Dollar’s Purchasing Power Gets Zapped. It’s Permanent

This combo of massive QE, repressed interest rates, huge government stimulus with borrowed money, and raging inflation is new in recent history.

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

This stuff is now going on everywhere, all the time, at all levels. Polaris, the Minnesota-based manufacturer that makes the Indian Chief motorcycles, a variety of snowmobiles, off-road vehicles, and other vehicles, raised its prices in May in response to higher input costs, and now, a couple of months later, it is again contemplating price increases.

Big consumer-products makers have been announcing price increases, and sometimes sequential price increases, since earlier this year. This includes Procter & Gamble, Coca-Cola, Kimberly-Clark, General Mills, Unilever, and many others.

Unilever, which makes products across beauty and personal care, home care, and food and drinks, announced price increases in April. Then a few days ago it said that if would accelerate and fatten those price increases because of still rising costs of ingredients, packaging materials, and transportation.

It said that “inflation has been higher than we anticipated.” And that has been the universal truth all year.

Automakers don’t announce price increases during the model year; manufacturer’s suggested retail prices, or MSRPs, are announced at the beginning of the model year. But what they’re doing is cutting back incentives, and people just pay a whole lot more for new vehicles. And profit margins have ballooned at automakers and at dealers. The largest auto dealer, AutoNation, disclosed monstrous historic per-new-vehicle gross profits.

Other companies use dynamic pricing which changes prices from minute to minute, and from location to location, such as rental cars, hotels, plane tickets, and the like, and those prices have shot up.

Small companies also face input cost increases, and they raise their prices for goods and services they provide. Everyone I know who has a small business has either already increased prices, or is now planning and implementing price increases.

In my little bailiwick, all the services I need in order to run my WOLF STREET media mogul empire have gone up in price: the costs associated with the dedicated server at a server farm, the costs of the email service that many readers subscribe to, the costs of the broadband service, which doubled….

Heck, even the beer mugs I send out as thank-you gifts for generous donations. All the costs around them have gone up: The cost of the mugs, the cost of shipping them on a pallet to my global headquarters, the cost of shipping them individually to the final recipients, the costs of the cardboard boxes, the cost of the special filler material that I so lovingly wrap them in. This has been an ongoing litany.

The good thing is that WOLF STREET is supported by ads and donations and doesn’t sell anything, and so there are no price increases, and no shrinking or ballooning profit margins. I just eat the higher costs.

All companies are struggling in their own way with higher costs and are weighing or have already implemented price increases. Small companies are quietly raising prices of goods and services they provide, without media-savvy announcement. They simply let their customers know what is coming, and their customers have their own issues with costs and prices, and they already know what’s coming.

But big public companies that everyone knows are in a different ballgame. When big consumer-products companies announce price increases, it’s an effort at a form of perfectly legal price fixing.

With a price-increase announcement, the company lets the competition know what it is doing, and to what extent it is doing it, and thereby it is letting its competition know to what extent they can raise their prices without getting undercut. And they’re doing it.

And they cite higher input costs, such as materials, labor, and components, and higher transportation costs coming and going, and higher packaging material costs, and they all want to protect their profit margins, and they want to increase their revenues, and increase their profits, and the best way to do this is via price increases, if competition lets you get away with it, and if your customers can’t find a better deal and are staying with you despite the higher prices.

There is an art to raising prices and getting away with it, and this art has now kicked into high gear, and consumers are paying for the sharpest price increases without going on buyers’ strike.

A buyers’ strike would end these price increases, but something big has changed. The whole attitude about price increases has changed. An inflationary mindset has set in. And this psychology of inflation tends to be persistent.

The government has different inflation measures. According to its lowest lowball inflation measure, the Personal Consumption Expenditures Price Index without food and energy, inflation rose by 3.5% in June from last year. At the other end, the government’s Consumer Price Index version that it uses for the Cost of Living Adjustments to Social Security payments, jumped by 6.1% in June compared to a year ago. Private-sector measures are much higher.

Inflation means that the dollar loses its purchasing power. It means that labor loses its purchasing power. In other words, people have to work more the maintain their standard of living. Or people can work the same and cut their standard of living.

And people who get performance-based pay raises, and think that this greater performance is going to allow them to raise their standard of living, they find out that all or much of that performance pay raise just allowed them to keep up with the loss of the purchasing power of their labor dollar.

There’s another way, the Federal Reserve’s preferred way. This inflation is not an accident. The Fed was the primary engineer of this inflation with its policies, dominated by the biggest money-printing event in modern times and by 0% interest rates. Now the Fed wants people to make up for the loss of purchasing power of their labor by borrowing more.

The Fed keeps insisting over and over again that this inflation that it is largely responsible for is “temporary” or “transient.” But there is nothing temporary or transient in the loss of the purchasing power of the dollar, including of the labor dollar.

These prices of consumer goods and services that have jumped aren’t going back to where they were two years ago. Only deflation would do that.

But long stretches of deflation that would recapture some of the lost purchasing power of the dollar are not allowed in this country, and there have only been a few quarters during my lifetime of deflation. So long-term deflation is out, but long-term inflation is a reality. And now we have a massive bout of inflation, with the only question being whether it will get worse or better.

The Fed and economists and others point at lumber as an example as to why this inflation is temporary. Lumber had spiked in the spring to ridiculous levels, and everyone knew it would have to come back down because those spikes in commodities don’t last, and it came back down as expected. But it has now stabilized at a price that is roughly 50% higher than it was two years ago. The Fed isn’t talking about that part.

Other commodities are still spiking. Some, like lumber, have returned halfway to earth but remain much higher than two years ago.

There is always some kind of a unique story behind each and every one of these price increases, and sure the huge spikes will eventually unwind, but like lumber, prices are likely to remain much higher than two years ago.

Price increases in services have now commenced. This includes things like broadband and communication services, restaurants, travel related services such as plane tickets, hotels, rental cars, and many others. Services are two-thirds of consumer spending.

One of the biggies among services is rents. Rents are surging for suburban single-family houses. And they’re surging for apartments outside the urban cores of the largest cities. Apartment rents in many large urban cores are still lower than they were two years ago – this includes San Francisco where asking rents are down over 25% from two years ago, as the city’s population has declined. But in cities an hour or two by car from San Francisco, rents have spiked. And as always there are unique stories behind all of them.

But the underlying common thread of these price increases is that there is a huge amount of money – of newly created money – blindly and vigorously chasing after limited goods and services.

No one has ever been through a combination like this before:

The biggest money-printing spree in modern times, where the Fed printed $4 trillion in 16 months and spread them around, and repressed short-term interest rates via its policy rates, and repressed long-term interest rates via its continued bond purchases that still amount to $120 billion every month.

All of this simultaneously with the biggest fiscal stimulus of modern times, about $5 trillion in borrowed money that the government then spread around over a period of 16 months, and much of this fiscal stimulus and deficit spending continues.

No one has ever been through this kind of combination of massive monetary and fiscal stimulus while inflation was raging.

You have to go back to the 1970s and early 1980s to see the pace of inflation we’ve experienced over the past few months. And back then, interest rates were much higher, and there was no QE. And even back then, inflation didn’t just go away of its own.

So now, to support their claim that this is transitory and will go away on its own, the Fed, the government, and some economists point at inflation expectations in the bond market. They measure this by looking at government bond yields, including the yield of 10-year Treasury securities and the yield of 10-year Treasury Inflation-Protected Securities, or TIPS.

And given how low yields are, and how small the difference is between the regular 10-year Treasury yield and the TIPS yield, they’re saying that inflation expectations by the market are well-anchored at around 2.5%.

But this is a bunch of hocus-pocus because the Fed is still buying Treasury securities, thereby pushing down those yields, and the Fed is still buying TIPS, and has bought more TIPS since March 2020 than the government has issued.

All the yields are immensely manipulated by the Fed, they’re the product of the Fed’s policies, and now the Fed is citing these forced-down yields as an indication that markets see this inflation as temporary that will go away next year? Come on, give me a break. This is just manipulative hogwash.

As long as the Fed purchases bonds in such huge quantities, the market says nothing about future inflation. What the market is saying is a reflection of the Fed’s policies and manipulations.

No one has been through this combo of bond market manipulations, massive QE, repressed interest rate, huge government stimulus with borrowed money, and raging inflation.

That combo hasn’t happened in recent history. But now we’re in the middle of it. Even when the Fed tapers its asset purchases, it will be too little too late. And interest rates are still at zero, and there is no discussion about a liftoff yet. And the government’s fiscal stimulus with borrowed money continues. The most likely outcome is a persistent heavy loss of the dollar’s purchasing power – until the Fed decides that enough is enough.

At that point, if it seriously wants to bring inflation back down, it will have to be aggressive because by that time, the inflationary spiral is likely to have been ingrained and will be tough and painful to dislodge.

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  176 comments for “Dollar’s Purchasing Power Gets Zapped. It’s Permanent

  1. c1ue says:

    I can’t disagree with anything you’ve written.
    However, the timing and the precise mechanism of this bubble popping are still unclear.
    It seems highly unlikely to me that the Fed, going into the 2nd year of a 1st term President, is going to aggressively pop the bubble. It has never done so before – why would that change now?
    On the other hand, the enormity of the everything bubble is such that we are all just waiting for the unforeseen needle that pops this bubble. Archegos wasn’t big enough, clearly.
    Will it be a shooting war? Another enormous corporate accounting scam a la Enron/Worldcom?
    Time will tell.

    • ChangeMachine says:

      Calling this a “bubble” makes it sound both temporary and accidental.

      • Joe Saba says:

        my son has 2015 F-150 he bought 2 years ago($30k)
        now worth $7k more than when he bought it and added 30,000 miles to it

        • rodolfo says:

          That very well could be. However let us know when he sells it for 37K. Then we know what it is really worth.

        • Random guy 62 says:

          Can give two examples of this weirdness happening.

          My brother just sold a camper purchased 2 years ago for $14,000 out the door. Sold now used for $15,500. Last week.

          A family friend sold a Polaris UTV. Purchased three years ago and driven plenty. Sold for $3,000 more than new price three months ago. No major add ons. Mostly stock.

          Both of these things should depreciate like crazy in their first few years. Apparently not the case lately.

        • Martin says:

          New cars are lacking resources to build new cars and the market on used cars has increased significantly and the housing market is also messed up (New and used houses).
          My house this year is worth almost 100,000 more than it was before Covid. And I know it is no way in heck worth what Zillow and others are saying it’s worth.
          New houses are to expensive to build thanks to lumber prices but, banks are making great deals to new home buyers and it feel like 1998-2001 all over again.
          Gas prices are approaching stupid and there is no hope in sight – feels like 1970s and Carter presidency.
          Our Economy is gonna tank HARD and this time it seems like it’s going to get hit in all sectors all we need now is a food shortage.

        • Smithereens says:

          Martin – I write for angry bear and farm. Food shortage, check. Go check out the pillage happening to my ranch friends. Vertical integration by the big 3 are forcing ranchers to cull herds. Like your beef? Not this year.

      • c1ue says:

        It all depends on what your time frame is.
        The Y2K bubble was maybe 2.5 years.
        The real estate bubble was 4 or 5 years.
        This one is about 5 years in.
        Nasdaq took something like 15 years to get a new high after Y2K, ditto Dow.
        Net net: it can go on, but it absolutely will not go on for another 10 years. The question is 1 or 3? or 5?
        US national debt went from $9T or so in 2006 to $28T today – I doubt it can hit $50T.
        To put in perspective: the entire world’s GDP is about $80T…

        • Augustus Frost says:

          This bubble isn’t five year in, it is the same bubble from 2007 which was the same bubble from 1999 and which started at minimum around April of 1994, in the US. Maybe as far back as 1982.

          This is the greatest financial, credit, and debt mania in the history of human civilization, as it’s a worldwide bubble though it varies by asset class and location. There is no precedent even close to what exists now. If anyone here has read financial and economic history, the 1920’s prior to the Great Depression and South Sea Bubble in Britain were isolated and tame compared to what exists now and the distortions of at least the last 20+ years.

        • c1ue says:

          @Augustus Frost
          I don’t agree with you.
          Obama did not execute on anywhere near the stimulus packages in 2008 as compared to COVID. There were no federal unemployment topups, no stimulus checks and no eviction moratoriums.
          Secondly, the markets took a huge dump in 2008 – or didn’t you notice the GFC?

    • VintageVNvet says:

      Really EXCELLENT article Wolf,,, as my neighbor in flyover used to say, ”Appreciate YOU.”
      As to the comment above from c, agree that something like that will become labeled as the black swan event, though clearly us old folks know that label is just an excuse for the paid political puppets to avoid all and any responsibility for their lack of clear and concise and accurate communications to WE the Peons, ( thanks Unamused for that term )…
      Couple of additional comments:
      1. Instead of the annual $100 we were going to send to WS Corp to get another mug to add to our collection, we will send $50 or more more often, as our SS increases, on which we HOPE to continue to be able to live, as my granddad did his best to do, not touching his savings, and ditto for us.
      2. At this point, the only thing, other than the very best food available from farms, we need is the gasoline for our vehicles, and the required/mandated utilities and property taxes.
      3. Clearly, gas is a component totally outside our control, so we will just let it go and not worry about it, though we may not go to see the ”grands” another year, already happening this year due to covid, etc.
      4. Property taxes here in the saintly party of the TPA bay area are limited, and due to being old and older and vet, etc., FL and the locality are very good about not raising them.
      5. So, so far, the only real challenge on your list is what is going to happen to beer, wine, and booze??? Likely,,, based on this very clear report, I am going to go and stock up with enough to last a year or so until the current madness at least ameliorates a bit!!

      • Catxman says:

        Yes, it was a really good article by Wolf, In response to Vintage:

        (4) Property taxes. The local municipalities will have no choice but to follow where the private sector goes. You say they’re “good about” not raising them, but what are they going to do when the public sector unions demand raises? Cave, that’s what they’ll do. Public sector already makes 25% more than equivalent private sector jobs, and that’s because the politicians cave whenever their unions say “boo.”

        (3) Gas. Gas may be immune from inflation if all that fracking and Gazprom Russia oil keeps flooding in. But that will only last until the glut dries up. Once new supplies cease to come in, gas will bob up to levels of the rest of the economy. There will of course be another dip as Big Oil overbuilds its supply network, but between the current price level and the next dip, expect inflation to bite.

        The canary in the coal mine is how much government debt is allowed and how hard it is tackled. If national debts throughout the First World can be restricted then there might be hope. Covid has scythed through large segments of the elderly population, resulting in costs savings, but this is not enough. The debt has to be tackled head-on.

      • ArKayne says:

        If you are retired and have time, look into brewing your own stuff. We do it and it is a lot cheaper than buying commercial. and easier to do than you think. Although I admit we still buy good Bourbon from time to time. Bourbon and hard liquor are an art above my abilities. But brewing your own beer and wine is a nice hobby. It’s a lot like cooking…just more fun.

    • jon says:

      I don’t think FED is going to taper and/or raise the rates.

      We are seeing this move for last 10 years. This can go on for decades before it explodes if it happens.

      • Mark 2 says:

        I agree. We’re so deeply in, and the responsibility culture is so far behind us, that no party will want to take ownership of this.

        This can continue for much longer than many people might think. Europe is in negative interest rates. A mortgage can be had in France for 1%.

        So houses CAN keep climbing. Just because the prices are obscene now, doesn’t mean they won’t get pornographic.

        Selling your house and now and hoping to buy something much cheaper in two years is a big risk because your money will be sitting in the bank losing 5% a year to inflation. You will also pay all that rent and about 7% RE transaction costs. Prices would have to drop about 20% 2 years from now just to break even on that bet. If they drop less than that, you will lose.

      • Augustus Frost says:

        Decades longer? I don’t think so.

        Up to this point, it appears to be mostly cost free, even though most people have been getting poorer for the last 20 years or their living standards have essentially flatlined.

        No one can print or borrow their way to prosperity, including the United States. Enough people haven’t gotten angry enough yet, whether in the general population or the elites plundering the country. When they do and reality starts to “bite”, the consensus which makes government fiscal and economic policy so easy to continue won’t be anymore as everyone tries to maintain their shrinking slice of the pie.

        For a preview of what’s in store here, you can look at examples like the Euro debt crisis and it’s immediate aftermath. It’s not exactly the same but the similarity is that factions with conflicting objectives broke into open conflict.

    • Dudu says:

      Perhaps something with Bitcoin, like coins can be hacked or made and show a massive Ponzi scheme.
      Tons of money is “invested” and magically losing it will disrupt the investing sector.

      I don’t know, just saying.

      • c1ue says:

        No.
        The entire cryptocurrency market cap is a pimple on the financial sector’s butt. It could disappear and nobody would really notice.

    • K says:

      I agree with Changemachine. I had various family members who were in psychiatry and also others in the military. Both emphasized that words are cheap, and people lie even to themselves. Thus, we must judge their goals not by their cheap words-lies but by their actions and the ultimate outcome of those actions. See “Audit Of The Federal Reserve Reveals $16 Trillion In Secret Bailouts” in countercurrents. See “The trouble with the Fed’s secret bailout” in Salon. See “Another Secret Federal Reserve Bailout, $7.7 Trillion This Time” in the new american.

      The avaricious greed of the banksters is why they were packaging foolish real estate loans in the 2000s to sell to gullible investors (while gambling that they would fail) with fake, AAA credit ratings to persuade the gullible that they were wonderful investments. See bankster-apologetic explanation in “The Big Short.” Thereafter, they still suffered losses when their banks collapsed because the real estate market collapsed so suddenly, so with the federal government’s funds, they have been acting like squirrels since then: they have been gathering all of the money that they can via their “Federal” Reserve then paying it out via stock buy backs or even (in some cases) dividends for their billionaire-bankster owners to squirrel away, because they anticipate another big collapse.

      It is not that they wanted to create a bubble specifically. It is just that creating incidental bubbles by giving their entities ultra-low interest rate loans was a great way to profit and rip off the savings of gullible Americans and foreign investors who purchased US treasuries, CDs, put their savings in banks, other bank accounts, etc.

      Your wages, savings, treasury bills, CDs were slowly eaten away via the covert inflation created by the “Fed” for many years. The popping of the bubbles will be collateral damage which YOU will suffer, not the banksters.

      Right now, their privately owned but misleadingly named “Federal” Reserve is out of maneuvering room, like a filthy cockroach trapped into a corner right before the shoe crushes it. If it does not keep the QE and the free money (e.g., via purchases of mortgage-backed securities, etc.) coming, the bubble will collapse. (Not wanting to tax the wealthy, the US government is also out of maneuvering room because it cannot meet its budget goals if interest rates on rolled-over treasuries rise significantly.)

      If the banksters’ Fed does keep creating dollars with more QE, inflation will take off even more and as a result, fearful investors will start asking for higher interest rates on their treasuries than the US government can afford to pay without, for example, cancelling the US space program. A recent Japanese pension’s decision to lower their holdings of treasuries indicates that they are no longer seen as bullet-proof even though Japan is justifiably fearful of China’s threatened nuclear attack if Japan defends Taiwan.

      Recent price hikes caused by the pandemic and resulting shipping troubles may slowly alter inflation expectations and eventually, lead to hyperinflation. Like the first crack in a large dam, that inflation and Japan’s actions to de-dollarize, and many others’ similar actions, may not lead to any immediate disaster, which will pop all US bubbles. However, if not this crack, then the next or the next or the one after that, will assuredly pop all of the insane, US, financial bubbles that the “Fed” has recklessly created with its gross financial negligence to profit its bankster-billionaire owners.

    • Catxman says:

      Enron wasn’t the end of the world; it was just a renewal of proper accounting techniques.

    • Old School says:

      Timing is not all that important. Try not to make any fatal mistakes. Temporarily loosing 50 – 75% is painful, but if you can ride out the bust or reset with much of your wealth in place you will survive.

      Try not to be holding anything that can go to zero. Try not to have to sell at distressed pricing. If you are retired you really have to make sure you are not relying on volatile asset pricing to survive. Got to have cash and income streams matched up to when you need the funds.

  2. Mikey says:

    I expect a gigantic increase in property tax since the value of most retail and commercial properties has gone down and my house has gone up twenty percent according to the town. I’ve become used to my internet and power shutting off whenever there is a thunderstorm within twenty miles. Yesterday, I was notified not to drink the water by email by which time I already drank some. The mail is still working. I’m in north jersey. Groceries up twenty percent. Really,more because nothing goes on sale anymore.

    • Joe Saba says:

      how so – leftist cities/counties all got BIG STIMI $$Dollars from covid relief

      • Mikey says:

        Our politicians already stole that by now. They just built a 32 million rec center across the street.

    • Old School says:

      From my perspective the value proposition towns and cities give vary tremendously. It’s always a choice if you are not getting value, you can always vote with your feet. I meet a retired couple who lived in a decent neighborhood in a rural county and their taxes were just under $300. That’s toward the low end, but there are always choices to be made.

  3. Am I correct to assume that if the Democrats pass their new $3.5 Trillion “investment” through reconciliation, in addition to the bipartisan Infrastructure bill that is about to pass, we are talking about a massive acceleration in money printing, enshrined into law, over the next few years? At that point, the Federal Government will be legally obligated to come up with the funds somewhere, with printing being the only viable answer?

    • Wolf Richter says:

      Sick Economics Media, Inc

      I’ll give this a shot.

      Right now, there is HUGE demand for Treasury securities — you can see that from the very low yields. Some of this demand is from the Fed (QE), and some is from the global market.

      If in the future, demand flags at current yields, then bond prices fall and yields rise until there is enough demand. It the 10-year yield rises to 4%, that would be huge, and there would be massive global demand for it, without the Fed. At some point, I would be buyer too. Yield solves demand in the bond market.

      However, in the future, the Fed could also buy more Treasuries if the rise in yields causes economic mayhem.

      But if inflation is high, and yields are rising to meet inflation, and the government deficit spending (infrastructure, etc.) is keeping the economy humming, the Fed is unlike to buy bonds. It’s more likely to raise its short-term interest rates to deal with inflation, and let the economy do its thing.

      • BlauGloriole says:

        QE is just an exchange of long term treasuries for short term notes. To get the booking right banks end up with static reserves for treasuries sold to the FED. Short term treasury obligations (cash) are hot potatoes because there is no yield so the urgency to switch into risky assets is high hence asset prices rise. BUT there are no additional securities running around due to QE. Fiscal expenditures however do add additional debt securities into the system however these are one-shot deals that eventually end up in reverse repos and static reserves too, so not much inflation there. If MMT type spending becomes permanent then inflation will surely roar else inflationary pressures will be short lived. Best.

        • Wolf Richter says:

          BlauGloriole,

          BS. Your entire paragraph is fantasy BS. Where does this braindead fiction keep coming from???

          For its asset purchases, the Fed CREATES money (credits) out of nothing, and then buys assets with these credits. As simple as that.

    • Swamp Creature says:

      I predict the Fed will start cooling the economy by raising short term rates before doing anything dramatic in the long term bond market. If the yield curve inverts then so be it. Otherwise we are headed for an inflation and dollar devaluation that we’ve never had in this country before.

      • Joe Saba says:

        I’ll keep doing my private mortgages(1st position only) at 12% to flipper crowd
        and I only work with fast flippers who spend lots of $$ to improve it

        as warren always said – gotta be in position of control
        and willing to own whatever you lend $$ on

        • Raging Texan says:

          Quiz question for Joe or anyone

          If M3 is expanding at the annualized rate of 25%
          and M2 is expanding at the annualized rate of 32%
          and M2 is expanding at the annualized rate of 80%

          and you are lending at 12%

          are you becoming richer or poorer?

        • Raging Texan says:

          excuse me, m2 @32%, m1@ 80%

  4. DM says:

    Wolf, is there any validity to the idea that we are trying to outspend China and force them into a deflationary collapse before we get there? It’s not too different from the strategy that Reagan used against Soviet Union during the Cold War.

    • Peanut Gallery says:

      But why do we care about what China does?

    • Brant Lee says:

      Well, hope so. We sure aren’t to outwork them. Just keep new couches, big-screen TVs coming.

    • Cas127 says:

      No.

      DC is only trying to save its degenerate self.

      First, by massively printing unbacked fiat to blunt the political consequences of its policy and operational failures (pandemic) and,

      Second, by massively printing unbacked fiat to put a Sponge Bob band aid on the multi decade cancer of its accumulated debt.

      The Reagan *military* spending spree was concentrated *on military spending* with a theoretical eye to outspending/crippling the Soviets (and that may be retrospective justification).

      What is going on now is little more than the monetary death orgy of a terminally corrupted “democracy”…it began 50+ years ago and simply worsened and worsened under America’s leadersh*t classes.

      There is no “plan” in DC (there never has been) to exit its failures, simply the herd animal instinct to do whatever is necessary today/now to stave off their personal ruin for another single day.

      • DM says:

        It’s hard to believe that the Fed would be willing to lose US Dollar Reserve Status just because Pelosi wants to spend trillions on her wish list. Either they know the endgame is near and it’s YOLO time or they have a plan for a way out. They have been able to thread the needle for the past 20 years. Were they incompetent and lucky or smarter than we give them credit for?

        • WyleeEconomist says:

          Give the GQP their due… Thanks to the Tax cuts of Dubyah, Reagan, and Trump 5-10 Trillion in tax cuts to the 1% added a lot to the deficit. Lest you forget, at least 50% of the Covid stimulus was passed under Trump… Then you have another 5+ trillion wasted in the pointless Afghanistan & Iraq wars…

          At this point both sides just don’t want to be in power when it implodes so they can blame the other.

          The DNC understands at least by spending for the people they’ll be popular when they pass the buck… The GQP doesn’t give a fark about pleasing the public, they just cow their base with fear and bigotry so they’ll keep voting to enrich the 1%, as long as they are hurting the people they hate simultaneously.

        • 91B20 1stCav (AUS) says:

          dm-ah, yes-“…the luck of the clever–but not smart–incompetent…”.

          may we all find a better day.

      • crazytown says:

        Crushing the soviet union was a good goal but the problem is once any government department gets a budget it never gets slashed. So now the DoD is utterly out of control and nobody with any ability to change that is willing to speak up about how absurd that budget is, because its a great gravy train

        • crazytown says:

          To follow up, companies freeze budgets all the time. Households that even bother to budget will freeze their budget to keep spending in check. The FedGov incessantly wratchets up spending. If we froze government spending for 5 years the size of government would still be absurd and the economy would probably collapse because at this point the gov is the economy

      • VintageVNvet says:

        Agree with most of your comment c-10, except for:
        ”What is going on now is little more than the monetary death orgy of a terminally corrupted “democracy”…it began 50+ years ago and simply worsened and worsened under America’s leadersh*t classes.”
        There is a choice of words ( and actions, in fact,,, )
        Either ”terminally corrupted oligarchy”’ or, ”always corrupted political puppets spouting ”democracy” ,, etc., etc., while doing almost exactly the opposite, in fact.
        Clearly, OTOH, these full of fecal formats can continue to go on for eva, based on the continuing debasements of the savings and value of work by WE the Peons, just as has been done for the last few decades,,, especially with continuing lack of secure and controlled borders, continuing lack of enforcement of laws, contract and others, etc., etc.

      • wkevinw says:

        Federal government spending is roughly flat for 20 years, except for the last couple, especially if you look at discretionary. The costs for “government” at the federal level are mostly regulatory burden and inflation/dollar debasement. Inflation gets back into local taxes, especially property.

        The federal govt is a big income redistribution machine: social security/medicare, mostly.

        The largest growth in government spending in the past ~40 years has been at the state and local level.

      • Swamp Creature says:

        After the fall of the Soviet Union we should have cut the DoD and Intel budgets by 50%. We were the only superpower. The current Dod budget is a glorified welfare program for Defense Contractors.

        • WyleeEconomist says:

          Won’t someone please think of the defense contractors! They make very important political donations!

          Sure infrastructure, healthcare, and education investments as public goods are cost neutral when their economic benefits are factored in… But they certainly don’t make the necessary political donations.

          Now defense spending that pays back 10 cents on the dollar to the economy on top of massive political donations… That’s where American politics is going to invest government money!

          /sarcasm

        • Wisdom Seeker says:

          Maybe you weren’t there, but in fact the DoD budget WAS heavily cut. It was described as a “Peace Dividend”, many bases were shut down and the land repurposed, entire support industries were cut in half (Los Angeles was especially impacted since it had a large aerospace industry), and so on…

          The current military/intel bloat is due to the ongoing failed response to 9/11.

      • Old School says:

        I don’t think the $3.5 T infrastructure is going to pass unless we hit a recession. Druckenmiller, Larry Summers and others have already told them they are fools if they throw any more demand on this economy. Some senators know these guys know their stuff and are not kidding.

    • PS says:

      What really crushed the Soviet Union was $10 oil prices. Oil sales were their only source of hard currency at the time, and they needed hard currency to purchase many things from around the world since few countries would exchange rubles. Once oil fell to $10, they had to pull in their horns.

      • Robert Mullennix says:

        Wrong. What crushed the USSR was that their entire system had become a bed of lies, particularly the government. When they instituted Glastnost, or openness, it was all revealed and the USSR collapsed from within.

        • Paulo says:

          As for the decline in lumber prices, it was short lived as they are on the rise again. And yes, I am a builder that buys lumber. The fires and heat has shut down a huge part of Canada’s production which is 30% of US consumption. As a global commodity lumber prices are again rising.

          Here is a local example. I live on the BC Coast, Johnstone Strait, to be exact. Our local company sorts 80-100 truck loads of logs per day on our dryland sort. These are large off road trucks, with some fat trucks. It has been shut for quite a few weeks, now. Multiply this by our entire area, we must be down 1,000 trucks per day in production. It could be twice that? It will be thousands of trucks per day for just this one Province. If it rained 6 inches overnight, it would still take weeks to get logs yarded, hauled, sorted, boomed and towed to the mills. This applies to northern Alberta, Sask, Manitoba, and NW Ontario. The woods are on fire from NW Ontario to the BC Coast. BC alone has had over 1 million acres burned this past month. Add in WA, OR, and northern CA and you can see the extent of what is looming.

          We might get rain tomorrow….forecast maybe 1/2 inch over 2-3 days. It isn’t enough to get anyone back to work. We need one solid week of rain, and this is still not a record summer for lack of rainfall. It is, however, a record for the hottest period ever recorded by a large margin.

        • Wolf Richter says:

          Paulo,

          “As for the decline in lumber prices, it was short lived as they are on the rise again.”

          Who knows what is going to happen tomorrow, but today this is where lumber is, and I would call it “stable after the plunge” rather than “on the rise again”:

        • ru82 says:

          @Paulo

          Thanks for the good info.

          I noticed the ETF WOOD, which is companies that process lumber did not drop like the lumbers futures did. I am guessing that pricing is sticky. Price go up quickly but many times do not drop when input prices drop. Instead they just give discounts.

          I don’t think prices of lumber at HD has dropped much at all. Inflation is not transitory if prices do not drop as the FED says. LOL

          My local grocery has a Chinese buffet. 3 years ago the meal was $7.99. Now it is $10.99

          Their gourmet pies are up from $13.99 to $15.99 since COVID

          The auto dealers around me still only have at best have 30% to 50% of their normal inventory.

          I

        • khowdung Flunghi says:

          “What crushed the USSR was that their entire system had become a bed of lies, particularly the government. ”

          Same thing will happen to the US. Gulf of Tonkin, WIN buttons, Deficits don’t matter, Weapons of Mass Destruction – the list of lies goes on.

          At some point, the massive misallocation of resources will matter bigly. War is not cheap and the bill is due.

          We’re starting to see some of the effects of misallocation already. How many students graduate with hobby degrees? How many people can REALLY afford a Mercedes or a 3000 sq. ft. house with ALL the amenities? How many multi-billion dollar sports stadiums do we need?

          Nobody ever changes anything until there is absolutely no other choice. The government always gets it right, after they’ve tried everything else.

          May we all find better times!

      • Alku says:

        PS: please take another look at the oil price chart around the time what the Soviet Union broke up :)

    • Wolf Richter says:

      DM,

      The last thing I see is a “deflationary collapse,” neither in China nor in the US. I’m not even seeing it in my wildest dreams.

      The Soviet Union had very high inflation at the end, and the ruble collapsed and became nearly worthless despite the official exchange rate and other mechanisms. That’s the opposite of price “deflation.” The Soviet Union did collapse, but for many reasons, and not because of price “deflation.”

      Note that in a period of deflation, the currency gains purchasing power. During inflation, the currency loses purchasing power.

      • Auldyin says:

        Many reasons, but mainly Yeltsin and vodka bought for him by Clinton, or was that the wrong collapse?

    • MCH says:

      No, there is no outspending China because unlike the Soviet Union, our spendings goes to China. For China to fold, the US would knuckle under too.

  5. BatHelix says:

    We know the Fed will continue this nonsense as long as they can …. so what do you think the scenario would look like where they will actually raise rates aggressively knowing that they will cut the market in half or more by just raising it 2-3%?

    I tend to think they will just begin to jawbone, maybe a few raises, wait til the market starts it’s tantrum for about 20-30% and then they will back off or just do QE with keeping rates raised just a little. This will probably just keep repeating. We know they can’t raise rates for real and we know the market falls if they try so I think they will just have to keep going through this cycle of pretending and we will just be stuck with rising inflation although maybe not “hyper” depending on how that’s defined.

    • crazytown says:

      You can’t raise rates while doing QE, and even raising rates while the balance sheet is so huge doesn’t work as we saw in late 2019. Its concerning, hard to predict the Fed’s next move because they are a cornered animal.

      From an investing perspective, my opinion is that the balance sheet is all that matters. I am invested while the balance sheet goes up and will be exiting once it starts going down. Expect a drop when tapering is announced, followed by a recovery to all time highs as market digests and determines its not so bad, then wait for something to break if the balance sheet ever starts to go down.

  6. random guy 62 says:

    Update from a midwestern manufacturer…

    The cost increases rippling through our company from all directions are absolutely stunning.

    Steel is the biggest, but nothing is exempt. Many have implemented surcharges in hopes that it’s transitory. Many have simply increased prices by the most I’ve ever seen.

    Depending on the product, our prices to customers are now 15-30% higher than they were a year ago, and we just got hit with another 12% on steel yesterday. This in an industry that usually increases 2-3% every year or two, like clockwork. We are still trying to get margins back to where they must be to keep the doors open.

    Some commodity prices will likely drop, but a whole lot of these increases are here to stay.

    • Fluxite says:

      I know from our experiences that lumber at the wholesale may have stabilized however prices at the retail lumber yards went up but did not go down.

    • Paulo says:

      hmmm,

      Why don’t you folks petition the Govt to remove tariffs on Canadian steel and aluminum? Just wait until it really is infrastructure week with the buy only US product policy. You ain’t seen nothin’ yet, as they say.

      Recent article snips:
      Trump’s lumber and steel tariffs, introduced in 2017 and 2018 respectively, were aimed at protecting American industry and jobs against alleged unfair trade tactics — and the steel industry says they’ve been essential to keeping the sector afloat during the pandemic. But the logic of the tariffs is being undermined by not only supply shortages but also breathtaking price spikes.

      400% spikes
      Despite a 20% pullback in recent weeks, random-length lumber futures are still up more than 400% from their April 2020 low. Lumber prices have skyrocketed so much that it’s causing remodeling nightmares and creating even more sticker shock in the booming housing market.
      The housing market is in a 'little bit of a bubble,' Jamie Dimon says
      The housing market is in a ‘little bit of a bubble,’ Jamie Dimon says
      Surging lumber prices are making new homes on average $36,000 more expensive, according to an analysis by the National Association of Home Builders.

      Peter Boockvar, chief investment officer at Bleakley Advisory Group, said it would “absolutely” make sense to remove the lumber and steel tariffs.
      “But they don’t want to be seen as rolling over to China, or even Canada,” he said. “They’re making political decisions, not economic ones.”

      • Wolf Richter says:

        Paulo,

        You need to quit spouting off this BS about the lumber tariffs of 2018 causing a 300% spike in lumber prices in late 2020 and early 2021. Lumber prices soared in Europe too. And now lumber prices collapsed, and the tariffs are still there. Duh!

        Canadian producers are paying those lumber tariffs, which come out of their profit margins. And that’s good for the US. Let them pay our taxes.

        Canada has a ton of tariffs on all kinds of stuff including hefty tariff rate quotas on dairy. How come you don’t lambaste those??? Too close to home?

        You’ve got your I-Hate-the-US point of view, sitting up there in a logging area in Canada, and you hate the idea that the US is going to try to fix its trade deficit, as it should, and as it should have done two decades ago.

        So this is US trade policy, and you hate it, fine, get used to it, and live with it, and live with your hatred for the US. But don’t make yourself purposefully sound like a fool here.

        • rodolfo says:

          wow Paulo got Loboed!!

        • NotDeadYet says:

          In this case, I must agree with what Wolf said, 100%…

        • td says:

          The lumber tariffs have been beneficial to the U.S. economy in more ways than one. Canadian lumber producers have been buying U.S. assets for years and now four of the largest lumber producers out of the top six in North America are Canadian-domiciled firms with the bulk of their production in the United States.

          West Fraser, the largest NA producer, no longer ships from Canada to the U.S. and Interfor, after buying four mills from Georgia Pacific, mentioned that they only pay tariffs on about 15% of production.

          The bulk of North American lumber will come from the southern states going forward, with Canadian production being reoriented to Asia and other areas. The United States gets more jobs and the “Canadian” companies reap the profits of prices that will remain higher than they were before the pandemic.

      • Swamp Creature says:

        Paulo

        At least Mexico helped us with a secure border in return for removal of the tariffs on imported vehicles. What has Canada offered.

        NOTHING!

        • Alku says:

          Canada just closed the border :)

        • Old School says:

          Aiku,. I saw an article about a guy couldn’t get to Canada because he didn’t have the vaccine, but had antibodies from having covid. My son got covid about 16 months ago in NYC. The city or state periodically tests him for antibodies. He just got his results back today and still tests positive for antibodies. He is resisting getting the shot as long as he has antibodies, but he may get pressured into it if he wants to have life in NYC. Haven’t really heard a justification on wasting a shot on somebody with antibodies.

        • Wolf Richter says:

          Old School,

          “Haven’t really heard a justification on wasting a shot on somebody with antibodies.”

          OK, here we go, and now you heard the justification: The shot is cheap insurance. It’s free for your son. If it’s good enough for Trump, it should be good enough for your son.

          Trump got covid, and later when vaccines became available, he got the vaccine. Rich and powerful people know how to protect their lives and wealth. It’s just that we the peedons (as we’re called here so poetically in the comments) don’t want to know.

        • Old School says:

          Wolf,
          That’s one way to look at it, but my son is healthy 35 year old that got through covid like it was the flu. I know people that are employed in other vaccine trials and they are very uncomfortable with fast approval process as normally vaccine trials go for a long time. This was an emergency situation, I get it. But if you have antibodies why take long term vaccine risk. At least wait two months until FDA reviews all the medium term data.

        • NBay says:

          I’m with Old School. I’ll wear an N95 in public for the next 5 years if needed, but I’ve had a long (and I believe thoroughly researched) justified beef with the “magic bullet” industry.
          Both them and Wolf are way over their skis here, IMHO.

        • Wolf Richter says:

          Yes, NBay, it’s so smart and so manly to refuse to protect yourself because you’re afraid of a needle. I wish you good luck from the depth of my heart! Because luck is what you’re now relying on though you don’t have to. It hurts to hear you talk like this. But an N95 mask helps (kudos), and not getting together with people helps, and not going into public indoor places helps too. So yes, if you isolate yourself well enough, you’re in pretty decent shape.

        • NBay says:

          I never liked needles, I’ll WILL give you that, but I understand bio-chem/molecular biology a LOT more than you realize. I just don’t have a completed “ticket” to “allow” me to talk like I do, by choice, mostly. It’s more of a personal judgement call than just pure luck, or at least that’s how I look at it. Oh yeah, and my macho days are long gone, just memories now. How can a 74 year old be “manly”?
          PS: I like the new jump in the argument attitude toward moderation.

        • NBay says:

          I realize I can’t speak accounting, finance, or investing well, or at all, and don’t have much money like most here, and since it is your baby, I wouldn’t blame you for throwing me off as not “fitting in”, especially since I do push the “normal cordiality” limits.

          It’ll still be my go-to site for a more thorough financial picture than MSM, and ads I’m interested in are starting to follow me here, so I’ll click and read. But I have learned a lot, including MUCH off topic stuff to look up, and maybe did others like me similar favors. And FWIW, doing THIS as opposed to *this* has always seemed silly to me.

          Anyway you are a good man, so good luck.

    • Wisdom Seeker says:

      Where are the inputs being sourced from?

      Wondering if the price increases are part of a silent trade war.

      Put another way: some companies or people have to be racking up bigger profits from all the increases. Who are they?

      • Random guy 62 says:

        We source primarily from domestic producers but much of their supply chains involved downstream are global.

        Delays in ports are a real factor lately.

        I don’t smell anything nefarious, with the exception that MAYBE steel mills now have a lot of pricing power as competition has been eliminated and consolidated away. They might be using this as a time to charge massive prices just because they can.

        It all just feels like broad-based inflation to me, with tangible things of value like metals leading the charge.

        Governments have goosed demand with stimulus and production just isn’t keeping pace. Inflation is a natural result of that imbalance IMO.

  7. ChangeMachine says:

    It seems reasonable at this time to reassess our assumptions about the Fed‘s goals.

    • Depth Charge says:

      I think their goals are as transparent as they’ve ever been, which is to try to cause rampant inflation in asset prices – all prices – in order to increase the wealth and power of their oligarch buddies as well as to make it cheaper to service the massive debt that their outrageously reckless policies have led to.

      • Brant Lee says:

        It’s now more like “In your face, we’re continually getting richer off your labor and property, what are you going to do about it?”

        I really didn’t think Tesla stock would ever get back to $700, but here we are. This bs just keeps happening. The elite have themselves set up for anything that’s coming down the pike. Hyperinflation, deflation, complete bust, they are ready because, in some way, it will benefit them—on your dime.

        • Depth Charge says:

          Don’t forget that they’re grinning ear to ear the entire time, clinking glasses at Jackson Hole and Davos, admiring their handiwork. I mean, they’re “doing it for the poor.” Just ask Neel Kashkari.

      • crazytown says:

        The Fed is unconstitutional, and even if we disregard that, they are in direct defiance to their charter. The last 12 years have been a heist on the remaining productivity of the country that wasn’t owned by the “elite” (a word I am disgusted to say)

    • historicus says:

      Change…
      Why cant WE just hold the Fed to its mandates?
      They are 0 for 3 right now, and not a peep from our Congressional leaders.

      So the Fed is complicit, via their cheap money policy, in the employment predicament and the record job openings, unfilled. If the federal govt had to borrow at real rates, the doling out would not happen to this degree, or at all. Nice job Fed.
      And we have 5% inflation with zero Fed Funds rates. Never happened before, and all at the hand of the Fed who promotes inflation.
      And we have near record lows in long rates, immoderately low.
      So, lets review.
      Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. The free money to promote inflation is borrowed by the federal government and paid out in a fashion that discourages employment. Fail.

      Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION. Fail

      Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 2% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.

  8. Matt says:

    You mentioned rents lower in San Francisco and the city’s population is declining as well. I read that the city is requiring all 35,000 employees to be vaccinated. I was surprised by that many city employees. I live in a metropolitan area of greater population (Columbus OH) and somehow it gets by with only 10.8K employees. What gives?

    • Depth Charge says:

      All governments, local, state and federal, need to shrink by 2/3.

      • Abomb says:

        I work for local govt. Wife works for a different local govt. From my experience, local govt is understaffed. But the entity I work for has twice the population of San Francisco and less than half the staff.

        • Wisdom Seeker says:

          Bureaucracies have a way of creating needless unproductive work for themselves, unless reined in by external constraints.

          Bureaucracies in cities/counties/states with long-term single-party government face many fewer constraints.

        • rodolfo says:

          could be understaffed or maybe cities could decide that they dont need to try to do so many things that are not directly needed.

    • Wolf Richter says:

      Lots of things are surprising in San Francisco, including its $13 billion budget, which is gigantic for a city of once-upon-a-time 880,000 people. Some things are not surprising at all, including corruption up and down and left and right and everywhere, for decades, probably since the Gold Rush times. Investigations have shown that it takes a surprisingly small amount of money or benefits to get something approved, and then the mega bucks start flowing from the city to companies, consultants, non-profits, and cousins that then work for years behind schedule to accomplish nothing.

      • Old School says:

        That’s a big budget to me. I think entire state of NC is around $23 – 24B with 11 million people I think.

    • Tony22 says:

      Matt, San Francisco creates and maintains guaranteed jobs for its third generation east side housing project dwellers, to and including the mayor, who is paid more than the president of the United States.

      She grew up in the Plaza West housing project on Turk Street, since torn down and rebuilt to new standards of excellence. I went to John Swett School with her parents.

      Essential city workers, water, fire, police, mostly live West of Twin Peaks, in Marin and Sonoma Counties.

  9. Depth Charge says:

    The FED is still pumping like there’s no tomorrow, and the Wall St. casino, crypto, etc. is raging.

    • Nathan Dumbrowski says:

      Perhaps they know something that they are not willing to share. Just saying for the benefit of the FED they may know there are aliens coming in 2022, or that a super solar eclipse is going to wipe out half the planet, or that food crops are about the go kaput…

      But most likely they are just trying to keep their mouths above the water line and breath. They started a chain reaction and are now navigating as best they and all the CB are doing.

      • Depth Charge says:

        I think they know that a housing meltdown is coming, so they are trying to print it away while controlling as much of the paper as they can (MBS purchases). You know, CORNER THE MARKET.

        • Nathan Dumbrowski says:

          Don’t think that is how mortgage backed securities work. I don’t think they actually own the note on the house. My simpleton brain thinks they own a pool of collateralized loans in summation. Helps to greatly control the impact of a bust. So if things go South REAL fast the gov’t will be bag holding versus the banks. This is all likely part of the whole pla

    • Old School says:

      I have seen enough to know top is close. People are just getting too loose with money. Robinhood today was an example. When I checked it at lunch it looked like the whole float would turn over in one day. That’s capitalism holding a stock for 1 day. Our electrical utility stock is even getting frothy. Square by some pay later money losing stock for 26 billion or so and using Mississippi Square stock as money. It’s all too much free money. It will look stupid and people will get perp walked when it bursts.

      • Nathan Dumbrowski says:

        Agree. No matter what they put on the market it gets bought out. Sell stock in a deli that makes $36k annually and it turns into a multi-million dollar stock. Put a non-money making company on the market and it will demand $B$ in stock. The whole system appears to be a false system with no actual ceiling or floor…literally

  10. Anton says:

    What I find curious is stocks. They keep rising. Looking at the Shiller PE, we are now at the highest level of valuation in markets since the .com bubble in the early 2000s burst, yet stocks just continue grinding higher. We now have big companies that are reporting huge earnings on much smaller sales volume due to the price increases. How long can that continue? What happens when it does stop and there is a reversal?

    • WyleeEconomist says:

      As Wolf has noted, people are desperate to get on the WallStreetBets get rich quick schemes and are leveraging every way they can to get into the market…

      At the same time I was reading someplace else that finally the line ‘Just invest in low cost index funds, they always beat mutual funds…’ has taken hold so you have people blindly dumping their 401k contributions into these indexes regardless of performance, P/E, or any other factors… Which causes these securities to rise regardless of their fundamentals because they have guaranteed buyers to keep the price up.

      We are building toward another 1929 or 2001… irrational exuberance worse than either of those times seems to be taking hold… As long as you invest you are guaranteed to make money they say, just buy a home at any price, Real Estate never goes down in major metro areas, it stabilizes at worst… Don’t put off buying that fully loaded car, it’s just going to be more expensive next year! So finance it guilt free…

      All the while… Silver & Gold have barely moved in the last year to reflect all this market instability…

    • ru82 says:

      For a long time.

      I am not expert but here is my observation.

      All the money printing has to go somewhere. Even without the abnormal money printing, the M2 supply goes up each year as the population goes up too.

      It is about supply and demand. You have more demand (M2) while supply dwindles (stocks). The Willshire 5000 index created in the 70s or 80s was supposed to monitor all the stocks in the U.S. market. At the time there were about 5,500 public stocks. Now fast forward to today. There is barely 3000 stocks. so in 1980 there were 5500 stocks and the M2 supply was 1.5 trillion. Now we have 3500 stocks and the M2 supply is 20 trillion.

      I know this is oversimplfying thing but most people retirement plans are 401ks and are forced to buy stocks and they do not have alternatives like land, gold, etc.

      You have more money each year chasing fewer stocks.

      Plus with stock buybacks, you have fewer shares per compony.

      It all adds up to a new normal of 20 PEs.

    • Wisdom Seeker says:

      The Shiller PE is backward-looking in terms of earnings.

      If you think inflation is going to rage, and make the hopeful assumption that future corporate earnings will keep up with that inflation, while recognizing that bonds certainly WON’T keep up, you can justify higher stock prices because TINA. (As ru82 pointed out, 401k’s don’t have a lot of options to invest in other inflation hedges like gold or real estate.). But note that the Real Estate Investment Trust funds are up more than the stock market as a whole.

      • Old School says:

        Last time there was inflation starting to take off t-bills kept up as inflation rocketed higher. Stocks and longer term bonds got killed. Might be different this time.

    • Anon1970 says:

      Can you think of a good alternative to stocks? If things get really bad, one can’t pick up an office building and move it to another country.

    • Old School says:

      It’s cyclical. People are optimistic with money flowing around. Just remember in 2009 when pessimism was around. People were selling the S&P500 at 700 and you could pick up real estate cheap and get 3% loan. Heard a good saying today, ‘wealth is made when you buy’. Buying at 700 yep, buying at 4400 no.

  11. Brent says:

    “Horse feed is expensive,grass is not green enough and help is nowhere to be found !!!”
    (Ultra-rich polo players complaining to each other in Hamptons)

    Inflation ? What inflation ???

    I am benefitting from deflationary pressures at Wally World.Yesterday I ordered 2×45lbs CAP barbell plates for $62 each & free shipping.And they have slots alongside rims and can be used as free weights.Or even tied together if one is in a particularly exuberant mood ?

    Last year scalpers sold 45lbs barbell plates on eBay for $4 per lb + $125 shipping.

    F… them,I decided to wait.And my patience was rewarded.

    • Old School says:

      My college age son got into weights and I about died when he talked pricing. I think his weight lifting bar was around $500. I told him we used to buy the 110 lb. Barbell and dumbbell set fro sears for $19.95. Its a bar and weights. I don’t get it.

      • Brent says:

        It matters at the competitive level.Olympic Weightlifting bar (which is supposed to bounce during Clean&Jerk) is different from Powerlifting Bar (which is not supposed to bounce-just hold 1,350lbs squatting weight w/o breaking).

        Also CAP 45lbs barbell plate for $62 may ACTUALLY be 43.5lbs or 45.9lbs.
        That’s why Ivanko bars we see at the Olympics cost >$1,300.And calibrated plates cost 4X as much.

        For the rest of us mere mortals who see twinkling stars doing that damn last 400lbs squat rep ANY cheap bar and ANY cheap plates will do ?

      • Lone Coyote says:

        Bought a pair of 40 lb dumbbells from walmart earlier this year and IIRC they were $50 each. Pretty pricy, but nowhere near as bad as $500 for a bar.

  12. If China is following the same economic development as Japan we should expect fewer goods and more high quality. We are already at peak automobiles but peak housing? China is already creating 3D printed homes. That could be the next big export market change. Remember those gas guzzlers from the 50s and 60s, were replaced with cheaper fuel efficient imports. Now housing gets smaller, smarter and cheaper.

    • Artem says:

      Totally agreed. Pre-fab homes could be the next disruption, as Elon Musk is literally living in one already.

    • 3D Modeler says:

      3D printed homes have already proven themselves to be a viable alternative to conventionally configured and built homes. It’s not the technology that’s the barrier. It’s the formidable resistance to changing zoning laws in communities throughout the country. Existing homeowners, homebuilders, real estate agencies, lenders, local property taxing authorities, etc. are all deathly afraid of declining home values. They will fight it tooth and nail. Nonetheless, an awesome opportunity for whoever can somehow overcome these entrenched barriers.

      • OutsideTheBox says:

        3D

        Ah yes !!!

        Technology and innovation !!!

        Alas ! All for naught !

        For details see the tiny house movement.

        • 3D Modeler says:

          Ah…OTB! Sounds like you’re off your techno-phobia meds today. Don’t worry though…the zoning laws that restrict adoption of all these affordable housing solutions won’t be changing anytime soon.

        • OutsideTheBox says:

          3D

          Touche !

          Let me answer by metaphor…..

          Decades ago no less a luminary than Steve Jobs stated we would be able to watch EVERY movie ever made online.

          Well, he is dead and buried….. and we STILL can’t do that.

          Ahhh….those pesky contracts and copyrights by the owners of said movies !

          Technology, alas, failed to remove those blockades….which will endure through eternity.

          Same thing will happen with innovative technology and home building.

          Doomed !!!

        • 3D Modeler says:

          Yep, man-made laws are often more difficult to deal with than the laws of physics. It all depends on how motivated the local communities are to changing their zoning laws. For example, if given a choice between seeing their community slowly turn into a Venice CA style homeless encampment versus being more amenable to some of these affordable housing solutions, which do you think they’d choose? If the current trajectory of housing unaffordability continues unabated, they may be faced with that choice much sooner than they think.

    • jon says:

      I see big disruption in housing with aid from technological advancements.
      Kind of surprising we are building homes same way for last 50 years.

      Prefab and 3D is the future I think so.

      • OutsideTheBox says:

        Prefab homes have been around for many many years.

        Not good near tornados.

        Often called trailers.

      • Old School says:

        The smaller the home the more it makes since to build in a factory. I think some of the Scandinavian countries do this pretty well.

        Mobile homes can be nice if you pay up to get them furnished out with high end cabinets. They are constructed for the zone they are going in, so that mobile homes in hurricane zones are built to withstand weather in that zone. Layouts for mobile homes that are 16 feet wide are very nice as the width of living areas and end bedrooms are 16 ft across with the smaller bedroom about 12 ft across. All in all it’s a pretty good value for your money if you can pay cash.

    • ru82 says:

      I get your points. Housing is crazy. IMHO…3D housing probably will not lower the cost of a house purchase much at all.

      I see some of those crap shacks in California that cost $1 million. In Flyover land they cost $125k. The difference is the land the house sits on and all the high end appliances, marble granite, and mahogany wood . LOL

      I just read that a parking spot on Hong Kong sold for $1 million. There is nothing built on a parking spot.

      On another note. I asked a plumber to change the flusher setup in a toilet at a rental house. He wanted $325 labor. I said screw it and ordered a new $100 toilet from HD and delivered for free and had the Handyman install it for $25 an hour. It took him 1 hour to install the toilet.

      Thus my cost for a $20 flush assembly replacement plus $325 of labor dropped to $125 for a new toilet.

      The bad thing is I filled up the local landfill will a perfectly good toilet. Really….just crazy thinking about it.

      • Juanfo says:

        Why didn’t the handyman change the the flusher setup?

        • ru82 says:

          I asked. He said he does not do flushing replacements. He doe not like to do plumbing but he had no problem installing a new toilet and removing the old.

        • Tony22 says:

          Why didn’t you just sell the old toilet for $50, thus even further lowering your cost, plus saving on the dump fee, which you didn’t mention? Now is the time to fill your back basement with free working refrigerators, washing machines and dryers etc that all work and are being dumped.

          Years down the line you won’t have to buy newer lower quality stuff when your current appliances wear out/break, and you can sell the freebies for a 100% tax free profit.

    • 91B20 1stCav (AUS) says:

      Ambrose-have been away from the business for some time, now, but the major factor in improvement in Japanese-goods was their establishment of the MITI in concert with Deming QA manufacturing philosophy in their national industries. Times were different, and, to my knowledge, the PRC, at moment, has little interest in government promotion of not only the perception but the reality of a high value for selling cost of their manufacture. (I know the Chinese can, and often do, manufacture quality, but prefer to sell much more ‘just good enough’ at ‘China Price’, which the West has enthusiastically embraced and purchased over the last 30 years or so…).

      Would love to hear views on this from current/past Japan-China-Korea hands…

      may we all find a better day.

  13. Stranger says:

    I always like your takes. The question I have though is what if the Fed did nothing? What amount of deflation and pain would be going on? Have you thought that they may be reflating a massive deflation and accidently hit a mark too high? Would you prefer massive deflation and the job losses and spiral that would occur or would you prefer that the take out joint down the street can’t get lobster and napkins because they have too much business to handle? To really assess one side of the economic coin you need to also realize the opposite side and its downside. I would prefer a reflation to a deflation any day even if I have to choose not to travel or eat out for a few years because it is too expensive. I can entertain and feed myself and others can too because of reflation I just have to be frugal now.

    • Wisdom Seeker says:

      @Stranger: you make a good point that the Fed/Congress joint overshoot helped prevent a worse deflation scenario. However, the overshoot was evident a year ago, and was blindingly obvious 6 months ago. But instead of making the necessary corrections they’ve doubled down on what’s wrong.

    • Old School says:

      The Fed made the mess they are in by mopping up every disaster with money printing and getting the markets to believe the Fed has their back. It created the wrong incentives about debt and speculation. They enabled the welfare/warfare state because they were created by the state for the state and to ensure investment banks could have a debt orgy.

      • Nathan Dumbrowski says:

        “…Tucked inside the $1.9 trillion stimulus bill that cleared the Senate on Saturday is an $86 billion aid package that has nothing to do with the pandemic.

        Rather, the $86 billion is a taxpayer bailout for about 185 union pension plans …”

  14. BigJim says:

    I am going to incorporate myself, trademark all my personal data, offered for sale or each use at a stiff price, and funnel all my income through the corporation, start an LLC for my car to lease it to myself so that I can do what corporations do, write off everything and pay little or no income tax and maybe get a refund from the IRS. Per the “Tax Paperwork Simplification Act of 2016”, I will also work for and spend cash as much as possible.

    • ru82 says:

      Great idea. I think Facebook and Google should be paying me for my data.

    • VintageVNvet says:

      Much easier just to be a Sole Proprietor… much less paperwork, and the benefits are just as good re deducting SO much that my first accountant, at the start of 40 years of biz, warned me to start declaring more net income or I would not have enough SS to live on.
      It was good advice.
      ( BTW, although audited 3 times by IRS folks, never had to pay any additional taxes, penalties, etc. )

  15. Micheal Engel says:

    1) TY monthly (US 10 Futures price) BU above June 2012.
    2) TY might make a new all time, or form a bubble.
    3) If so, the strengthening USD will take off and the 30y will plunge to NR.

  16. Swamp Creature says:

    The only way out of this financial disaster for the individual is to keep working after retirement until you are physically unable to do so. That’s what we are doing and its working well. Everything else is destined to be a failure.

    • OutWest says:

      That’s my plan. I retired from professional work until rates went to zero and it became clear that restarting my business was my only option. Now I plan to work part time for the foreseeable future. The Fed won.

    • Depth Charge says:

      I’m a Gen Xer and I am prepared to work until I die. “Retirement” is an entirely new concept that will go the way of the buggy whip.

  17. Micheal Engel says:

    The WS global empire will form a bubble if NDX plunge.
    Cash in, sell to Big$Mike, but tell us.

  18. Micheal Engel says:

    If the southern border invasion exceed 1M/year and covid eliminate 1M
    elderly, SPX will plunge. Blame Xi.

    • WyleeEconomist says:

      Then why don’t you ask the 1% pretty please with sugar on top to stop encouraging undocumented immigrants to come here… So they can avoid paying fair American wages? Or we could just jail and fine Illegal employers and stop it the moment one of them gets perp walked into a county jail.

      I mean if you really believe the Cato institute that things are that dire…

      Maybe Trump will take one for the team and start hiring and paying American wages at his properties rather than brining in immigrants to serve at his resorts and under cut American’s on his construction projects?

  19. Mf says:

    I’m part of the “problem” of buyers refusing to go on strike.

    After seeing the results of the Great Handout to moribund corporations during the GFC, I realized that the $4T+ injected into mostly wealthy pockets would have a similar but turbocharged effect.

    I bought a new truck (felt lucky to pay “only” MSRP) two used vehicles and a used motorcycle.

    Basically, I wanted to get ahead of it so I’d be set for most of my and my family’s expensive durable goods for the next 10 years.

    The thing I missed out on was home improvement raw materials. Lumber, steel, etc. Wow. I’m paying the price now.

    • Cash Guy says:

      Vehicle purchase is a terrible “investment”, I hope you don’t see those purchases as such.

      • MF says:

        Why so condescending? Everyone understands vehicles depreciate.

        No. I need vehicles for me and my family. Period. I could see prices skyrocketing and inventory dwindling and choices evaporating. It was time to act to avoid finding myself in a tighter squeeze in the future.

        The only reason to purchase a new truck was because the old one had a tired and soon-to-be failing engine. And at 200k had dozens of other problems that I was just living with. Used replacements with the tow capacity I need were within $5k of new pricing. At that point why not enjoy something nobody else has farted in yet?

        • Old School says:

          Being 65 I have gotten to the point that I understand it’s a balance in life to save and invest to have security in life, but the flip side is the savings and investment s are there to meet your personal desired goods and services. It is very individualistic. For example I have no desire for a large, high end home. I don’t feel like myself in them. I grew up in a modest simple home and that makes me feel comfortable.

  20. Swamp Creature says:

    Looks like landlords are in the crossfire of a Constitutional crisis. With 6 million renters behind on rent payments and facing eviction the battle lines are being drawn. The Supreme Court ruled that the moratorium is unconstitutional. No matter what happens look for the media to find victims on every street corner.

    • WyleeEconomist says:

      I for one am glad there are people like you looking our for the massive property investors in this country. They so appreciate your volunteer work on their behalf!

      I’d hate to think they’ll have to settle for a Cadillac over a Royals Royce!

    • Nathan Dumbrowski says:

      Mr. Creature, I got to thinking about the other side of the coin. These programs to “protect” the renters from being evicted. Couldn’t it be said that these are benefiting the bottom % of the US? Many of the comments here focus on how the program only helps the richest of rich become richer. Just a thought. I do rent property out and have been blessed by good people who have always paid in full. FWIW

    • Old School says:

      I always think, where are these people’s families? If my daughter or mother was going to get kicked out on the street, I would make sure that didn’t happen unless they had proven that helping them was enabling them.

  21. Cash Guy says:

    So money is worthless but buying a house (the best kind of debt there is, to counter inflation) is “stupid”, got it.

  22. OutWest says:

    The US cost of living index is #28 behind more expensive countries such as the UK, many EU countries and Scandinavian countries, Canada, NZ, etc.

    We may be #1 before long at this rate. Sad to see. I’m fortunate to have lowered my personal cost of living expenses in recent years to well under 50% of what the average American spends thus the impacts of inflation are muted in my case.

    • Paulo says:

      But you need to also take into account universal healthcare coverage and more robust social programs in those other countries. Having said that, our family has also lowered expenses out of choice. I have always considered money = time. Don’t want to waste either.

      • Ronald A Mayo says:

        I would agree that calculating cost of living is somewhat subjective but I believe all of the major global indexes include all expenses an average person across every country pays out annually including taxes, healthcare, food, shelter, ect.

        I spent a summer working in Norway. Great people, great country, but the friends I made spent a lot of time complaining about their sky high taxes. Many of them traveled internationally and many were planning to leave.

        • Alku says:

          I don’t about Norway, but have lived in Finland for 10 years and my tax rate was double that I pay now in the US. Add that I was making roughly half of what I am making here. But I can attest it didn’t feel too bad at all to pay that much: first, just about everybody else’s paying the same and what is even more important, you clearly see what you get for that.

        • Sams says:

          Some other of those Norwegians that also have lived in the USA has noticed that their health insurance bill and other insurance bills in USA was about the same as the Norwegian tax. In Norway healtcare is public and mostly free. As is schools and universities.

      • NotDeadYet says:

        Paulo, good for you. I found lowered expenses equal money earned. Once I had that monthly cash flow under control and amplified income streams and created some new streams, life became much easier and more fun. I ask myself, why did I suffer in my younger years, when the tools were always there to change things?

    • Old School says:

      Yep. That’s happened a lot and an over indebted system has trouble if people hunker down. It’s the smart thing to do but if you and I don’t borrow government is going to borrow money on our behalf and build something you and I don’t care about.

  23. Squint says:

    I beg to differ on the question of who’s really paying the Canadian softwood lumber tariffs. This lumber tariff nonsense has been going on for 40 years. The last agreement was signed in 2006 (Lumber IV) By then, 5 billion dollars in tariffs had been collected and held at the border. Upon agreement, 4 billion was returned to the Canadian producers, 1/2 billion donated to a ‘wood is good’ campaign, and the remaining 1/2 billion given to the US lawyers.
    I expect no different when this round is settled.
    So, who’s really paying?

  24. MonkeyBusiness says:

    Am I worried about rising prices? Sure. But then I read that California’s New Animal Welfare Law Could Mean The End Of Bacon …. and I thought, what’s the point of having dollars if you can’t eat bacon.

  25. historicus says:

    Never have we had 5% inflation and zero interest rates.

    NEVER has a Federal Reserve created such a gap between the two…

    It can only be concluded that this was INTENTIONAL and this is premeditated THEFT.

    How can it be that a group of unelected people have decided to steal from savers, earners, for their sin of not chasing real estate or stocks?

    The entire nation just took a 5% pay cut and a 5% haircut on any monies they happened to have earned and saved…..and the lemmings say nothing.

    • MonkeyBusiness says:

      Who watches the watchmen?

      The price of Freedom is eternal vigilance.

      • historicus says:

        Quis Custodiet Ipsos Custodes,

        answer: no one

        next question

        Cui Bono?

  26. Auldyin says:

    “profit margins have ballooned”
    Biggest casualty of inflation, trust.
    Everybody comes to believe that everybody else is ripping them off.
    I was a Govt engineer in the 70’s, responsible for ‘value’ in contract letting. The politicians couldn’t believe they were the cause of inflation so they became convinced that all the construction companies were ripping them off. I was seconded to set up a new section to index what projects should cost if there were no excess profits. I got allocated one assistant at the start, but by the time (IMF) Healley had screwed it up, there were dozens engaged on the project. Some times we got revised submissions before we had analysed the originals, all tilting at windmills.
    The truth is that ‘some’ businesses did take the chance to bump up their profits but others went bust through failing to allow for increases properly. It was all a vast waste of human time, money and effort.
    Not wanting to be selfish, but I’ve got shares in Unilever and I’m glad to see they are taking steps to protect my dividends, a growing aspect to worry about.
    Inflation really is a pure sh** waste of effort and the perpetrators should be jailed.

  27. Dazed And Confused says:

    So Fed Vice Chair Clarida said that ZIRP won’t end until unemployment dips to 3.8%.

    So if Clarida had been running the Fed in the past, the Fed Funds Rate would have been 0% throughout all of the following periods since unemployment never dipped below 3.8% during any of these periods:

    1970-2018
    1953-1965
    1930-1942

    and for all but 11 of the last 92 years.

    That’s how far this Fed has departed from their predecessors.

    • Old School says:

      If it’s a central banker he is trying to sell you a narrative. All you need to know is if the banks were going to close for a week on Friday, he wouldn’t tell you til Friday at 6:00 PM.

      • historicus says:

        Powell had pointed to “perception” as a key tool.

        What is “perception”? It is what people “think” is happening as opposed to what may or MAY NOT be happening. It suggests deception.

    • MonkeyBusiness says:

      It will be like herd immunity. They’ll continue to readjust the target. Next they’ll say they want to see unemployment under 2%. Why 2? Because it’s a magic number!!!

      These guys are just dumb. It’s their policies that’s causing UE to be so high.

    • Nathan Dumbrowski says:

      If I was to fight Mike Tyson I would be able to beat him. I would make him miss all his punches. Plus, wouldn’t get blocked. Would be over in one maybe two rounds. The problem everybody was that every other boxer just did it wrong. Trust me I got this…

      Said no-one every

  28. Spencer Bradley Hall says:

    People say specific price increases are not evidence of inflation. They forget that the OPEC administered price hike was validated by the FED. For specific prices not to be transitory, the FED will have to reduce the growth of the money stock.

    But not even that implies that prices will fall back to pre-covid levels. For prices to fall back, the rate of change in long-term money flows will have to fall back below zero. That won’t happen.

  29. Gary Yary says:

    Never forget folks…this is a recovery we are in. The greatest market valuation increase, inflation surge – simply recovering.

    We are recovering…ahh nice. What exactly are we recovering from? I have adapted to stores not being open 24 hours. Have I recovered from whatever? Are the stores are now open like previously? I am exactly the same biological mass as in Feb 2020…some brain and liver cells may has suffered damage.

    Lets play along with this stupid narrative of recovery.

    When Denny’s and Walmart return to 24/7 service will the stock market rally – indicating recovery complete – another 70%.

    Lets play the pessimist. When this insane bubble economy bursts?

    Or when the common cold or a simple sneeze caused by the hyper natural immunity destruction “bubble peoples” eye balls will pop out. A cough will result in broken ribs from the 18 months of feeble stimulus laden plebiandom.

    Someone above mentioned the phrase a pimple on ones ass…I love old sayings. But what if a pimple on ones ass post Covid is a death sentence?

    How about a payment for all the people (heroes) who continued to work thru 2020 and 2021 with zero forbearance relief, zero supplemental benefits, zero unemployment?

    Alan Watts had a great 4 fold philosophy query back in the 70’s. The final question was “who is going to clean up?”

    This mess we are in will require many brooms, God bless Alan Watts and the fabulous residents of Wolf Street. Wolf Street will be tidy…I think some shovels might be handy for the upcoming mess.

    • Old School says:

      Congressional budget office is budgeting that we are going to be in stimulus mode the next 10 years. That’s basically going to be 30 years of stimulus. Not that different than Japan. The Tech bubble marked the end of the economy running without Fed heroin.

  30. Swamp Creature says:

    Just stopped in to Duncan Donuts for a cup of coffee after a round of golf. One was closed at 6PM. The other had no one working at the counter. Finally someone came to serve me. The price was $1.99 for the small size. That sounds like some inflation to me.

  31. Yamo says:

    Von Mises defined inflation as an increase in the money supply. The world has seen explosive growth in credit and money supply since 1971 and now we are seeing hyperinflationary increases.

    But the Pinocchio Jerome Powell still believes in a”transitory “inflation, with the complacency of our Corrupt Congress and our legendary ignorant president

  32. Dave says:

    Since we are ignoring what people say, and looking at what they do we should all wake up and realize that QE by the Fed and all primary central banks is to some extent permanent and real interest rates will be negative also somewhat permanently.

    INVEST ACCORDINGLY.

  33. Swamp Creature says:

    All 32 million mom & pop landlords thought they were going to have a nice secure retirement renting out their income producing property out can think again. The Supreme Court will not rule on the eviction moratorium since it is in recess till Oct 1st. In the meantime any tenant can claim hardship due to Covid-19 and live rent free (6 million are already doing that), while at the same time collecting free stimmie checks from the government. All their back rent will be forgiven and never be collected, so that’s money lost permanently. And don;t think this will end on Oct 1st. My bet is that it will be extended through the 2022 elections. The bottom line is you landlords are SOL ( S$IT OUT OF LUCK!) . Enjoy.you retirement.

  34. sunny129 says:

    ‘ until the Fed decides that enough is enough’

    I am praying for that day, every day!
    But every next morning, my disappoint continues!

  35. Kreditanstalt says:

    Can you explain why pretty much the only thing this wall of spending DOESN’T like is gold?

  36. Randy says:

    At paragraph 18, I think it is, where he says “Inflation means…”, that was cribbed from my paper “What is Money?”, that first I wrote way back in 1996!! In that paper, I explained about the loss of purchasing power of a medium of exchange, and exactly why it happens!

    Randy

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