, something unexpected.
Russia is a basketcase. Don’t make me laugh.
“Russia is a basket case.”
Never underestimate Russia. Sure, it has its share of problems but history shows Russians overcome every adversity and land on their feet.
In view of the ongoing pitiful willful self-destruction of Western nations with their cultural/ethnic strife and societal disintegration I believe Russia will prove to be amazingly resilient and will prevail.
I think the key to Russia is the natural resources in Siberia. The USSR had trashed a lot of the country but there is still a lot left. The pressure on Russia, I think, is to get control of the resources that are needed for the technology for any green change. I read that to convert all the cars in the UK alone to EVs requires more cobalt, lithium, and neodymium than can be currently produced.
Few years ago we kept hearing BRICS is the future.
Nobody mentions that acronym anymore.
China and India in a nasty border dispute. South Africa down in dumps. Russia an international pariah.
Russia and China will be like Bennifer. Won’t last long even if it happens.
what if the rates it turns out have no impact on inflation. That this lever was shooting blanks and had no connection in the economy of 2020
my gut reaction to Russia who albeit is much much smaller. But using the same tools we have seem disconnection between the two
Nathan,
The only reasonable argument I’ve heard (so far) that raising interest rates wouldn’t put a lid on inflation is that a higher Fed Funds rate would actually cause the banks to stop their reverse repo transactions at the Fed. This would cause additional dollars to re-enter the banking system, further increasing the money supply.
There is a well-known “lag” between monetary policy action and its transmission to the markets and then its transmission to the economy. The idea of raising rates is to slow demand long enough to where it brings down price increases. This can take years after inflation takes a hold, as we have seen.
Just as an intuitive gauge, if I have £500,000 burning a hole in my pocket in a high and rising inflation environment, and I’m worried about loss of spending power, then I need to see a return at least at parity than expected loss to make me not want to spend it.
Rising interest rates won’t stop crazy consumers blowing their money because they fear the inflation.
I think this is transitory. This is entirely driven by FOMO and the act of giving people money for nothing and giving them a break from servicing their debts.
In 12 months it’ll be terrifyingly low inflation/deflation, and we’ll be watching the Fed justify using their new direct stimulus tools tried during Covid lockdowns to ‘stimulate’ the economy.
UBI will be the new base-load input to generate the target inflation at this rate.
If the wages and then purchasing power do not rise there is two possibilities, the prices fall and the CPI turn negative. The prices stay high, the CPI may level off, and less goods are traded at a higher price.
I do see the possibility that higher prices are to stay, volume traded measured in money decline or stay more or less constant. Traded volume measured in items, tons, or whatever physical size decline. Profit in the supply chain may rise as the margins get better.
You might be right, but the real problem is that the Fed doesnt want to acknowledge that the problems in our economy are NOT a simple monetary policy issue. It is related to allowing all our manufacturing jobs, even high tech manufacturing, to be shipped overseas.
We have created an economy that serves less than 1/3rd of our population. We also allow millions of the poorest people from Mexico to enter our country and then have to support the costs of their education, etc.
Everything we do is to serve a very small band of the richest people. And our national news media is just a complete joke, bought and paid for, controlled by some shadowy special interests that have probably hired ex-CIA types to use their typical techniques to control all speech. And the big internet companies are willing accomplices, squashing any ideas that dont fit the narrative.
Let’s recall how Volker killed inflation by jacking up interest rates into the mid teens. It also was a wake up call for politicians who did not care about running up the debt while cutting tax revenue…otherwise a policy of kicking the problem down the road…and let the next guy worry about it. Too bad we don’t have a Volker running things these days.
Paul Volcker made me wealthy. I’ll need all my wealth to survive that bone-rack Powell and his Robinhood policies. The poor and the destitute deserve nothing and each and everyone of those lowlifes should have to pay all the stimulus money back.
Turkey
19% inflation
Oh those silly central bankers…
Back when I worked in Turkish Northern Cyprus my account at HSBC allowed me to invest in loan instruments with incredible interest rate (15%+ annualized for monthly).
In what currency?
Drago knows what to do with inflation. “I must break you”
Russia’s debt ratio is one of the lowest in the world at 19.48% of its GDP. Russia is the ninth least indebted country in the world.
They don’t need to go to war with the west.
They can easily just wait for the debt implosion that is surely coming.
It’s their state-owned enterprises that are heavily indebted. Russia has been borrowing in dollars, euros, and yen through them.
Hmmm, can the J team get together a bunch of hedge funds and redo the Quantum take down of the sterling, except applying it to the ruble.
Taking advantage of our low rates maybe to invest in something, wonder what? Maybe an arbitrage to much higher Russian rates? Don’t know.
Foreign currencies.
When we have to look to Russia as an example of better Central Bank money supply and interest rate management then you know we’re in serious trouble.
We are toast
that is my thought as well. I don’t think that Russian economy is in good shape by any means, but when I look at Canadian economy, level of debt, accommodative monetary polices, and overall reliance on housing… we are delusional.
Right now, even pre-pandemic, very few countries had economies that were actually growing. All the developed countries that I can think of were stagnanting, and nearly all developing countries were stagnanting. A few countries such as Vietnam, who were getting some of the factories leaving China, were still developing, but alot of the other still developing countries had decreasing growth rates (i.e. would have started stagnanting soon).
Russia in nominal gdp, is not doing very well, but with ppp is almost equal to Germany who has 5th place. Over time they are catching up, Germany has alot less people though 82 million vs Russia’s 142 million though.
The success of Russia though, is that they are building the only modern self sufficient economy, while there is still alot left to do, progress is being made, and because of all the sanctions and other nonsense, they are developing their economy in a way that will help insulate them from global economic shocks and will help economic growth in the long term. Some see them as having bottomed out and they can only go up. Just like any country though, they could mess it up.
Right now, the developed economies aren’t growing (even pre-pandemic), because of their own nonsense and that makes it hard for anyone to grow. The global economy is centered around the developed countries and if they aren’t developing, few developing countries will be.
For nearly all developed countries and many developing countries, especially America, all the investment fantasies of infinite compounding returns have to crash and end, for economy to grow normally.
TR
They are “catching up”
I watched Putin live {translated} talking to his people today for 4hrs. Black Sea destroyers, a joke, they all laughed (their ‘Guards’ made them at gun point)
He said Russia was the ‘Pantry of the World’ and there I think you have it.
The quality of that central banker (check out her debt levels) is typical of other functions in the country. Lavrov, Peskov, military, railways, etc. They are building a future rapidly.
Life expectancy in Canada: 82
Russia: 72
Russia = Vodka!
Not to mention the Chinese will eventually turn the entire country of Canada into one giant ghost country just like all the ghost cities back in China.
Yes. But then we know that the US is the Capitalist Mecca of the world. May be it “was” till the Fed took over the job of leading us, hapless citizens, over the cliff!
China’s economy is 60% private enterprise. It is easier to start a company and get rich in China than America. Over 4000 American companies are doing business there. I don’t know if that qualifies as “Capitalist Mecca”, but it is definitely near the top of the list. Capitalism is not unregulated. If a company strays into areas that are supposed to be covered by State Owned Enterprises, they will get slapped down. Jack Ma recently crossed the line recently with business that handle the deposit and transfer of money. He was given notice.
roddy6667,
That is all pure fantasy.
Nobody can own any substantial business in China without being a member of the CCP and bending to the CCP’s will. Once a business grows beyond a very small one, there has to be approved CCP members, employed by the business, controlling it. Most of the tiny businesses in China, could yes, be privately owned (but nothing noteworthy), but you could far more easily start a small business in America. At any time, the CCP can do whatever it wants in China and there is nothing that will stop them, in China.
Jack Ma was a high ranking CCP member, he is being taken down, because, it was discovered that he was actually a member of the Jiang Zemin faction. The ruling “Xi faction”, will of course take down any rivals, it has nothing to do with breaking laws.
r6
I watched an eminent Chinese business expert interviewed on RT Fri2, I think, forgotten his name, young guy.
He said basically China has a capitalist market economy where the efficient allocation of capital for the country was the prime motive, whereas the West has a capitalist economy where the financial return to owners is the prime motive.
I think his statements are fairly obviously true when you look at the realities of the two economies. Massive investment in the future versus share buybacks, PE buyouts,off-shoring.
Well said.
After being brainwashed that Russia is always the irresponsible “bad guy” since birth, it’s ironic to find they are the responsible one when it comes to central banking.
Russia also has a better tax system. Flat tax of 15%. Everyone pays. NO loopholes like carried interest. etc
Can the Fed pull off the trifecta? Run inflation at 5%, keep 10 year at 1.5% and keep SP500 above 4000.
That’s the goal. The Fed has already nationalized overnight credit, so they are well on their way to setting rates across the curve. The 2yr has mysteriously becomes stable at .25
So, yeah, they probably can — so long as ordinary Americans agree to live with less in order to, ahem, “Save the market.” (That never gets old does it?)
No.
Without 10% pay rises, people will spend 10% less a year in corrected terms as they have 10% less money.
Deflation.
You can’t get sustained inflation without sustained economic growth to fund the salary rises.
Growing your debt to fund economic growth, and now growing debt to give to people in place of salaries or salary rises, isn’t going to work.
If it did then Japan would have done it by now.
Everyone would do it.
Been listening to very smart people on both sides about inflation deflation.
One guy Steven Van Metre has interesting theory that since commercial banks create most of the money that low interest rates backfire on the Fed and destroy money. He uses the example of a mortgage. At high rates you are paying mostly interest at first. At low rates you are paying much higher principal payment. Paying down principle destroys the money the bank created when making the loan.
Who knows? Future inflation is unknowable.
Most reliable simple long term predictor of overall stock prices is a price to sales or market cap to GDP metric ignoring interest rates. Studies show adding interest rates into the mix adds no value. In a way you are double counting if you add in interest rates because market has already included that in stock prices.
So, can the Fed hold the beach ball under the water forever?
What of the damage to the People of this nation by the scenario you suggest?
Savers will continued to be STOLEN FROM, intentionally by edicts from an unelected body, the Fed. Inflation is a tax and one man or one committee of the unelected putting this punishing tax on the people deserves a severe response, IMO. Congress may tax, and Congress must answer to the people. What we have here is taxation without representation (who has representation on the Fed?)
The ten year, and all maturities are where they are due to the Fed’s endless (was to be temporary) QE. The Fed expands the money supply at their will. Again, when did the Fed move from a provider of liquidity for short term banking issues to the Digital Minters of our money supply? And again, Congress controls minting per the Constitution.
Minting and taxation are Congressional powers and may not be delegated.
But as long as there is free money for politicians (who are probably fully invested personally) for their Trillion dollar bills that are vote buying and socialistic, stocks go up each morning, the “trifecta continues”.
But to ignore the inflation is to make it worse, for there is a lag time for the cure…higher rates.
But the Fed set the fire, (despite “stable prices” mandate), can we expect such deviation from their prescribed duties to also extinguish the fire?
Looks like Russia is more dedicated to the “stable prices” notion/mandate than our Fed.
No, they can’t. They are full clown show at this point and have totally lost control and are destroying not only the economy, but the country.
Wolfstreet Exclusive: J Pow is a Russian agent.
Real name : Jarek Vladimirovich Putin.
Mission: Infiltrate the US Federal Reserve and ensure the destruction of the USA for the glory of the Motherland through insane monetary policies.
Famous Quote: War on the middle/lower class is an extension of national policy by other means.
Awarded Medal of the Order “For Merit to the Fatherland” 1st Class with Swords for holding the Ctrl-P button far longer than humanly possible.
My name J-Pow and
Here’s my confussion
I’m KGB straight-up
Ruble-lovin’ Russian!
There ain’t no way
That I came to play
Oh I’m here to destroy
The U.S.A.!!!!
Heeooohhh!!!!!!
nicely done, J-Pow!!!
keep up the good work.
Every worker in America just got a 5% pay cut….
WAKE UP AMERICA.
And every saver just had a retroactive pay cut…
the Fed promotes inflation……and nobody seems to care. Flabbergasted.
J Pow is more likely one of Chinese agents, and the master plan follows Sun Tzu rather than Clausewitz: while thy enemy is self-destroying, don’t interfere.
I see the current political/economic scenario the same way. I have a feeling that somewhere, at a luxury resort somewhere, Putin and Xi are clinking their champagne glasses and laughing. Popcorn is being served. A copy of “The Art Of War” is on display in the room.
I wonder if Nabiulina thinks housing is a nuisance for inflation calculation to be dumped into the investments ledger.
100 basis points interest rate jump is heresy, every central banker knows you can only cut by 100 basis points.
Do people in Russia buy houses in great numbers? All the pictures I see of Russian cities show large apartment complexes covering the countryside and surrounding the cities. And these are huge in number…many stories, big buildings, many of them.
Over 87% of Russians own their own homes, but the majority of them are in buildings.
The difference is that in Russia even with over %4 interest rate at least since March the inflation is still 6%
But in U.S 5 same level of inflation happening while rates are 0.0%.
The difference is that in Russia even with over %4 interest rate at least since March the inflation is still 6%
But in U.S same level of inflation happening while rates are 0.0%.
Are rate hikes good for bank stocks. Banks can generate a bigger rate spread and thus more profits. I guess this applies to smaller banks as the TBTF probably get a lot of their profit from trading. So they use bank deposits to trade with instead of making loans.
Russia?!?!?!?!
WTF Wolf? I wish I could add a picture here, you remember that one with a Chinese girl with that sign WTF Google from a couple years back… perfect for this.
Best to tread carefully here, coming dangerously close to spreading Russian disinf******** here. Are you actually taking the words of those dirty Russians over a member of the J team?
Do you want to be a conduit for the SRV???
Next thing you know, you’ll be deplatformed, no more Twitter, no more Facebook, no more YouTube… what will you do then… run your own website?
?
As long as Zoohedge can host South Front and (get this name) The Strategic Culture Foundation which are ACTUALLY Russian supported sites, I think WS is safe.
Never mind that CNN and MSNBC are State TV
(as is the BBC)
BBC, yes. But prob has tightest ethics. Widely trusted in Germany in WWII. CNN? Don’t be silly.
CNN/Parent organizations
Cable News Network (CNN), an American basic cable and satellite television channel that is owned by the Turner Broadcasting System division of WarnerMedia, was founded in 1980 by Ted Turner and 300 other original employees, who invested $20 million into the network.
The Fed doesn’t need to see any inflation because it’s someone’s elses problem!
1) In the last ten years CNY/RUB was up from 4 in 2011 to 12 in 2020.
2) China is expensive. China export inflation.
3) The biggest jump was in 2014, when Brent slumped.
4) But currently Brent is 75, so why this currencies pair is still hanging @ 11.25.
5) China knocked off US, Russian and other advance countries weapons technologies, communication tech, medical know how…
6) China sell missiles, drones, military planes, communication equipment, medical stuff…to the Europeans, to Iran, ASEAN, Africa and to Russia.
6) China is a powerful. China can potentially threaten Putin thousands of miles unprotected soft belly and split it with a knife.
7) China bleed it’s enslaved nations.
8) US & allies encircle China from the the Indian ocean, the Himalayas, Malacca straight, Australia, S.K, Taiwan, Japan and potentially from the north, yes, from Russia, to subdue China.
9) Russia is a super power, not a regional power. US + Russia, if Xi misbehave, is better than Xi + Putin.
10) Ca liberal state bookkeepers : SF is a prime…for China.
– If inflation is NOT “transitory” and here to stay then why did both the US 30 & 10 year yields peak 2 months ago ? Both yields seem to be on a downward trend. Where are the (absurd) “inflation expectations” ???
– The story above is based on the absurd assumption that yields go higher along with higher inflation. And they don’t. Rates go higher in economic good times and go down in a “recession”. Those yields are currently signaling that a “recession” is coming.
– Again, look at what happened between the year 1999 and mid 2008. We had A LOT OF inflation (thanks to a falling USD) but in spite of that rates (10 year yield) fell form about 6.5 % down to about 4.5%.
– Keep in mind: thanks to a rising EUR/USD (it doubled between 2001 and mid 2008) inflation here in the US was MUCH MUCH higher than in the EURO zone. And yet interest rates fell in that same timeframe.
– The “Daily Shot” had a chart that showed that, on a month to month basis a rang of consumer goods already have fallen slightly. Where is the “Inflation” ?
Willy2,
1. “why did both the US 30 & 10 year yields peak 2 months ago”
The Fed and other major central banks are still buying massive amounts of bonds, which represses long-term interest rates. That’s the goal of QE, and that is working. You’re assuming that QE doesn’t exist.
2. “Where is the “Inflation” ?
You’re hilarious alright.
To me the only real way to prove inflation, is to use your phone and every year go into, say Walmarts, take 500 photos of goods and their prices and then do it year after year and then put the photos onto a website calling it
proper-inflation.org.
or something like that
(make your own name up for it Wolf)
no facts and figures, just photos of the same goods and services and their prices every year (showing price rises, if any)
Not sure people would believe even then… lol
I would do it but sadly the nearest Walmart store to me is 3000 miles away
No need to do all that. I just saved all my grocery receipts for the past year and compared the prices month by month. The result. Nearly all the items I purchase on a regular basis have not gone up one penny. NO INFLATION. I go with my numbers not government BS stats.
The problem is supply chain disruptions. I have to go to 2 or three stores to get the items I need because there are massive inventory supply issues, all traceable to the trucker driver shortages.
“Where is the “Inflation” ?”
Just take off those silly rose colored glasses for a minute and have a look-see.
As Yogi Berra said once: “You can observe a lot by just watching.”
That confirms it. Jerome does read Wolf’s blog.
After years/ decades of countries trying to weaken their currencies, at some point we are going to see the opposite trend when they battle on international scale for access to ever scarcer resources. Then countries will want a strong currency.
We are moving away from an uni-polar world with one reserve currency to a multi-polar world with competing currencies. At the moment, China and Russia are still dependent on the US$, but there is a clear strategic interest for them to move away from US$ dependence. A geopolitical conflict could force them to accelerate that.
These other countries are already starting and have plans to move past the USD. Think China, Iran, Russia, North Korea and that region of the world. Give it time. Sanctions have a way to cripple ones countries and International banking systems that all course through the US banking system are able to controlled. Carrot of the Stick
The BRi (Belt And Road Initiative) is comprised of a lot of ountries.
Quote:
Thirty-nine countries in sub-Saharan Africa have joined the initiative, as well as thirty-four in Europe and Central Asia, twenty-five in East Asia and the Pacific, eighteen in Latin America and the Caribbean, seventeen in the Middle East and North Africa, and six in South Asia. These 139 members of BRI, including China, account for 40 percent of global GDP. Sixty-three percent of the world’s population lives within the borders of BRI countries.
Central banks might get put back in a box if they don’t land the current financial system correctly. The western world has allowed central bankers to destroy price discovery which is the pillar of society getting wealthier.
The Fed has allowed politicians to fight endless wars and over promise on medicaid, social security and Medicare. We are at the point the economy can’t deliver all of the promises made so a corrupt Zirp and QE program have to be ran. Now inflation has to be ran hot to steal a little more of Grandma’s savings to fund the politician’s utopian fantasies.
“Fed has allowed politicians to fight endless wars and over promise on medicaid, social security and Medicare”
Indeed. Imagine if the Iraq or Afghan Wars relied on War bonds like WWII?
The fake cost of borrowing created by the Fed is so damaging as to be incalculable.
Now we get the Socialistic programs that would otherwise be cost prohibitive. The Trillion dollar bills. Thatcher said Socialism doesnt work because you eventually run out of other people’s money. She never saw the central bankers at work
And DeToqueville said Democracies fail because the people elect those most likely to give them wealth from the Treasury. But the Treasury is long since empty and the printing press is now the gifter.
And Hayek said that when central planners decide, they INTENTIONALLY harm one group and assist another.
And finally Cloward and Piven suggested the way to “reset” the United States was via Fiscal irresponsibility in great magnitudes. And the Fed assists by not assigning a real cost to the massive debt creation, 20 Trillion in new debt in 12 years…and climbing.
The dual mandate game…they cut out the third, the one that guards against exactly what is going on, the one that keeps a balance between lender and borrower, the one that prevents future wealth being drawn forward to fluff the present and strap another generation….
“Promote Moderate Long Term Interest Rates”
Powell should get a vocabulary lesson..
Moderate means “not extreme”., up or down
Stable as in “stable prices” means ….fixed, unlikely to move or change
Thatcher’s axiom still bears true in the world of corrupt central banking. It just takes a different form.
Instead of taxing the people to give to others, which you will eventually run out of, they instead print the money, which is a tax on all savings and income. You eventually run out of ability to print (and existing wealth to steal).
“Central banks might get put back in a box if they don’t land the current financial system correctly.”
Too late. They already crashed it. But they answer to nobody, so they stay in charge.
if we had “rampaging inflation” why has AU not gone to …. $ 10000.00. ? not $ 1783.00.
where are the bond vigilantes? why are real yields negative?
The reason is that the inflation is transitory. Please refer to the MIT billion prices project, and you will find your answer.
Because all of the bonds are being bought by pension funds and the Fed. There is no market for the bonds. No one else wants them.
Also, if inflation is transitory, what’s the justification for stocks trading at 46X their earnings? Isn’t the whole argument for that valuation that stocks are an inflation hedge?
“where are the bond vigilantes? why are real yields negative?”
Massive QE by all the major central banks. There cannot be “bond vigilantes” when the central banks buy the bonds.
We have reached Peak Central Bankers. A culling is in order.
I will give it a try. Gold, which is real thing with some store of wealth value, accounts for around 2% of people’s net worth. Financial assets which are legal promises to real things represent 98%.
If the world believes some of that 98% will become worthless the final assets could be dumped for something more secure.
It will be very easy for the price of gold to get bid up in that scenario. Fed is going to support the financial system, but when people panic, the Fed can’t do much about it. Owning gold is saying the Fed can’t be trusted to get it right.
ooe…
Why does the FED feel the need to buy $120,000 MILLION a month (120 Billion) in federal paper? And $40 billion in MBSs?
Answer that and then we can continue with a discussion.
RE Gold….
Cryptos……do you have a comment on why all the money has been transformed into Cryptos? Perhaps to shelter one’s wealth from the machinations of central bankers?
Does China want to be a reserve currency? That would require taking in a lot of imports. That is how you become a reserve currency. Flood trade markets with renminbi? I doubt that. Warren Mosler says income has turned negative in US. That is a deflationary dynamic.
The Eurozone and the euro prove your theory wrong. The Eurozone has a large trade surplus with the rest of the world, and yet the euro is the second largest reserve currency with a share of 21%.
Also proving your theory wrong: The US dollar used to be the super-dominant reserve currency back when the US still had a trade SURPLUS with the rest of the world.
Yes. It seems that people think mistakenly that the U.S. dollar is the reserve currency BECAUSE of its trade deficit. No. It’s the reserve currency IN SPITE of the trade deficit, but less so than it was in the past.
Imports are part of it.
I think more important than imports/exports or trade deficit/surplus is what percentage of international trade does a country do. The higher the percentage the more of a reserve currency. Also important would be what are the future prospects for international trade – less or more?
The dollar is currently strengthening. That will put a damper on inflation. Russia is kind of a joke because they have so little to back up their currency. A gas station masquerading as a country.
Carlos Mencia has a joke about the U.S. spending billions of dollars to develop a pen capable of writing in space, while the Russians just used pencils
This is an urban legend. The Fisher Pen Company spent $1M developing a ruggedized pen that could be used in microgravity and extreme conditions; both NASA and the Russians eventually bought the pens from Fisher. Pencils are not suitable in space, due to the ‘leads’ breaking and flammabilitly.
Just search on ‘did NASA spend millions on a pen for use in space,’ an article from Scientific American should be the top result.
Seriously, for decades an import ball point pen was coveted in the USSR. Theirs left blots as ball not precise enough.
I’m puzzled about why the dollar is strengthening. Is it because the dollar is still the dominant reserve currency, and most of the rest of the world is more effed up financially than United States?
It’s good for me because I’ve started transferring modest tranches of my U.S. dollar savings, converting into baht here in Thailand (where my Thai wife has a credit union account that earns over 2.5% interest).
I’m wondering how long this dollar strengthening can last.
The US raises rates, that brings in foreign bond investors. Rising rates tend to counter inflation (and growth). The US is the global hot money market. ROW has printed trillions in thin air fiat, all that money wants to go somewhere. China is trying to firm up the Yuan, by tightening credit. Mostly new beggar thy neighbor -NOT- policies. Competitive devaluation ends, and CBs manage their currency in order to attract investment.Then there is the dollar, military might and the demise of Russia. US might surprise by rebuilding its military (using foreign contributions to the cause)..
Jesus!! Into baht?? You do know it once lost 50% in a few weeks?
Doesn’t matter if you live here and buy through local street markets. Inflation low in that context. And comes back up again. Was at 29.7 late last year-.
“The dollar is currently strengthening. That will put a damper on inflation.”
Hardly. Inflation is surging globally and US import prices have surged. The US import price index jumped by 11% year-over-year. That’s where part of the problem lies.
Just ordered a box of toners and drums for my Brother Laser printer. The box came in the UPS on my front door within 1 day of the order. The outside of the box said in bold letters “CHINA”.
Need I say more
That damn orange man was bad, I’m tellin’ ya’.
This Russian inflation is evidence of government stimulus in response to the pandemic. There are also quarantine measures occurring around the world decreasing productivity.
Europe wants to reduce use of hydrocarbon fossil fuels, but they need Russian natural gas in order to fulfill their energy needs as the try to switch away from coal and oil. It is similar to times when we were dependent on Arab oil, even though some knew there were human rights abuses occurring behind the Islamic curtain.
Has Wolf ever done a counter to the dollar milkshake theory? It’s kind of well laid out with many extremely smart people having similar arguments. I’d love to hear Wolf’s take on this? One of the counter arguments is that the dollar milkshake theory progresses until the printed money is turned into real money and not just reserves. Until this happens though, it seems difficult to argue against the milkshake theory.
To Marco’s comment:
How much gold do China & Russia need collectively ??
“KYIV – FBI & U.S. Treasury agents have arrived in KYIV to aid Ukraine’s Interim leaders to uncover the financial crimes of the government of ousted President Viktor Yanukovych in an effort to repatriate billions of dollars.
According to officials more that $20 billion of gold reserve may have been embezzled ..”
Viktor Yanukovych ran off to Russia at the time of the coup to seek asylum ..
“with the gold ??”
All manner of things are possible in a crazy environment such as this ..
China is seeking revenge ..
I can’t see it myself, revenge is unproductive & I feel that you are giving them a superpower image that they simply do not have.
So why Russia? Nostalgia for LTCM? Now a third world power with nuclear weapons. The second collapse will happen when pro-democracy protests spill over from Belarus. US troll apologists and politicians, will be outed from financial media and everywhere else. Liz Cheney will be next Republican president of the US. Her daddy being architect of the second Soviet collapse. China will take a step back. Pax Americana. Markets smell victory.
Two questions come immediately to mind:
1) What are you smoking?
2) Where can I buy some?
I don’t think Biden is going to slow down stimulus coming in some form. Besides, inflation still benefits the rich. Court decisions continue to benefit the rich (Facebook). The stock market grows fatter. Business as usual, forward motion. 6% inflation is even better than 2% for corporations, no problem there.
It’s going to be a heck of a long time before anyone moves their major investments to under the control of the Chinese or Russians, much less their currencies. Just another factor holding the dollar on top.
This all may not end well, but not as soon as we think.
“This is the school of thought that negative real interest rates – interest rates below the rate of inflation – are accommodative, or stimulative for the economy. Under this theory for the US, a neutral monetary policy would be with the Fed’s policy rates at least at 3.4% if based on core PCE and at 5.0% if based on CPI.”
That is precisely what the Fed SHOULD be doing if it had any sincere intention of fulfilling its two (and only two) mandates. Short-term interest rates can be changed on a dime. If inflation is truly temporary, then lower the rates again when it subsides…if not, then keep raising rates until it subsides. Then perhaps we won’t need our own “shock & awe” rate increase in the future to control runaway inflation.
Phoenix
“its two (and only two) mandates.” No. The third is carved out for a reason…they cant deal with it.
The dual mandate game…they cut out the third, the one that guards against exactly what is going on, the one that keeps a balance between lender and borrower, the one that prevents future wealth being drawn forward to fluff the present and strap another generation….
“Promote Moderate Long Term Interest Rates”
“The Federal Reserve Act states that the Board of Governors and the FOMC should conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
To your point…if inflation is transitory, how about a transitory response? It seems the Fed is the arsonist here and wants to watch the fire for a while.
The history of this nation, prior to 2009, was Fed Funds equaled or exceeded inflation….
https://www.bourbonfm.com/sites/default/files/users/PatrickBourbon/fedfundsratevspriceinflation.jpg
When will the American People realize they have been stolen from? A 5% pay cut for those working, and a retro active pay cut for any saver of past earnings.
Thank you for the clarification, Historicus. Yes, that third mandate seems to have evaporated into thin air…for so long now that it’s as though it never existed in the first place. Seems to me that if an act of Congress was originally required in order to create the Federal Reserve, a follow-up act of Congress should be required to materially alter said Federal Reserve’s mandate. But I’m certainly not holding my breath for that to happen. And yes, the theft from cash savers in order to artificially inflate asset prices since 2009 has been epic. The piper will come calling as those savers reach retirement age with insufficient savings to survive in an inflated economy.
I get a pay cut every year when they give me a raise based on official inflation rate and real rates are at least 2% over that. Most people get at least 3% pay cut every year. This year it’s going to be 10%. Good luck fighting for it with your corporate overlords who get paid in stonks.
Does a smaller central bank like Russia’s have any influence on other central banks around the world?
The day one of the large central banks says its crypto, gold or yen…..no dollars please……hope I’am dead.
No matter what, I don’t think FED would be tapering the purchases or hiking the rates. FED is doing what they are supposed to do and their main goal is not what is publicly stated
Fed is in denial and has thrown common sense out the window.
Reality (from consequences of their rogue central bank policies) will eventually slap them in the face good and hard. The sooner the better.
Anarchists Violent Extremists are DVEs who oppose all forms of capitalism, corporate globalization, and governing institutions, which are perceived as harmful to society.
If the government has its way, that definition will stick in the upcoming National Security Laws.
While there may be questions on whether the Federal Reserve is a governing institution, I am sure in the end, the powers that be will make it so!!! So soon Wolf will be labelled an Extremist for questioning the Fed.
Best country on Earth!!!
The FED is not in denial they are just lying. They are so far down the rabbit hole they’re afraid raising rates will result in consumers, companies, and even the government being unable to service their debt.
No one is sure what will pop this debt bubble so we just continue to ride along the waves.
I hope to eventually see 4 – 6% interest rates and a healthy economy but I’m not sure I will ever see that again.
Energy is key. Wolf wrote extensively on how UNprofitable the shale companies were. For a while there, we showered those companies with moolah, but the current structure of the economy can not generate demand that’s sufficient to make those companies profitable.
If we suddenly find a new cheap source of energy, we’ll be fine, otherwise collapse is inevitable.
17 CB’s have hiked rates this year. Mexico hiked 25 bp last week.
Russian CB is probably the most aggressive though.
Fed, as always, well behind the curve.
Expecting the Fed to commence hiking within the next 12 months. Ah, but what about taper, doesn’t that arrive first? That luxury sailed when they started monetizing the debt overtly.
This should be amusing.
So why is the Fed dragging its heels on raising rates, really? After all, as the Powell Fed has done before, they could do a dainty pirouette at any time if inflation indeed proves to be “transitory”. In my opinion it is primarily because they fear popping the financial asset and housing bubbles, thereby causing deterioration in the assets of large banks and shadow banks as debt collateral declines sharply in price and their massive derivatives positions develop large losses. Then there is the eurodollar market and Triffin’s dilemma.
Unfortunate that the Glass-Steagall Act was overturned by Congress and the Clinton administration in our highly debt-levered system. The willful negligence places the Fed in a difficult position, albeit one partly of their own making.
I still don’t get this inflation.
Had there been no lockdown and free money, where would inflation come from?
The inflation is from transitory supply/demand pressure and a large number of consumers having a transitory mindset on the price of items.
When we go back to losing your job or home if you don’t pay for it. No UBI. Factories back to full tilt to be profitable and no supply issues…?
Who’ll be buying these huge volumes at massive prices?
It’ll slump. Job losses. No pay rises. Intense competition to sell goods so price drops.
I just cannot fathom inflation.
Unless US Gov keeps up UBI. And keeps QE to suppress bonds.
It can’t generate that much debt and buy all its own bonds without all the foreign debt owners throwing in the towel on USD.
Product price is decided on several factors. Supply and demand is only part of it. To the seller the goal is maximum profit. Production cost is the lower bound price. A rise in cost of raw materials and manufacturing raise this.
Then, there is optimum point between sold volume and margins. Less volume with a higher margin may yield a higher profit.
Last, most retailers know that fierce competition is not the recipe for large margins and maximum profit. Cartels can appear without any formal agreement, a common understanding suffice. Anyway, the same banks and hedge funds have capitalized all the retailers.
The persistent part of inflation is from a change in the mindset about paying for higher prices and raising prices. People and businesses suddenly don’t mind paying more and they’re adjusting to it — and businesses adjusting to it by raising their own prices. This change in mindset is the hallmark of persistent inflation. This is accompanied by wage increases as employers are trying to fill slots and potential hires demand more. We haven’t had this situation in many decades.
Chauncey,
Inflation is here to stay for nice long while. Supply chain disruptions aren’t going away. Likely to worsen (especially if we see real war break out).
Fed Funds futures in denial. 30-day T-bill forwards forecasting at least one rate hike within the year. Expecting that to worsen once the July inflation numbers print. Potentially two hikes in the cards by next summer.
Bubble will pop, one way or another. If the Fed simply mimics your namesake by stating “I like to watch” as inflation rages into double-digit territory then the bubble pops anyway.
Stagflation been in mothballs for a long while. Back into the lexicon it goes. Took nearly a decade to get out of the mess in the 70’s. Won’t be nearly as fortunate this time.
CG
Low rates favour borrowers at the expense of savers.
Guess who is the biggest borrower in the universe?
Starts with U and ends with A.
I’ve said for years that we need a federal law that requires interest rates to be at least equal to the rate of inflation. Anything less amounts as a wealth transfer from savers to borrowers.
How do you calculate inflation?
Easier said than done ;)
I remember the Doomsayer patrol in the early 2010’s that inflation would take off during the BHO administration. It never did . However, BHO listened to them and we got a slow recovery. Then, when the inflation never materlalized they ended up sayting that the BHO administration was cooking the books. I am glad that Team Biden learned its lesson and is ignnoring them. I.e. Zero Hedge, Larrs Summers , Niall Ferguson, Rick Santelli and Kyle “Japan will implode any minute..” Bass.