Too Much Money Chasing Too Few Goods and Services

Inflation can be considered a tax, an especially regressive one, falling harder on those with lower income and/or assets.

By Bill Bergman, Director of Research, Truth in Accounting:

As we’ve noted previously, the Federal Reserve’s “M2” monetary aggregate began growing significantly faster than the “GDP” measure of economic output in the United States beginning around 2008, amidst the 2007-2009 financial and economic crisis.

With the federal government’s massive fiscal and economic “stimulus” policies arriving together with a pandemic and government lockdowns, M2 growth has recently risen dramatically higher than GDP growth.

Earlier this week, the Bureau of Labor Statistics (within the U.S. Department of Labor) reported that the Consumer Price Index (CPI) rose in June at one of its fastest growing rates in more than a decade. Some people have been pointing to the fact that year-over-year changes in the CPI may be high recently in part because the comparisons to last year’s levels were amidst the onset of the pandemic. But in the second quarter of 2021, compared to the first quarter of 2021 and on a seasonally adjusted basis, the CPI rose at an annualized rate of more than 8 percent, which is the highest quarterly growth rate since the third quarter of 1981.

It’s always worthwhile to keep an eye on alternative inflation measures, given the estimation issues associated with government statistics, and considering the source of those statistics.

Along those lines, a recent survey of small businesses by the National Federation of Independent Business (NFIB) returned a result for prices that hasn’t been reached since 1981.

And the prices component of the monthly Institute for Supply Management survey of business purchasing managers rose in June 2021 to its highest reading since July 1979.

Inflation can be considered as a tax, and an especially regressive one, falling harder on those with lower income and/or assets. Inflation can be considered one cost of government.

But it’s interesting to consider (and we will, in coming months) how well the government a) measures inflation overall, and b) covers the cost of government as an element of the overall cost of living.

Government sales taxes end up getting covered by the CPI, for example, as that statistic (uncertain and/or flawed in other respects) measures prices including sales taxes at the retail level. But significant issues arise for other taxes (like property taxes) that matter for the cost of government, as well as taxes that are not explicitly covered by the CPI (or related measures like the PCE deflator).

Back in the Great Depression, economists and government developed our modern framework for Gross Domestic Product (GDP, the total value of goods and services produced in a given period). There were four main components (C+I+G+NX) – Consumer Spending, Investment Spending, Government Spending, and Net Exports.

Some have questioned whether the G (Government Spending) belongs there at all, from an opportunity cost perspective, as government spending relies on taxes or borrowing money that could have been spent by somebody else.

But let’s put that interesting debate aside and consider whether what is good for the goose is good for the gander. If GDP should include government spending, our government should do a better job of including the cost of government in its measures of the cost of living. By Bill Bergman, Director of Research, Truth in Accounting

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  188 comments for “Too Much Money Chasing Too Few Goods and Services

  1. 2banana says:

    It really has become a game, hasn’t it?

    Trillions in government debt is then trillions more in the next spending package. Not only is there no shame from our “representatives” – there is pride on how much they can out do each other. And the voters love all the “something for nothing” freebies.

    And then the Fed, not to be outdone, has the pedal to the floor QE and flooding the world with magically created more trillons of more debt.

    All that money wants to find a home in a real asset before the music stops.

    Stocks, real estate, commodities, etc.

    And those in the front of the line will do just that. Those in the back of the line get $800,000 crack shacks.

    However, there is no free lunch. This has been tried over and over in the history of governments and money.

    And always ends the same. And very badly.

    And those in power always say “no one could have seen this coming…”

    • Wisdom Seeker says:

      The slow-motion hyperinflation has gone from tragedy to farce…

      Over the past 50 years – since July 1971 – the US dollar has lost the following in purchasing power:

      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… the picture is somewhat less grim in terms of food… but worse in other areas.

      Even the cost of retirement (i.e. a lifetime annuity) has shot up, it’s even more expensive to buy a stream of future dollars with current dollars.

      Crude and gold data are from Macrotrends.net

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

      There’s plenty of data out there for anyone willing to look.

      • Wisdom Seeker says:

        Add: $ down over 90% vs a box of Kellogg’s Corn Flakes.

        • Wisdom Seeker says:

          Add: dollar also down over 90% vs. an acre of farmland.
          Under $200/acre in 1971, now over $3000/acre.

          Source: USDA.gov

        • Dan Romig says:

          Wisdom Seeker,

          Yesterday’s Minneapolis Star Tribune had a feature on farmland prices.

          From David Fladeboe who co-owns a farmland real estate company with offices in Minneapolis & Willmar (about 90 miles west of MPLS):

          “This is the strongest land market we’ve seen in a decade. Farmland often comes up for sale in September and October, but in recent weeks, price per-acre for tillable land is pushing back to 2013 levels of $9,000.”

          Right now, commodity prices are high, and this pushes farmland prices up, but Minnesota and the Dakotas are in a severe drought. High crop prices are nice — if there’s a crop to harvest.

          Not much rain is on the horizon, and this is a critical time for soybeans. It’s past that already for wheat, barley and corn.

          In the Twin Cities, the Mississippi is low and slow.

        • Dan Romig says:

          As a follow up to my comment:

          The USDA has just forecast that the oat crop in the Northern Plains and Canada will be 41.3 million bushels — the smallest crop ever recorded.

          North Dakota’s barley crop is estimated to be at 18.2 million bushels, down 37% from last year with yields at 38 bushels per acre. 70 bushels per is considered a good yield. But beer fans, there’s more trouble as the crop will be high protein — which is good for pet food but not for brewing.

          Corn is just about to push tassels. Soybeans are blooming and starting to pod. The spring wheat crop will be the smallest in more than thirty years.

          It’s dry, and crops are also stressed by nutrient deficiency.

          In my 18 years in the wheat seed genetics business, I learned that Mother Nature calls the shots.

      • Apple says:

        Slow motion hyperinflation?

        Is that like jumbo shrimp, loose gravel, or new tradition?

        • Wisdom Seeker says:

          :) Definitely not a new tradition, the Romans did it.

          Cascading devaluation?
          Catastrophic decline in purchasing power?
          Dollar degeneration?
          Boiled-Frog Federal Financing?

    • ursel doran says:

      “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. Lenin was certainly right.

      “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Keynes

      https://www.goldmoney.com/research/goldmoney-insights/lessons-on-inflation-from-the-past?

  2. cb says:

    M2 is but a part of all the dollars in existence.

  3. SI t23 says:

    The price of goods available expands or contracts to fit the amount of money available to buy them.

    • Moosy says:

      And the amount to helicopter around compounds with earlier helicopter money so each year more and more

      It is a bit sticky so now it is only 120B/month added but when the next problem arises, that amount will go up. In fact, this $6T “infrastructure” plan is just doing that.

      So you bought that shack for $700k. In a some years —and unfortunately, it will be much much less then 40 years— it will be $7M .

      You have to sell because property taxes at 1.5% are now 100k/year). But now you are on the rope for capital gains tax of $7M – 700k – 500k =5.8M which at proposed 40%+15% state + misc = 60% gives you a bill of 3.5M leaving you with $3.5M

      Or basically, your still lost 50% of the real value of your assets.

      Obviously, it is better than if you had put your $700k at that wonderful generous 0.1% interest leaving you with 90% loss of the real value of your assets but loosing half still is not that great.

      The only way to escape this asset loss is by never selling your asset.

      And THAT is the rub.

      Only if you have really lots of money you do not need to ever sell your assets , dividends and other distributions are enough to pay the bills or only need to sell very small part of the assets you will come out on top.

      To top it off, Jus add some virtue signalling and choice donations like Gates and Buffet to fend off the leftist .

      • VintageVNvet says:

        Moo,
        It’s actually pretty clear that the old line oligarch families have NOT sold anything in the way of RE or anything else of the nature of ”real” assets for many generations/decades and even centuries.
        They are very happy to sell us wine and some food and even some ”medical services” and other things that will go away/be consumed soon, while continuing to hold very close control of all of the real assets.
        While your point about being able to continue to ”pay the piper” in terms of taxes and other permanent ”costs” is always true, that is exactly how many of the long term oligarchs work their properties, and have done for at least the last couple of centuries, since the novel concept of ”democracy” has taken hold to the point where their long term ”serfs” have asked, politely of course, for help…
        Kinda sorta similar to when the barons asked to be able to own their serfs independent of the KING.
        To be clear, Gates and Bezos, etc., are just recent arrivals who will be needing to prove their long term allegiances to gain entry to the real oligarchs who continue to own most of the assets of the world, carefully hidden from public view by layers upon layers of corporations, etc., etc.
        Surely, a lot has changed in the last few/9 centuries,,, but, in reality, not much, in fact, for most of WE the Peons,,,

        • historicus says:

          and now they have taken away the ability to save…in fact the FED has created an environment in which savers are PUNISHED!!!
          Intentionally punished by a promoted 5% inflation and intentionally promoted zero interest rates.
          NEVER BEFORE has this happened…and itsw not a quirk…it is INTENTIONAL by the Fed.
          So people must go out and buy what the oligarchs already own…and noted. Maybe the Fed is run by oligarchs….hijacked?

        • c_heale says:

          That’s because all their money is in tax havens.

      • Fat Chewer says:

        Oh, don’t forget to just add some god, mother and apple pie virtue signalling to defend against the rightists.

        • josap says:

          LOL
          Or the leftist.

          Why do we think of everyone as being on the far fringe? It really isn’t that way at all.

  4. I think we’re at a point where the inflation rate in terms of purchasing power doesn’t even matter anymore because if the top 1% decide to buy up tangible things, prices will go through the roof. In any given year, we are at the mercy of the super rich. We hope they spend their money on intangible assets or tangible assets where the price is much higher than the material it’s made of (luxury cars, luxury homes, expensive art, etc). If that money ever begins to focus more on things that are useful to average people, we simply won’t be able to buy things at any price. Maybe inflation averages 2% for the next 15 years and then suddenly shoots up to infinity because it’s all sold out and unavailable at any price. The higher the wealth inequality, the more rapidly it can happen and the more likely it will happen. I think Wolf showed a statistic once that showed that even if we exclude the top 1%, the next 9% have an average wealth of $7 million, so we have to hope that this group of people keeps spending money on stupid things as well.

    • Brent says:

      =top 1% decide to buy up tangible things=

      Paraphrasing old proverb: “If Wishes were Horses Jerome Powell could buy the Whole F… World ”

      About 10 years ago all MSM outlets all of a sudded started babbling “$3T of mineral wealth was just discovered in Afghanistan !”

      Also all TV channels were showing group of Afghani women in Kabul protesting their oppression (real or imagined).And all of those women wanted to go to college and become Doctors and Lawyers 😀😀😀

      Well…

      Did not work out as planned.

      I think Jerome Powell can snap his fingers,conjure up another $3T,go to Afghanistan and try to buy the whole country & poppy fields & mineral rights.

      Somebody will take $3T.Then somebody else-most likely bearded guy with RPG or Stinger-will explain to him that what works in the US will not work there.

      • Moosy says:

        ‘ If Wishes were Horses Jerome Powell could buy the Whole F… World’

        Do you know you just summed up in a single sentence what is going on?

        Powell and friends print unlimited money. They do not give it directly to their friends, too obvious, but helicopter it around.

        This money causes massive inflation and will drive up the stock and asset values of his friends.

        We the suckers whose paycheck do not go up but property tax does, can no longer make ends meet and decide to sell to Powells friends at Black Rock.

        We think we made a killing on our house until April 15th when half that money is confiscated through capital gains tax and the millionaires tax we had never thought we would fall under

        We were too ignorant to realize with the house sale and inflation, we soon will be worthless-currency millionaires as well (and dont expect politicians to adjust the tax rate thresholds to counter)

        With only 50% of the money left after paying taxes, we start renting instead of buying a smaller house. The rest we put partly in a savings account which has increased from 0.1% to 5% but still way below real inflation.

        We keep our heads down since inflationary helicopter money keeps coming and we do not have to pay for healthcare (we only have to wait 6 month for any visit) and the rent on the house we rent from blackrock we do not have to pay due to covid -23

        Fast forward a few more years, our savings account value is wiped out, Powell and friends own everything.

        They say we will own nothing but be happy.

        You think so too?

        • Brent says:

          As things stand now their plans work like a charm.

          1.Courtesy of Blackrock-financed cash straw buyers every other owner of Tyvek-wrapped 2″×4″ frame chicken coop is a millionaire

          2.Increased property taxes will guarantee the lush lifestyles of our >$100K per year Gov retirees

          3.Super-landlord Blackrock will fill their empty units with Section 8 tenants and suck Gov tit.Because Blackrock top cats live in Gstaad and could not care less if that particular suburb becomes too vibrant and dies.

          4.Blackrock will weasel out of paying property taxes.Just like Walmart moves in,does not pay squat in taxes,drives small merchants out of business, then closes and says everybody must drive 50 miles to their new Supercenter to buy a jug of milk.

        • Raging Texan says:

          Moody who is we?

        • General Strike says:

          It’s called Capitalism. Asking the Capitalist to fix these problems is like asking the arsonist to help you put out the fire the arsonist started.

    • MiTurn says:

      “purchasing power doesn’t even matter anymore because if the top 1% decide to buy up tangible things”

      Orthodox Investor, that is a very compelling and cogent thought. Thanks for sharing.

      • Brant Lee says:

        Do you mean perhaps like Bill Gates buying up farmland? He owns 242,000 acres, the largest owner in the U.S. bought from stock profits. Want to sharecrop for him soon?

        Anyone seeing where this is all going?

        • Moosy says:

          Serf: you

          Powell , Gates , Blackrock and throw in a few corrupt politicians: overlord

        • I think Gates probably intends to produce food even if it isn’t profitable should economic depression like the 1930s occurs, when farmers plowed their crops under and people went hungry. Gates now has the greatest -ism, altruism. The world keeps returning to feudalism when nations states fail. The history of the US will read, they would have been a 1000 yr empire, but they allowed technology inside the gates :]

        • Wisdom Seeker says:

          242,000 acres sounds like a lot but isn’t.

          The US has 897,000,000 acres of farmland according to USDA.gov.

          This doesn’t include a lot of acres that could be farmland but aren’t being used for that purpose, including a lot of backyard lawns that are just growing grass.

        • Michael Smith says:

          He is buying up strategic land. Land that has a high yield capacity and is close to major cities. This is no accident.

          The rest of us farmers buy depleted land and reform it over years to become workable.

          Also the comment about food prices not being higher since 81, yeah that’s partly because of government crop insurance but the fact that 60% of our produce comes from Mexico at slave labor prices. It’s hard for us to compete with thise guys flooding the market and the consumer isn’t willing to pay even 25 cents more per pound.

      • Wisdom Seeker says:

        I’m with MiTurn – The notion that prices are at the mercy of 1%-er “investing” choices is really powerful.

        This is part of why housing is too expensive. With the steady decline in rates, too many people came to view housing as an investment rather than a place to live. Ditto for anything else bought on borrowed money.

      • Sierra7 says:

        MiTurn (and others)
        Separate “Needs” from “Wants”; “Quality of life” from “Lifestyles” and you are on the road to recovery.

    • josap says:

      They aren’t going to buy all the $15. shirts or $25. shoes at Walmart.

      • Jacq says:

        Well no. They buy things that have a return. Like stocks, companies that are profitable. Those companies make things. Those companies employ people. Those people buy the 15 shirts. The rich own those people and give them enough money to buy shirts (wages). The rich don’t buy shirts. They buy whole systems of production including the human resource.

        • Tom Pfotzer says:

          This is a very important thing to keep in mind:

          “The rich … buy whole systems of production including the human resource.

          In my opinion, this is the core of our economic problems. The “rich” – clever people looking out for their own interests – buy production capacity. Wealth-generating capacity.

          The capacity generates wealth. No surprise there, right?

          The pivot point – the fulcrum – of wealth disparity is the question of who owns the capacity to generate wealth.

          If we are to have a stable society, the capacity to generate wealth needs to be spread out more evenly.

          If you happen to agree with the logic I set out above, then here’s a question to muse on:

          What options are there for equalizing, and maintaining that equalization?

          Mobs can achieve some momentary re-distribution (riots, etc.) but they can’t deliver high production, and they can’t deliver maintenance (continuous) of equalization.

          Politics of re-distribution (gov’t handouts via printing money and taxing the rich) can provide short-term relief, but not long-term prosperity. We are seeing that play out now.

          What are the moves?

        • kam says:

          With the mirage exception of inflating “assets” there is no return on investment.
          The USA has no value-added engine, only the Fed and the disgusting spending/theft of future generation’s opportunities.

        • Augustus Frost says:

          “If we are to have a stable society, the capacity to generate wealth needs to be spread out more evenly.

          If you happen to agree with the logic I set out above, then here’s a question to muse on:

          What options are there for equalizing, and maintaining that equalization?”

          Longer term, there isn’t one because society is composed of flawed human beings.

          Shorter term, there also isn’t one that doesn’t include noticeably lower living standards for the majority of the (US) population.

          The political consensus increasingly views some arbitrary minimum living standard as a birthright. What kind of long term stability can exist with this flawed thinking, especially when the cost keeps increasing?

          Cutting the government down to size is the only direct way to reduce the power of elites by preventing them from using the government to plunder the rest of society. Most of the populace wants the government to do more not less, all the while believing in the fantasy that “democracy” should be able to give every one a more equal “voice”. That’s never happened and it never will.

          A second step would be a return to personal responsibility and accountability. Increasingly it seems no one is ever accountable for anything.

        • 3D Modeler says:

          Tom Pfotzer, look to history for the answer to your question. In many cases it took a total collapse to cut everyone down to size…including the rich. Not unlike a forest that burns down, generating new growth. All of the new saplings are the same size for awhile.

        • 91B20 1stCav (AUS) says:

          3D-…and continuing to look at history, those ‘saplings’ were watered with incredible amounts of blood (some of it could be yours-are you in?).

          may we all find a better day.

        • 3D Modeler says:

          I suppose I’m “in” by default for whatever ends up being inevitable. But I do agree with your final statement. Hopefully history can teach us all a better way forward.

        • Fat Chewer says:

          Tom, you may not realise it, but you have just quoted the Communist Manifesto chapter and verse. You are talking about the common man owning the means of production. The central idea of Communism.

          “To the salt mines with this rabble rouser!”

        • Wisdom Seeker says:

          @Tom – I’m with you. The corporatist oligarchy needs to be democratized. Some of the historical tools (short of revolution) are:

          1) Antitrust law (early 1900s but not applied properly since ~1980).
          2) Capital Gains taxes
          3) Inheritance taxes
          4) Limitations on executive compensation (in all forms)
          5) Limitations on cross-ownership and cross-management (boards of directors; large mutual fund firms have too much power)

        • Tom Pfotzer says:

          Fat Chewer:

          I was kind of hoping that someone would raise that objection, e.g.

          “communists advocate for equalization of wealth-generating capacity”.

          FC, let me ask the question like this. Is it “communist” to advocate for:

          education, so that people with skill can fully realize their potential?

          small business set-asides, to tilt the playing field a bit toward small business (where most innovation and job creation happens)?

          Anti-trust suits, to break up monopoly power, which tends to reduce societal-level economic performance? (as Wisdom Seeker notes below) ?

          What about efforts to teach people how to form into teams (nucleus of an emergent small business) and develop an idea into a new business?

          Are these things “communist”? Are they “bad”?

          In order to solve these really tough economic problems we face, we’re going to have to do Level II – class thinking, and get out of the dogma ruts we’re stuck in.

          A bit more directly: if you’re going to beat someone (like me) with the dogma-stick to shut them up, you better be ready to rumble.

        • Wisdom Seeker says:

          @Fat Chewer –

          The communist critique of 1800s laissez-faire crony capitalism was dead on.

          It’s been amply demonstrated the communist solution doesn’t work.

          But there are miles and miles of daylight between the critique that concentration of wealth and power destroys capitalism and your strawman notion (which isn’t even communism) that “the common man should own 100% of the means of production”. In idealized communism no one owns the means of production (and in practice the Party owns everything), but Tom was suggesting neither of those.

          The early-1900s Progressive / New Deal solution – antitrust law, workers’ rights, limiting the power of financial elites etc – worked for 50-100 years. Sadly, people got complacent and let the foxes back into the henhouse; the cronyists eviscerated the key legal protections (many of which I outlined).

          Glass-Steagall (separation of banking vs. financial speculation) would be another addition…

          … and I would add that in a properly structured system there should never be “Federal Bailouts” of any states or private entities. “Too Big to Fail” means Too Big to Exist – where are the antitrust breakups a la AT&T or Standard Oil?

    • Jeff says:

      Ortho,
      When you write of the 1% buying up tangible things (that common folk may also be buying) – what is it that you’re thinking of? It’s an interesting thought, but I’m not sure where it’s going to happen.
      They are only capable of so much consumption (food, gas, everyday supplies, etc.), and I don’t see that changing much if at all.
      On that note, the holding costs for housing make it expensive over the years, especially for somebody ‘rich’ who isn’t going to rent it out. So it seems like there is some kind of limit on purchases in this regard.

  5. rich says:

    In December of 2020, US private debt was 164.11% of GDP. That was a lot higher than US Government debt at 107.60% of GDP. No wonder the Government has to keep the stimulus money flowing.

    In the U.S., we borrow money we don’t have, to buy stuff we don’t need, to impress people we don’t like. We work to pay off debt and then we die. When the stock market bubble finally breaks, there will be a lot of pension plans that will be horribly underfunded. In the future, only a small fraction of Americans will outlive their money.

    • Paulo says:

      Rich, this is a terrific comment. I would just like to add that the condition you describe applies to far more countries than the US, my country as well, (Canada). All first world countries I would imagine.

      we borrow money we don’t have, to buy stuff we don’t need, to impress people we don’t like. We work to pay off debt and then we die.

      Amen.

      We are having visitors overnight this Monday. Two couples. We are going all out with food and liquor….music. Now that is money well spent! Breaking bread with people we care about.

      • ivanislav says:

        “We buy shit we don’t need, with money we don’t have, to impress people we don’t like.”

        That’s George Carlin, a famous stand-up comedian, now deceased. His societal observations were trenchant.

        • Moosy says:

          So don’t buy shit you don’t need , only stuff you will never sell.

          But if it is stuff you need and will keep, you can borrow with money that will become worthless over time.

          And Don’t try to impress other people if they only would like you for something you are or have not, I can tell you, don’t give a shit, it is very liberating.

        • rich says:

          Sorry ivanislav, but George doesn’t get credit for the “impress people we don’t like”. Actually, I no longer know who people are trying to impress, because, where I live, giant self-storage facilities are springing up like mushrooms along the highways. It seems like absolute insanity that folks can’t afford to pay the rent on their dwellings, yet they can somehow pay additional rent for places to store their extra stuff. Wherever new, wood balloon framed, three and four story apartments spring up, within a few months, giant self-storage facilities spring up nearby. Guessing that this is not just some local phenomenon.

    • Micheal Engel says:

      1) Jeff Desjardin : US household debt/ GDP is 78%, UK : 89%, NZ : 95%, Canada : 110%, Australia : 122%, Switzerland : 131%.
      Portion of the mortgage debt, total : $14.5T :
      2) The silent generation : 4.8%.
      3) Boomers : 29%.
      4) Generation X : 42% !!
      5) Millennials : 24.2%.
      6) Generation Z : 0%

      • Wisdom Seeker says:

        @Micheal: please don’t use the generational stereotyping by which boomers (those in power) advantage millennials (their kids) over “Gen X” and “Gen Z” which are portrayed as mysterious “others”.

        Also, unless you clarify how many people are in each age group, the percentages are meaningless.

        Finally , debt levels are very easily understood in terms of mortgages. Older folks have mostly paid off their homes and generally out of debt since they’re retired or close to it. Really young folks can’t afford homes yet. Those in the middle have student loans, auto loans and mortgages to pay off. So of course they have more of the debt.

        The other thing to keep in mind is that debt levels are irrelevant unless you also look at assets. Someone with $1M in loans but $10M in net worth isn’t really in debt; they’re just betting that their other assets will increase in value more than their loans will cost them.

    • Ru82 says:

      Luckily only 13% of workers have pension plan. So not that many people will be effected?

      But about all Government workers have pension plans and from what I have seen is they raise taxes to make up for the underfunded amount

      • SpencerG says:

        That low 13% number is vastly overstated. It only includes “Defined Benefit” retirement plans. In point of fact the percent of the American workforce that has any type of retirement plan (Defined benefit and/or Defined Contribution) has risen from 42% in 1975 to over 60% today.

        Moreover, the participation goes up by age. Perhaps the 20-somethings of the world SHOULD be putting money aside for retirement… but they are not… nor have they ever been. I certainly didn’t at that age. They have more immediate concerns and uses for their money (like career-starting and child-rearing)… to say nothing of making less money than other adults to boot.

        The real issue is that so much of the money retirees have set aside in IRAs and 401Ks simply hasn’t earned enough to create safety in retirees old ages. It has been a rough 20 years.

        • Augustus Frost says:

          When it comes to society collectively, it isn’t lust the amount money. It’s the productive capacity of the economy to provide sufficient goods and services that people can afford to buy with the retirement savings they have.

          The argument behind offering a private option within social security is that putting contributions in index funds would have given participants a higher return. If the economy isn’t sufficiently productive, it doesn’t make much difference whether the return came from inflating asset markets, QE “printing” or UBI. Either way, there is no real increased production behind this supposed “wealth”.

        • Wisdom Seeker says:

          @Spencer: Retirement itself has gotten more expensive! Over the past 10-15 years or so, the cost of retirement (priced as a lifetime annuity) has gone from ~14x desired annual income to ~20x desired income.

          Put another way – fiat currency is so bad that you can hardly even buy income with it!

      • Ensign_Nemo says:

        How many private pension plans are fully funded? Unions are quietly merging, so that they can keep the scam going for a few more years by mixing stronger pension plans with weaker plans. My own union merged a few years ago and now the pension plan is only 75% funded. I get annual warning letters from the government overseers saying that the plan is 80% funded, then 77% funded, then 75% funded, etc. Once it gets low enough, everyone in the union leadership will retire just in time to take lump sums and clean it out completely.

        I expect that there will be nothing left when I retire and the government will take it over, and print money to pay out 40% of the nominal value of the plan. By that time, I’ll be lucky if 40% of an already paltry monthly payment will buy a takeout pizza every month.

  6. MF says:

    Agree with Orthodox Investor.

    The inflation has already happened, in the sense that the money supply has been inflated beyond all recognition. It’s a fait accompli. All we’re waiting for now is to see how it will show up in the system and which powerless segments of society will feel the hurt the most.

    The only quibble I have with Mr. Bergman is that inflation *is* a tax levied by the overclass on everyone else. They, by definition, cannot suffer a loss of purchasing power having been first in line doing the buying that trickles down through the rest of the economy.

    Trickle down really does work. Just not in the way you were told.

    • RightNYer says:

      I think you’re talking about the Cantillon effect.

      • MF says:

        RightNYer: No, I am not.

        While Cantillion’s observations are playing out now, as they did in the 18th Century, I reject the premise that today’s inflationary policies were put in place in a Quixotic attempt to help the average person.

        My point is more narrow: today’s monetary expansionism is an intentional tax levied by self-appointed masters on the rest of us. They aren’t accidentally creating a financial system that resembles cannon balls rolling around on a wooden ship during a hurricane.

        They *know* it destroys wealth for the bottom 90% of the population. They just don’t care.

        • CRV says:

          Exactly my view.

          “They *know* it destroys wealth for the bottom 90% of the population. They just don’t care.”

  7. Bruce Sammut says:

    MONETIZATION OF DEBT HAS A VERY SAD HISTORICAL RECORD.

    The Fed is a classic example of “Groupthink” in action.

    The question is how long will will it take for the results of these stupid policies to become obvious to the average American.

    Cheers,

    B

    • historicus says:

      “The Fed is a classic example of “Groupthink” in action.”

      Yes. Convincing themselves in a closed room.
      Just like Yellen admitting they “chose the wrong theories” to follow. It was the theories that were wrong, you see, not the people who decided to follow them. In the real world, “you’re fired”.
      Is it “groupthink” or is it a facade, a team effort of deceiving the public?
      Or is it nefarious oligarchs hijacking the Fed, making them do the uneconomic to pump their assets…..like keeping mortgage rates HALF of what they should be in this inflation environment?

  8. Kaleberg says:

    We’ve been seeing a lot of inflation over the past 30-40 years, but almost all of it has been at the high end of the economic scale. Interest rates are near zero, stock prices have been soaring, high end real state keeps booming, the art market is insane and just about anything a rich person is likely to buy has appreciated in value. That’s because no one except the very rich has had any money.

    Now, it’s inflation for the rest of us. Somehow, ordinary Americans have gotten their greedy mitts on a bit of the green stuff. Of course, prices are soaring. The bottom 99% is a market sector that has barely been scraping buy, and now they want to buy stuff. That means all sorts of adjustments. The horror, the horror.

    • 2banana says:

      Exactly how?

      Not counting freebies from government.

      “Somehow, ordinary Americans have gotten their greedy mitts on a bit of the green stuff.”

      • Augustus Frost says:

        I think he was being sarcastic.

        Concurrently, why would anyone expect any other outcome than one which has happened? The country as a whole (far from just the rich actual or imagined) has been living beyond it’s means for decades.

        Add it all up and it equals most Americans being poorer or a lot poorer in the future.

  9. randy oldman says:

    The average American has virtually no chance of winning a home over an investment firm, which may pay 20% to 50% over asking price, in cash, sometimes scooping up entire neighborhoods at once.

    • Top-GUN says:

      Wolf did an article about two weeks ago pointing out that this is not true.

      • Michael Gorback says:

        Scooping up neighborhoods? Probably not. After the GFC a lot of the SFH rental stock came from foreclosures. It wasn’t until later that they started building SFH rental communities. Even then, when Blackrock bought that rental community the tenants had right of first refusal and quite a few bought the houses they were renting.

        Outbidding the little guy? Actually they’re front-running the little guy. The real estate fintechs buy houses that aren’t even listed, mark them up, and flip them a month later. Even if they aren’t flipping a house they make buying and selling a lot easier. You can buy a house without leaving your sofa. In a hot market that removes the brakes.

        So the corporate players are adding to the churn and adding to the price inflation. I can’t imagine someone who’s not contemplating selling their house changing their mind because they got a cold call, but apparently they do.

        I saw some interesting data yesterday. Builder sentiment is way up. Building permits are rising but builders aren’t building to keep pace. I don’t know why, but they’re building far fewer houses than they get permits for. Waiting on materials? Not enough labor? Trying to imitate DeBeers?

        It should get interesting when the mortgage moratorium ends. Assuming it ever ends.

        • Tom21 says:

          Own and operate a business.
          All my friends are similar ranging from excavators, builders, plating, welding and fabricating.

          Backlogged….but doing fewer hours. All of us small business out in fly over.

          Everyone one of us has a supply, or replacement parts issue. And it has gotten worse in the past month.

      • Jon says:

        Although Randy is not factually correct but I get the essence of his post

        There are bidding wars going on for homes in the market and people have to really stretch to buy crappy homes

        The reason for above is.. financializtion of homes and yields so low that no where else to go
        All by design by FED to enrich the asset holders at the expense of common Joe

    • Ru82 says:

      They are buying a lot of houses but mostly the important ones……the ones in good school districts and low crime. America 4 homes even said this. They will overpay because people who can afford to buy a home will rent in a good neighborhood than buy a house in where the school is not good.

      Thus, they are buying the important homes

    • Swamp Creature says:

      randy

      Haven’t observed any of that in the Swamp. Not a single case we did over the last two years (over 100) involved an investment firm buying up houses for cash. Most of the abuses of the VA program have come from individual homeowners who misuse a program which was originally designed to help Vets buy their 1st home. A lot of homeowners think they are big time investors when they are nothing but lemmings heading for the slaughterhouse.

      • ru82 says:

        Hi Swamp Creature.

        The wall street based housing companies are mostly focused on suburbs in growing cities from what I can tell. They are not yet investing my flyover city. But somebody is. I live in a house in a great school district and actually get calls from call centers which I guess are in India based on the accent and the call center background noise of lots of people talking. But I do not get these type of calls for my low income rental. I do get a lot of local postcards for local investors wanting my low income rental but not the call center calls.

        The article I am referencing was in Nashville. It was a story about some couples who kept getting overbid by the Wall Street companies like America Homes 4 Rent

        AH4R was right. This couple then chose to rent one of these AH4R houses rather than buy in a not so good school district.

        Smart strategy as these type of neighboorhoods hold their value and appreciate faster.

      • Michael Gorback says:

        Go to Zillow. In your search check “Zillow owned” (or something like that).

        Do your search then go to the map. Expand the map and you can see where Zillow is focusing its flipping. Very selective. Last time I looked they weren’t in NoCal or the entire northeast.

  10. randy oldman says:

    Phony fiat for real assets! What is the endgame?

  11. MiTurn says:

    “Inflation can be considered as a tax”

    Except that a tax, in theory, is part of the cost of governance. Inflation does not pay for service. Perhaps it might be more accurate to say the inflation feels like a tax.

    Just a thought.

    • davie says:

      Except taxes aren’t even required to pay for services.
      All that’s required are people that accept the currency being paid for their services.
      Try it yourself, mint your own cash.

    • YuShan says:

      It really is a a tax that pays for government “services”. By borrowing from bond holders and paying them back less in real terms, they have more budget to spend on things.

    • historicus says:

      MiTurn
      “Inflation does not pay for service. ”

      The “service” is the reduction in the value of outstanding federal debt. The beneficiaries are those is debt. Inflation is a “service” to them.

      Let’s start with SQUARE ONE…
      We have a Federal Reserve that is charged with “stable prices” and they promote inflation. Why is this not the FOCAL POINT of all of this? It is a violation, a policy that is diametrically opposite of their mandates/instructions/and agreements that allow their existence.

    • historicus says:

      “Perhaps it might be more accurate to say the inflation feels like a tax.”

      Milton Friedman says its a tax. It takes wealth.
      So maybe a better way to explain it is that it is THEFT….especially when planned and promoted, as with the Federal Reserve.

    • Auldyin says:

      MT
      I think of it as a direct tax on liquidity. On every dollar in your pocket the Govt has taken 8 cents last year. They get the benefit by only paying back 92 cents on every dollar they owe. That also applies to individuals with debts.
      The further you are from liquidity, the less the tax affects you.
      For example if you own land, it’s price will rise to negate the tax.
      Tax, borrow or print, only ways ever to pay for Govt!

  12. 2banana says:

    You might want to think why is government and the Fed doing all in their power to create massive inflation.

    Most likely to reduce the actual real cost of government debt.

  13. Gen Z says:

    Tiff Macklem of the Bank of Canada sees no inflation, and he’s glad that wages are suppressed, while he and Adam Vaughan laugh at their gains in their asset values.

  14. Michael Gorback says:

    I don’t believe for one second that this is due to wild consumer spending.

    I can understand shortages due to getting production back on line. As we’re seeing with timber, which is down by more than half in a couple of months, these phenomena are self-correcting. Nothing any government or central bank needs to address.

    There seems to be a supply bottleneck on the west coast with container shops sitting offshore for extraordinary lengths of time. This too should be self correcting. Nothing any government or central bank can do.

    Food costs will be impacted by the drought. Nothing any government or central bank can do.

    Chip production will be addressed by chip makers. Nothing any government or central bank should do but they are, well, because. The next thing we’ll see is a chip glut in 2022.

    Oil is not under our control either. Nothing any government knows how to handle.

    The manic purchasing of houses and cars – no matter how much we beat it to death – seems as impenetrable as why the Kardashians are famous.

    I read about a “mansion shortage ” in Palm Beach due to all the rich New Yorkers moving there. But here in my little backwater there’s a feeding frenzy for $300,000 houses.

    There seems to be a worker’s strike going on. We’re still down 6,000,000 jobs. Please don’t let the government try to help. They’ve already made it worse with stimulus checks and extra unemployment benefits. This is something employers and employees will need to sort out.

    Ultimately most of this price inflation is not due to hot money.

    This is one of the most dramatic charts I’ve ever seen. Whether you believe velocity of money means anything or not, please look at this gross aberration.
    https://fred.stlouisfed.org/series/M2V

    Lowest turnover ever. Don’t succumb to “action bias”. Doing something isn’t always better than doing nothing. Fiddling with most of these things will just make it worse.

    For once I’d like to try letting millions of individual human beings work out their own problems.

    • Wolf Richter says:

      Michael,

      The M2 velocity chart you linked has been obviated by modern payment methods. It no longer measures anything. This should become apparent when you look at it. The decline started in 1997 because that’s when online payment methods and other online-based systems became a thing, when when payment via paper dollars and checks began to collapse. The new online-based systems didn’t exist when the this measure was devised. People keep citing this chart, but it’s totally useless. The chart needs to go into the closet of history.

      • Michael Gorback says:

        And replace it with what?

        • Wolf Richter says:

          Not sure. Maybe I should lock myself up for months and not emerge until I found something that works :-]

          There are plenty of money supply measures that capture reality more or less. It’s just that this “velocity” version is dysfunctional.

      • Michael Gorback says:

        If M2 velocity means nothing, why are we discussing M2 vs GDP?

        • RightNYer says:

          M2 is still useful in terms of dollars out there. M2 velocity is not.

        • Brent says:

          There is a difference between “local” and “global” analysis-like finding extremum points (maxima or minima) or studying manifold as a whole (Morse theory).

          To glimpse US physical economy as a whole you may google “BEA Input-Output Matrix”.It has 3000 rows and 3000 columns and is calculated since 1940,courtesy of smart Russian cat Vassily Leontieff…

          To take a look at the total money flows you may google google “Circular Flow of Income”,btw Gov Almighty is in there.From that Wiki Article to article links to Fed Deepest Secrets to Truth-who dares wins !!!

          Makes no sense to single out just “M2” and stake one’s life on it 😀

        • Wolf Richter says:

          Bill is not using the M2 velocity you’re using, as you can tell. He’s using M2 money supply.

        • Michael Gorback says:

          @RightNYer

          Going to back that up or are you hitching a ride on the “mere assertion” train?

      • Michael Gorback says:

        I’ve spent the last hour online looking for validation of your thesis on M2 without success. Can you provide a citation?

        Please explain why the featured article uses M2 in both charts if M2 is a useless number. Why present us theses based on useless data?

        Maybe the drop in M2 velocity since 1997 isn’t due to changes in payment methods but a reflection of a stagnating economy.

        And where does the money come from to pay credit-card balances come from if not money in M2 accounts?

        • Wolf Richter says:

          You’re confusing/conflating/equating M2 money supply (in this article) with M2 velocity. It’s the velocity part that has been obviated by technology. M2 money supply is fine.

        • Michael Gorback says:

          Wolf,

          No, I’m not conflating M2 with Velocity. For some reason – which no one has thus far been able to elucidate – M2 was good enough to be on both charts, as was GDP.

          What happens when you divide GDP by M2? You get Velocity. You want your cake and your penny too, but hold the Velocity.

          You stated that Velocity started to lose its luster in 1997 due to alternative forms of payment. Credit cards had been around a long time. PayPal didn’t even have its platform developed until 1998, and its IPO was in 2000, used primarily on eBay where even there it accounted for only 1/4 of settlements.

          What I find more intriguing than an unsubstantiated dismissal is the fact that steep Velocity drops in the past 25 years coincided with recessions in 2001 and 2007, and covid.

          Furthermore, correlation can be seen between employment-to-population ratio and velocity, which moved in lock step together.

          https://fred.stlouisfed.org/graph/fredgraph.png?g=FvWV

          I hope I got the chart right. I’m not very adept with FRED.

        • Wolf Richter says:

          I’m done with this. Have fun with it. You found two data sets that are completely different but are driven by the same factors: changes in technology and automation. And you squeezed them together on the same chart. I’m not exactly sure what you did there. But pretty slick. Below is the undoctored chart, from the 1960 forward, of both the links that you included, M2 velocity and E&P ratio, and it doesn’t look that similar anymore. Anyway, have fun with your argument.

        • crazytown says:

          Isn’t velocity just M2 divided by GDP?

    • Ru82 says:

      You might be on to something with the worker strike. I went out for late supper burger and was looking for a fast food restaurant a 8:30 on a Saturday night. The local Wendy’s and Burger King were already close for the night. So was the Long John Silvers and a few others. I had to drive all over to finally find a Taco Bell.

      I have never seen so many fast food places closed this early on a Saturday night

      • endeavor says:

        We may be going back in time to when many businesses closed on Sundays.
        Many small businesses hour out their smaller workforces and can’t stay open throughout the week. With higher pay this may be a societal benefit.

      • El Katz says:

        Depends on where you live. Some establishments are closing early in areas where criminal activity spikes when the streetlights come on.

        Noticing another trend here. Small restaurants (family run) are closing for extended vacations. A few nearby (and we don’t have that many out here in the weeds) shut down beginning on July 3rd and didn’t reopen until July 15th. I guess those that choose to work needed a break. Our local sushi haunt has returned to closing on Sundays as well. Another haunt we go to is closed Sunday through Tuesday and serves customers for 5 hours (11:30-1:30 and 5:00 – 8:00).

      • Swamp Creature says:

        Maybe this was a good thing. Eating junk food late at night????

      • ru82 says:

        I read and article about worker strike. The minimum wage in the state the articled referenced is $7.75 hour and the last increase was in 2009. So for 12 year the minimum wage did not increase.

        Then the author added, for many of these minimum wage jobs you do not get vacation, health care, sick time, and 401k.

        So if you are going to treat your employees this way….why would they show up.

        The final point was, if you pay enough and treat your workers well (benefits)….the workers will show up.

        • c_heale says:

          Think you could add skimming wages, crappy shifts, and working for unpleasant people to this list.

  15. Remy says:

    Add on “futures” contracts for things that may have had a reason for being, but now are just the over financialization of everything.

  16. Micheal Engel says:

    If the vaccine decay faster than Dr. Faust admits, the inflation decay
    will be faster than it’s rise.

    • Swamp Creature says:

      The key metric is how fast the natural immunity of people who got COVID and recovered lasts. Some doctors are saying it won’t last more than 5 or 6 months. So if they don;t get vaccinated they could be the source of a new outbreak. Once again no one is talking about this. ignored completely by the corrupt main stream media.

      • Happy1 says:

        People aren’t talking about it because no one knows how long natural immunity will last. But as a general rule, severe illness generates lasting immune response. I wouldn’t be too concerned about the waning of natural immunity at this point.

  17. RightNYer says:

    “Back in the Great Depression, economists and government developed our modern framework for Gross Domestic Product (GDP, the total value of goods and services produced in a given period). There were four main components (C+I+G+NX) – Consumer Spending, Investment Spending, Government Spending, and Net Exports.

    Some have questioned whether the G (Government Spending) belongs there at all, from an opportunity cost perspective, as government spending relies on taxes or borrowing money that could have been spent by somebody else.”

    Yes. I’m so tired of hearing about 2021 Q1 and Q2 “explosive” economic growth, when nearly all of that growth was due to government spending. I don’t consider the government borrowing or printing money, and handing it to people to spend on Chinese imports to be economic growth.

    • Augustus Frost says:

      GDP actually measures the monetary value of transactions but you know it. It’s a very poor measure of economic well being which is what “growth” is supposed to be about.

      Importing unlimited numbers of immigrants will also contribute to growth, even as the quality of life deteriorates for those who were already here. But GDP doesn’t measure that either.

      The population of the MSA I live in has increased somewhere around 5X since I first moved here in 1975 to 6MM+. Anyone who lives here is a prisoner much of the time in their own house or maybe a small radius around where they live due to traffic gridlock. But hey, life has never been better since they can order everything they need and communicate with most everyone without ever leaving their house.

      • historicus says:

        “GDP actually measures the monetary value of transactions”
        and about one third is government spending.
        So the trillions in deficit spending will pump the GDP…with money that didnt exist 14 months ago..

    • Swamp Creature says:

      RightNYer

      Stimmie checks are not earned by the recipient. No hard labor involved . So the tendency is to spend the money like you won the lottery. This is phony economic activity which has a short shelf life. When the stimmies end the economic activity ends with it.

      This is a bad message to send to the American people. Something for nothing. NO work required. But what do you expect from a bunch of communists that are running the country.

  18. CF says:

    And the price of adenochrome keeps going up.
    Gonna have to go back to Haiti.

  19. Micheal Engel says:

    When NX is negative for year and a half, I is negative, C was negative for half a year, G must rise.

  20. Artem says:

    Thanks, FED.

    A lot of M2 is obviously the FED generating reserves for the banks.

    • historicus says:

      Do the banks need anymore reserves?
      Arent they flooded with this “new liquidity” that is supposed to help main street but just pumps wall street?

      • Artem says:

        If they want to pass the very arbitrary stress tests, they need ALOT of reserves. It’s not a great system, just playing it safe to avoid 2008.

  21. Nathan Dumbrowski says:

    Biden is going to appoint a new head of Federal Reserve replacing Chairman JP. White House has got to do something to eliminate the taint of the previous administration. It will be used to say the money policies were let run wild. Inflation needs to be handled at the FED policy level. However they spin the news it will be to regain control of the policy. Nothing will really change. Just a headpiece will be replaced.

    Great crisis can’t be wasted without a scapegoat

  22. SpencerG says:

    Can there really be “too few goods and services” when China is willing to overproduce almost everything to achieve its own internal political goals?

  23. YuShan says:

    Regarding inflation, remember what the M M T crowd said what they would do when inflation runs hot? They said they would raise taxes to pull the excess money out of the economy!

    So this is the test if they were talking bollocks or not. Wait what? They just proposed $3.5T more spending? I guess their bluff has been called already.

    Not that anyone ever believed that they would really raise taxes during stagflation. Nor should they, of course. This stuff never made any sense. I wish we were done with it now but most likely we are not.

    • David Hall says:

      If they raise taxes to pay people not to work, they start a new round of inflation. The recipients of free money spent it on goods and services that require labor. They had so much money they bid up prices of real estate, company stock, goods and services.

      Years ago there was a DC area media report about a Federal bureaucrat who had a government office, but no assignments. He waited for payday. Few in those positions complain about it.

      Venezuela took taxes and seized multinational oil company property. They wasted their government income. We got reports of food shortages, empty store shelves and people fleeing the country. Foreign companies do not want to invest there, as their government stole. Marxism is not viable.

      • Anthony A. says:

        @David Hall” Years ago there was a DC area media report about a Federal bureaucrat who had a government office, but no assignments. He waited for payday.”

        You mean there was only one?

    • historicus says:

      Taxes dont pull money out of the economy…
      Taxes pull money from the people who earned it, and turn it over to the politicians who then dole it out for vote buying.
      Stays in the economy, just different control.

      What should happen is the Fed take back some of the M2 that they jacked up for the COVID response. If they put 27% into M2, they can sell off some of that balance sheet and calm things down… They wont. There is nothing more permanent than “temporary” central bank intervention.

      • Wisdom Seeker says:

        @historicus – of course you’re right but that’s not how MMT views taxation.

        MMT views money as being created when spent by gov’t, and destroyed when taxed back by gov’t.

        YuShan’s point is that the MMTers now face the acid test of whether they have any intellectual integrity, since within the MMT framework the cure for inflation is either reduced spending or increased taxation. So far they aren’t doing either.

  24. c1ue says:

    Some economists argue that inflation isn’t inflation until we see overall wage increases to compensate.
    I think it is much too early to say.
    I highly doubt that many people have asked for higher pay in the past year plus due to inflation – yet – as opposed to not wanted to work for $10 or less an hour vs. a $600+ a week unemployment check (= $15/hour).
    But this years’ reviews may well be different.

    • historicus says:

      “Some economists argue that inflation isn’t inflation until we see overall wage increases to compensate.”

      Record job openings….

      “Some economists argue that inflation isnt inflation until…….”, isnt this typical academic nonsense. It isnt what it is until…??
      Well, as Dusty Baker says….”IT IS WHAT IT IS.”
      Of course the deflectors will obfuscate, next step…..”It depends on what the definition of “is” is.” B Clinton

    • Wolf Richter says:

      There are different kinds of “inflation”:

      “consumer price inflation” (measured by CPI etc.); “wage inflation” (measured by various wage indices); “asset price inflation” including “home price inflation” (measured by various indices, such as the S&P 500 PE ratio or the Case-Shiller Home price Index); producer price inflation (measured by PPI); etc.

      They’re not necessarily running in sync, though they’re now running in sync.

      • Sam Lowry says:

        Wolf: “There are different kinds of ‘inflation’…”

        More properly put, there are different measures of inflation. Inflation, properly defined, is “expansion of the money supply.” Dictionaries will add “in relation to the goods available for purchase.” But the question becomes: Which goods?

        Given how blatantly contrived the ‘official’ measure of inflation is (see, for example, “owners’ equivalent rent,” and “hedonic adjustments”), it should be obvious that the government and banks want to get away with as much money printing as they can before it’s ‘officially’ defined as ‘inflation.’

      • Moosy says:

        Wolf,

        what about money supply inflation.

        Are all those other things not relative to that one?

        And here is my question of the day or actually, the whole decennium:

        if you for 10 years each year increase the M2 with 25% like in 2020 , it will will compound to about a 10x increase in 2030 from 15T to 150T . National Debt goes up accordingly from current 28T to 150T

        Assume (for simplicity) asset prices (houses, commodities, things, servcices) will increase at same pace.

        Current stock market is 47T

        Stock market keeps up with expansion and goes to 470T value. If cap gains stay at just 25%, that would be $100T in tax. So government is not $150T in the hole but ‘only’ $50T.

        House market is 36T and some of those houses will be sold (and if not, property taxes will do wonders as well). So that will go to 360T , cap gains of 25% , remove the deductable, $50T in cap gains is not too implausible.

        And that makes government debt go down to 0. Politicians did not have to cut in spending so they (either party) happy as well.

        The not 0.01%-ers will be the loosers in the equation but who will notice with all helicopter money going around and stock prices in numeric value only going up?

        So my question is, is this something of this sort tin-foil hat nonsense or actually plausible at a faster or slower pace?

        (if you won’t answer, I take it it is tin-foil material not worth your time)

        • Wolf Richter says:

          Moosey,

          What you’re describing is the sudden collapse of the purchasing power of the dollar. It could happen. But I don’t think it will get this far because it will wipe out the wealth of those that the Fed wants to enrich. And the Fed has the tools to stop it: it can raise interest rates and it can sell trillions of dollars in securities, which would quickly end inflation — and a lot of other things too, along with every asset bubble in the country.

          If push comes to shove, the Fed will step in. Never before did it have $8 trillion in securities that it can sell to push up long-term rates. And that would cure a lot of stuff. No one other than gold bugs want the dollar to collapse, least of all the Fed.

  25. historicus says:

    Inflation is taxation.
    Inflation was/is promoted by the Federal Reserve.
    That means we have an unelected body taxing us…..
    Only Congress may tax us, as they are our representatives and must face voters….but do the People have representation on the Federal Reserve Board? NO.

    Thus it may be deduced that we have “taxation without representation”…and that is wrong wrong wrong.
    It is also theft, by design, and a shifting of wealth….all orchestrated by a cabal that is enriching themselves.
    “When central planners decide, they intentionally assist one group at the expense of another.” Hayek
    ….and it has been going on since 2009…

    The Federal Reserve is punishing savers, intentionally….and forcing people to buy what the cabal already owns…..stocks and real estate. Get on board, or be slaughtered by this ill described “transitory” inflation. Coercion by design.

    Saving is part of the American experience. It is how people got on their financial “feet” to then buy the car, the house, and invest. To take this away is to destroy the middle class and promote misallocation of resources, desperation investing, and irresponsible debt creation….just like the federal government.

    • Aaron says:

      “It is common to speak as though, when a Government pays its way by inflation, the people of the country avoid taxation. We have seen that this is not so.  What is raised by printing notes is just as much taken from the public as is a beer-duty or an income-tax. What a Government spends the public pay for….”

      “The owners of small savings suffer quietly, as experience shows, these enormous depredations, when they would have thrown down a Government which had taken from them a fraction of the amount by more deliberate but juster instruments.

      This fact, however, can scarcely justify such an expedient on its merits. Its indirect evils are many. Instead of dividing the burden between all classes of wealth-owners according to a graduated scale, it throws the whole burden on to the owners of fixed-interest bearing stocks, lets off the entrepreneur capitalist and even enriches him, and hits small savings equally with great fortunes. It follows the line of least resistance, and responsibility cannot be brought home to individuals. It is, so to speak, nature’s remedy, which comes into silent operation when the body politic has shrunk from curing itself.”

      JM Keynes, A Tract on Monetary Reform, BN Publishing, 2008, pp. 62-65

      • RobertM700 says:

        Thanks for pointing me to this excellent short book. Should be required reading at the Fed and Banking committees.

      • sunny129 says:

        Keynesian cure as become the curse

        The structural problems inherent in the global financial and banking system which brought us GFC in 2008, NEVER got addressed but covered with more debt on debt, both in private and public sectors!

        With leverage, asset inflation stimulated debt ( easy-peasy money) has gone to stratosphere, beyond bubble zone. But Fed is refusing to acknowledge their part in creating this largest ‘everything’ bubble of 21st century.

        The tricky question on every one’s mind is which ‘domino’ will trigger the breakdown Cascades Into Collapse!
        Stay tuned!

    • Wisdom Seeker says:

      @historicus: The Federal Reserve was created by act of Congress, much like the IRS, and is subject to Congressional oversight and policy choices.

      Congress wants the inflation b/c it allows them to spend more.

      They pretend to be spending to “help people”, while actually impoverishing them thru inflation since the money generally ends up with the elites. The inflation-driven poverty then creates more incentives to “help”… so a vicious cycle ensues until people wake up.

      The cure for a spendthrift Congress is to vote differently … and to make sure the votes are actually counted correctly.

      The cure for corporatist oligarchic inflationary poverty is to get back to a culture of productivity with businesses in competition.

  26. MFG says:

    Hayward Unified School District, in Hayward, CA has very low math and reading test scores. Hayward USD is planning to pay $40 Million to hire consultants to implement CRT. Destructive scam.

    • Petunia says:

      The teacher’s union was the worst thing ever to happen to education in America. I went to public school in NYC, I know.

      • josap says:

        Teachers have been the “scary people, thefting people” for quite a few years now. It’s been a big shift in public thinking.

        Before that, it was the Government/City/State employee doing nothing productive and getting large wages/pensions.

        Before that is was auto workers and before …

        What gives?

      • c_heale says:

        Teach for America and Charter Schools are the problem.

      • Juanfo says:

        We just had to pull our son out of public school in the middle of the school year. The schedule for the rest of the year had 3 attendance days per MONTH. Disturbing and hilarious. Teachers are receiving full pay and benefits. I don’t know what the game is but millions of children are losing.

  27. Micheal Engel says:

    1) If the vaccine decay faster than we think, harsh restrictions
    will be back.
    2) M1 will rise > $19.2T. M1 velocity will sink < 1.
    3) Real Gov spending will rise in smaller & smaller increments, decaying, because it's unsustainable. GDP will stall before the fall.
    4) The roof will cave in, like in an old building, without warning.
    5) Without warning anyone, next week, 25 F22 will disappear between Guam, Tinian and Taiwan, before returning to Alaska & Hawaii, just for
    fun.

  28. Anderson Phillips says:

    Please there is nothing to worry about; the ECB just came out with this gem, “price stability is best maintained by aiming for a 2 percent inflation target over the medium term.” “War is peace, freedom is slavery, ignorance is strength.. I loved Bid Brother”
    1984, Orwell.

  29. Nick Kelly says:

    The English- speaking parliamentary democracies are pulling ahead in questions about QE.

    Perhaps rightly, because it had the most extreme housing bubble, New Zealand looks like being out front in ending artificial support for mortgages. Its central bank has come the closest to issuing a ‘mea culpa’ almost saying ‘we screwed up’

    The Bank of Canada has cut its bond purchases twice, citing ‘moral hazard’ the word ‘moral’ maybe more important than the tapering.

    For those Americans who think the solution to Fed’s QE is closer govt supervision, the input from the UK’s House of Lords is interesting.
    (The Lords, the UK Upper House is advisory only, but is influential)

    To paraphrase its statement which may be found on the BBC’s site, it wants to know several things: if the BOE is independent (it is supposed be) why is it buying the exact amount of govt bonds requested by the govt, thus giving the govt the cash it wants. In other words, why is the
    BOE acting like a pawn of politicians?

    Second thing that sticks out: The Lords want to know how all this money is going to be paid back. Maybe because they are old- fashioned ( and old) they think of the BOE as a bank. It has lent the gov money in a time of stress. Obviously it will be paid back slowly (like the War Loan) but at some point it should start)

  30. It’s not inflation or deflation, it’s volatility. When the current supply chain squeeze ends and the Fed starts tapering, reducing M2, then people will be selling merchandise for cash, and throwing whats left out in the street. I predict that in few years time the collapse of retail malls will be followed by the collapse and re purposing of storage units. Good time to own a landfill.

  31. Micheal Engel says:

    1) M1 is quickie, a physical money supply . M1 can pay loans, c/c bills, buy an expensive car, buy stocks, bonds, or pay the IRS for capital gains.
    2) M1 unexpectedly jumped from $5T in Mar 2020 to $16T within two months.
    3) Since May 4 2020 M1 is gliding higher from $16T to $19T, or $3T/15 months = $200B/M.
    4) During this period consumer spending jumped, before stalling.
    5) M1 peaked before Ape 15 @ $19.169, dipped a little and reached $19.266 in May 17.
    6) The cause : stealthy distribution.
    7) Market rumbles might send M1 to $25T-$28T. The gov robbed the savers, but the traders saved their bank’s accounts.
    8) Larry Fink will control the redemption floodgate.
    9) Inflation tax the middle class. High end distribution : more tax collection.
    10) Support low/ mid income working moms to make a baby with gov credit. If she doesn’t work, no problems : M1 quickie to make babies.

  32. Micheal Engel says:

    Lake Powell record low, JP record high will open the floodgate.

    • historicus says:

      Lake Powell record low..
      J Powell record low approval from the American workers and savers.

  33. NotDeadYet says:

    Like housing units which can be loaned (or rented), so too can dollars be loaned (or rented). The loan fee for housing units is called the rental fee and those borrowing the housing unit are called renters. The loan fee for dollars is called the interest rate and those renting these funds are called borrowers.
    If more housing units are created for the rental market than there are renters to borrow them, then rental fees will have downward pressure and accordingly, the housing units will be worth less.
    If more dollars are created then there are borrowers, then downward pressure will be created on the rental fee or interest rate for dollars and accordingly, the dollars will be worth less.
    Even so, dollars are used by the vast majority of Americans to pay their bills and manage their lives and finances. This being said, it is prudent to maintain some safe form of liquid reserves at all times… during the good times with decent interest rates of return and during the bad times when the rate is low or even zero… or even less than zero.
    One thing is certain as Heraclitus pointed out many years ago, “The only thing constant is change”. Our future holds new and different challenges… and new and different opportunities.

  34. Swamp Creature says:

    Was in Home depot today to exchange a full defective propane tank for another one. The valve was frozen shut. They told me they were completely our of propane, and to come back another day. NO refunds or exchanges for even an empty tank. After much complaining they finally found one and we made the exchange. Looks like the supply chain shortages are reaching the big box stores. Its getting ugly out there when you can’t get propane. This happened several times before. I stocked up on 3 tanks.

    • Michael Gorback says:

      I had no problem getting 6 of the 1# green tanks recently. After reading this I called nearby exchange sites and they have 20# tanks. I noticed that Home Depot is limiting it to 2 per customer.

      Gotta make a quick run and add new tanks! Where I live BBQ is not only a competitive sport it’s a contact sport if there’s disagreement as to which wood chips to put in the smoker.

      Also with hurricane season upon us I want some for my generator. It’s gas/propane but propane is easier to store.

    • Rowen says:

      I don’t think the bottleneck is on the propane. It’s on the tanks themselves. Price of steel is 3X last fall, and unlike lumber, has shown no signs of correcting.

      Can’t wait to see the effect of 3X steel rippling through prices when the semiconductor shortage is fixed (lol).

    • Jon says:

      I go to Costco often
      Absolutely no shortage of propane tanks at all

  35. Spencer Hall says:

    The “demand for money” is up. But you can measure the amount of money that gets into the hands of consumers and businesses. It’s called our means-of-payment money supply. There is no “base effect”. You don’t measure inflation y-0-y.

    It’s not reflation: “restoration of deflated prices to a desirable level” “back up to the long-term trend”.

    Inflation is an across the board increase in prices. It is broad based. The BLS defines “The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a “market basket” of consumer goods and services.

    You don’t believe that the inflation rate is 5.4% in 2021, then you don’t believe the inflation rate was 5.6% in 2008 or 4.21% in 1991.

    And there’s yet to be a break down in this time series. Unfortunately, Powell has delayed the reporting of the money stock. Here it is July 18th, and we still don’t know June’s #s. The money stock was previously reported on a weekly basis. Powell should be fired

    • historicus says:

      Yellen tried to say to Senator John Kennedy that the 5% was a recovering from depressed prices during COVID.
      But the CPI never went negative during COVID a year ago….so this is all new highs in prices, not a recovering as Yellen tried to make up believe.

      Yellen should take some lessons from the FBI and be a better liar.

  36. Spencer Hall says:

    You can’t use M2 to measure inflation. And since M1 now includes M2, you can’t use M1 either.

    Link Dr. Philip George’s “The Riddle of Money Finally Solved”
    http://www.philipji.com/riddle-of-money/

    George doesn’t understand what he’s discovered, but his equations worked.

    There’s actually a perfect correlation between our means-of-payment money and inflation. And it’s been that way for over 100 years. And if June’s #s aren’t high, then were close to an inflection.

    I.e., both Powell and Greenspan were ignorant.

  37. Yort says:

    “Something for Nothing” seems to be the motto with both monetary and fiscal stimulus injected by the Fed and govt. The soon to be passed $3.5 trillion and the $1.2 Trillion govt voter buyout boondoggles will equate to about $3,000 for every man, woman, and child in America, so about $54,000 per family of four….”Something for Nothing”??? How could printing such sums of money NOT have some negative unintended consequence, in which even a small child could comprehend???

    Yet all the Fed and govt are doing is taking the “Something for Nothing” playbook from indebted corporate America, and applying it to the people. For example, since 2009 corporate operating earnings grew by 339% total, yet growth of revenue only grew 63% (per Lance Roberts data)…so classic “Something for Nothing” thrives now on a Corporate, Personal, Federal, and Govt level concurrently…which has not ended well historically…

    Corporate Earnings growth is the “Something”

    Q4-2020 = 94.13
    Q1-2021 = 128.20
    Q2-2021 = 151.17 est.

    Corporate revenue growth is the “Nothing”:

    Q4-2020 = 367.48
    Q1-2021 = 364.05
    Q2-2021 = 360.81

    The Trifecta of Infinite Capitalism:

    Something for Nothing (Infinite Monetary policy)
    Something from Nothing (Infinite Fiscal policy)
    (M)agic (M)oney (T)ree ( Infinite Fantasy policy)

    • josap says:

      will equate to about $3,000 for every man, woman, and child in America, so about $54,000 per family of four…

      3 X 4 = 12

  38. Yort says:

    Forgot to add that the $3,000 per person needs to be multiplied by 4.7 ($4.7 Trillion), which gives about $14,000 per person, so $56,000 per family of four. We are all numb to such large numbers as human minds are not wired to comprehend huge numbers in real world relatable terms. A “1” with twelve zeros has become “normalized” but not really understood. At some point the “Great Reset” will reset the monetary system back to a scale within human comprehension, so glass half full I guess…HA

    • historicus says:

      Yort
      “We are all numb to such large numbers”
      I call it the “put a small integer in front of the word Trillion” game
      1.5……3.1…..tiny sounding.

      One billion seconds is just under 32 years.
      One trillion seconds is just under 320 CENTURIES!!!

  39. Michael Gorback says:

    “With the federal government’s massive fiscal and economic “stimulus” policies arriving together with a pandemic and government lockdowns, M2 growth has recently risen dramatically higher than GDP growth.”

    Chart 1 shows the divergence starting around 2008. Chart 2 shows it starting around 2020.

    Where was the inflation? Isn’t that supposed to happen when M2 gets over the tips of its skis?

    Prior to March inflation was sub-2%. March was 2.4%, May 5%, June 5.4%. Where was the “runaway” inflation before?

    In March monetary expansion changed. Instead of manufacturing money and putting it in the closet as reserves, the US government gave manufactured money directly to the citizens a la MMT. That’s one possibility.

    Another possibility is that March coincided with the gradual relaxation of social distancing, enhancing spending in an economy unprepared for a demand shock.

    As for the government spending component of GDP, go ahead and back it out. Then you’ll see a truly ghastly divergence between M2 and GDP, but where’s the inflation until March 2021?

    How about productivity? Go to the BLS site and look at nonfarm productivity growth 2007-2021. It’s miserable. The last time it was that bad was 1979-1990. The lowest was the preceding period 1973-1979, and we only came close to post-WW2 levels in 2000-2007.

    So crappy productivity since 2007 and trillions in monetary expansion. Aren’t we supposed to get inflation when M2 growth exceeds productivity growth? Well, where has it been hiding? Financial assets and SWAG? I’m not buying the “Rich people inflation” thesis. Asset inflation is a product of TINA.

    The transmission mechanism is obviously broken and more complex than traditional thinking would have us believe.

    • Wolf Richter says:

      “Chart 1 shows the divergence starting around 2008. Chart 2 shows it starting around 2020.”

      They’re different charts. Check the titles of the charts. The second chart put the data of the first chart on an index scale, with both data sets converted to indexes and set at 1.0 in Q1 2017 to show how they diverged over the past 16 months, which is hard to see in the 40-year chart above it due to the magnitude of the time span. But you can see it if you look at it carefully.

  40. sunny129 says:

    I come here everyday to participate in ‘group’ psycho therapy of ‘Finance” comprising Fed, Debt, Oligarchs, Rentiers economy with no solution in sight, inflation/dis-inflation vs deflation ( Which will come first, what will trigger that), various asset bubbles including housing and mkts, anticipating Fed’s future moves, so on and on.

    Going around and around and back to square ONE! I am trying to swim and stay afloat, just like most you. So many questions and very solutions!
    Thank you WF for being moderator and bringing up important topics everday. Hats off to you!

  41. How can you tell the difference between inflation and price gauging?

    • Rowen says:

      Somehow the consumer welfare anti-antitrust folks convinced the courts and politicians that consolidation would manna from heaven.

      Because of course, it’s human nature for corporations to give all profit surplus to consumers, and not shareholders…

    • Wolf Richter says:

      Both indicate that the seller has pricing power and can raise prices, and there is still demand for those goods and services at those higher prices, and in the process the consumer dollar lost purchasing power.

      But inflation is broad, meaning that on average a broad basket of goods and services experiences net price increases.

      Also, if it’s just a few weeks or a few months, and then prices fall back to where they were, because demand collapsed at those higher prices, then inflation didn’t stick and was followed by deflation. That too happens occasionally, and that’s how it should be because that would be “price stability.”

    • Swamp Creature says:

      I really don’t see anything so bad about price gauging. This is free enterprise at its best. If a gas station is charging say $4.69 for premium gasoline at a local Exxon station nearby as it is here, then DON:T BUY IT! I had my kitchen floor replaced. There were 3 layers of lenolium and rotted plywood underneath. The $1,000 job wound up costing $5,000. I figured these Hispanic contractors that I met on the golf course would give me a good deal because we were golfing buddies, I computed their labor at the rate of $150/hr. If that ain’t price gauging, nothing is. They took me to the cleaners anyway, and I paid them in full. Who cares. I got what I wanted. I nice new tile floor in my kitchen. But I’ll never use them again or give them any referral.

    • MonkeyBusiness says:

      In my opinion, inflation is felt across the supply chain, while price gouging typically only applies to certain products.

  42. Auldyin says:

    Great to see ‘Opportunity Cost’ referred to in an article.
    This is a concept which is far too little discussed in MSM and politics.
    Is it better to spend your own money yourself, or is it better to let the Govt spend it for you? Should they spend it on new infrastructure or Wars? Should they spend it on new green or improving what we’ve got?
    Any discussion of Govt debt should be framed in terms of opportunity cost for future generations who end up paying for the expenditure.
    What would USA be like now in terms of infrastructure, etc if all the wars since 1950 had not been engaged in, bearing in mind none of those wars achieved their aims at the time?

    • VintageVNvet says:

      Just in reply to your last paragraph/question old n:
      Having been trained and then involved in one of those wars, and having become totally against any and all war after that experience,
      I asked an older friend who was drafted the day he finished med school and sent directly to a field hospital in Germany in 1943 WHY does USA, and others to be sure, keep on with these wars?
      His answer, basically, was, never mind the oil or land or whatever, the real reason is to maintain a ”blooded cadre” of folks who have experienced being under fire, just in case.
      Just in case of what was my next question, at which he brought up the testimony of an opposing general in WW2 who stated the reason USA was NOT invaded was because it was considered full of armed and experienced folks from WW1…
      I am still totally against ”war” BTW.
      Plenty of ways to train and prepare, as exemplified by the Swiss IMHO, though that is not clearly proven in fact, yet.

      • Tom Pfotzer says:

        VVNvet:

        Russia was invaded. Are they soft? Afghanistan. Invaded by G. Britain, Russia, then U.S. “where empires go to die”.

        I think the main reason we didn’t get invaded is because we have a few thousand miles of ocean on either side of us, and (thank you again, Canada and Mexico) friendlies to the north and south.

        I am not a big fan of the war industry. I have no illusions about the character of humans; there are tyrants, nut-cases and cultures (based on religion or greed) that have convinced themselves that they are deserving of whatever someone else has. Those cultures and sociopaths must be fought, no matter what it takes.

        But Empire wars are a different thing. I am not on-board with them, and resent the fact that my country let itself devolve to this…although it seems like we’re starting to shake it off lately.

      • Ensign_Nemo says:

        The reason the continental US was not invaded during WWII was that no Axis power had a navy and merchant marine large enough to support more than a few divisions of troops in a transatlantic or transpacific invasion. The logistics were impossible for anything larger than a commando raid, and even that would have been a near-suicidal proposition.

        Japan sent about half of its entire navy to invade Midway Island, which is actually a pair of tiny atolls just large enough to have an airstrip on one of them. Their navy was defeated, and even if they had won and an invasion had occurred, launching an amphibious attack against fortified US Marines without surprise would have had about a 50% chance of being defeated.

        The Germans never sent anything larger than a U-boat to the western side of the North Atlantic. When they sent a single pocket battleship to raid the South Atlantic, the British caught it and shot it up so badly that the Germans scuttled it.

        • Auldyin says:

          EN
          When US entered WW2 MrH knew what you said above and immediately set about developing V2 rockets on one hand and atomic bombs on the other. It was a close run thing and the allies made it a number one priority to frustrate every development.
          Some rocket guys went to US after the war and helped the US counter the rocket guys who went to USSR.

  43. MonkeyBusiness says:

    Wait till realization sets in that cheap oil has run out. Lots of “wealth” will simply evaporate.

    • c_heale says:

      Yep, and that’s why rich people are buying agricultural land. Back to feudalism and the middle ages.

  44. Swamp Creature says:

    I’ve got over 1,500 e-mails stored in my Wolf folder on my Earthlink Server and its time to bite the bullet and go through and purge some of these e-mails before I run out of space and have to pay Earthlink extra fees for more storage. There are some good nuggets in these archived e-mails so I don’t want to delete them just based on date. Also they have some very good comments attached to them. Don’t want to lose all that wisdom from the likes of Van_Down_on_the_River etc. Each e-mail has an average of 200 comments, so I am looking at 300,000 comments in total which I will have to scan before hitting the delete button. That will keep my busy and keep my out of bars for a while.

    • Wisdom Seeker says:

      That’s a lot of writing. Does Earthlink allow you to download them to a storage device you own?

      I wonder if you could partly monetize your rereading efforts by gently editing and compiling a “Best of Wolf Street Thru 2020” book or ebook, which you and Wolf could sell online?

  45. Greg says:

    This 800, 900 points drop in Dow Jones is a small preview of what is to come. Dow Jones will be 20,000 by end of 2021 and S&P 500 2,700 by end of 2021, Nasdaq will be 10,000 by end of 2021. Get ready to lose most of your life savings.

    • Shawn Pietra says:

      I sold my US long bonds, took my 350% (interest+capital gains) profit and am now in cash. When rates go up in 2 to 3 years I will lock in even if I only make 3% to 5% total interest over that time. Stocks are going way down 50%+ drop coming.

  46. Duck says:

    Inflation is a tax on workers or those on a fixed income. But, It’s a subsidy to property owners.
    My properties are worth more, I can charge higher rents, I can refinance at lower rates and I’m paying the mortgage with free flowing monopoly money.

Comments are closed.