This “Temporary” Inflation Is Turning into an Inflation Spiral

Get Used to Higher Inflation. My Thoughts on the Biggest Mess I’ve Seen in Decades.

By Wolf Richter. This is the transcript of my podcast of last Sunday, July 11, THE WOLF STREET REPORT.

This year, inflation blasted off with a vengeance, and the last four months have seen the hottest pace of inflation since the 1980s.

The consumer price index – the CPI – rose 5% year-over-year for May. The June reading will come out in a couple of days [update: June CPI came in at 5.4%]. 5% of annual inflation is bad enough. But the pace of inflation over the past four months has been much higher, clocking in at over 8% annualized.

Surely, some inflation measures will tick down in the near future, giving everyone false hopes, before rising again. The first bout of inflation always looks temporary. But during those first bouts of inflation, that’s when the triggers of “persistent” inflation – namely the inflationary mindset and inflation expectations – are being unleashed.

So now the Fed keeps repeating time after time that this is temporary and that it will go away on its own because it was caused by temporary factors, namely a demand shock that occurred because the government spread $5 trillion in borrowed stimulus money since March last year; and because the Fed printed $4 trillion over the same period and repressed interest rates to 0%.

This moolah stimulated consumption, in a huge way, and it caused a historic spike in demand for goods, and there are now cascading shortages from ammo to semiconductors, made worse by container shortages and transportation bottlenecks.

But the fiscal and monetary stimuli are still ongoing. The government and the Fed still have the foot fully on the accelerator.

There are all kinds of temporary problems that are causing price spikes here and there. The supply-chain bottlenecks, the difficulties companies have in hiring people, the shortages, the various spikes in commodities, and the price increases in services that have nothing to do with any of the shortages. Contractors and professional services providers are raising their fees, and they can do it suddenly and get away with it and not lose business.

And these price increases are now balling up. Companies are raising prices, companies and consumers are paying those higher prices, and companies are paying higher wages, while the government is stimulating demand with deficit spending, and the Fed is stimulating demand with money printing and 0% interest rates, and no one is resisting the price increases anymore.

And so much cash has been created and handed out that price doesn’t even matter anymore.

People are paying whatever – even for discretionary purchases that they don’t have to buy, such as cars. Most people could easily wait a couple of years instead of buying a car now, but now the whole mindset has changed, and they want to buy now, no matter what the price.

And this change in mindset caused used vehicle prices to surge by over 30%. I’ve never seen anything even close to this, and I’ve been around when inflation ravaged the economy in the late 1970s and early 1980s, until the Volcker Fed finally cracked down on it, triggering a very rough double-dip recession that eventually knocked the wind out of inflation.

So now we have these price spikes cascading from product to product, and from service to service. This surge of inflation is becoming ingrained in the inflation expectations of company decision makers and consumers alike, and they’re adjusting to it, and in this manner inflation becomes persistent.

Even economists are now getting the message. According to a Wall Street Journal poll of those economists, their average forecast for the end of next year in terms of core inflation – which excludes food and energy – has risen to 3.2%.

But wait… They’re using the lowest lowball inflation measure available in the US, namely the “core PCE” inflation measure that the Fed uses as its target and that normally runs far lower than the standard CPI that is cited in the news media.

This core PCE inflation measure, the lowest lowball measure of the land, well, March, April, and May combined produced an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of those three months, the annual inflation rate would be 6.4%. That’s over three times the Fed’s target of 2%.

This was the red-hottest three-month annualized inflation rate since August 1983.

So these economists polled by the Wall Street Journal also assume that inflation will back off from the current pace and drop to 3.2% by the end of 2020, This would still be the highest inflation rate since the early 1990s, and that’s far below where inflation is today, and it assumes the best case scenario, that inflation backs off from the current pace.

“We’re in a transitional phase right now,” one of those economists told the Wall Street Journal. “We’re transitioning to a higher period of inflation and interest rates than we have had over the last 20 years.”

No kidding. Even economists are coming to grips with it. Just not the Fed, at least not publicly.

So it’s dawning on economists that the overall inflationary environment isn’t transitory, but persistent, though some factors that have triggered the unleashing of the inflationary cascade are transitory. And this higher inflation is a generational change.

People who became adults in the 1990s or later have never experienced this kind of inflation. They don’t know what it’s like when prices jump, one item here, then the next day another item or service there.

For some people, pay increases make up for inflation, and that includes pay increases based on performance and productivity that were supposed to make you be able to buy more goods and services, but you need every penny of that performance raise just to maintain your standard of living.

And for other people, pay doesn’t rise enough to compensate for inflation, and they have to cut back their standard of living.

Companies are facing rampant cost increases.

There is now a lot of clamoring among economists and Wall Streeters that the Fed will wait too long, fall too far behind the curve, keep stimulating for too long despite rampant inflation, and thereby trigger an inflation spiral that would be hard to bring under control, and that these belated efforts to bring inflation under control when it’s totally out of control would wreck the economy and asset prices.

They’re not worried about hyperinflation. They’re worried about 5%, 7%, 10% inflation for years. That kind of inflation would blow all kinds of assumptions out of the water. No one is ready for this.

This type of inflation makes long-term planning difficult for companies, and it’s a drag on the economy, and it’s a drag on real consumer spending.

Long-term interest rates will either surge to meet and transcend those inflation levels, if markets are allowed to react to inflation; or the Fed represses long-term interest rates by buying assets, and that will further heat up inflation, and investors like pension funds and insurers that invest in bonds, will see the purchasing power of their investments get wiped out, when they earn 2% for years in an 8% inflation environment.

More likely is that markets will eventually be allowed to react to inflation to some extent, which will cause a rise in interest rates, which is the way to tamp down on inflation, but which will make it much harder for junk-rated companies to borrow, triggering waves of defaults. Defaults and higher borrowing costs would hit stock prices.

And consumers, my gosh, even those whose incomes keep up with inflation. When inflation is persistent at 5% or 8%, and markets are allowed to react, then mortgage rates rise to meet or exceed those inflation levels. With the sky-high home prices right now, those higher rates would move house payments totally out of range for potential buyers, and demand dries up.

For the market to unfreeze, home prices would have to come down to bring those mortgage payments back into reach. There is a whole generation of home buyers and home sellers and real estate professionals and loan officers and mortgage brokers out there that have never experienced anything like this.

This move to higher inflation can be very disruptive to the economy, to planning by households and businesses, and to spending patterns.

This persistent inflation is what is being triggered right now by the fiscal and monetary stimulus and by the temporary inflation spikes. And the Fed, by putting that issue officially on “ignore,” is making it far worse.

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  262 comments for “This “Temporary” Inflation Is Turning into an Inflation Spiral

  1. Chris from Texas says:

    If it is this obvious to all of us on Wolf Street and many other websites, how can this continue? It is like everyone agrees that the emperor has no clothes but ignores it.

    The 10-year and the 30-year are acting as if inflation does not exist.

    Are the professionals just playing the momentum game and blindly following the Fed? Where is the counterpart trade on Wall Street? Surely everyone can’t be Hoodwinked by this?

    • GotCollateral says:

      > Are the professionals just playing the momentum game and blindly following the Fed

      They know this “recovery” is on thin ice…

      And Jerome will always be late to the game…

      Since may 10th B vs BB CDX.NA.HY spread has gone up 40bps…

      Same amount the 10y UST has been bid from peak…

      Its all about the $h1tty collateral out there and UST (and GILTS and JGBS, etc) being the cleanest dirty shirt(s)…

      Wolf’s laser eyes on US numbers ignores the broader macro global landscape… ignores the increasing lack of HQLA… ignores declining cash flows on corporate balance sheets…

      Sure, hurts to spend those USD for trash stateside… but not anywhere else… and that divergence will reslove like it typically does with all the monetary malfeasance…

      Bailoutistan fooling the deaf and blind…

      • historicus says:

        ” Jerome will always be late to the game…”
        Intentionally so.

        Three stages as pointed out months ago..

        First it will be denied.

        Next inflation will be explained away. (bottlenecks, etc.)

        Finally it will bring on lame, behind the curve weak 1/4pt raises that will do nothing to tame the inflation.

        You can NOT expect the arsonist to put out the fire.

        • Old School says:

          Powell sounded nervous yesterday in Congress about inflation expectations. Fed says they really focus on that and inflation expectations are getting hotter and hotter.

          In my mind we are in deflationary environment trying to be overcome by a money printing Fed and free spending Congress. Who knows how that will work out, but probably not good.

        • Djreef says:

          Exactly.

          Esp about the arsonist.

        • georgist says:

          The establishment will not want to have inflation.

          The model: the boomers are protected at the cost of all others, and they are the king-makers.

          Inflation will effect boomers the most. This will fracture their vote. Younger voters may then become the king-makers, and they have a very different view on whether the US system is a hellpit or not (they think it is).

          Inflation is not the “easy option”, they won’t do this lightly. They will be looking to foist the cost onto other generations (again) if possible.

        • Depth Charge says:

          It doesn’t matter what Powell says anymore. When a rabid dog kills your child, the owner denying it doesn’t change that fact. People are feeling the pain, and Powell lying about things does nothing to assuage them.

      • Artem says:

        Isn’t this what we wanted? A consumer that has some cash?

        Mission accomplished.

        • lenert says:

          I think what we wanted was as many people as possible to stop what they were doing and stay apart from each other to let a virus burn out so as not to swamp the hospitals while a vaccine could get developed and deployed before the virus mutated. But I could be wrong.

        • RightNYer says:

          lenert, if that’s the case, printing trillions so that people could go shopping was not the way to do it.

        • Depth Charge says:

          “Keeping people away from each other” does not “let a virus burn out.” What it does is prolong the virus activity. If you want something to burn out, you don’t slowly add fuel over long periods of time, you burn all the fuel at once. They have created a much worse situation in all regards.

        • Wolf Richter says:

          A simple but important fact: the vaccinated people no longer give a hoot about the unvaccinated. It’s the unvaccinated that now end up at the hospital and are dying. There won’t be a lockdown to protect the unvaccinated. They can get vaccinated or face whatever risks they choose. It’s up to them. The vaccinated people — who can carry the virus without getting seriously ill — go on about their lives though they might choose to wear a mask indoors to protect the unvaccinated. But essentially, it’s up to the unvaccinated to deal with this to protect themselves. The ball is in their court.

        • Swamp Creature says:

          The choice is very clear. Get vaccinated and go about your life as normal, or don;t get vaccinated and isolate yourself and wear N95 masks everywhere.

          Odds of vaccine producing seriuos side effects – 1/100,000

          Odds of unvaccinated Covid high risk patient dying – 5%

          Here in Montgomery County Maryland we have the highest vaccination rate in the country and the lowest infection rate. The data speaks for itself.

        • Depth Charge says:

          “Here in Montgomery County Maryland we have the highest vaccination rate in the country and the lowest infection rate. The data speaks for itself.”

          This makes no sense given the fact that the vaccine doesn’t actually stop you from getting the virus.

        • Wolf Richter says:

          Depth Charge,

          “This makes no sense given…”

          It makes perfect sense. The vaccine boosts your immune system so that your own immune system can fight the virus. That is what vaccines do.

          Vaccinated people can carry the virus but don’t get sick because their immune system controls the virus. But an infected vaccinated person, without symptoms, can infect an unvaccinated person, and that unvaccinated person then can get seriously sick and end up in the hospital and die.

          The vaccines are available everywhere in the US, for free. If some people don’t want to get vaccinated, fine, it’s their choice, it’s their health and their life that they’re gambling with.

          The vaccinated no longer give a crap about the unvaccinated in the US. The vaccinated are now going about their lives super-well protected by their own immune system, and they’re infecting the unvaccinated. And if these people that refused to get vaccinated get sick and die, so be it.

          The story is very different in countries where vaccines are not widely available. But in the US, that’s how it is.

        • Depth Charge says:

          It should have read “those who want to be protected can be, and those who don’t choose not to.”

        • RightNYer says:

          Depth, I think what he means is that the vaccine generally means that people who get infected will get asymptomatic cases that can’t really be spread. So while the ‘infection rate” might actually be high, you wouldn’t know it, because these people wouldn’t get sick and wouldn’t have any need to go get tested.

        • Depth Charge says:

          Why did you delete my post?

        • Wolf Richter says:

          Depth Charge,

          Because it was a ridiculous, braindead, and reckless lie. I have no idea where you people pick up this shit, but don’t abuse my site to spread this shit.

        • NBay says:

          Obviously, DC’s brain can only handle 2, (maybe sometimes 3 variables). A great example of this is his comparing a viral pandemic with burning his trash, which was ridiculously stupid. Most simplistic black and white “thinking” usually is.
          I don’t know if juggling more variables is even in his wiring. It’s possible it is, but maybe it hurts, so he avoids it?

          But he certainly DID choose an appropriate screen name.

        • Depth Charge says:

          You must have me mixed up with somebody else, NBay. I never talked about burning trash. Could you be projecting from your days as a homeless vagrant that you talked about?

        • Streisand Effect says:

          Now I’m even more curious. Wolf what did DC post, did he reveal some of your secret freemasonry stuff or what?

        • Wolf Richter says:

          Yes, you nailed it :-]

        • NBay says:

          Nah. I picked through trash. Burning it would be stupid and selfish.
          BTW, what degree Mason are you? My sister was in Job’s Daughters.

    • historicus says:

      “The 10-year and the 30-year are acting as if inflation does not exist.”

      You’re playing their game…
      The rates are where they are because the Fed is skewing the markets with their purchases.
      Then the Fed points to the rates they peg and say ..”See! No inflation expectations.”
      Bogus

      • Djreef says:

        This will give everyone a better idea about the calendar and duration of purchases that the Fed partakes on a day by day basis. The living proof, so to speak.

        https://www.newyorkfed.org/markets/domestic-market-operations/monetary-policy-implementation/treasury-securities/treasury-securities-operational-details#current-schedule

      • Quixote says:

        A simple back of the napkin calculation shows that subtracting fed purchase the 10 year rate would be about 6.5%.

        • Nathan Dumbrowski says:

          Back of the Napkin you say. I usually was drinking when I had such napkin available. The FED is drunk on the cool aid they keep filling the punch bowl with.

          Really is quite shocking when you think of the totality of the cluster fuck we are in. Interest is at the bone. Stimulus was going out faster than coming in. All sorts of payments were put on hold (home, rent, education…), QE out the wazoo. And now inflation is on track to be a MONSTER. Who would want to be the FED right now?

      • TweedleDum says:

        This is slightly complicated, FED also owns a whole lot of outstanding TIPS which depresses real yields (no one knows by how much but materially, and consequently it increases inflation breakevens.

        TIPS are also experiencing uncharaterstically large non FED demand with everyone expecting high inflation.
        The Fed now owns almost a quarter of the TIPS market, up from 10% at the end of 2019. These purchases have reduced the effective available market to investors by nearly $150 billion at a time when demand for TIPS increased dramatically — and the trend remains downward, with FED gaining share of Outstanding TIPS.

        If FED reduces the proportion of TIPS buying relative to T bonds buying (their market size adjusted relative scales), real yields can go up and inflation breakevens can cool. Notice that TIPS market also has a much smaller supply so it should atleast be theoretically easier for FED to manipulate than nominal yields.

        Over the past decade, inflation breakevens “changes” also have reasonable (dare I say reliable) correlation with the most recent inflation reading “changes” and given the external uncertainity and distortions in inflation measures, inflation surprises should be expected.

        So FED doesnt control a whole lot here, but they do have some room to fiddle around a bit (given only small dislocations)

    • Old School says:

      I try to read as much as I can. A lot of traders rent the long bonds trading in and out betting on short term moves.

      There are others that think 30 year is going to go under 1% before the current system is over. If the stock market tanks 50% and long bond rates crash they might make 50% in strips. Not my game.

      • Michael Gorback says:

        The 30 year did go under 1%. It briefly touched 0.99% in 2020.

      • sunny129 says:

        Old School

        10Y yield is nowbbelow 1.3%, as of now!

        Inflation/re-flation vs DEFLATION trade games is going on every day in the mkt! B/c of Fed’s policies all the usual feed back data remain distorted.

        BTW. Covid (Delta variant) is coming back ferocialy, all over including USA!

        U.S. COVID-19 cases more than double in two weeks as delta variant spreads fast, and WHO warns ‘pandemic nowhere near finished’
        M.W.

        Have fun trading in this casinos, run by CBers!

        • Swamp Creature says:

          The markets (stock bond) may be reacting to the possibility of a third wave of the virus. This would explain the drop in the 10 year Treasury Bond rate at a time of rising inflation. The other wild card is the drought in the Western USA affecting the food supply in the USA. Add to this the fact that we have brain dead morons running the country. I would be batting down the hatches if I were a prudent investor.

    • David Hall says:

      The Japanese 10 yr bond is yielding close to zero.

      The German 10 yr bond yield is negative.

      The U.K. 10 yr bond yield is below one percent, with a recent inflation report of 2.5%.

      The Fed does not set international rates.

      • TweedleDum says:

        Foregetting about artificial interventions for a minute: There is currency specific expectation of inflation, country specific expectation of real growth, and sovereign risk (interacting with prevailing risk aversion) which together determine bond yields. That said there is obvious feedback between substitute assets. For example, if Bunds and US T Bonds are considered the two safest (risk free ?, naah but lets say risk free) .. then for investors looking for safest options to invest capital ..their relative yields do matter. Suppose both bonds are sitting at some equilibrium and suddenly US yields jump, whereas bunds remain where they were. Then, flows would move out of Bunds to US T bonds until the perceived arbitrage between these risk free assets is restored to its relative equilibrium (meaning US yields go down and Bund yields go up till equilibrium is restored by arbitrage). So US yields do affect other yields, and similarly, to varying degrees based on the scale of the foreign bonds, get affected by other significant sovereign bond yields in the developed markets considered at par with US treasury bond in risk perception (similar CDS spreads for example)

      • MonkeyBusiness says:

        “The Fed does not set international rates”. Absolutely, because the Fed is not the central bank for those countries.

        But so what, we know the Japanese Central Bank is the only player in the Japanese bond market. Likewise the ECB in the European market and the UK Central Bank intervened heavily in their respective markets.

        • sunny129 says:

          MonkeyBusiness

          Do you ever wonder why FED has a $ SWAP window for other CBers for their currencies?
          Most of the loans in EM Countries $ denominated. So are some loans in Euro area. Euro $ pool is around 2 Trillion

          Fed has become CB for the rest of the world. Beside ALL global banks are inter connected via currency, swaps, derivvatives and what NOT!

        • MonkeyBusiness says:

          Sunny129, you must be talking about the Eurodollar market, I don’t think anyone knows the size of the market, but Euro governments also issue bonds denominated in Euro, and guess who has the ability to print Euros? The ECB.

        • TweedleDum says:

          I think a better way of looking at it would be to see correlation in changes in yields rather than absolute levels of yields. In India, my home country, the sovereign yield dropped 1.5 percentage points to a historic low the instant FED announced the party. The yield out here is substantially higher in absolute terms of course, but Indian 10 year is strongly correlated to US 10 year in terms of bond returns or changes in yields. This is the case with not just my country but most of the major economies, and other emerging economies. There is a ton of academic research on large spillovers in global sovereign spreads due to FED actions. And it is not just bond market perceptions, Corporate profits were stagnating out here for a decade, and FED and other CB largesse has allowed the firms to break all records of earnings much like US firms, despite not having any significant domestic fiscal stimulus from the Indian government. So much so that our market’s trailing PE which was bordering on insanity of 38-39 just few months back has now come down by 10 points to a still spectacularly overvalued PE of 29, not because the price came down (market is at an ATH of course).

    • Xavier Caveat says:

      The Roman Empire nearly completely debauched their money in the 3rd century, and somehow kept on going for a couple more centuries before crapping out, we’d be so lucky.

    • The professionals are blowing off the Fed. In their outlook rates would probably go negative. Inflation might settle higher than 2%, so what, we have had long periods of higher inflation. The 60/40 portfolio makes a comeback.

      • K says:

        The alternate inflation charts in shadowstats show inflation rising like a cobra about to strike. Only before the 2008 stock market and financial crash is inflation shown as spiking as high.

        I predict that the banksters’ “Federal” Reserve is losing control of our manipulated economy as inflation spikes when the government cannot afford to pay the rise in interest payments on its debt — ignoring its unmentionable liabilities: “Federal Fiscal Shortfall Surges Past $100 Trillion” in just facts daily. See “An Unfunded Future: US Federal Government Liabilities” in sdbullion.

        The “Fed” goose that lays golden eggs for its banksters may finally be about to get cooked. Let us set the pot to hyper-skalding for it. I will not mind if its meat becomes blackened.

        I am warming my pitchfork to get in my own, little piece of the banksters’ golden goose. May they also suffer the same fate as Americans finally act with righteous anger. (Personally, I would be satisfied with just fixing them all, like my dog got fixed. I bet that stealing would not be as appealing if they were like Ken dolls. We should definitely try that out soon.)

        The “Fed” can be saved by just forcing it to make the banksters give it bonds convertible to 99.99999% ownership of their entities in exchange for “Federal” Reserve bailouts; THEN converting those bonds to controlling shares. The banksters are like toddlers constantly asking for diaper changes.

        Thus, bailout by bailout, soon the “Fed” will finally cease being owned by the banksters and will soon own all of what were formerly the banksters’ banks and Wall Street entities. It will then be truly independent. We have to choose between having a “Fed” that is government owned by independent or one owned and controlled by gangs of actual criminals. See “Money laundering, oligarchs, terrorists: How corrupt are the banks? | To the Point” in DW. See “Opinion: FinCEN Files should trigger outrage” in DW. See “Governments ‘turn a blind eye’ to foreign bribery: Transparency International” in DW. See “BlackRock: The secret world power” in DW. Just search for banks and corruption or fines and you will see.

        • K says:

          Typo correction: we have to chose between a “Fed” that is government owned BUT independent and one owned by what amount to gangs of criminals.

          On the subject of gangs of criminals, it looks like the CCP is now running their country into the ground. Good luck to all that negligently got CCP-controlled stocks because your index fund bought them because the Wall Streeters made deals with the CCP to help them scam Americans. Kiss your money good bye.

    • Augustus Frost says:

      “Are the professionals just playing the momentum game and blindly following the Fed? Where is the counterpart trade on Wall Street? Surely everyone can’t be Hoodwinked by this?”

      It usually isn’t their money. They most do not care, as long as they are just one lemming in a crowd of lemmings headed over the cliff. The ultimate money manager transgression is to underperform your benchmark.

      • RightNYer says:

        Yep. If the market crashes, they can just say “But everyone took 40% losses, so don’t blame me!”

        But if they underperform by not leveraging as much as others, they’ll get blamed. So they have the exact wrong incentives, which leads to a positive feedback loop.

      • sunny129 says:

        Futures and derivatives are behind the leveraged bets on Wall ST.
        SEC (captive regulator to Wall St) is looking the otherway until another bust occurs!

    • Old School says:

      What a hoot? Junk bond yields lower than inflation. Powell going to keep his foot on the gas til he hits a tree.

    • Thomas Roberts says:

      Chris from Texas,

      It comes down to the fact that you have to stick your money somewhere, government bonds are one of the safer places to stick money. Right now the vast majority of stocks are hugely overvalued, so that is a bad place to stick money right now, unless you think you can jump out before it crashes. Land and RE could always have new taxes and rules, so that it best left to those close to the ground and in the area. After that there is precious metals and simple cash in the bank. Simply leaving large amounts of cash in the bank, will leave most hedge fund and retirement planners’ customers wondering what use you are.

      Government bonds are more likely to be repaid the lower their returns, meaning that lower paying bonds can be effectively more valuable. Ideally US government bonds, would pay zero, this would greatly improve the odds of them being repaid, while also not draining US Federal budget. Of course, if US government spending goes crazy or hyperinflation happens, then it doesn’t matter either way, as most of the money will be lost.

      Depending on how you think various regions of the world will perform in coming decades, also has big impacts of what the value of the US dollar will be.

    • K says:

      The US media, which Forbes Magazine reported is owned by 15 billionaires, is working hard at creating disinformation and trying to create a generational war between Americans. Inflation will increase more if the stock market crash does not occur first. In PBS they just had a program in which a speaker blamed the baby boomers for all of the troubles of the US millenial generation.

      Of course, the millenial and later generations have been ripped off by the banksters’ “Federal” Reserve money printing to create inflation and lend its banksters printed US money at 2.5%, so they can then profit immensely by lending such to Americans and others at 25% on credit card debt. Of course, millenials have been harmed by the massive inflation that the banksters created.

      However, it is wrong blaming all baby boomers, not just the Wall Streeters and banksters who profited immensely from this corruption and from the transfer of US jobs and factories to China, so that those banksters and Wall Streeters could avoid paying taxes for decades due to the exclusion from US taxation of the foreign income of US persons until such income is brought back to the USA, if ever that happens. See “Commentary: Apple Avoided $40 Billion in Taxes. Now It Wants a Gold Star?” in Fortune for an example of one company that the Wall Streeters used, among many, to generate income in China by transferring US jobs there and then to avoid paying US taxes by not having that company ever return its foreign income back to the USA.

      Americans have not been in true control of their government, which has acted solely for the interests of banksters and Wall Streeters for years. Read Simon Johnson’s “The Quiet Coup.” Thus, baby boomers merely benefitted in earlier years because America’s wealth had not yet been as completely stolen.

      Now, most Americans’ wealth has been completely stolen through these Wall Streeters’ tactics and the banksters’ “Federal” Reserve’s corrupt printing of US dollars to funnel to its banksters: e.g., the $2 TRILLION printed in 2019-2020 to bail the banksters out of their losses in mortgage backed securities (“MBS”)) by their dear uncle “Fed” buying those nasty, worthless, uncollectible MBS from the dear banksters, so that the dear banksters would not suffer any financial losses due to the economic disaster that their dear uncle “Federal” Reserve created. Those bailouts by MBS purchases are continuing at the rate of $40 BILLION a month to this day in 2021!

      Thus, it is the banksters and the Wall Streeters who should feel the sharp points of pitchforks not the baby boomers, who are only guilty of apathy, since they have admittedly allowed the banksters and Wall Streeters to financially rape America– repeatedly. I admit this as a boomer myself.

    • Ryan from Irvine says:

      Inflation has been high but I do not believe this will be sustainable. I am a big fan of Dr. Lacy Hunt and he gives a good overview of why inflation will not run rampant for very long. Here is a link to his 1Q21 Review and Outlook:

      • c_heale says:

        Inflation will go higher since there are likely to be crop failures due to climate change in the near future.

    • Old School says:

      Just reviewed Hussman’s latest model. Whether you can predict the future from the past is somewhat in question. Anyway his model shows a 10 year Treasury out performing stocks by 7.2% per year over the next 10 years or so.

      We know all you are going to get from 10 year is a lousy 1.3% per year, but if stock market gets crushed that might sound Pretty good. Anyway, there are some smart people going the long term treasury route.

    • RedRaider says:

      Maybe all the intermediaries are watching each other like a hawk. No one jumps until one jumps. And then everyone jumps.

      Umm, wait a minute! That’s a pretty good definition for crash :-(

  2. DM says:

    If CPI is 5.4% today, it would be 8% using the method they used in 1980. You can thank the Boskin Commission for that change.

    • David Hall says:

      U.S. Bureau of Labor Statistics, July 13, 2021:

      CONSUMER PRICE INDEX – JUNE 2021

      The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent
      in June on a seasonally adjusted basis after rising 0.6 percent in May, the U.S.
      Bureau of Labor Statistics reported today. This was the largest 1-month change
      since June 2008 when the index rose 1.0 percent. Over the last 12 months, the
      all items index increased 5.4 percent before seasonal adjustment; this was the
      largest 12-month increase since a 5.4-percent increase for the period ending
      August 2008.

      • Old School says:

        I tried to find trailing 10 year return on inflation. It was around 1.7% before the last few months highet numbers. Got to be over 2% now, so the Fed could take it’s foot off the gas if it wanted to as their inflation goal is met.

    • wkevinw says:

      If you believe the composition of the index is correct, then I think Boskin is/was correct. The problem is the composition; what they put into the index and how they weight.

      One thing they basically ignore is college costs. They also underweight shelter and medical (and health insurance costs).

      I like the PPI better because there is less manipulation. However, it doesn’t reflect consumer services such as college and medical care very well.

      PPI is showing the biggest spike since ’08 oil price adventure. This includes core PPI. There has been some significant inflation over the past year. Transient? I don’t know.

      • Winston says:

        “The problem is the composition; what they put into the index and how they weight.”

        Yes, as clearly shown here recently with the “Owner’s equivalent rent” example, and a medical costs weighting at about half of what it should be as I’ve seen discussed elsewhere along with the BS tricks of substitutions and hedonics.

        And, BTW, it was admitted that the goal of the Boskin Commission was to lower fed COLA payments. Since there was a 50/50 chance that they would have found that the inflation calculation was UNDERSTATING inflation, it sure is fortunate for them that they just happened to find what they wanted instead, no?

  3. The Bob who cried Wolf says:

    It seems as if there are as many people not working as there are jobs needed to be filled. We’ve got a White House bent on borrowing and spending and a fed that can’t seem to understand that low rates certainly aren’t helping. This is going to get ugly, with the worst part being how badly and how disproportionally this will affect low income folks. Fixed income and those solely relying on social security are no less screwed.
    Why is it that all of us see this not ending well but they don’t? I’d hate to think that they do.

    • Jeffrey G Moebus says:

      The problem isn’t just a White House bent on borrowing and spending; it could do nothing without the aiding and abetting of the folks up on The Hill at the other end of Pennsylvania Avenue.

      And the problem didn’t start with this White House or Congress. All Biden is doing is picking up where Trump left off; who picked up where Obama left off; who picked up where Bush the Lesser and “Deficits Don’t Matter” Dick left off.

      • Swamp Creature says:

        Read Stockman’s book “The Triumph of Politics” . This deficit mania started in the Reagan era when Congress would not cut spending to match the tax cuts. You have to go all the way back to the Ford Admnistration “Mr Veto” to find a fiscal responsible administration.

    • historicus says:

      Bob…
      the Fed’s new mission statement..

      “It is the Federal Reserve’s actions, as a central bank, to achieve these goals specified by Congress: promote unemployment by providing cheap money to the federal government to dole out and encourage idleness, promote inflation, punish savers and holders of dollars, and promote record low long term interest rates so as to facilitate the pulling of wealth forward from the future generations of the United States”

      • georgist says:

        People getting a tiny stimmy cheque for a finite period is not where the idleness is.

        The idleness is in the rentiers who have had 20 years of living off workers.

        The bankers. The land speculators. Corporate chains paying their staff so low they are on welfare.

        • kitten lopez says:

          thank you.
          x

        • wkevinw says:

          This is basically true by definition “paying their staff so low”. The issue is the root cause.

          Human nature doesn’t change, so employers are no more or less generous than they were. They are responding to different markets. The labor market is now globalized in many ways. So, they don’t have to pay more.

          The only way to fix the job market is to level the markets globally: same workplace protections, social welfare costs, etc.

          Economic activity doesn’t change because people are nicer or meaner than they used to be.

        • Augustus Frost says:

          It isn’t just the rentier class.

          Take away government created economic distortions and a lot of those workers wouldn’t have a job at all. The fake economic growth and prosperity from inflated assets would disappear. Most of the rentier class income isn’t coming from exploited workers but a fake economy.

          It’s one thing for a low number of rentiers to live “high on the hog” from a fake economy. It’s another entirely for the mass population to live above their means by attempting to covert fake paper wealth into real goods and services when there isn’t enough real production to support it.

        • LK says:

          All I’m taking from this is “Everyone is complicit and pointing fingers at the other!”

          No leadership in today’s world, but plenty of gross generalizations that abscond responsibility to go around.

        • NBay says:

          AF,
          Nice punch!

          and georgist, it’s more like 40 years….you can use Reagan as the pivot point where lot’s of bad charts went logarithmic, like incarceration and the stock market, to name only two. BTW, adding -ist to your name makes yours the coolest screen name, in my book, and -ism is still open…for whoever…..

          “All good Americans punch down”. -some WS commenter, I forgot who, but it’s also a sorta good “definition” for wkevinw’s invocation of this ephemeral and mysterious “human nature” concept maybe? I’d say it’s merely good old FN Calvinism, but that’s just my 2 cents.

          Anyway, good time to beat my usual CLASS WARFARE drum and point out democracy (which you naturally also threw an elbow at) is an effort to prevent it from getting totally out of hand….which it obviously has.

        • ChangeMachine says:

          I sold my house to a man who had been living in his van for 4 years, saving to buy housing for him and his father. I work with mostly Vietnamese immigrants, many of whom work 2 jobs. Meanwhile, I’ve got in-laws of the socialist aroma who spend their days protesting more than working. I’d be a lot more sympathetic to the “eat the rich” tribalism if I heard it from people who actually work.

        • NBay says:

          “Socialist Aroma”…..I like that adjective use. Still think class warfare has gone WAY too far….but maybe use “tax” instead of “eat”?
          That’s pretty extreme hyperbole, implies taxing would kill them.
          “Death tax” isn’t so bad.
          “Work will set you free”…..how’s that sound to ya?

        • NBay says:

          Hey Georgist,

          Have to plead TOTAL ignorance regarding my screen name comment to ya. Near the end of this article I found out about Henry George and quickly checked out his Econ ideas….had never heard of him before.

          Now I’ve got some reading to do, but that’s what I’m here for, to learn some Econ and also dump my 2 cents.

          AND, he sounds a LOT like my favorite (and totally trashed) Founding Father, Tom Paine, and what the peasants THOUGHT they were fighting and suffering and dying for during the “Revolution”.

          As I’ve said before, we didn’t have a revolution, we just swapped management.

    • Ron says:

      Part of plan to keep peons working for peanuts

    • apm says:

      ” We’ve got a White House bent on borrowing and spending”. With income/wealth inequality being as dramatic as it currently is, funneling large quantities of money into the bottom and middle parts of the economy (as opposed to the feds funneling it into the top) is likely a very good thing. The problem is it isn’t getting payed for. I.e. if the money got taken from the rich and reinserted at the bottom end of the economy through the spending programs that Biden has proposed such as stimulus, and paying for health care, child care, infrastructure and education, that would be a good thing. But with congress preventing that second component and instead just “paying for it” through borrowed/printed money it might well end up in a disaster.

      • NBay says:

        That’s a good picture of the situation APM. But their problem isn’t really with the coin of the realm, (hell, that can be anything they want, it’s mostly a peasant problem). Their problem is how to get rid of a lot of excess people. Used to be a good old fashioned war did the trick easily. But ever since that A-gadget showed up, they lose too. It’s a real “take the ball and go home” game ender.

        Quite a pickle, eh?

        But they WILL, “keep preying on the prejudices of the people”, as Lincoln said, “and the Republic will be destroyed”. So the last try was at a dictatorship (“Only I can do this”, said their savior who slowly showed both shadow profiles, and then emerged out of the fog at his nomination…I know, it was pretty FN tacky, but then so are reality shows, WWE, and donating money and a couple cups of cerebral cortex to a church.

  4. Hk says:

    What is the most likely timeframe for fed interest rates rising substantially?

    • Wisdom Seeker says:

      This is the Big Question. They’re in delay mode b/c the timing isn’t right yet. If they are forced to raise rates well ahead of the election, that triggers the long-overdue big recession that they’ve been dodging, along with a US Gov’t fiscal stability crisis (too much debt; can’t afford higher rates) and possibly a global crisis. The One Party in Power (the Corporate Party) will likely lose power. Not enough time now to force the issue before the 2022 elections. Likely that they will start to raise rates in early or mid 2022, since the effects will lag and they can deny (a la Bernanke) for a while. They will want to wait until either the One Party has reasserted control on the Republican side, or they can keep the consequences below public radar past the election in order to keep the Corporate Democrats in charage.

    • polecat says:

      Between severe inflation and the questionable responses to the whole Covid kerfuffle, they’re waiting for the plebian die-off to do it’s handiwork before ‘changing course’ ..

      BB3! Indeed.

    • Mendocino Coase says:

      10,000 /100,000 People Demonstrating at the White House demanding A New Fed Chairman and a Fed Rate increase

  5. MCH says:

    Inflation Smlaflation, stop being so melodramatic, Wolf. Everything is fine, we have the government to help us. Gavin’s got a $100B California Comeback Plan rolling, it’s one of the most ambitious in the nation.

    It includes sending $600 stimulus checks to nearly two out of three Californians. It will make transformative investments across the board that will help bring all our communities roaring back from the pandemic — and pay dividends for generations to come.

    It’s the most awesome plan ever. $12B to tackle homelessness, $2.75B for project Homekey. (they can vote) $8.1B for the aforementioned $600 stimulus, Medi-Cal expansion for immigrants (we don’t want to use the word undocumented here, too stigmatizing), $35M for UBI pilot program.

    All of these can be tied to votes, so come on down, and remember, vote no on recall.

    Pssst Gavin, I’ll vote no, but my price is a bit higher, I need life four more zeros behind that $600, before the decimal point, just to be clear.

    • Ron says:

      Gavin is related to pelosi birds of a feather flock together

    • Guest says:

      It’s boggling that California could just not actually provide Medicare for all. Seeing how blue and liberal the state is, it prioritizes illegal immigrants first before residents? Oh right, because many are oblivious and tied to their employer-based healthcare and will say nothing to rock that boat. Better big baller earmark homelessness funds because the coming eviction issue and soaring costs will lead to an increase.

      $600 isn’t going to persuade anyone. My car registration is half that. And with these gas and electricity prices, the rest will be gone instantly. Such a generational transfer of wealth, perhaps debt is the new savings? Borrow so much that the government cannot collect and has to wait on you.

    • NBay says:

      Don’t forget that $200M 300 ft tall statue of Founding Father Thomas Paine replacing the old lighthouse at Pt Reyes.

      It’s even gonna have a bridge straight across to it, so nobody obese has to walk down those tiring old steps!

  6. Speaking of 1970’s stagflation, in the 1980 U.S. presidential election,
    the sitting president ( Jimmy Carter ) got only 49 electoral votes vs.
    the 489 awarded to his “tough on crime” opponent from California ( Roogan ? ).

    New York City’s mayoral race is between a Batman wannabe
    and a former NYPD captain.

    BigTech, BigMedia & BigGovernment are “winning” today,
    like “Tiger blood” Charlie Sheen was “Winning !!”, in 2011.

  7. Paul Maier says:

    of course almost everyone that reads Wolf’s stuff agrees with him….but MAYBE he is wrong. my firm belief is that we will ultimately have massive DEFLATION since there will be too many goods chasing too few SPENDABLE dollars(the masses will not have enough of them) and the only “inflation” will be for stuff the rich bidemup on. how much of the necessities do the rich buy??? just what they need. when the poor/middle class(whatever that is?) live paycheck to paycheck and THEN have their credit availability taken from them, companies selling ESSENTIALS will drive pricing thru the floor to try to keep market share(this has happened many times before and will again). people bitch about prices on food. i went shopping at a Kroger chain(Smith’s in las vegas) and i have never seen so many items ON SALE!!! people will learn how to be FRUGAL with their money when they don’t have any!!! the 2022 elections will point the way toward whether we have inflation or deflation(if the dems keep both houses, then all bets OFF on deflation since the “free money” spigot will forever flow. for now……..many companies simply can charge whatever the traffic will bear……that is NOT inflation that will be around for long. my wife went to the lexus dealer to fix an issue today. she got there at 11AM…….ONE sales person. the service sector was CLOSED(no customers and no employees), the one employee other than the salesperson explained that they have NO CARS to SELL!!! same with the toyota dealer that had 5 days inventory(and most of that was used US cars!!!). shipping companies charge 5x their historic rates for container shipments. somehow, we have no available computer chips for appliances and cars. somehow, we have NO PEOPLE that want jobs(maybe getting free money has something to do with it or not, but incentivizing people to work is VERY difficult. one issue is that we are “educating” people on the right to “entitlement”. THAT is the main issue in society. not “inflation”. the future will tell who is “right” here and also….who is left.

    • Augustus Frost says:

      I have come to the conclusion that there will be massive deflation at least temporarily in asset prices (financial and real estate to some extent) with possibly much higher inflation in essentials. This is the greatest financial asset mania in the history of civilization. Nothing even comes close, as today is just a continuation of 1999 and 2007.

      The one thing I am completely convinced is that the typical American is destined to become poorer or a lot poorer no matter what happens or what anyone tries to do.

      • Harrold says:

        Billionaires are spending like crazy to get into space.

      • NBay says:

        It’s actually a continuation of Reaganomics, the main pivot point in my lifetime, anyway.

        Dropped tax schedules almost 50%, and began massive deficit spending (along with as much union busting and de-regulation as possible). It sounds stupid, but it works fine for his wealthy puppet masters. And of course that creep with the phoney Nobel prize had the pseudo-scientific “proof” that supply side (aka trickle down) would be just great for everybody.

        But it’s just that Ann bitch’s heroic (I guess she romanticized a lot about being screwed, loved, and protected by a combined fearless yet creative god-like man) “survival of the fittest”.

        At least in the Gilded age they called it “Horse and Sparrow”, which was what they were honestly up to.

        Anyway, I just lump it all into class warfare, and I’ll be damned if I’ve yet figured out what makes these sick freaks keep showing up.

    • Sams says:

      Why go for marked shares if there is no profit? Marked shares of essentials are of no use if they dont bring profit.

    • David Hall says:

      A Chevy dealer in Bradenton has over 250 new cars including demo models for sale online. Chevy Trax LT for $23,820.

    • Guest says:

      He’s not technically wrong, just perhaps talking about an earlier point on the same timeline. First it rises, up and up, and then it crumbles. Everyone seems hopeful now but things are harder and harder to hide especially as the legal programs are ending. Unemployment for many will end in September, most have exhausted all their benefits for the next few years, and the unemployment pools are empty. Businesses will pay up, except those that didn’t need to (the Ubers and Doordash who paid nothing despite a bunch of their workers cashing in big).

      You can probably find sources to support the short-term mindset of Americans. Want the stuff now, think about it later, spurred on the government (printer machine 24/7), easy credit, and social media that makes passing on McDonald’s new processed thing the crime of the year.

      Deflation is the consequence of short-term thinking.

  8. Jeffrey G Moebus says:

    Great article, Wolf. i have a couple of questions:

    1. Is a Wiemar Germany-class Hyperinflation a strong, moderate, or remote possibility?

    2. What happens if Congress and the White House don’t come up with a new Debt Ceiling Limit by COB 31 July?

    • Wolf Richter says:

      Jeffrey G Moebus,

      1. less than “remote possibility.” The Fed can raise rates (from 0%) and unload its $8 trillion balance sheet. If it does that fast enough, it will stop inflation in its tracks. But do fasten your seat belt if it does that.

      2. They will get this worked out. They always do. It’s a charade that is being played to extort some deals from the other side.

      • Franz Beckenbauer says:

        “The Fed can raise rates (from 0%) and unload its $8 trillion balance sheet. If it does that fast enough, it will stop inflation in its tracks.”

        If they do that (spoiler alert: they won’t), they’ll stop a hell of a lot of things in their tracks.

      • MCH says:

        How would a raise in rates impact the debt for the US? I mean at some point, people will start to care. I don’t think many people cares now, but it would suddenly put a few pet projects on hold.

      • BatHelix says:

        So Wolf…I usually do agree with you … but I kind of think that you are looking at all this too much like I used to … trying to figure out what they SHOULD do … or what would typically happen based on what we know about economics. The thing is that the only thing I am sure of is that the Fed will keep trying to game the system and cheat things the way they have been doing all along now … they are not going to just realize they are wrong, admit it and change course. I also think that because our economy adjusts faster now and we have better ways of doing things that we won’t really have the inflation we are looking for. I bet that in a little while the growth numbers will slow, so will inflation…and while we do get some it will give the Fed cover to add more QE etc. If the market goes down they will double what they have already done. The real scary situation is if we truly have high inflation but even then I think if they raise rates a little the market crashes hard and then they just get to restart it all so we will never truly get that again.

      • Jeffrey G Moebus says:

        Thanks, Wolf. Followup questions, then:

        1. Is the Fed the ONLY player in what happens with inflation in the US? And what happens if the Fed doesn’t do it fast enough?

        2. Heh. The way they worked it out last time 2 years ago was to put it off until this year: After Election2020, so no candidate or voter would even have to think about it.

        But, just for grins….: What would happen if somebody up on Capital Hill got some gonads and said “Not This Time. This time, we deal with it.”

        What would happen then? Any thoughts? ~ jeff

        • p coyle says:

          What would happen if somebody up on Capital Hill got some gonads and said “Not This Time. This time, we deal with it.”

          that would be the clue that you now are living in an alternate universe.

      • There’s two types of bonds on the Feds balance sheet, at first Covid they bought bonds in the secondary market, and those are real. (They may have some liens on them?) The bonds they acquired from Treasury directly are bought on signature. They could repatriate those bonds if they sold their direct holdings otherwise they can cancel their direct purchases (and keep those they bought outright). Just tear up the IOU. I understand the Fed is querying the large buyers in the recent 10Y auction, they want to know who they are? Just a little customer service?

        • Lynn says:

          “They could repatriate those bonds if they sold their direct holdings otherwise they can cancel their direct purchases (and keep those they bought outright). Just tear up the IOU. I understand the Fed is querying the large buyers in the recent 10Y auction, they want to know who they are? ”

          Are they thinking about thinking about selling off the MBS to large holders? I suppose that would cut out a lot of paperwork and process with foreclosures compared to last time.. The f*****s.

    • Franz Beckenbauer says:

      ” Is a Wiemar Germany-class Hyperinflation a strong, moderate, or remote possibility?”

      It’s a certainty.

      “Once people realize that the government continues to inflate the money supply, they also realize that prices will go on rising and will be higher tomorrow than today. Then they begin to buy at any price and make prices go so high that the currency collapses”

      Ludwig von Mises, 4th lecture, “Inflation”

      • Jeffrey G Moebus says:

        i think that Wolf said almost exactly the same thing in his article, didn’t he?

        That’s probably one reason why American personal borrowing is going up: so as to buy at today’s less inflated prices than tomorrow’s are guaranteed to be.

    • sunny129 says:

      JGM

      Congress has raised the DEBT limit more than 44 times in the past.
      It is just a game. Without the increasing deficit and DEBT US govt will cease to function!
      Without increasing the deficit and the National debt, no politician of any stripe can promise his vested interests, more goodies! Hard truth!

      • Jeffrey G Moebus says:

        hey Sunny129. i am well aware of its history, purpose, and effectiveness. Like i asked Wolf above:

        The way they worked it out last time 2 years ago was to put it off until this year: After Election2020, so that no candidate or voter would have to talk or even have to think about the National Debt.

        And this deal will no doubt put it off until after Election2022.

        But, just for grins….: What would happen if Somebody ~ Anybody ~ up on Capital Hill got some gonads and said “Not This Time. This time, we deal with it.”

        What would happen then? Any thoughts? ~ jeff

    • Swamp Creature says:

      Jeffrey

      #1 is impossible given the mass media available today. Back in the Weimer days the German and Austria/Hungarian people had little news sources and no Internet. They had little understanding of what was gong on, and were absorbed with surviving day to day. Only the top dogs who were in charge of the financial system knew what they were doing. They claim after the fact in their memoirs that they had no other choice. It was either print money or have riots.

  9. Franz Beckenbauer says:

    Got gold ?

    • Meme says:

      Yes

    • MiTurn says:

      No, but I got silver. “Poor” man’s gold?
      :)

    • Wendy says:

      I’ve been a hodler of gold and silver since 1975, and I can tell you that this has been one of the poorest performing investments of my life. If I had invested the same number of dollars in the broad equity market, dividends reinvested, I would be traveling by NetJet instead of Southwest. I try not to think about it.

      • Old School says:

        Might feel different next year at this time.

      • ru82 says:

        Gold and Silver have been a store of value against currency debasement…..and as you said, not really investment material.

        Now if you lived in Venezuela or Argentina….you would certainly be in the top 1% by owning gold and silver. I guess it is relative.

      • RedRaider says:

        ’75 – ’80 was a great run up. With this kind of run up you really should take some off the table.

        ’80 – ’00 ehh…

        ’98 – ’01 I dollar cost average bought my gold holdings. The value of my holdings has quadrupled.

        But even if you ignore the timing thing what’s so bad about your return? You would have bought at $200 level. Using 1800 for today’s level you would have earned 4.5% compounded annually for 45 years! A lot of people today wish they could find a safe haven like that.

        • Wendy says:

          Absolutely stinks compared to 9% compounded for stocks. The compounding is key. 4.5% ain’t going to get you much, since with 2% inflation, your real return on gold is 2.5%. Gold is not an investment, but a store of value, that has barely outpaced inflation. Hoping it’s going to $5000 is not a strategy.

        • You are right on track ?.

      • When gold, silver and the miners catch a bid, there is nothing else like them. 2020 was just a warm-up for the next round. If you’re still holding, you’ll get your reward.

    • ram says:

      Gold, and to a lessor extent silver, has always been good to me. But always remember, buy low, sell (if you have too) high.

  10. Dave k says:

    Looks like my 30 yr loans on investment properties and my service business will be the best way to hedge this.
    I remember as a kid people questioning why spent so much time building each business in my youth, I was just planning for the future!

    • c1ue says:

      The good news is inflation will erode the purchasing power of dollars – hence make repaying the mortgages cheaper.
      The bad news may be that interest raise jump and depress asset values.
      So will the mortgage repayment erosion be greater than the loss of assessed value?
      What about the economic impact of stagflation on rent?
      I guess what I’m saying is that I would be careful to examine all of the possible ramifications of high inflation, before doing the victory dance…

      • Jon says:

        Home prices are decided by the margin sales.
        What would happen to home prices if the mortgage rate jumps up ?

        • ru82 says:

          It all depends. In 2007 and 2008 raising rates did not help the housing market but it killed the teaser subprime loans and zero interest loans when these loans needed to reset at the end of the teaser period. So a teaser rate might have been 0% or 2% and then when the teaser period ended the rate jumped to 5% to 7%. This doubled payments and subprime loans started to foreclosed. We know the rest of the story.

          But in the late 1970s, when interest rates rose from 7% to 18%, the price of houses went up too. That was an inflationary even.

  11. Micheal Engel says:

    1) The pandemic eliminated 15% of US elderly within few weeks. Moderna and PFE saved the rest. Moderna saved lives. Moderna built a bubble
    2) Gilead spiral up after launching it’s miracle hepatitis C drug in 2013.
    3) GILD backbone : Feb/ Apr 2014 hi/lo 84.88/ 63.50 sent it to the peak in
    June 2015.
    4) On the righ, beyond peak, GILD decayed to the backbone, in the last 6 years.
    5) Traders know that competition is chewing GILD.
    6) Exogenous shock will send GILD down.
    7) Debt ridden US gov might turn their back to biotech, blaming the other side.

  12. doug says:

    I see Larry Fink of Blackheart stated he doesn’t think inflation is transitory yesterday. This is getting interesting.

    • historicus says:

      Wait! That’s not the party line….

    • sunny129 says:

      doug

      Watch BlackRock’s high yield etf, HYT it will display what is happening vs what he says. For the last month, it is declining, unlike any time before!

      BTW
      Watch ETfs for airlines, hotels and cruise lines – they keep sliding(for over >3 weeks!).
      NO recovery in the hospitality or the Tourist industry. With Delta spreading, it is BACK, while vaxed vs non vaxed wars goes on!

  13. Micheal Engel says:

    1) US10Y-DET10Y = 1.69 on the way to a lower low, below the previous
    low @0.94 in June 2020. Zero will be transitory.
    2) NDX have reached 15,000, a number easy to remember.
    3) Traders know that NDX is bubbling in overtime, killing the clock, because they won.
    4) Larry Fink is a great musician. Most investors love Larry Fink performance.
    5) Larry Fink will convince investors to stay in the game.
    6) They will.
    7) Robinhood traders will shoot an AAPL.

    • NBay says:

      Still trying to decide if you are more of a financial James Joyce or a Lewis Carroll. Either way you have deservedly achieved “institution” status here.

  14. MiTurn says:

    Wolf,
    Thanks for making the effort to publish the transcripts of your podcasts. I can’t ‘do’ podcasts, but I read just fine. This makes your work more accessible to many readers and your willingness is appreciated!

  15. Swamp Creature says:

    As I posted before, this inflation has not affect my standard of living in the slightest. Nearly all the necessities I purchase either have not gone up the slightest or I have substituted lower priced items. People in this country have got to learn to live within their means and stop whining and complaining.

    • Paulo says:

      Amen. And when you say this it invites a backlash.

      But here is something I just read five minutes ago: (Lumber prices where I live and buy)

      “In June they were selling it for $2,100 U.S. (per thousand card feet), now they’re selling it for $650 U.S. (per thousand board feet). So yes the numbers have dropped substantially,” said Jepson.

      On Monday I was going to stock up on some dimension lumber, but will probably wait until August after reading. This morning articles in Canadian publications expressed fears of inflation, but they also mentioned the slowdown in housing with a consumer move to ‘less house’.

      Good news in a bad and worrisome time.

      As for cutting back, woke early this morning and felt like making bread. For breakfast we’ll have bacon butties, the buns so hot the butter melts out. Plus, 3 loaves of home made for the freezer for a company visit this weekend. Cost? cents? Haven’t a clue what it costs…cents. It isn’t hard to cut back and live simpler lives. Working full time? Do it on a day off morning….it’s fun. My kids do it. My son on his 2 weeks off every month just makes extra food for dinners, then freezes the surplus in wrapped portions. When he returns to Alberta for his 2 week stint of 12 hour shifts his work dinners are already prepared. He takes them on the jet in his luggage. He just nukes a good meal in the lunchroom microwave every day. Beats picking up lunch on the way in to work from a cafe or store, or making it lunches at 5:00am.

      • Bobber says:

        Cost saving is great, and something everybody should do, but let’s not take an eye off the income side of things, which is more important.

        Are average people getting their fair share of the country’s income relative to the work they put in?

        Absolutely not. There are systematic forces out there subsidizing the reckless spenders, grifters, speculators, outsourcers, the rentier class, etc., to the detriment of workers and responsible investors.

      • LK says:

        I suppose next you’ll tell us that people that can’t “just” do these “simpler” changes in lifestyle or behavior lack character, or some such.

        The backlash might be coming from the lack of empathy or understanding from those acting the sage and expecting gratitude.

        • Swamp Creature says:

          LK

          No I don;t have empathy for freeloaders and bums. We worked right through the pandemic in a high risk job and never complained and never asked for any handouts. The money we made was way below what we deserved given the services we provided. A lot of health care workers around here did the same. They are my heroes.

          9 million jobs still going unfilled. That tells you everything.

        • NBay says:

          (1) Most everyone’s mad here.
          (2) You may have noticed I’m not all there myself.
          (3) Forgot the male member size monologue.
          (4) Information futures way out of the money.
          (5) Dialogue calls likely still worth picking up.
          (6) Bitching futures remain a train worth riding.
          (7) No beginner’s luck

    • Artem says:

      The FED agrees with you.

    • Heinz says:

      “As I posted before, this inflation has not affect my standard of living in the slightest.”

      That’s great, congrats to you and your family on frugality. Your ‘standard of living’ is not explained, but either you have a more than adequate income or you have no debt and have cut living expenses to the bone.

      However, not everyone is so lucky. According to one estimate, about 1/3 of all workers are living paycheck-to-paycheck (otherwise known as hand-to-mouth subsistence). And yes, for the sake of argument some of them are living beyond their income level and could drastically cut back on some discretionary purchases and survive better.

      My question to ordinary people who are ‘unaffected’ by current inflation is: what will you do when higher inflation becomes entrenched and pervasive in the economy?

      To me, nonchalance about worrisome inflation is like whistling past the graveyard.

      • LK says:

        Right? It’s like people can’t think outside their own situation when lobbing advice bombs onto others who might not have that extra fat to cut.

        What I expect next is an analysis of past decisions. “Maybe you shouldn’t have had children if you couldn’t expect to financially support your family through a global pandemic and irresponsible government action!”

        I am more than comfortable and I’m worried about where all this economic uncertainty and daily WTF chart posting from Wolf is going to lead. I am fortunate enough to be able to make more cost-effective decisions, but exactly that: if this keeps repeating year over year, what, is my company going to give me a 5 to 10% CoL raise on my salary?

        I seriously doubt that, and I already lack for solid investment opportunities, being the saving type and having nothing available because everything is geared towards a propped-up, overvalued, stock market beset by YOLO Wall Street Bets types.

      • Swamp Creature says:

        Heinz

        If and when inflation gets to the point where I’m running a deficit every month I will cut back my standard of living. Right now I don’t have to. If I want something I buy it. If something is broken I fix it. If I need another implant I’m scheduled to have it done. I write the check for 6K and get it done. So far so good. I think inflation is going to get much worse than it is now, and we will look back at today’s inflation of 5 to 6% as the good old days. Worse, I see labor unrest and work stoppages and strikes sort of like what happened in NYC in the 1970’s because salaries are not keeping up with inflation. That I’m not looking forward to.

    • jimells says:

      ” live within their means”

      Means don’t go very far when lawyers cost $190 an hour, plumbers $100 an hour, doctors $arm + leg per hour, etc.

      The radio is telling me that the “market rate” rent in my state for 2 bed apartment is $1100 per month. Renters will have to cough up at least two grand just to get in the door, and only if they are not blacklisted due to bad credit, police record, etc.

      Tent and sleeping bag companies might be a good investment.

    • Bobber says:

      Don’t turn into an Uncle Tom in the face of injustice !

    • Swamp Creature says:

      The Swamp is a very expensive place to own a home. Prices have gone through the roof. But if you paid off your mortgage like we did it is no more expensive to live here than anywhere else in the country. Property taxes are not that bad. Utilities are reasonable. There is great public transportation so you don;t have to own so many cars to get around. Mrs Swamp and myself care pool everywhere. The food prices are not that expensive. In fact I’ve upgraded my selection of fish, meat and produce purchases without a thought to the price. My grocery bill is the same as it was last year. The grocery stores are well stocked with everything I need and buy (after I made numerous complains to management) .

      Wak a Mole Inflation is hitting several sectors of the economy which affects some people more than others, especially on the lower income spectrum. But instead of whining and complaining people need to make the necessary changes to their lifestyles if they can and learn to live within their means. END OF STORY

      • RightNYer says:

        “But if you paid off your mortgage like we did it is no more expensive to live here than anywhere else in the country.”

        Sorry, but if there was ever a time when “Ok, boomer” was an appropriate response, it’s to this.

        It’s easy to have paid off your house if you bought is 20-30 years ago, at much lower prices and were able to take advantage of dropping rates to make the payments very small.

      • Swamp Creature says:

        Having a big mortgage ain’t what it used to be. Tell what risk free investment is going to make back what you are borrowing. And after the 2017 Tax bill they took away a lot of the advantages of a home mortgage. Personnal exemption GONE, Standard deduction raised. You minions are listening to those RE Shills and financial planners. DO the math.

        • RightNYer says:

          That wasn’t my point. My point was that it’s easier to have paid off your mortgage and be living cheaply when you bought your house in 1988 for $125k (at 3x income) versus $1.2 million today (at 15x income).

        • Swamp Creature says:

          So a big mortgage is a crappy investment. That’s my point. All the lemmings that are diving in now and buying these 1.5 million monster homes are going to regret this decision.

  16. Bruce Sammut says:

    Hyperinflation is in the cards.

    They remain in the stacked deck.

    When the dealing’s done, then the game will get very interesting.

    When? “Enjoy yourself; it’s later than you think!”

    B

    • Xavier Caveat says:

      How does hyperinflation manifest itself in the digital money age?

      There hasn’t been an instance since Zimbabwe about a dozen years ago, and that was paper money oriented.

      • Crunchy says:

        When your computer screen runs out of room for zeroes it’s time for a higher resolution computer screen.

      • Wisdom Seeker says:

        I think you’re overlooking Venezuela today…

      • Harrold says:

        Hyperinflationists have been ranting for 50 years now…

        • Wisdom Seeker says:

          They weren’t wrong, it’s just been a slow hyperinflation.

          Since 1971, the US dollar has lost the following in value:

          95% vs. crude oil ($3.56/barrel in July 1971 vs. $70+ today)

          98% vs. Gold ($35/oz in July 1971 vs. $1770 today)

          96% vs. Univ. of California Tuition&Fees (in-state). $530 in 1971 vs. $14100 today.

          We could go on and on…

          Crude and gold data from Macrotrends.net

          UC tuition data from The Daily Californian and the University of California.

      • Nathan Dumbrowski says:

        Venezuela’s hyperinflation began in November 2016

  17. Xabier says:

    Some things can remain ‘transitory’ far longer than you can remain either solvent, sane, free, or even alive……

    Genghis Khan, Tamerlane, Napoleon, Hitler, Stalin, Mao, etc, were all transitory phenomena – what is human that lasts forever? – but they each destroyed millions as they were just passing through.

    Bear in mind, you are not expected to emerge from this – deliberately-induced – crisis period as anything other than an impoverished, monitored slave, whether on a corporate salary, the public payroll, or UBI.

    A whole new social and economic paradigm is now being imposed on us, by stealth mostly: be warned, fortify yourself accordingly.

    Mark Carney is preaching from his Book of the 4th Industrial Revolution: study it well, it’s your intended future.

    • Philip IoM says:

      I endorse this message.

    • Wisdom Seeker says:

      I’m not so worried. Human nature doesn’t change and the mass backlash against the over-centralization is just getting rolling.

      • Wisdom Seeker says:

        Addendum: Wolf’s subsequent article about individual new-business startups is consistent with grassroots backlash against over-centralization.

    • Auldyin says:

      X
      Does Carnie’s plot end in a giant bubble???

  18. Djreef says:

    From the Empire State Manufacturing Survey:

    SELLING PRICES INCREASE AT RECORD-SETTING PACE
    The index for number of employees increased eight points to 20.6, and the average workweek index held steady at 14.0, pointing to ongoing gains in employment and hours worked. Both price indexes were at or near record highs, indicating that price increases remain significant. The prices paid index edged down just slightly to 76.8, while the prices received index climbed six points to 39.4, a new record.

  19. Djreef says:

    Philly Federal Reserve July Survey Manufacturing and Business Outlook:

    Price Indexes Suggest Increasing Prices
    The firms continued to report price pressures; however, both price indexes declined this month. The prices paid index decreased 11 points to 69.7 in July after reaching a 42-year high in June (see Chart 2). Over 72 percent of the firms reported higher input prices this month (down from 82 percent last month), while only 2 percent of the firms reported lower input prices (up from 1 percent). The firms also reported overall increases in prices for their own manufactured goods: The prices received index decreased 3 points to 46.8.

  20. Djreef says:

    U.S. IMPORT AND EXPORT PRICE INDEXES – JUNE 2021

    U.S. import prices advanced 1.0 percent in June following a 1.4-percent increase in May, the U.S. Bureau of
    Labor Statistics reported today. Rising prices for fuel and nonfuel imports contributed to both the June and
    May advances. Prices for U.S. exports increased 1.2 percent in June, after rising 2.2 percent the previous
    month.

  21. gBC says:

    There is a very unusual confluence of factors producing these price spikes, and there is good reason to question whether the eye will continue. We are (hopefully) exiting a pandemic releasing a big pent-up demand against a reduced supply, there is the pandemic cash, there are all the hirings to accommodate reopenings, there are eager price increases in an effort to recapture income lost during the shutdowns. But at the same time there will be resistance to pay the increasing prices, people will cut back. Each index tracks past data. Be patient. If there is to be increased inflation, I think it will be driven by increased government spending, not by the adjustments resulting from the end of the pandemic.

    • Wisdom Seeker says:

      @gBC: Wolf’s big underlying point is that when enough of those known “transitory” inflationary factors stack up long enough, it changes the underlying psychology and triggers rising inflation expectations. These rising expectations themselves can drive inflation over the longer term. When people expect inflation they cease wanting to hold cash at all, and buy everything at accelerating rates, which then drives further inflation.

      Wolf argued, with data, that we may be approaching an inflection point beyond which the government and Fed will have much more difficulty suppressing that inflationary mindset. Particularly since the current government is unable to resist further spending which exacerbates the problem rather than mitigating it.

  22. Seneca’s Cliff says:

    Something scary has happened in the last few weeks. I purchase from several metal fabricators. During the steel and aluminum prices increases over the last 2 years they were very reserved about prices increases, just barely compensating for price increases in material. It is a competitive business and everyone so worried about losing business to the competition. But recently they have just said heck with it, let’s join the party and cranked up prices more in one month than all the last 8 years. Today I have to call my biggest customer ( who’s products include much content from these vendors) and give them the bad news. They will have to throw out the dealer price sheets they just printed I am sure.

    • Artem says:

      This is construction related? Where is this located in the US?

      • Seneca's cliff says:

        The particular customer I am talking about in this post distributes lawn and garden equipment to dealers throughout the entire United States. I make certain kinds of accessories and attachments for them. But my fabrication suppliers that said “heck with it” make parts for class 8 trucks, lift-truck attachments, RV’s and such in addition to what they make for me. So I would guess I am not the only one getting “heck with it” pricing.

    • BBR says:

      Commodities are about to experience a major crash. The prices have now fully reached consumers and they are choosing not to spend (i.e. your post). There is about to be significant deflation in this sector as consumers resume spending on services and not just goods (Cathie Woods explained this recently).

      CPI is up because at this time last year there was almost 0 year over year increase. 2021 is making up for 2020’s paucity of activity. 2022 is unlikely to continue this even in the face of interest rates remaining where they are today due to the spike in prices of commodities which is now yielding a drop in their consumption that has yet to translate into pricing (greed).

      • Bobber says:

        Sounds complicated. The last person I would seek advice from is Cathie Woods. She’ll pop with the bubble.

      • historicus says:

        “CPI is up because at this time last year there was almost 0 year over year increase.”

        this is all new upside territory for the CPI…..regardless of what happened last year.

    • Wolf Richter says:

      Seneca’s Cliff,

      Let us know how your customer reacted to your price increases. I’m now hearing this a lot. People just accept these price increases. That’s how higher input costs get passed on and turn into consumer price inflation.

      • Martin Stoffel says:

        Favorite bag of mixed lettuce went from .98cents to $1.28 last week when I went to the store. What no one has mentioned is the govt use of inflation to ratchet everyone still working into higher tax brackets. Without REALLY giving you more buying power. My union brothers walked backwards for the 23 years I was an iron worker while the pay increase never gave us more than we had before but left us in higher tax brackets!

      • Depth Charge says:

        “I’m now hearing this a lot. People just accept these price increases.”

        I’m hearing the opposite. People are not buying high-priced lumber or any other materials. I was going to buy a piece of equipment for my business a few months ago but decided against it. They had jacked them up over 50%.

        • polecat says:

          I agree, and will state further that ‘People just except these price increases’ has morphed into a meme .. just as ‘We/I/They can’t find employees because of those shiftless, lazy, pot smoking videogamers’ or whatever..
          The first example feeds on the helplessness of those in need of materals/items, as costs reaching into the Unobtanium .. while the second one plays into the need to point and accuse those shamless and tawdry persons/people/groups, for not ‘working as how employers see fit, to feed said employer’s ego!
          The greatest blame lays with duplicious Big Banksters, Government control freaks, the mockingly hubristic and sclerotic medical establistment, and the 3-letter ghouls×massacre media .. in fomenting the clusterfuck that we all find ourselves in, up to this point.

          Many of the above need to be jailed, then brought to trial for causing this mess!

        • Wisdom Seeker says:

          It’s pretty typical for a price surge “economic shock” to be followed by a partial drop (as supply catches up and buyers defer purchases), but then a gradual equilibration somewhere above the prior level but below the peak of the spike.

          That’s still price inflation.

          Lumber will be a good example.

        • Lynn says:

          Here also. People are not even spending $30 – $50 on very small DIY projects. Just waiting. Some are trading or sharing scrap lumber from their yards till prices come down.

      • madmax says:

        Commercial Electrical Contractor in PHX. Our material prices have gone up 40% this year! Smaller projects are being put on hold, however, large projects continue apace.

    • stan65 says:

      I am having structural steelwork prices repriced by steel fabricators every couple weeks.

      When I get a good quote I tell my customers to place an instruction and lock the price in. They often prevaricate thinking they can get a better price, only to have to swallow a 3-4% increase.

    • Heinz says:

      “But recently they have just said heck with it, let’s join the party and cranked up prices …”

      That seems to be the thought process today of many producers and retailers– let ‘er rip (raise prices preemptively to stay even with rest of them).

      Inflation expectations can be a self-fulfilling prophecy.

  23. 3D Modeler says:

    A charitable interpretation of what Powell is doing is the doctor who orders his broken leg patient to use their crutches way longer than the patient feels is necessary because the doctor knows from experience that re-fracturing the leg at this critical stage could prove disastrous. The not-so-charitable interpretation is that Powell has no effing clue what he’s doing “…but he did stay at a Holiday Inn Express last night.”

  24. georgist says:

    The USA (and the West) have moved, since the 1970s, from wealth creation to rentier activity. This was hidden due to massive productivity rises, societal changes (compromises that lowered the quality of life), and a lack of societal comprehension about long term change (loss of pensions, dual income required for a home meaning life actually got worse, etc).

    For a while rentier activity was outstripped by productivity gains, masking its harmful effect. But rentier activity requires no input costs, as it’s rentier activity. So rentiers made more than wealth creators. Society saw this and more and more people shifted from real activity to rentier activity. Why bother starting a factory when your house flipping brother has more money than you ? Why become an engineer when bankers make more than you ? etc.

    In 2000 the balance tipped and rentier activity became the dominant paradigm. Society changed its language to reflect this. Landlords became “investors”. Bankers became “entrepreneurs”. A landlord owning 5 rental units and forcing up the price of housing for working families in a neighbourhood was put on equal footing with a factory owner, who provided steady jobs for those families.

    Rentier activity now predominates. Banking. Landlords. And Americans don’t even have the framework to describe it, because their education system totally excludes any such conceptual delineation.

    Sometimes Americans who don’t understand this differentiation call people who want to tax rentiers “communists” because they lack the ability to understand the difference between wealth creation and rentier activity, and see it as an attack on “the free market”.

    Adam Smith understood. Keynes understood. Henry George understood.

    Either Americans will understand or your lives will continue to get worse.

    • Seneca's cliff says:

      @georgist. Three gold stars for this post. I completely agree with you on this one. It is amazing that so few people understand this. Henry George predicted everything that is happening now, and we could have avoided most of it had we taken “Progress and Poverty” to heart 125 years ago. Now the US is filled with people who think they are providing a useful service when they buy a chunk of land and then sell it a few years later for 10 times the price. I am afraid that because we ignored him we will be living out the last half of the title in George’s Masterwork.

    • 91B20 1stCav (AUS) says:

      g-elegant, elegant,elegant.

      may we all find a better day.

    • Augustus Frost says:

      There is a difference between a corporate landlord owning thousands or tens of thousands of rental units and the one in your example owning five.

      Is the individual owning five supposed to just give it away to the working class tenant or charge them (far below) market rent because someone else wants it?

      The solution (if there is one) to the corporate landlord is to stop making the cost of borrowing for them virtually free. If their tenants can’t afford the rents they charge, don’t subsidize it either, including allowing millions of illegal aliens who compete with Americans for housing. This will make it less profitable or unprofitable where they will sell.

      • Lynn says:

        I’m not sure there are many or any people here who are blaming smaller landlords. And in fact most smaller landlords tend to charge less rent, especially those who bought their properties years ago.

        I think most people in the US would love to see a limit imposed on owning immense amounts of rental properties and placing derivatives of that rent on the stock market. Both renters and smaller landlords. It basically ends up being economic cannibalism of younger generations and cuts out the “little guy”, as far as landlords go.

        There’s another variable too. Some of these rental units and SFH are being bought up and left empty- off the market and not rented out. For “investment” purposes or just a place to park money for the global ultra wealthy. I just read an article last night- 20% of Hawaii’s rental units are empty and 12% nation wide. I’m not sure how accurate that is, but even if it’s 3/4’s of that, and some of it is in transition, that is an awful lot.

      • Jeff T says:

        I have two children in their 20’s living in Chandler Arizona. They live in large apartment complexes with about 100 units. The owners have several of these complexes in Arizona metro areas. This year rents are being increased 20 percent for all month to month renters and as leases expire. The explanation given by one manager is that this amount was calculated to be the maximum renters would pay without turning over too many units. I have two units in my home town and recently renewed a lease with a 4.5 percent increase for a good tenant. A lot of today’s problem is just corporate and individual greed.

    • RightNYer says:

      Best post I’ve seen all month. This is exactly it. In the 1950s and 1960s, the best and brightest from Harvard, MIT, Caltech, Princeton, etc. became doctors or engineers. Now our best and brightest go to play with money on Wall Street.

    • NBay says:

      A Great Post!
      …and thanks for turning me on to Henry George! It’s a real mystery to me how I could have 24 units of Soc and never heard about him, especially since I picked them up 71-73, and AT Sonoma State, a hotbed for counterculture back then.

  25. Tom S. says:

    Anyone gonna ask the Fed if they think people aren’t working because they can’t afford to buy a car to get to work? Maybe they can take out an auto loan at 0.25% APR? Oh wait that rate is only available to the investment banking sector, not people who are currently unemployed.

    • Cas127 says:

      “Maybe they can take out an auto loan at 0.25% APR?”

      Sure…but the automakers have increased car prices to $100,000.

      Of course, we can stay home in our 3% mortgage houses, priced double of year 2000 prices.

      The “magic” of ZIRP.

    • georgist says:

      Access to cheap credit has allowed car prices to detach from incomes.

      Letting everyone get near ZIRP to purchase a good just means the price rockets and people end up renting the good, never owning it, at a price that saturates their disposable income.

      Leasing is a way of charging people more than before, via obfuscation.

      Once again, the rentiers skim off top, workers pay more for the same good. Financial “innovation” is the term used to hide the reality. And people demand more access to the thing that is suffocating them.

      • Tom S. says:

        Yep. Turns out offering 0% APR while you’re not making any trucks and canceling chip orders created big supply shortages. My point is simply that the money created by the Fed belongs every bit as much the average American’s money as it does to the bankers.

        To be fair though, there are no good solutions here. Inflation has been decided to be the least bad, for some odd reason.

        • 3D Modeler says:

          Tom, probably because it kills the most birds with the same stone. Inflation destroys the lifestyles of retirees living on a limited fixed income, which the Fed has demonstrated it loves doing. Inflation benefits the debt slaves with debts being paid down with devalued dollars. And company CEOs get to brag about their “pricing power” to their shareholders. All good as far as the Fed is concerned, despite what they say.

        • Old School says:

          It’s the easy choice for politicians.

    • Depth Charge says:

      Anecdotally, I am now seeing inventory builds at a few dealerships I watch. A large dealer usually carries roughly 600-700 trucks of a particular model (Ram 3500). That dropped down to around 50 at the low point. They’re now back up to almost 200. I think the car mania is over with.

    • Lynn says:

      Some areas have very few workers because they can’t afford rent and have had to move. In my area a good portion of the workers are homeless and trying to hide that fact. They don’t chase the homeless away as much here.

  26. Turtle says:

    Sure they are talking about this internally. There’s no easy way out of this but they have to try something, so what else there to do but raise interest rates a little and see what happens?

  27. Paul Schuyler says:

    When the beer mug goes up in price, I’m bugging out.

    • Wolf Richter says:

      Hahaha, right now I’m tying to get more of them. There is a shortage of that specific blank glass mug. When they’re finally making them again, I know I’m going to get charged a “to heck with it” price, as has been pointed out here so eloquently by Seneca’s Cliff.

  28. random guy 62 says:

    I really enjoy this site, and I learn a lot from the articles and the comments, but holy moly some folks here are angry. Sometimes a guy needs to step back and take a breather.

    I’ve read all the fed conspiracies. A war being waged on the citizens?
    Really? Maybe a shred of truth there, but there are far more compelling explanations for today’s financial predicaments.

    People want simple, singular explanation, I guess. To me, most of this stuff is due to a culmination of many different factors… most driven by chance.

    • doug says:

      Lobby expenditures admitted to in 2020 : $3.5 Billion
      Not by chance.

      • random guy 62 says:

        I agree that our politicians are owned by bankers, pharmaceutical companies, weapons companies, and other influential interests. Everyone is lobbying to get their suckle of the gov’t teat.

        There are some serious problems in our government and our economy. I just don’t attribute them to a coordinated attack on the American people. We need only to look in the mirror to understand the problems. How can you expect a nation of ignorant spendthrifts to produce a government of wisdom and restraint? We get the government we deserve.

        Most of the people on this site are reasonable smart with money. They are NOT the average citizen – not even close.

        A lot of institutions have made huge financial promises (largely to retirees in various ways) predicated on the idea that economic growth is a certainty. But it’s not a certainty. Growth has slowed, and it might slow even more.

        For a few brief decades, companies provided pensions to their employees because those workers had bargaining power. The world had not yet caught up to the USA’s ability to produce, so our workers had an advantage. In exchange for a lifetime of work, the company essentially absorbed the financial risk from the employees for the remainder of their lives. This proved to be a horrible idea in hindsight, as those pensions became boat anchors around the neck of companies in a competitive global marketplace.

        They began shedding them and converting to defined-contribution plans in the 80’s and 90’s. These kinds of promises are made to people in times of plenty, with an optimistic view of the future. It often does not work out like that.

        National and state governments have yet to get the memo. They’re bigger, slower, and don’t have the same incentives as for-profit entities. We simply have too many people expecting a free ride in this country. The right likes to point to waste and the welfare state. The left likes to point to billionaires and their tax dodging. They’re both right!

        I like to point out military spending and care of old folks since they are the largest line items in the budget, and note that wall street is a tick sucking ever more from the production of others.

        As you all probably know, pension funds move markets. They are starved for yield, so they are pursuing riskier and riskier investments to fulfill their promises to their retirees. Feds can’t let them fail or out come the pitchforks.

        My own beloved grandparents have consumed MANY multiples of their lifetime contribution in care from the social security and medicare system. They are not alone. Our aging demographic doesn’t help matters.

        Our standard of living is dropping all around us. That is because of overspending, demographic shift, and globalization, among other smaller factors.

        The fed is an easy punching bag, and they certainly share some of the blame. But some problems are bigger than them, and they’re probably shaking in their boots wondering if they can actually hold it together.

        • Wisdom Seeker says:

          Agree 100% except Wall Street isn’t a tick … ticks are visible and small. Wall Street is more of a tapeworm or cancer … eating the economy inside-out without most people having a clue.

    • Bobber says:

      Three massive financial bubbles in two decades, by chance? I think not.

      It is driven by the Fed’s meddling and mistakes.

      • random guy 62 says:

        Mistakes yes. Malice, no. They’re under pressure to help prop up our financial system and preserve the status quo.

        It’s the same situation as authorities controlling forest fires in the West. Yes, they’re putting out small fires and saving some property, but every time they do, it’s building up more dry tinder. The fires that do eventually happen can often be worse.

        They don’t put out the fires because it’s a conspiracy against flames or squirrels or something. They put out the fires because they suck and they cause a lot of hardship for a lot of people, especially those with a lot to lose.

        Same for recessions. They burn out the economic deadfall.

        It’s unwise, but it makes sense why they do it.

    • RightNYer says:

      Yeah, people tend to get angry when people are openly trying to destroy their country. At least those of us who have children do.

    • Heinz says:

      “People want simple, singular explanation,”

      Of course the devil (or God) is always in the details, but … while I once could give them the benefit of the doubt, I now believe that Fed and officialdom are purposely working against the public interest (average Joe and Jane that are not a part of the ‘Club’ that George Carlin mentioned).

      There are just too many blatantly obvious harmful policies and actions being implemented for so long by Fed and other TPTB than can be logically explained by attributing them to stupidity, carelessness, or ineptness.

  29. Take exception to most of whats in here. WSJ wants to lump rates and inflation together that’s a mistake. The size of the global monetary base, demand in bond purchases, will keep a lid on rates for a long while. Persistent inflation isn’t the problem, its the rate of change. The economy can adjust to higher inflation. It’s not the end of the world. Junk bond yields dropped below the rate of inflation first time in history. Assuming these companies have some pricing power. The threat of wage inflation has corps automating, and the anti immigration PAC is fighting corporate America on this one. Didnt he want to bring back those jobs for you all? Now the jobs are back and they’re home shooting fentanyl? And yes we will need more housing.

    • 91B20 1stCav (AUS) says:

      Ambrose-“…it’s not the impact that kills you, it’s the sudden decelleration…”.

      may we all find a better day.

  30. Micheal Engel says:

    1) Yesterday, the hyperinflation hit 5.4%, “real people” wage minus 2.2% and today QQQ fell off the cloud to T&K.
    2) But it’s just temporary.
    3) Chick-A-Cloud on June 9 indicate that K will rise for 2-3 weeks and T&K
    might flip, because QQQ is drunk.

  31. LouisDeLaSmart says:

    \\\
    I don’t see how higher doses of painkillers are going to make the patient healthier, and we are well past the point of heathy diet and excercise. I hope the treatment will start soon…
    \\\

    • Artem says:

      Not in your lifetime. This anesthetized patient will start trying to test the limits of his pain invincibility.

      And eventually some form of MMT and declines in productivity will take down the dollar and the FED with it.

      That day is not today.

  32. David Hall says:

    Between 1970 – 1982 the inflation rate measured each month was between 5% – 15%. This was transitory as the double digit inflation rates subsided.

    Inflation rates were below 5% between 1992 – 2020.

    • Artem says:

      Does anyone measure “growth-adjusted” or GNP-adjusted inflation? That would be a good measure of our economy’s ability to absorb higher prices.

      Usually GDP growth correlates highly with inflation.

      • Auldyin says:

        A
        W’s ‘corePCE’ figure does that (cf UK Gdp deflator)
        Gdp is total volume of output times price.
        Current Gdp is current vol x current price.
        CorePCE is price of Gdp based 12 years ago which is applied to to current Gdp and therefore makes apparent the ‘real’ growth of volume over the 12 years. It used to run longer than 12 years but rapid change in society’s lifestyle has led to a shorter reference period so far as I am aware.
        W will tell us if I’m getting corePCE and Gdp deflator mixed up ( UK v USA, 2 countries separated by a common language ) but he knows what I mean I think.

  33. jo6pac says:

    Great news. This means I’ll get a big raise in SS or the govt. will once again cook the books and not in favor of us on SS.

    Yes thanks for the transcript.

  34. Tom says:

    It seems like Wolf is getting a little bit perturbed by the state of affairs…

    Common sense does not prevail these days- crowd behavior and herd mentality lead the way with our sheepdog Powell seemingly not aware of the cliff out ahead- as Wolf and numerous comments here forewarn.

    My goals have lately been in positioning for the negative outcomes- stocking up on usable tangibles, shorting the market, diversification into things like land, gold, some cash, even taking on a small amount of super-low interest debt.

    A variable that interests me in relation to all of this is velocity of money. If anyone here has a resource showing better data and/or relationships in today’s environment I would appreciate anything that might be shared.

    Thank you,

    Tom

  35. Micheal Engel says:

    1) A mid size enterprise build 200 houses when Lumber was $1,700. They will have to raise prices.
    2) The lookers will say : NO !
    3) The enterprise CEO will get a massage from the bank : go for 20%-25% discount.
    4) The lookers will say : NO !
    5) The bank will sell the unfinished project to the liquidator at deflated 1/3 of mfg. cost, because it’s a decaying RE market and Lumber is < $300.
    6) The liquidator hope to sell the complex at a compound 20%-25% annual rate, or to Sam Zell at minimal profit margin, with no headaches.
    7) Sam Zell will call Zanet : send the mortgage rates to zero, finance the baby at NR and give new home buyers few financial candies to keep them on sugar high.
    8) If Zanet is fine with 0.5% – 1% 30Y mortgage rates, Sam Zell will sign a check.

  36. Bob E says:

    The Fed knows exactly what it is doing and their plan is very clear, the objective is to repay the trillions in new federal debt with dollars that are worth quarters when the bonds mature. It’s exactly this simple.

    • 3D Modeler says:

      Perhaps you’re right Bob, but by that time there will be so many homeless and near-homeless people permeating every crack and crevice of this country that paying down the national debt will be the very least of their worries. Sometimes inducing a coma doesn’t actually save the patient.

      • Bob E. says:

        The members of the Fed care not whatever pains the serfs and peons may suffer, baring a massive civil unrest that unseats government. Greenspan said it best: ” I can guarantee you that the US will never default on its debts, however I cannot guarantee the purchasing power of the USD. The Fed is busy debasing USD on purpose, and there will be no comeback in USD purchasing power from the current debacle. None, zip, nada, and zilch.

        • 3D Modeler says:

          Well Bob, if what you claim is true, may as well move to Venezuela or Zimbabwe to get a jump start on what that picnic is like.

    • historicus says:

      Bob….sadly you are more correct than not.

      But if the Fed “knows exactly what they are doing” by promoting inflation and pegging rates at immoderately low levels, arent they in start violation of the mandates/instructions…the agreements that allow their existence?

      Promote stable prices
      Promote MODERATE (not extreme either way) long term interest rates

      Where is the outrage? Should be Congress, but the free money is sport for politicians. And that is the great flaw.

  37. MH says:

    Wolf, I love your commentary but Krystal and Saagar (formerly of the Hill) have a radically different take on inflation than many of your more pessimistic takes on the situation. What are they missing exactly?

  38. sunny129 says:

    Part of the economy related hospitality.tourist industry is NOT coming back!

    Watch the ETFs – JETS, BEDZ, EATZ, CRUZ++

  39. ru82 says:

    Zillow research says the typical Home average price increase from last year is 13.2%.

    The Typical Rent increase from last year is 5.4%.

    Hmmm….Rent is not keeping up with the price of homes. Either rent goes up faster than the price of homes or the price of homes come down some.

    • Swamp Creature says:

      The rent income is a much better measure of the value of the housing stock than the market value, though we use market value in all of our appraisals. Based on this alone housing is way overpriced. When interest rates normalize housing prices will collapse. Rents will not collapse to the same extent and may not go down at all. FHA uses the cost approach to determine value. Right now that is going up by double digits. Things are sort of like they were in the late 1970’s with Carter.

      • RightNYer says:

        You are right. Rents are a payment for a service (a place to live) and are based largely on incomes. Sale prices often are based on speculation and other financial engineering.

  40. Nathan Dumbrowski says:

    Back in the day my mother used to have the credit union set aside a small amount from each paycheck into a Christmas fund/account. That was the money that she allocated for the holidays and that was it. No credit cards. Just lay away and savings. Wonder if anybody is still doing it the old fashion way.

    • historicus says:

      The Fed intentionally PUNISHES any saving by promoting inflation and keeping rates zero.
      This is the big sin, IMO of the Fed.
      The mechanism of Saving is part and parcel to the American experience, and the road to getting oneself on firm financial footings.
      The Fed PUNISHES people who do so, and intentionally.
      For 75 years and more, interest rates were set equal to or in excess of inflation…to protect the holders of currency and to tamp down that inflation.
      Now, essentially, the Fed has FORCED people to spend, or invest.
      But what are stocks worth without Fed support?
      What is housing worth without Fed support of mortgage rates?

    • Anthony A. says:

      Yes, my 2% cash back on my CC is left to build until December and used by my wife for Christmas giving. This year there will be about $2,000 in the pot.

  41. ram says:

    Same beginnings of hyper-inflation are happening in Australia. The Australian situation is worse because our economy has long been a train wreck (fires, floods, systemic pervasive government corruption), the A$ is a minor currency, and the COVID-19 plague is running rampant here with only perhaps 1% of the population vaccinated.

  42. Auldyin says:

    For the last 12 years I’ve been saying that ‘inflation’ is the dog that didn’t bark but now we know the dog will bark if you kick it hard enough and boy! has it been kicked hard.
    The conventional wisdom is that ‘inflation’ can be caused by either a demand shock (sudden influx of money) or a supply shock (sudden shortage of supply) The 70’s was claimed to have started as a supply shock due to OPEC.
    Seems to me we have a perfect storm of a demand shock due to ‘stimmies, etc’ and a supply shock due to ‘Covid cutbacks, etc’ both happening at the same time.
    I’m not aware of a precedent for this in my life time, which is a long time.
    The conventional policy response to both types of shock is different and to make matters worse the Fed and others have already been running an accommodative monetary policy for the last 12yrs and are still running a high level of monthly QE and fiscal deficit.
    To avoid a huge recession after a supply shock the Fed has to increase money supply (further) but, increasing money supply further will lead to validation of the demand shock which would turn ‘transitory’ into ‘sustained’ inflation. If wages join the party it’s back to the dear old 70’s but wages could fall behind this time because there is nothing like the ‘Union’ power there was in the 70’s. It’s an incredible wait and see.

    • Auldyin says:

      Thinking further about this mega-weird situation.
      If the Fed does not accommodate the ‘supply’ shock by increasing money supply, that would also mean the ‘demand’ shock would not be validated and, crazilly enough, this could actually lead to the two shocks cancelling each other out over time with only a transitory inflation. It’s such a tightrope, I cannot believe this was a ‘plan’ by the Govt and it’s impossible to imagine it could happen by luck.
      Is this why the Fed is gambling on doing nothing???

  43. B.A.C.A.H. says:

    If the economists are mostly in agreement about something, they’re mostly wrong.

  44. MonkeyBusiness says:

    TSMC says that chip shortages might be easing.

  45. Eastwind says:

    I don’t think we’re quite at ‘spiral’ yet. At least not using the definitions I use. I distinguish between wage inflation, price inflation and asset inflation.

    When I say price inflation, I’m talking about goods prices, food, energy, stuff people need and buy, the inflation PCE and CPI purports to measure.

    Asset inflation includes price of real estate, the stock market, and stuff people invest in and hold.

    We’ve had very significant asset inflation for a long time, caused by QE. See stock market returns post 2007. But it hasn’t fed through to the other categories.

    Now we are seeing price inflation due to supply chain hiccups.

    The big question is whether price inflation will feed through to wage inflation. Once that happens, producers soon feed their higher wage costs through to their products and you complete the wage-price feedback “spiral”.

    We are seeing wage inflation, but mostly at the low end. Some of it is undoubtedly caused by employers having to compete with higher unemployment benefits to coax workers off the couch. That will, hopefully abate in september (unless congress goes even more nuts and extends it because of delta).

    So I submit that we won’t really know whether we have a persistent spiral until that inflationary impetus passes. If employers can hang on without giving out too many wage concessions until then, and then can find enough people to work so that they don’t have to continue to bid up their offer, the wage inflation will be temporary.

    But like Ambrose Bierce, I’m really not that worried. The Fed has a huge amount of ammo to fight inflation. And it has already started (they raised the reverse repo rate from 0 to 0.05% and the IOER rate 5 basis points too). (Who says they don’t ring a bell, I hear one, and I don’t think it’s my tinitus)

    If we overshoot and have 4% (as under reported by PCE/CPI) inflation for a couple years, it will be ok with me, and it will be a fine thing to have finally slain the spectre of deflation.

    Perhaps Powell knows that his destiny is to let inflation get a little out of hand to finally beat deflation, and it will be the next chairman that gets the chance to reprise Volker’s role. He can’t say that out loud, so he has to pretend not to see it. I give the guy a tiny amount of credit and assume he understands things better than I do.

    • historicus says:

      “Perhaps Powell knows that his destiny is to let inflation get a little out of hand to finally beat deflation, ”

      First … his job is to “promote stable prices.” That’s a fact. He promotes inflation. Call me old fashioned, but that is a violation of his duties. Pure and simple.
      Deflation….? When, where has anyone alive ever seen it?
      2009 to 2020? CPI up 17%.
      And now housing, gas, medical screaming….. and people speak of “deflation”?

      • Heinz says:

        “First … his job is to “promote stable prices.” That’s a fact. He promotes inflation. Call me old fashioned, but that is a violation of his duties. Pure and simple.”

        Jay Jay and the Fed bureaucracy he runs will correct you and clarify that they have a ‘dual mandate’ from Congress dating from 1977, namely:

        * maximum employment
        * stable prices and moderate long-term interest rates

        For years they have been focused on their own arbitrary interpretation of maximum employment (that is their Holy Grail quest) and now use it as an excuse to justify their extreme and reckless monetary interventions in economy.

  46. Robert says:

    Whatever they are doing, they are not bringing traffic back to the San Francisco streets!

    • Wolf Richter says:

      Traffic jams are back big time. Including the weekend traffic jams. 4th of July in our neighborhood (close to the fireworks) was totally insane. Gridlock for hours.

    • MonkeyBusiness says:

      I went to the city yesterday. First time in more than half a year. I did notice an uptick on the number of people on the streets and in Westfield mall, but we are still far from normal.

      Speaking about commuting, I took the BART yesterday and ridership is clearly still below normal levels. We also had a BART cop riding with passengers. It’s pretty nice to see that BART police seems to be doing their job nowadays so there’s that. But then again it might be the case that yesterday was just just an abberation.

  47. Broker Dan says:

    So if you already have RE, decent stock holdings and cash sitting in the bank; what do you put your money in?????

    • RightNYer says:

      There’s no good answer. Which is why so many of us hate the current financial climate. Your choices are a) do private investments, which are tough to get involved in without connections, b) buy grotesquely overpriced stocks or real estate and hope the Fed doesn’t lose control of rates, causing them to decline in value by half or more, or c) leave cash in bank, and lose money after inflation.

      • The Real Tony says:

        I’m waiting to see if the $2.10 show bet at the major race tracks will be the next big thing. Yes things have gotten this bad that this may become the next big thing. The owners of the horses know if the driver or jockey is going to stiff it or not so it will be easy money for the owners to make massive $2.10 show bets before the race tracks outlaw show wagering.

    • Lynn says:

      Small things that actually make you or your family and friends happy. There really isn’t anything else.

  48. The Real Tony says:

    Up in Canada with the country reopening after Covid-19 Justin Trudeau will face a different problem. New immigrants coming to Canada won’t be able to afford residential rents. Immigrants only go where’s there’s free health care (Ontario) so only time will tell where they ship them as there’s only so many families you can stuff into a studio apartment.

  49. trend_setter says:

    It’s been very interesting seeing how the Federal Reserve’s shenanigans are being picked up by more and more outlets these days. PBS recently had a good documentary on the Power of the Fed, and Axios also had a short piece on how JPow didn’t use the term “transitory” in his last speech, but is now using “temporary.” The word parsing was very evocative of your “Hawk-o-meter” pieces. It would be very interesting, at this point in time, to see one of those articles with the terms “transitory” and “temporary” mapped out :-)

  50. Swamp Creature says:

    Speaking of Traffic Jams. Its worse here now than before the pandemic, and they haven’t even opened schools up. We have to time our trips to between the hours of 10AM and 1PM to avoid the gridlock. It took us 1 1/2 hours to get to a property on the other side of the city.

    I do a lot of my personnal stuff at 6 AM to 7AM in the morning.

    I’d like to see gas go up to $7 or $8 a gallon like it is in Europe. That would cut back on the traffic.

  51. Scott says:

    We found a way to cut my expenses by 45% in the last 9 months. We got rid of our second car and stopped buying fast food, delivery services of food, cooking more at home, eating less cut many subscriptions like netflix etc.

    So inflation there, until it catches up to us we will have tens of thousands stashed away and well prepared.

    • Nathan Dumbrowski says:

      Good points! I mistaking think I have to keep my Amazon. But really that is a luxury item. Netflix reduced to the $8 option. Taking a good gut level look at what can else will be reduced. Selling motorcycle which will save insurance, tags and maintenance plus put a stash in the cash pile

      Guess I am going to have to start turning out the lights like OLD people. Booooo Hisssss

  52. ooe says:

    The inflation is temporary. A lot of it was used cars. Also, this shows that
    1) The Trump tax cuts failed. They were supposed to increase investment in plant and equipment which did not occur. thus, the chip shortage, and the subsequent shortage of new autos and the rise of used car prices. People are now buying used cars.
    2) Failure of corporate management- where was the planning the upturn in demand. Where was the planning to increase plant capacity. There was none. The truth is that they could not manage a house of ill repute even if their lives are dependent on it.

  53. George Kovachev says:

    Well, they weren’t lying, when they said that the inflation is “temporary”. They simply ommited the fact, that what follows is a hyperinflation.

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