Socked by 6.4% Inflation, Record Trade Deficit, Inventory Shortages, and Drop in Government Spending, “Real” GDP Jumps Disappointingly

Inflation ate my homework: All this stimulus, so little to show for.

By Wolf Richter for WOLF STREET.

Economists polled by the Wall Street Journal expected GDP to grow by an annualized rate of 9.1% in the second quarter, from the first quarter. Today the Bureau of Economic Analysis released its GDP estimate, and adjusted for inflation, it grew by an annualized rate of “only” 6.5% in Q2, from Q1, or not annualized by 1.6%.

This was still strong compared to the pre-pandemic years, but the high expectations got knocked down by spiking inflation that has surprised economists to the upside all year long, record trade deficits, sharp declines in inventories, and a drop in government consumption and investment.

Inflation spiked by 6.4% in Q2. The BEA’s inflation measure that roughly parallels its inflation adjustments to GDP (to get “real” GDP), the PCE price index, soared by an annualized rate of 6.4% in Q2, the highest since Q3 1982, up from 3.8% in Q1. Excluding food and energy, the core PCE price index soared by an annualized rate of 6.1% in Q2, up from 2.7% in Q1. Adjusted thusly for inflation, “real” GDP growth got whacked down.

In dollar terms, expressed in “chained 2012 dollars,” real GDP in Q2 eked out a new record of a “seasonally adjusted annual rate” of $19.4 trillion, bypassing for the first time the prior record of Q4 2019:

Consumer spending – powered by the $1,400 stimulus checks that started going out in late March, extra unemployment benefits, and all the other government goodies and extras, and by stock market gains and what not – jumped by 11.8% annualized (or 2.8% not annualized) in Q2 from Q1, to an annual rate of $13.7 trillion in chained 2012 dollars, setting a new record for the first time since Q4 2019.

Consumer spending accounted for 70.6% of total GDP in Q2, the highest ever, and the first time ever that it was above 70%. That’s another sign of how much stimulus and other government payments powered consumer spending.

Record Trade Deficit of goods and services, powered by huge imports, powered by massive consumer spending on goods, powered by massive stimulus, dragged on GDP. Exports add to GDP, imports reduce GDP. The balance (exports minus imports), or “net exports,” worsened by 11.2% annualized (or 2.7% not annualized) to a new worst of -$1.26 trillion (annual rate 2012 dollars). This chart is an indictment of rampant globalization by Corporate America:

Gross private domestic investment ticked down for the second quarter in a row, by 3.5% annualized (or by 0.9% not annualized) from the prior quarter to a seasonally adjusted annual rate of $3.51 trillion. This decline is a combination of its major category “fixed private investment,” which increased, and the change in “private inventories,” which fell.

Fixed private investment, which includes investment in nonresidential structures and equipment, in residential structures, and in intellectual property, rose by 3.0% annualized (or by 0.7% not annualized) to $3.59 trillion (annual rate):

But inventories continued to fall as numerous segments with shortages have cropped up in the economy, particularly at auto dealers, by far the largest segment of the retail industry, accounting in normal times for over one-third of total retail inventories, but where inventories have collapsed over the past few months. Overall inventories dropped another 5.7% annualized (or by 1.5% not annualized) in Q2 from Q1, to $2.8 trillion:

Government consumption and investment ticked down by 1.5% annualized (or by 0.4% not annualized) in Q2 from Q1, to $3.38 trillion (annual rate). This includes what governments at all levels spend on goods and services, such as fuel, supplies, equipment, and rent for offices. And it includes government investments, such as in equipment and infrastructure.

But it does not include transfer payments to consumers, such as stimulus payments, unemployment payments, Social Security payments, and it does not include government salaries, and other direct payments to consumers, which enter GDP when consumers spend this money as part of consumer spending:

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  182 comments for “Socked by 6.4% Inflation, Record Trade Deficit, Inventory Shortages, and Drop in Government Spending, “Real” GDP Jumps Disappointingly

  1. Jackson Y says:

    I’m a nonpartisan independent & typically avoid politics, but I’m calling every GOP senator’s office to reject Jerome Powell (or any other like-minded MMT adherent) for another FOMC term.

    The stakes are simply too high. The economy can ill-afford another 1970s-style stagflation.

    • Wolf Richter says:

      But what if we then get Brainard? She is a super-dove.

      • Nacho Libre says:

        Or Neel “infinite Kash” kari? Gasp!!

        Why not just shutdown that financial drug peddler institute?

        • Wolf Richter says:

          Kashkari is a Republican. Ran for Governor of California as Republican against Brown and was obliterated. He has zero chance in this administration.

      • MCH says:

        Is that your answer to Jackson’s unasked question: “how could it possibly be worse?”

        But don’t worry, the elected member of the J team is supposedly looking at alternatives to help you. especially those who went into forbearance on their mortgages. I mean why not.. there is also the potential to pay people who are unvaccinated $100. The lunacy here is beyond nuts, are they going to pay that to the people who voluntarily vaccinated with a vaccine put through under emergency use authorization? What if that’s a signal to the unvaccinated to just hold out, $100 today, $250 tomorrow, $1000 at the end of August.

        All these idiotic moves smacks of either desperation to buy votes or just a move to destroy the economy as we know it.

        • NBay says:

          I’d call the latter part of your comment simply proof of the power of Pharma Corps. If that’s really your thesis, just buy more of their stock and beat inflation. Why the hand wringing?

        • Nacho Libre says:

          Ha, I like it. If you can’t kick out profiteering thugs, join them and make some bucks?

        • cd says:

          NBAY
          I would wait until after the waterfall coming to buy any drug maker, XBI is about to lose another 25% a full 45-50% correction…

          right now the big boys are taking out pharma….

          Though EW is probably one to buy on weakness a lot

        • Old school says:

          It crossed my mind that maybe they want to get as many people vaccinated as possible before FDA approval in about September. I assume when FDA approves vaccine it’s going to be approved with a long list of possible side affects solar to pharmaceuticals. It’s going to make messaging tougher.

        • Wolf Richter says:

          Old school,

          You’re abusing my site to spread anti-vaxxer BS. Listing the side effects etc. has already been done and is being updated as info becomes available. Don’t get your dreams up. The FDA approval now has to do with getting the vaccine ready for the general distribution channels. Right now, the vaccines are distributed through special channels, from the manufacturer to the healthcare provider. Regular manufacturing and distribution channels operate under different rules and oversight, and that’s being prepared now. I listened to a former FDA commissioner discuss that process. It was very interesting, a lot more interesting than your conspiracy theory nonsense.

          If you don’t want to get the vaccine, fine with me. It’s your health, your decision. But don’t abuse my site spread anti-vaxxer BS. Do that on Twitter.

      • Depth Charge says:

        Brainard would finish the country off. Might as well get it over with.

      • historicus says:

        Kashkari is dying to be Fed Chairman

        How frightening.
        Loose money person will likely get the nod. I think Powell wants out.

        • Depth Charge says:

          He’s a freak. Just watching his face as he talks is enough to realize he’s deranged.

        • Swamp Creature says:

          Larry Summers

        • Mira says:

          Hi Depth Charge ..
          You think you got deranged .. ? .. we got reality proficient, camera addicted, superstars .. come see Poor Aunty Gladys Berejiklian do her daily cliff-hanger spin & marvel.

    • Swamp Creature says:

      Jackson Y

      I got news for you. We are already in a 1970s style stagflation. Rising inflation and a dismal economy. It will get worse from here. Get used to it.

  2. AdamSmith says:

    Inflation is brutal to every economic class of people….

    In Florida there is a popular video on an inlet going out the the ocean that is treacherous to pass in boats with 4 to 6 motors to power through the rough waves and swells that must be traversed in order to get to calm waters.

    On youtube, if you type in “Florida Inlet” the videos have titles like: “Going Under, Dangerous, GetThe “F “out of my way. Having lived near or in California Beaches this metaphor shows Waves & Swells coming from every direction possible.

    Inflation on many fronts means much destruction has, is, and will continue to wreak havoc in every economic sector.

    What does history say about what is about to happen?

    • JK says:

      You ain’t joking about that inlet! Never heard of it until now. I have a jet ski and not sure I’d like to tackle that. lol.

      Yes, I agree. We’re gonna get hit in more than one way when the correction begins. Going to be a domino effect. When? That’s the zillion dollar question.

      How to prepare? Who can be so smart? I’d think first is to try to get your debt paid off, especially your house. Next I would do cars then lastly credit cards.

      • Frank says:

        Arguably, it is great to be in debt during inflationary times. Your debt payments get easier to pay as inflation rages. Assuming of course that that the debt payments are fixed (like a mortgage) and you have steady income to make the dept payments. That said, I’m still in the debt free camp.

        • The Real Tony says:

          Except this time its stagflation not inflation and real wages are going nowhere in all countries outside of American. So American is looking at stagflation and the rest of the world is looking at deflation when the rest of the world stops buying anything made in America.

        • Sit23 says:

          Gordon Bennett! If the economy is anything like the 20 minutes I wasted on that inlet, we are all going to have sore stomachs from laughing at the fools and idiots in front of us. We just have to hope we are not one of them. Or one of the fund managers’ unsuspecting clients, like some of the unsuspecting passengers. So many analogies.

        • wiley says:

          Doesnt make sense!!Unless you have a very generous boos and stable,decent income,inflation makes it more difficult to make even fixed payments as costs for everything else increase.

        • Being in debt is rarely beneficial. Other than a mortgage on your residence or perhaps a small business loan, just the fact that you are carrying debt is a pretty good indicator of bad decisions. One has to fix that decision-making pretty quick in an inflation/stagflation cycle. Rarely happens. Even if your only debt is a home mortgage, you can lose your home with a job loss or major financial calamity. At that point, being in debt is a real handicap. Best to be debt free and not skating on the edge.
          Wolf does an excellent job of showing us what is happening and how it compares to the past. I am not smart(prescient?) enough to have high confidence of any path through this storm. I have read that the average household does not have enough cash on hand to cover a $500 “emergency.” The inflation trends Wolf is pointing out will make $500 seem like nothing in short order.

      • K says:

        Just how much are you paying in interest to buy cars? First, I would pay off my credit cards, which charge the highest interest. Second, I would pay off my car loans, because cars can be easily repossessed and a depression might come. Third, I would pay down my mortgage, because banks are really not that enthused about foreclosing on homes, because from what I hear, if they started, they would not be able to stop any time soon.

        As to investments, I would first make sure that I did not hold ANY bonds or stock of, or any investments of any kind, in the CCP’s mainland China: read about Evergrande Real Estate in the excellent Forbes’s “Evergrande: Could This Real Estate Group Spark A Chinese Financial Contagion?” Watch Peter Zeihan’s videos on youtube on demography, which I like to watch when I take baths, along with other economics videos.

        Mainland China (as opposed to Taiwan which has excellent future prospects if the CCP does not invade them) is a financial ticking time bomb. Moreover, it has CCP “leaders” with all the ability of drunk, irritable, retarded chimpanzees who will continue to destroy its financial prospects. That implosion may be coming sooner than even I had expected from rumors according to recent news, which is why I warn people about it.

        • K says:

          As to Mr. Peter Zeihan, while I agree with much of his comments, keep in mind that his analysis only applies if the environmental conditions in the world remain exactly as they have been for the last century. See world atlas and other internet articles as to desertification. Keep in mind that, for example, (1) if the moon were closer to earth (and we are now in the part of its regular cycle when it is going to be closer to earth for years), (2) if greater storms strike regularly and their storm surge regularly drives the ocean water inland so invades the aquifers and agricultural land with salty water, (3) if droughts like the one now hitting California’s agricultural regions continue, and (4) if these combine with our overuse of pesticides and mishandling of our soils to destroy more agricultural land, then the US may lose much of its present food production capacity. (Worst case: the Mississippi river area once was under a shallow, inland sea.)

          Then, we will be dependent on our neighbors, probably Western Canada mainly, for our food production, which now is taking place in US areas. Even our wonderful river transportation system may become seasonal if our mountain snow packs (which act as water reservoirs) last only for a few months each year. Thus, Mr. Zeihan’s usually, excellent analysis assumes much that may not be true in the future.

          By the way, you can see in China’s current flooding what happens if we build water reservoirs to replace our snow packs. We would have to control them strictly, because water in private reservoirs is a profitable resource that can be used for hydropower generation and for growing fish and agricultural crops.

          Otherwise, as in China, the private owners of the water reservoirs would not want to discharge the water (and thereby lose money) until and unless their reservoirs were about to fail. Their resulting, massive, emergency discharges during seasons with heavy rainfall would put downstream reservoirs in danger of collapse.

          The result would be that instead of modest, natural, US floods as we have now, we would see catastrophic water discharges from many reservoirs to prevent their collapse during seasons with high rain fall, which would devastate towns and cities downstream as the ill-managed, CCP-crony owned reservoirs in China are devastating their towns and cities now. Given the future, increasing number of hurricanes and storms, we could see such catastrophes in the US more often, as I predict that we will see growing number of such catastrophes in the future in China.)

        • Auldyin says:

          K
          Don’t worry, it’s all covered to six decimal places in the ‘Global Warming’ model forecasts.
          Even the wobbling of the Earth’s molten iron core, to say nothing of the crust’s thickness that varies with temperature, all covered, believe me!

        • Nick Kelly says:

          Read the Evergrande stuff. Serious.

      • Crazy Sane says:

        The above advice will definitely keep you in the poor house.

        • Tom S. says:

          Yeah I’ve actually been considering putting it all in Chinese stocks…seems like they are actually growing from the middle out or bottom up, unlike the trickle piss we’ve got here.

        • K says:

          I challenge you two to have courage and invest all of your life savings in the Evergrande Real Estate Group. Most other mainland, Chinese companies will ultimately suffer the same fates because sooner or later all well run companies will be ordered by the CCP to be merged with their or their cronies’ foolishly led, I n s o l v e n t companies.

          Foreign owners’ shares will also be nationalised and stolen by the CCP inside a decade. In China, the CCP’s members change all rules so they cannot lose.

          The CCP will thank you for your gifts and I will laugh a lot. :-) Please write to tell us if the CCP used Vaseline or not. LOL

    • Old School says:

      GDP is mostly a BS measurement. Add Inflation plus GDP growth you get about 13%. Subtract government deficit spending of 15% GDP you are back to around zero. You mow my grass for $20 and I mow your grass for $20 that’s $40 GDP. If we mow our own grass that’s zero GDP. It really should be productive work as judged by free market exchange, but with fiat money there is no accurate measure anymore.

      • Augustus Frost says:

        I have written the same sentiments here many times. Mostly a fake economy since at least 2008. kept afloat by government deficit spending and artificially credit credit with the lowest aggregate standards in history.

      • OutWest says:

        Old school- that is a silly straw man argument. Do you actually live in a neighborhood full of morons who actually mow each others lawns and bill each other? Wowza….

        • Old School says:

          No. My point is GDP growth is mostly nonsense unless you include government budget deficit as you are pulling forward demand from the future and especially now when Fed is monetizing it.

      • Thomas Roberts says:

        The change to fiat did enable all kinds of bad financial nonsense, however, even if large countries did switch back to a gold standard, there is nothing to prevent a country at a time of financial crisis from refusing to pay out the gold. Unfortunately, it was a one way switch.

        As for how to measure the real economy, you have to look at alot of factors, mainly standard of living and then the overall cities “infrastructure counts here”. You can add in things like the military and NASA. The general trends matter alot, but do change after awhile.

        Right now, even prior to pandemic, nearly everyone in world was stagnant or about to be, if not in decline.

        The western countries plus countries like Japan and South Korea could easily start to grow again, but can’t right now, because of their own nonsense.

      • wkevinw says:

        Old School.

        GDP- a very difficult concept to measure, and yes it deserves analysis at times like this. According to GDP, the economy has already recovered and is bigger than before Mar 2020.

        The variables I watch/prioritize, (just a few), still show we have a year or two of growing to catch up to Mar 2020. I tend to believe that.

        The stimulus needs to stop, and really shouldn’t have happened at all. Both political parties wanted it.(!). Any subsidies should have been limited to unemployed and locked down business owners.

        Stimulus money=vote buying

    • polecat says:

      Inflation in currency? – check.
      Inflation in durable goods? – check.
      Inflation in medico Bullsh!t? – double check.
      Inflation in media mendacity?? – check .. triple!
      Inflation in Illegal persons border leaping to locals un-known? – check not!
      Inflation in BANKSTER&CHUM$ balancesheeits? – well, what’s NOT to check??
      Inflation in small egos in D.C. dick-tating utter, and-in-your-face fascism, for their own duplictous gain??? – The Trifecta!!!

      *tis but a small list.

    • David Hall says:

      Type “investing during inflation” in Google. There are numerous articles to read that might lead you to do more searching and research.

      6% inflation can take away cash while you sleep.

      Benjamin Franklin advised sloth and idleness can take savings away faster than the tax authorities.

      Someone who starts to plow is not supposed to look back.

    • cd says:

      head out of the inlet in S. Costa Rica, Sierpe wetlands and river on a big SW swell with waters teaming with big crocks and a fair share of bull and tiger sharks…

      scary but that is the long boat ride to Canos island for diving and Pavones for great waves

      Morro bay on big swell take it the next level

    • historicus says:

      Every worker in America got a 6.4% pay cut with this inflation.
      Meanwhile, Powell keeps rates at zero pointing to the employment numbers.
      THEN, he explains why people arent filling the RECORD JOB OPENINGS…
      1. Covid fears
      2. Looking for better job
      3. Child care issues
      4. Generous Federal doling of benefits.

      Questions for Powell: (unscreened and to the point)
      How does holding rates at zero improve any of these conditions?
      How does not addressing a 6%+ inflation not a shirking of duties by the Fed?
      How much time must pass before this inflation is no longer considered “transitory”?
      How damaging is the impact of this unaddressed inflation on the WORKING PEOPLE of this nation?

      Time to forget about the People who WON’T work and start taking care of the rest of the People in this nation.

    • Swamp Creature says:

      AdamSmith

      “Inflation is brutal to every economic class of people”

      This statement is not born out by the reality. People on the low end of the income spectrum are much more severely affected by inflation. Those in the top 1% are largely insulted. In fact many actually benefit from inflation.

      • p coyle says:

        insulted because they haven’t benefitted enough already? have these ghouls no shame?!

    • Mira says:

      I don’t get it ..
      The pandemic has shut down much of the Australian economy .. lockdown after lockdown .. business is almost non existent .. unemployment is the norm .. NSW have Police & ADF patrolling the streets to catch & even a poor guy visiting his letter box ..
      “Your supposed to stay in the ~#cking house …t.” they told him with physical force.
      That’s how bad it is ..
      On the brighter side .. the Australian government (sugar daddy Scott Morrison) is throwing money every which way & in loose mode to the tune of trillions.
      Australia’s inflation rate 2021 is 1.73% .. ?????

      • Mira says:

        “What.”
        “What.”
        It’s not supposed to be okay .. Scottie Morrison tell us over & over again that the Australian economy is thriving & has never been as good as it is today .. pandemic or no pandemic.
        Don’t complain about the unemployed & unemployment benefits .. look what massive unemployment has done for us.

  3. Micheal Engel says:

    Today I bought a medium coffee in MCD from a 14 years old kid. The
    unemployment rate for 16Y-19Y kids, in June 2021, is up to 14.6%. Kids like him are under the Fed radar.
    May 2021 @8.6% was the lowest on the chart, a nadir, thanks to JP Olympics spring board.

    • Thomas Roberts says:

      Under 18 years olds are guaranteed to have a home of various sorts and all needs provided to them, counting them in main unemployment, when their income isn’t needed, wouldn’t necessarily make sense.

  4. Giorgio says:

    I am Italian but I lived 11 years in Argentina (hyperinflation). Every 2 weeks the prices changed. It was a nightmare. The Government fixed a FAKE exchange rate with the US$ and Euro and for this reason, there was and there is an “under the table” exchange market (the Official US$ and the unofficial BLUE US Dollar). Once that inflation starts…it’s very difficult to change things cause inflation is something that stays inside people’s minds. It’s a kind of “psycho” stuff!! Wolfstreet and a few others try to show the truth but the mainstream goes to bed with the Banksters and shows a beautiful fake reality.

    • Gattopardo says:

      This is what I worry about (among other things)…the psychology of inflation and how it becomes self-fulfilling.

      Everyone always complains about what stuff costs (“man, with the way prices are nowadays, sheesh…”) but only recently have I noticed friends/family starting to complain about what stuff is going to cost in the future.

      • Old School says:

        It’s tough to know how to play it. Buffet has been pretty consistent the last 10 years keeping enough cash on his books to payoff all debt in an instant with a lot of cash left over. Long term debt plus a cash balance sufficient to pay it off is a way to sleep at night but have options if poop hits the fan.

    • Micheal Engel says:

      The west blockade and gang on Argentina for Argentina’s Malvinas.

  5. AdamSmith says:

    Being retired on a pension makes inflation something I now must watch and counter….

    I still have part-time gigs making pocket change here and there but recalling all the “economic alternatives” discussed in Macro/Micro Economics has made me see there are only so many of these that also suffer inflation.

    What is unnerving is the obvious reality easily seen everywhere with very little that can be done about it at every level in every nook and cranny.

    At the Chevron a mile from my house there is a big sign saying “$17$ hour to start” in working the retail counter. No one wants to work with potential COVID carriers it seems.

    If I am correct, the unemployment extension ends in Sept? Add the evictions coming is seems soon we will see the chaos and desperation on the street.

    In Riverside, Ca, the 3rd world food/fruit vendors on are residential corners streets right next to homes selling without safe sanitation and without sales tax collection. The City Council President said they need to make these vendors legal as they are a part of the community.
    Needless to say the local restaurants’ came out in force with 5 of 6 council members voting to “postpone” meaning what?????

    Riverside Home Depot has an area in the parking lot next to it where trucks, trailers, and many new Hispanic immigrants waving you down while others negotiate price what they will used their dump truck or trailer/truck.

    Two days again two Hispanic young women where darting in and out of the stop light to collect “donations” for someone who had died…

    Complete breakdown happening right before my eyes….

    I am for immigration for economic reasons but it is now at the level of a “soft invasion.”

    • 2banana says:

      That is not a breakdown.

      That is how the Central American world operates.

      Congrats.

    • bbbbb says:

      Not soft invasion.State of planned emergency in TX as Sherriffs are desperate for help since border control isnt sufficient or willing.Citizenwatch,infrared,big dogs.Know and use the law.Make these traitorous commies do their jobs which they were elected to do-represent local Citizens,Not nwo cabal,not ccp,not fascistbizco.s!! :-) Citizenarrest.

    • Randall Hooker says:

      All the guys at Home Depot are a way of dealing with inflation.
      Earlier poster said “I pay you 20 bucks to mow my yard”. In my neighborhood that is 200 bucks. But the Guys at Home Depot may do my yard, with my equipment, for half the price.
      Inflation drives gray and black markets for everything. Labor included.
      And if not checked, at some point inflation will cause most people to shop these markets.

      • Old school says:

        Black and gray markets are escape valves for the poor. It’s a lot more efficient than a government run charity program.

      • 2banana says:

        I can tell you nightmare stories on folks who think this is “cheap labor..”

        For example – Just wait until one of them gets hurt on your property – using your tools.

        “But the Guys at Home Depot may do my yard, with my equipment, for half the price.”

        • cd says:

          I’m 60 and can out hustle any of this cheap labor, they are worthless sheep, set up 50 calibers every mile…time to end this invasion….are we waiting for Ebola, terrorists, 50 million more….

          potus is insane, classic dementia case

        • Depth Charge says:

          “For example – Just wait until one of them gets hurt on your property – using your tools.”

          Or comes back that night after casing the place to rob and murder you, your wife, and 2 neighbors down the street. Happened last year. People are idiots. You’re going to bring people you don’t even know to your house to use your tools to save a buck? Darwinism.

    • Augustus Frost says:

      “I am for immigration for economic reasons but it is now at the level of a “soft invasion.””

      How much immigration is actually needed? My answer is virtually none, other than for business to get cheap labor.

      I can anticipate several counterarguments, but my response to the most obvious one is that we might as well let this Ponzi scheme (saving social security and other similar programs) end sooner rather than later before the country turns completely third world.

      There are also too many people in this country here now. Yes, I know most of the country is empty. No one wants to live there mostly due to limited or no economic opportunity. Or, the places just suck to live anyway. The population in the metro area where i live has increase around five times since I first moved here in 1975, to over 6MM. The quality of life is worse now than then for it, regardless that I can order practically anything on my smart phone and mostly don’t have to leave my home.

      • historicus says:

        Freeze a liberal…
        Ask him if he is for a Measured and Monitored Immigration Policy.
        If the answer is yes, ask him how he would implement it.

        You’ll get the eye roll….”come on man” look

    • cd says:

      this is no soft invasion, this is people from everywhere flooding thru the border at 1.5 M in last year, 85% don’t show up, Religious organizations, the democrats, ACLU, Immigration promoters are killing this country with leeches…. They are letting them go in cities without vaccinations or testing.

      Texas is now going to get sued by AG over him trying to protect his citizens….Insanity starts at the top

      • WyleeEconomist says:

        But you are perfectly fine with the GQP robbing the country blind at the behest of .1%?

        Who do you think pays the immigrants to come here so they don’t have to pay fair wages?

        I’ll give you a hint the same .1% bank rolling Fox and OAN to get you bleeding about immigrants… While they pass Trillion dollar tax cuts for themselves.

        • 91B20 1stCav (AUS) says:

          Wylee-illuminating the longstanding true wage issue-these folks have fought a verifiable citizen-card check employment structure for the last fifty years.

          That said, irrespective of the above, relative population vacuums have always driven history (very hard for anyone to resist the lure and call of greener grass, and difficult to deter if the numbers are great enough…even now, i can see cd ‘setting up the .50’s’ not just for ‘immigrants’, but for fellow ‘muricans who’d dare to move to his/her state…).

        • cd says:

          are you nuts, democrats and republicans, same snake, 2 different heads

          but the cons are not allowing a full blown invasion from around the world, that is all on the Dems…..needing more votes, bleeding taxpayers of all colors

  6. Petunia says:

    Just got back from Chipotle, $25 for 2 lunches, last month 2 lunches ~$22.50, a couple of months before that ~$21.50 for the same 2 lunches. An increase of $3.50, 14% over the last 4-5 months. Still a nice lunch but getting expensive.

    • Alku says:

      But they distribute a lot of free coupons online :)
      The kid and his friends eat like 70% free with these lately

    • Giorgio says:

      Inflation is also getting less for the same amount of money. For example. As I wrote I lived in Argentina for 11 years and sometimes they reduced the size of the Cereal packs or the toothpaste or anything else and kept the same price so…people had to buy more often but they didn’t, immediately, realize that the real price was growing.

      • Anthony A. says:

        That kind of “shrinkage/price the same” has been going on here in the U.S. for a long time.

    • Rowen says:

      My CMG is up 40% in a month because Chipotle said that they can pass on the supply costs + some without losing many customers.

      • Petunia says:

        I like Chipotle and eat there occasionally, less than 6 times a year. Now I will be more mindful not to go more often. Although I would rather cut back on other takeout, like pizza, and spend more at Chipotle.

      • Nathan Dumbrowski says:

        If the numbers don’t support an operation it will have to alter the business model or fold up shop. Pure and simple. From church to corporations the same has held true. No money no operation. Churches have rent/mortgage and expenses too

      • Old School says:

        From a consumers point of view you have to either accept or reject the price increase. If everyone is willing to pay the price is going to stick

    • 2banana says:

      Well, they keep raising prices and you keep going there…

      The day you say “that lunch ain’t worth it” and stop going there is the day things change.

    • Depth Charge says:

      Thought you were the one who was short on money, needing stimulus for a mattress and such. But you’re eating out at Chipotle? I think I see the problem. Eating out is for wealthy people.

      • Petunia says:

        Chipotle is hardly fine dining, neither is the occasional pizza, or Chinese takeout. We don’t have the mattress because we have had over $2k in car repairs in the past year. That’s where our mattress money went.

        Please note, we are saving for the mattress and not charging it, because we do not want to have another monthly bill. We also only spend cash we have on takeout. I had no idea that buying Chipotle elevated me to the one percent.

        • Depth Charge says:

          Eating out is the single biggest waste of money in most household budgets.

        • Tony22 says:

          Petunia, Costco sells brown rice for .99 a lb. Pinto beans are cheap. Grow your own bitter greens which proliferate like weeds and require no care. Dried fruit thrown in to rice. Purchase cheap cuts of meat which you add like a condiment to the meal, rather than as a side dish or the main meal. Coupon awareness across different stores using different free emails, means one can eat a nutritious meal for far less than a buck per serving.

          Multiple generations living together can share one internet connection, one water, garbage, utility, streaming and housing cost, which is property taxes only since decades of eating as above and sharing costs allowed house to be paid off in the last century. Built in babysitters and home security too.

          After you have at least 40 quarters on the books to get SS and Medicare, figure out what your tax withholding rate and net tax rate is. Work for cash, split the difference in rate above as a saving to employer and more money to you. Everyone wins.

    • p coyle says:

      obviously you are not a vegetarian. they would have to pay me $25 to eat 1 of their lunches.

  7. Marco says:

    Wolf, I thought you believed that the Federal Reserve will definitely taper … but that is looking less and less likely , at least for the medium term? Am I wrong ?

    • Djreef says:

      The Fed ALWAYS waits too long, and is ALWAYS forced to cut too fast to catch up.

      • WyleeEconomist says:

        Everyone laughs at Jimmy Carter… But he was the last president that was willing to take the black eye to hold the country down and take it’s inflation medicine…

        DNC or GQP I don’t see a mainstream member among them who would take the political risk of calling for interest rate hikes & suffer the blowback from slowing down this fake recovery. It’s now a game of musical chairs and the party in power when their is a major correction knows they will pay dearly.

        The emperor clearly has no clothes (inflation)… The Fed & US political parties want nothing to do with telling them the truth that need to put on their clothes (interest rate hikes) .

        • 2banana says:

          “We had it for about 170 years of our nation’s history, and enjoyed booming economic growth and lower inflation than we have had with the Fed now, we need to get back to sound money.”
          — Ted Cruz

          ““The Federal Reserve’s reduction of its benchmark interest rate from 2.25% to 2% is a textbook illustration of a popular definition of insanity: taking the same actions over and over again and expecting different results. Since the stock market meltdown of 2008, the Fed has unsuccessfully tried to pump up the economy via historic low interest rates and Quantitative Easing.”
          — Ron Paul

        • NBay says:

          I don’t listen to people who like their bacon cooked on a submachine gun muzzle. I think they are well over a whole bubble off.
          But then maybe I just don’t get the “sound” part?

      • Old School says:

        The depressing thing is it looks like real rates are going to be negative as far as the eye can see. Might not matter too much whether inflation is 2 or 5% for savers X – Y = -2 still hurts.

      • Joseph says:

        J.Powell’s retirement next year will be a significant milestone in this never-ending saga.

        • Swamp Creature says:

          Watch him appoint Larry Summers to head the Fed. Then blame T’s appointee Powell for the mess that has been created.

    • jon says:

      Tapering and reducing rates won’t help the FED works for: The Rich and Elite people. Hence tapering and rate reduction won’t happen unless/until inflation slaps on FED’s face big time.

      • Old School says:

        Federal government has killed the economy through 50 years of public policy mistakes and the Fed has mopped up most of their mistakes.

        If government screwed up with funding virus research it is a fitting climax to a half century of failed policies. It happened when Fed was on zero bound as well. I think they are trapped into feeding us our medicine of monetary pain.

        • NBay says:

          Agree. But all that public policy was at least fully paid for. I know my Uncle’s corporation paid it’s fair share.

    • Wolf Richter says:

      Marco,

      They’re going to taper. They announced they will, they announced they’re working on how and when. Powell may suggest the beginning date of the taper during his Jackson Hole speech in August, or at least lay the groundwork for it, and the FOMC will likely announce the beginning date of the taper in September. The taper is now just a question of when it starts, and how fast. They may start the taper late this year or Jan 2022.

      But it will be too little, too slow, too late by then. They’re going to have to deal with a massive inflation problem. I doubt this inflation will just disappear on its own. Biden is going to BEG Powell or successor to jack up interest rates to get this inflation under control. Inflation is going to mess with Biden’s agenda. People are going to get pissed. Maybe that’s what Powell is waiting for, that Biden begs him to act.

      • Brisket says:

        But isn’t it likely that any *actual* tapering, rather than talking about tapering, will provoke an abrupt sell-off in precisely the most vulnerable part of the market, overpriced tech stocks, and a massive deleveraging event, at which point there will be howling from every side about how mean old Jerome has tanked the market by raising rates? The taper tantrum this time could make the last one look feeble… What makes you think that the Fed will have any more backbone next time?

      • MCH says:

        That would be a first, to see a president begging the Fed to raise rates. Because it’s going to bring the party to a screeching halt.

        I would pick the elected member of the J team to try to hold out through 24, always another excuse to not raise rates.

        Unemployment too high
        Inflation rate not high enough
        oh, oops, unemployment too high again.
        Soon it’ll be not enough workers, while the government keeps pumping cash into people.

        It’s just sad to see this country go to heck. A slow motion train wreck if there is ever one,.

      • Turtle says:

        “they’re working on how and when”

        Is that like thinking about thinking? How and when is easy to figure out. It’s the making it look pretty part that’s hard.

        “Biden is going to BEG Powell or successor to jack up interest rates to get this inflation under control”

        Maybe, since he’s unlikely to seek a second term at his age. How much does he care about his legacy, though? I think most in his shoes would want to extend and pretend long enough that the next guy is blamed.

        • Wolf Richter says:

          Dove Bullard wants to start the taper this fall and finish it in the spring. And be ready for rate hikes after that. Said it today.

      • sunny129 says:

        ‘Maybe that’s what Powell is waiting for, that Biden begs him to act’

        For that, the headline inflation has to be 15% or more and hit every one on their face! Biden is being ‘ managed’ by DNC1

        Besides with Delta variant resurging, will Mr, powell has enough to spine act? I very much doubt about. All about hats and no cattle!

    • historicus says:

      Don’t expect the arsonists to put out the fire.

  8. David W Young says:

    Kind of like a little kid coming off of a Sugar High, the U.S. economy is facing a severe hangover in the months ahead as the Sugar Fairies at the Fed and The Swamp run out of Printed Sucrose. As evidenced by the much more modest Everything Is Infrastructure bill coming out of the Senate, the political will to keep the Washington fiscal spigot wide open is waning as copies of John Law’s Fiasco are being received by Congresspersons, some of which know how to read.

    Jay Powell told a few lies at his press conference yesterday, especially related to the transitory nature of current Red Hot Inflation and the state of the bond market, that he manipulates like a puppeteer, reflecting no concern for rampant inflation with recently declining yields. IT PAINS ME TO BOTH WATCH AND LISTEN TO THIS GUY. An image of a Snake Oil Salesman from days of yore, riding into a quaint American town in a wagon filled to the brim with cheaply made goods comes readily to mind. MMT, ZIRP, and QE can cure everything except the Common Cold and Covid, step right up, only have a handful left!!

    When we wake up to the glaring FACT that we are being led by Horses’ Arses OFF THE PROVERBIAL CLIFF, THEN IT IS TIME TO TAKE BACK THE REINS AND STEER THE BUGGY ON OUR OWN. This equates to voting with our feet (no Dominion Systems there!) and exiting those markets and activities that pose the most potential for personal and financial harm in the weeks and months ahead. And Ye know of which me speaks.

    • David W Young says:

      He said we are just above target (2% wherever that number came from???) currently. DUH, AT A 6% RUNNING RATE, WE ARE 200% ABOVE TARGET, QUITE A MISS FOR THOSE OF YOU AT HOME KEEPING SCORE.

      • Wolf Richter says:

        He actually said that the current rate of inflation is “not moderately above target but way above target.” That was toward the end. He is getting pretty nervous about this inflation.

        • Nathan Dumbrowski says:

          Even if rates were raised tomorrow it would not fix the slow motion cascade of events that started early 2020 as well as new events that are increasing the cost of everything.

          From computer chips to labor shortages (real or fancied) cost increases being built into the markets. Rate increases will not change the input costs an automobile. In fact it could increase the cost as money increases with the rate increases

        • Depth Charge says:

          Wolf – he’s “getting so nervous” that’s he hasn’t done diddly squat.

        • historicus says:

          He keeps rates at zero…pointing to employment numbers
          THEN he states the reasons why the employment numbers are not as good as they should be…
          NONE of which would be cured by his zero interest rates.
          This is transparent …. he is keeping rates at zero for other reasons…asset pumping IMO.

          The people of this nation just saw the buying power of their currency drop over 6%. The workers got a 6% pay cut.
          The Fed better start taking care of the workers of this country rather than crafting policies that allegedly address the unemployed …unemployed with RECORD JOB OPENINGS.

        • David W. Young says:

          Wolf, I was probably yelling at the TV set at that point and missed it. Good catch.

    • Old School says:

      Fed doesn’t know what is going to happen. If Congress keeps with the handouts people will have money, spend it on too few goods and prices will rise. If people have to pay out of earned income then they are going to have to make budget choices and leave off some eating out and some trivial purchases to pay rent and electricity.

      • Thomas Roberts says:

        Most people will spend all their money coming in. If they have alot of money (to them) coming in, they might pay off debts. Food is abundant in America, where as many store bought goods are currently scarce. The free money should be ended, but until then, it would likely be best that as much of the free money as possible is put into paying off debts and buying takeout food to prevent inflation. For now, it would be probably better that the free money gets spent at a restaurant as opposed to the store. After the free money ends, they should ideally buy up basic ingredients and make food at home.

        • Old School says:

          You speak too much common sense. From Fed’s perspective loan growth isn’t high enough so rates are reduced to get it higher. We are a sick economy built on debt not equity, built on debt growth not income growth. It’s not a good situation.

        • Depth Charge says:

          So they just continue more of the same, even though it hasn’t worked for over 10 years.

        • Swamp Creature says:

          A lot of people including myself never got my stimulus checks for about 6 months after they were promised. The net result was by the time I got mine I already had some new big ticket item bills come in and the stimmie checks had to be earmarked for those bills and not for personal consumption or enjoyment. The bottom line is the stimmie checls were gone before I even got them.

        • Thomas Roberts says:

          The fed can only do a couple things. If you give rich entitled people, a big but limited set of powers, I wouldn’t expect those powers to be used well.

          I wonder if the FED could be replaced with an open source algorithm. Might be an improvement. It’s worth considering.

    • Swamp Creature says:

      Powell is like that dude in the “Music Man” who went from town to town selling musical instruments and disappearing with all the money.

  9. Prue Grubstreet says:

    I’m too young to have experienced the inflation of the 70s and 80s, so I never really understood just how demoralizing it can be. Sure, I studied the Weimar period and all the perversities and atrocities that people were driven to. But that was one of history’s more extreme examples, and I knew, thanks to reading this blog, that we could stop that kind of inflation in its tracks.

    But now, after scrimping and saving for ten years to buy a house only to see that dream inflated away, well, it’s profoundly demotivating. And I’ve always been such a motivated person, through the Great Recession and all. Reinventing myself, going the extra mile, trying to reach my full potential. But now, for the first time, I’m thinking, “Who cares? I don’t anymore.” And many of my friends and associates seem to be thinking the same thing. Inflation is a real mind-f***, that’s for sure. I guess it’s a lesson my generation had been able to avoid — until now. It will be interesting to see how we respond to it.

    • Old School says:

      The bad part was for Volker to kill inflation he was putting nearly every company on the path of bankruptcy where borrowing cost was 18%.

      • 2banana says:

        The 80s economy went into a short/sharp recession and then boomed with high interest rates.

        And businesses actually made sound business decisions actually based on a ROI and low debt…

        • Old School says:

          That is true. We were really focused on speeding up our inventory turns because of cost to finance it.

      • Swamp Creature says:

        Good

    • georgist says:

      There is a gap between:

      1. Earn enough to pay rent outside an urban core and to eat

      2. Earn enough to have a home, savings, financial independence, and eat

      People are realizing that for most jobs, even if they work very hard, after taxes they will not have enough to get to stage 2.

      So why break your neck trying?

      The solution: as Keynes said “euthenize the rentier”.

      • Old School says:

        You are not entitled to live in a dwelling that has 5000 man hours of labor in it plus materials. If you can’t afford that you have to double up or triple up or look for another location to live in.

        • georgist says:

          Housing has gone up far, far beyond wages. It’s detached from wages.

          Please don’t reply to my comment with incorrect stuff that any boomer could push out in five seconds flat. Your reply is very poor, it implies an air of entitlement that is dismissive *and* incorrect.

        • Bobber says:

          Is 5000 the right number of hours to build the average house? That’s the equivalent of 10 people working full time for 3 months (the average build time). Seems a bit high. I think it could be half that.

          It matters to me because I always compare the cost of purchased labor to my own billing rate as a reasonableness check.

        • Ensign_Nemo says:

          The immediate thought that I had after I read your comment of “5000 man hours” was “Why TF does it take the equivalent of two and a half man-years of labor to build a single house?”

          The answer to that question is that we have regulations in place that ban most pre-fabbed housing from most residential zones. If we had the desire to mass produce housing in the same way that we mass produce automobiles, we *could* do it. There are too many vested interests keeping housing expensive, and people seem to view buying a house as more of an emotional event than a cold calculation of the most efficient method of providing shelter and essential utilities.

          It’s weird that women deprecate the stereotype of a wife as a “homemaker” or, heaven forfend, a cook for her husband, at the same time that they demand mini-mansions with granite tabletops in the kitchen.

        • 91B20 1stCav (AUS) says:

          Old-and you’re not entitled to expect someone to soldier for you to protect your own ‘way of life’ unless you work to ensure they have access to decent opportunities to better their situations…

          Wealth disparity is the historic slow cancer…

          may we all find a better day.

      • historicus says:

        This Fed has PUNISHED SAVERS.
        I would like to ask Powell if he ever saved his money…if his parents saved their money…
        Saving is the way most families lifted themselves up to financial stability…Work, Earn, Save, be thrifty…then maybe you can afford the car the house etc.
        The Fed FORCES people into a certain behavior (do not save, spend and invest)…and that is not the spirit of the Federal Reserve Act.

        • Old School says:

          I wonder if a debt burden Ed economy is going be the outcome of any central bank. Banks have one business and that is to make as many profitable loans as possible. The central bank is the chief banking regulator. Are they going to come up with a system that discourages debt?

      • Depth Charge says:

        I am saving MOST of my income, over 75%, and house prices increased beyond what I saved in the past year. And I know almost NOBODY saves as much as me. That’s not a sustainable path for house prices or society. Jerome Weimar Boy Powell should be arrested for what he’s doing. Yet he keeps doing it, over, and over, and over again. He should have announced an abrupt end to MBS purchases immediately after the data came in.

        • Swamp Creature says:

          He should get the same treatment as Dr Rathenau got in the summer of 1922. DC knows what I’m talking about. No need to repeat.

  10. Micheal Engel says:

    1) “Fix Private Investment” bubble” : the 2019 hi/2020 lo is it’s backbone.
    The two dots at the top are shortening it’s thrust.
    2) “Gov Consumption, Expenditure & Investment” : Feb/Apr 2021 might be a backbone.
    3) If a “light weight correction” is next, following June 2021 high, but above 2010 high, it might be a stronger backbone. Thereafter ==> a large bubble will be born.
    4) Keep the rondo, no correction : a lazer aiming at AOC next $6T

    • Cobalt Programmer says:

      I am not a conspiracy theorist or something, this guy must be mole supposed watch the blogs like Wolf’s. He reads every blog post and records and report them. He must enter the random bulletin points given by his masters. That will record he read every blog. I am not far from truth.

      • Micheal Engel says:

        1) Cobalt, u are a linear thinker. Your analysis is far from the truth.
        2) My comments are TA on Wolf’s chart. If my comments bother u, skip.
        3) I work very hard for Wolf’s readers.
        4) Have no masters to report to. I do it mainly for myself.
        5)

        • Alku says:

          ME

          I am not questioning your hard work, but the way you present the results of it – in my opinion – simply deters the readers who otherwise might have enjoyed it.

        • JGo says:

          ME. I appreciate your comments and their format. Some I pick up right away, others I need to look up to find the meaning. Doing the extra work helps me learn something new. It’s unlikely I would have ever looked up comte de Vergennes if it wasn’t for your comment below.

      • Brent says:

        For some reason Mr.Engel uses caps,otherwise it might be safely assumed that he is a literary disciple of e e cummings

        With caps the official term designating his writing style is a “modernist free-form poetry”

        • Phred says:

          M Engle’s comments remind me of the quatrains of Nostradamus. Hard to decipher, but there might be something there.

        • Brent says:

          @Phred

          Quatrains of Nostradamus…
          The last piece of the puzzle.The previous two were:

          1.With the NEO CONOP activation and SPMAGTF going hot the DONSA is called off and CCDR needs the FUPLANS OPT to refine the TCP LOE’s, IMO’s, & MOP/MOEs NLT COB today.
          (USAF)
          2.Yo,dat be rayciss,don’t be tellin’ me dat I can’t talk good cuz I speak Ebonics.
          (Chicago South Side)

          Now the picture is complete.As to Cobalt Programmer unjustified attack on Mr.Engel – Shakespeare said it best:

          There are more things in Heaven and Earth, Horatio,
          Than are dreamt of in your Philosophy

        • Crazy Chester says:

          Ah, the English majors have arrived to voice their defense of Sir Engelish. Good. For it is important to know that “the world is mud-luscious and puddle-wonderful” – what in the box looks for most at least reassuring in its linear inflexibility, others, outside the box see something different: opportunity. All change produces opportunity “the goat-footed balloon Man whistles far and wee.” See the new idea in the coming muddy world? See the delight of execution, the birth of your idea into a public acceptance, the dancing in the cleansing rain’s puddle? What Sir Engelish is telling you is to understand your positions, know your data points. Use them to navigate to something you are seeing now for the first time. Just look harder.

          Brent, thank you. It’s been too many years since my grade school days of Mrs. Mansfield having me read, against my will, e e cumming’s ‘[in Just-]’ aloud – it must be aloud – before the class. She was teaching us how to find opportunity in seeing anew and how to feel the joy of seizing that opportunity for ourselves. Just look harder at the “far and wee”. A new idea will come. And you will do well.

          Oh, lest you worry, my major was behavioral economics. But law school and 30 years of ‘fixing’ things by ‘lawing’ folks did its best to suck out my early curiosity. Sir Engelish’s data points stimulate that curiosity. Good.

        • Ensign_Nemo says:

          Phred’s comment inspired me to make my own fake Nostradmus Quatrain:

          “In the second year of the new plague there shall be chaos in the New World

          The arrows of the moneychangers in the temple of Mammon shall miss all of their targets

          Youths shall treasure secret cyphers even more than gold

          All in the most unholy city shall tremble in fear of the Second Coming of the Orange Man.”

          * Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject Michel de Nostredame, LLC, to any unintended registration requirements. Visitors to this site should not construe any discussion or information contained herein as personalized advice from Michel de Nostredame, LLC. Visitors should discuss the personal applicability of the specific products, services, strategies, or issues posted herein with a professional advisor of his or her choosing.

    • cd says:

      think 197 IWM, 14K-13500 NQ, 3950 SPX , XBI 95

      bad things start tomorrow, Sunday night feels like a waterfall event is coming over the weekend

  11. Catxman says:

    Well, there’s some good news buried in those charts that Wolf put up: Government consumption has been hovering around 3 trillion dollars for years now. It isn’t spiking. Milton Friedman famously said he could live with a large debt as long as gov’t spending as a whole was kept under control. Using that dictum as a reference point, we can see that the government isn’t getting that much fatter, at least in terms of the inputs it takes up. That’s good news.

    A moderate amount of government spending, in the Keynesian sense, is a good thing. As long as the money gets recirculated in the economy right away, and isn’t hoarded by the rich, it can benefit us all. The problem, of course, arises when the government builds a debt castle to the clouds.

    Still…what can be announced can be un-announced…

    When I was a kid, I was semi-friends with a guy named Stephen Drye. Steve was shocked when I said the government could annul its debt, just make it go “poof.” He was of old Brittanic stock, Steve was, and he couldn’t get another white boy’s viewpoint from outside the Anglosphere. To Steve, debt was sacred. To me, debt was an artificial construct which could be removed when it was inconvenient. And now, with that debt castle growing ever higher, it’s looking like I was right and Steve was wrong. It may be time for a one-time purging of all that federal, state, and local debt. The people holding the debt aren’t the working class, anyway. If you think the feds couldn’t raise money again ever after that (because their cred’s shot) think again. Greedy money would soon forget that the debt was ever erased. Look at the Medicis during the Renaissance. They loaned to popes, and sometimes the pope paid … and sometimes he didn’t. They ate the loss, and stopped patronizing sculpters for a while…

    • AdamSmith says:

      The value of history.
      Student Loans?

    • Artem says:

      Catxman,
      You are holding that debt. Your future social security and medicare go poof together with the greedy money that you are trying to target.

      • jon says:

        It’s already going ‘poof’ with the inflation. If your wage is not increasing at the same rate as inflation, then you are the one paying for it.

    • 2banana says:

      1. Sovereign debt is very hard to go “poof” when held by foriegn investors. The obvious example is Argentinia but Russian Tsar debt was just recently settled by modern Russia.

      2. The consequences of making your “artificial construct” go poof are enormous. Wars are fought for less. And, FYI, how much of a military do you think will be left after “poof?”

    • Trailer Trash says:

      “debt was an artificial construct which could be removed when it was inconvenient.”

      Ancient societies did this and called it “Debt Jubilee”:

      “Assyriologists have found that from the beginning of recorded history in the Near East, it was normal for new rulers to proclaim a debt amnesty upon taking the throne” [1]

      But those societies were “primitive” so they have nothing to teach us today…

      [1] Michael Hudson; “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year

    • Nathan Dumbrowski says:

      Think of how many entire nations have gone bust and walked away from their debts. Yet no matter what they get more loans and the IMF offers relief. Bankruptcy isn’t the end of the world. Death is. Maybe you can call Steve and reconcile

      • Nick Kelly says:

        Actually the IMF dispenses such severe medicine many of the debtors dread having to approach it. Nigeria just tried to hit up the World Bank for a loan and were told to go to the IMF. Hasn’t happened. That’s why all the wailing from Greece, among others. And Argentina has pretty much used up its credit. For it to get another big loan it would have to greatly reduce its public sector. (In Buenos Aires province, which includes the city, half the workforce is govt) And the IMF won’t release it all at once. Given the past, it might not even release the first tranche until there is action.

        The biggest shock the UK had post- war, was not just having to go to the IMF but then being told there would be conditions. “Us? A founding member?” But it had to cancel some social spending and sell the govt stake in BP.

        Post the GFC there was some loosening but for these serial defaulters the jig is mostly up.

      • Grave Digr says:

        The IMF just tells countries they have to live within their means. Most countries just want bailouts. America can print their own bailouts. For now.

    • Wolf Richter says:

      But the chart of government spending does NOT include transfer payments, such as stimulus checks and unemployment payments, and it doesn’t include government salaries. These transfer payments are later picked up in consumer spending. So all the stimulus checks and extra unemployment payments are not reflected in this government spending and investment chart. They’re reflected in the consumer spending chart when consumers spend this money.

    • Old School says:

      You can stiff your creditors if you have a balanced budget and can fund yourself otherwise it’s going to hurt.

    • Masked Ghost says:

      CatXman. Have you followed the work of Michael Hudson? ?

      Instead of letting the banks create the money, and then having the gov borrow it from them, he believes the gov should just create the money themselves ( print it), instead of borrowing it.

      People used to say that a debt that could not be paid, won’t be.

      If all that student debt is a major drag on the economy, and is owed to the gov, why couldn’t the gov just cancel it, and let the ex-students get on with raising families, buying a house, etc etc.

      Of course, some simple reforms would be in order. Like making banks hold the debts they create for 5-10 years before they could package them up and sell it. Letting students be able to declare bankruptcy would be another brake on creating unpayable debts as well.

      Banks need to get back to making loans that can be paid back, not rolled over forever.

      • Wolf Richter says:

        “…he believes the gov should just create the money themselves ( print it), instead of borrowing it.”

        That’s why Michael Hudson doesn’t belong here. He is a time traveler from Weimar who doesn’t know yet how Weimar turned out.

  12. Zantetsu says:

    I think Wolf made a mistake by letting his comments section become a safe haven for conspiracy theorists. Too much moderation of stuff that criticized his posts, not enough moderation of the kooks. My opinion.

  13. Micheal Engel says:

    1) Debt jubilee in repetitions infected England, before the “Orange” invasion.
    2) With 2% instead of 10%, the British Empire was born. They could
    finance more ships, more voyages and trips, more battles, rule the waves.
    3) There was some kind of Spinoza invasion, up north, to Scotland.
    4) We knocked it off to please Comte de Vergennes (1717-1787) many
    years ago.

  14. qt says:

    So my parents’ VoIP service ends next month and I got an email to renew. Yes, no one hardly uses landline anymore and I have been telling them to get rid of this service. They refuse saying they must have this precious number (note they have mobile numbers already).

    I can renew for one year which is $39.99 + $9.99 (renewal fee, taxes). However, they had plan for 2, 3, and 4 years. I decided to go with the 4 years plan which is $159.99 + $9.99. I not only save on the renewal fee ($9.99) each year but I locked in that price for 4 years. This is inflation expectation, my friend.

    Also, note that JPOW said that transitory does not mean inflation will reverse as it is temporal. It does NOT mean that prices will go up 10% or 20%, then go back down that same amount. Oh no no no. It means inflation will NOT continue at that rate forever, but will stop and continue at the normal 1% or 2% rate afterward. So prices are not coming down next year or the following year. It will stop going up 10% – 20% then will just go up at the normal ~2% afterward. Great Job JPOW!

    • Anthony A. says:

      qt, almost everyone over 70 has one of those “precious” phone numbers that no one except scammers and salesmen call. It’s part of the generation.

      My wife refuses to give up the precious number (so we pay). I think she is waiting for a call from her dead mother.

    • Swamp Creature says:

      I still keep my horse & buggy land line. It was the only thing that worked during the massive power outage we had in 2012. Used it for dial up Internet. Kept my business functioning although at a greatly degraded mode. Its part of my disaster continuity plan.

      Bought a call block device to block any number I don’t recognize.

      • Alku says:

        Wouldn’t it be better to have a big power bank (or a generator) instead? You could power something else as well :)

        • Swamp Creature says:

          Computers don;t work so well on generators. Last time we had the massive power outage we survived by checking into a hotel and using Internet there. Brought an IBM selectric typewriter and kept operating, in a degraded mode.

        • Alku says:

          with like $50 power bank you can use your laptop and phone for hours. Sounds better option to me than a landline + modem. In any case, while the landline can be powered, how did you power the modem etc?

        • Swamp Creature says:

          The UPS worked for and hour or so.

  15. 2banana says:

    Amazon just took a huge hit by missing Q2 and having a tepid forecast for Q3.

    Canary in the coal mine?

    “Consumer spending – powered by the $1,400 stimulus checks that started going out in late March, extra unemployment benefits, and all the other government goodies and extras, and by stock market gains and what not – jumped by 11.8% annualized…”

  16. MonkeyBusiness says:

    GDP? Only boomers care about that. Millennials only care about ads. Why sell real things if you can sell ads. That’s why Amazon missed their earnings while Google had a stupendous time.

  17. Swamp Creature says:

    I pay my lawn man $35 every week to cut my grass. I pay him in cash. No records. I wonder how much of that expenditure gets into the reported GDP? I think you all know the answer. I hear crickets.

    • Old School says:

      If you donated it to a politician’s election campaign they wouldn’t have to claim it as income, why should he?

    • OutWest says:

      No worries. You got SSI, Medicare, ect.

      He’s got nutin.

  18. ThePetabyte says:

    Store opened nearby called Five Below. It is literally an inflation version of the dollar store meaning everything is under five dollars. With flashy lights, big fonts, and pop music blaring, they attracted what seemed like every person in the 16-30 yr old demographic. Best part was that they were walking out with shopping carts full of what looks like cheap Chinese home furnishing and electronics.

  19. Micheal Engel says:

    AMZN is down 7.5% AH.

    • Old School says:

      The problem with paying a high PE for a large cap stock is they eventually have to have a growth rate that trends toward nominal GDP growth which means low to mid single digits revenue growth. PE eventually has to drift down to 15 plus or minus.

  20. Micheal Engel says:

    US 1:0 Qatar min 86

  21. Gary Yary says:

    The trade deficit graph is very alarming.

    Trade is oxygen for the economy.

    The bubble can’t keep blowing up without air?

    So, so many over valued companies right now. WTF valuations. Real Estate, used cars, byte con, etc.

    Titanic, Hindenburg, Dot com, Enron…maybe this time JP Morgan will finally get kicked?

    Great info again Wolf and your cadre of realist’s.

  22. MonkeyBusiness says:

    Rent moratorium is ending this week. Time for another lockdown. Otherwise, how can we keep the economy up?

  23. georgist says:

    Just a little anecdote for you.

    I work in tech in finance. Post covid I was pretty pissed to see my savings dwindle against housing and pressed my company for a raise. They gave me a significant % increase. This was in part driven by approaches from several recruiters offering me more than my current salary.

    Today a guy reporting into me asked for a raise after getting an offer to double his salary, and work remotely.

    Tech is undoubtedly one of the “winners” right now, however it does go to show a total talent deficit in skilled occupations.

    If we have a wage inflation spiral it looks like the boomers will finally get the outcome they have been asking for, every election, for 20 years.

    What will they do? Same as always: complain.

    Boomers will receive a hand-written note from the rich:

    > dear sir/madam, thanks very much for all the votes, have a good one!

    I doubt the next generation will be sympathetic to their plight.

    • Old School says:

      Some say we are going to transition from a tech bubble and burst to an industrial boom.

      You can see it in plan to build hard infrastructure. You can see administration ratcheting up US content for all government purchases. It’s going to take factories to make steel products and concrete and big electrical equipment for electrification. It’s going to take cats to dig and push dirt around.

      Public policy offshored too much and they are going to try to bring it back.

  24. Beardawg says:

    With a massive trade imbalance and debt spirals, isn’t infrastructure spending the least worst option for GDP / Productivity growth ?

    Will our elected pork pushers just get this done so pockets can be greased but we actually get something for our fiat printing press ink ?

    • Old School says:

      In theory certain infrastructure should make the US more efficient, but in practice I will say it will have a negative return on investment as funds will be dispersed by politicians buying votes. You can be certain they will make sure to budget in signs that tell us this bridge brought to you by your friends in DC.

  25. YuShan says:

    With inflation vastly UNDERstated, that means that real GDP is vastly OVERstated! And it has been for years!

    • georgist says:

      This is a key point. The deflator on GDP is a lie therefore GDP is a lie.

      My dad had a regular job in the 1970s. Since that time we’ve added swapping information globally in under ten seconds, a whole host of amazing tech and refinement of tooling.

      Are they telling me that in this new paradigm I can’t afford a home?

      It’s synthesized scarcity to force me to work.

    • Swamp Creature says:

      May the 10 year bond market IS signaling a slowdown this time? Contrary to Wolf’s previous post? We don’t see much price appreciation in existing housing in the inner city right now. I believe what I see, not BS from the government or the crooked RE industry.

      • sunny129 says:

        ‘May the 10 year bond market IS signaling a slowdown this time?”

        I used to think that way, too. Not any more Our Fed has manipulated the curve with tools like twist, Repo & reverse repo, QE ++ the normal feed back indicators (inflation, GDP, unemployment++) from the economy have been hijacked, favoring Banks and Wall St. Price discovery actively suppressed! Fed still buying 120B /month!

        The real interest rate now after considering inflation is -4.5%! We are deep in rabbit hole.

  26. Auldyin says:

    Great studying these charts as always.
    Sometimes pure numbers give a bit of extra insight.
    C is +1.9%pa compound equiv estimated over 13yrs
    I is +2.5%pa do do
    G is +0.65%pa do do
    (e-i) is -4.65%pa do do
    Gdp is +1.8%pa do do (historical)
    C+I+G+(e-i)=gdp adding figures gives Gdp = 0.4%
    going forward? This is because (e-i) is growing fastest.
    National debt +7.25% comp equiv over 9yrs to set a background.
    The figures are compound annual rates required to get from the start point to the end point over the no of years stated, interpolated from annuity tables and are therefor averages from 08 to 21.
    Without the -4.65% trade deficit figure, overall growth would have been decent, especially that +2.5% for I which is good.
    The books have to balance externally so that trade deficit must be offset by the capital account of foreign money inflows to US eg funding of the debt. etc
    G is surprising given all the moaning about profligate Govt, even transfers in C are not too bad.
    US could be rolling again if it made more of it’s own goods.

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