The Fed Lost Control of the Inflation Narrative

Mega-policy decisions to boost demand. Now mega-consequences.

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

The story being propagated by the Fed is that the supply-chain nightmare caused this burst of inflation, the worst in decades.

Inflation is taking off in other countries as well, with multi-decade highs in Germany, in Europe generally, in Canada, and other places. This has spread across big parts of the globe.

But the Fed and the US government have refused to take responsibility for this bout of inflation and have blamed the supply chain snags and labor shortages, and have called this inflation “temporary” and “transitory,” denying that their reckless money-printing and interest-rate policies, and the immense deficit spending have anything to do with it.

But the Fed has lost control of the narrative.

In the 20 months since March 2020, the Fed has increased the assets on its balance sheet by $4.2 trillion, having nearly doubled its total assets to $8.6 trillion. This is a huge amount of money-creation. And this money went everywhere. It ballooned asset prices, which made asset holders a lot richer. Real estate, stocks, cryptos, a bunch of other assets. It’s the Everything Bubble.

The Fed did this to create what it calls the Wealth Effect. This has been spelled out in official papers by the Fed. The idea is that when these folks get richer, they’re going to spend some of this new wealth. And when interest rates are low, they can cheaply borrow against their assets, rather than having to sell them, and they can spend this borrowed money.

This happened via cash-out refis of home mortgages, it happened via leverage in the stock market, which has ballooned to records, it happened via outfits that allow crypto-owners to borrow against their crypto-holdings. Leverage surged across the board. And this money was spent, and will get spent, providing lots of fuel that didn’t come from labor.

Then there were the government stimulus programs, not just for the unemployed and for people under a certain income level, but for businesses, such as the PPP loans which went largely to people who didn’t need them, as we now know. The rules were loose, and folks didn’t need to break the rules to get this money. Over $800 billion in PPP loans were given out, most of them forgivable. And some of this money was spent on fancy cars and other stuff and provided more fuel that didn’t come from labor

Big companies too got lots of stimulus money, and it was spent and invested. And states and municipal governments got lots of stimulus money, and this is being spent, and all of it will provide more fuel that didn’t come from labor.

Nothing was designed for this type of burst of demand. But that demand didn’t come out of nowhere.

It was purposefully fired up by $4.2 trillion in money printing in 20 months in the US alone, and by $5.4 trillion in deficit spending, based on how much the US national debt has soared over the period – by $5.4 trillion in 20 months.

Combined, nearly $10 trillion in total stimulus. And it’s still going on.

Every major company is now talking about current price increases, and about future price increases, and surging costs of materials and components and labor. And they’re increasingly saying that these cost increases and price increases aren’t a brief episode but are getting baked into the economy.

This is another sign that the whole inflationary mindset has changed.

Consumers have undergone a revolution of their mindset over the past 12 months. What’s happening with new and used vehicles shows how.

Once upon a time, Americans took pride in haggling over the purchase price of a car or a truck. Now they’re eagerly paying well over sticker to get a chance to buy a new vehicle. And in terms of used vehicles, prices have spiked by 30% and 40%, I mean, just insanity.

But vehicles are the ultimate discretionary purchase for most people. Most people can drive whatever they already have another year or two. But no. They have to buy now, and they’re willing to pay an arm and a leg for it, and they’re no longer even trying to get a deal – they’re just paying whatever.

That shows how the inflationary mindset has changed. And it’s not going to revert very easily.

Despite all the shortages out there, and despite all the supply chain problems, total retail sales in September were up by 14% from September last year, and by 20% from September 2019. These are huge historic increases in retail sales.

Retail sales include only goods. But the biggest part of consumer spending is for services. And the biggest portion of services is housing, which weighs one-third of the overall Consumer Price Index.

This housing component is based on two types of rent factors. While CPI inflation figures for rent have ticked up, after having been pushed way down during the pandemic, they remain very low – below 3%.

But market-based data shows an explosion in asking rents. These are advertised rents of apartments for rent. Asking rents run ahead of actual rents, and they run ahead of the CPI for rents. But asking rents are eventually filtering into actual rents and thereby into CPI.

Across the 100 largest markets, the median asking rent for 1-BR apartments spiked by 11% in October from a year ago, and by 12% compared to pre-Covid levels in early 2020, according to data in Zumper’s National Rent Report. In 16 of the 100 largest cities, including in New York City, the median asking rent spiked by 20% or more.

There are some exceptions. In only 11 of the 100 cities, rents declined. In San Francisco and some other Bay Area markets rents are stagnating well below their pre-pandemic levels. In the city of San Francisco, rents are down 25% from July 2019. But those markets are the exception.

Construction costs of singled-family houses have exploded amid widespread shortages that range from windows to appliances and small items that you’d never expect to run out of. The Commerce Department’s index of construction costs spiked 12% year-over-year, the most since 1979, and is up 18% from September 2019. This excludes the cost of land and other non-construction costs.

Builders cannot finish construction projects because they can’t get the windows or whatever. The number of unfinished houses for sale – so houses where construction hasn’t started yet and houses still under construction – accounted for 91% of total inventory for sale in August and September, by far the highest ever.

These shortages are everywhere. And a lot of the products are imported. As we saw in the GDP data last week – and this is adjusted for inflation – the total trade deficit in goods and services worsened by over 5% in the third quarter to a record worst ever.

The largest ports are hopelessly backlogged. They’re putting through more containers than ever, they’re setting records, but they’re hopelessly backlogged. Year-to-date through September, the Port of Los Angeles has handled 18% more loaded inbound containers than during the same period in 2019.

The Port of LA could handle more, but there isn’t enough capacity to take the containers away because the trucking industry is backlogged, and railroads are backlogged, and railyards are backlogged, and warehouses are backlogged.

A few months ago, Union Pacific and BNSF stopped taking away containers from the Port of LA for a week because their own railyards inside the country couldn’t accept more containers because there weren’t enough trucks to haul containers away from those railyards, and trucks were tied up at warehouses because the warehouses were backlogged.

With containers, part of the problem is the chassis shortage, which are the specialized trailers to haul containers. This chassis shortage is everywhere, and even smaller container terminals, such as at the Port of Houston, have complained about it.

So if one bottleneck gets resolved, it’ll make the downstream bottlenecks even worse.

The reason is that nothing was designed for this sudden burst of demand.

But that demand didn’t come out of nowhere. It came because of that nearly $10 trillion in total stimulus in the US alone in 20 months – the $4.2 trillion in money printing and the $5.4 trillion in deficit spending.

Those were policy decisions made to boost demand, and now we have the consequences.

These shortages don’t mean less production. For example, the semiconductor shortages: Global semiconductor sales have hit records over the past few months, according to the Semiconductor Industry Association, and are up by 16% from two years ago.

So it’s not that they aren’t making semiconductors. They’re making more than ever. It’s that there is blistering sudden demand, and the industry cannot ramp up fast enough.

Sure, there were also temporary issues – as there are always somewhere. This time, it was the Big Freeze in Texas in February that temporarily closed some plants near Austin. And around that time, there was a fire at a Japanese chip plant. But those issues were fixed months ago.

There were sporadic problems with individual plants in Asia that shut down for two weeks at a time due to Covid outbreaks. All of this made the shortages worse. And these are temporary problems.

But there are always problems that are temporary, and that get resolved without tangling up global supply chains.

What’s different this time is that production is higher than ever, and everyone is at capacity, and any disturbance cascades through the system and makes everything a lot worse because of this blistering demand.

It ultimately comes down to demand, and demand is huge, and it’s global, and it came very suddenly, due to stimulus, and the stimulus continues globally, though some central banks have started to raise rates and others have ended QE, but they’re still only lowering the amount of stimulus, and they’re not anywhere near neutral, and they’re far from putting their foot on the brake. They still have the foot on the gas pedal, just slightly less than before.

The Fed has refused to even see the issues for months. It now is partially acknowledging the issues but still has its foot all the way on the gas pedal, blowing through every red light at every intersection.

It may start to ease the pressure on the gas pedal a bit in November, but it’ll still be blowing at near full speed through every red light at every intersection.

Millions of people have left the labor force, including three million people that are estimated to have gone into early retirement. Many others have not returned to the labor force for all kinds of reasons.

Millions of people sit on hefty gains in their real estate holdings, stocks, cryptos, and other assets, and they’re thinking that they’re going to make 20% or 50% or 100% a year, every year going forward, and that they don’t feel like they need to work.

We had some of this in the late 1990s, but to a much lesser extent because the bubble in stocks was limited to some stocks, and there wasn’t a housing bubble in 1999 and there wasn’t any kind of crypto insanity. But lots of people made a ton of money in stocks without having to work for it, and they quit their jobs and did other stuff and focused on day trading or whatever. But as the Nasdaq crashed 78%, they wanted their day job back.

We know how that works, been there, done that. When asset prices sag, instead of endlessly going up, some of those people that left the labor force will rejoin the labor force.

There are over 11 million unfilled jobs. Companies are now forced to respond, and for the first time in decades, wages are jumping. This started in the spring and took off in the summer, and hit new records in the third quarter.

Wages across all private industries jumped by an annualized rate of 6.4% in Q3, by far the largest jump in the data going back 20 years, according to data from the Employment Cost Index, published by the Bureau of Labor Statistics.

Wages made big gains across all industries. In banking, at the higher end of the incomes scale, wages shot up by 12% from a year ago, by far the fastest increase in the data going back nearly two decades.

At the other end of the wage spectrum, the hotel and restaurant industry, wages shot up 8% year-over-year, the fastest increase in the data. And they were up nearly 14% from two years ago. In retail, wages jumped by nearly 6% year-over-year, also by far the highest in the data.

These wage increases were the missing element early this year when inflation began to surge. But they’re now being baked into the economy. And it shows how the whole inflationary mindset has changed.

The Fed is still trying to blame shortages that suddenly came out of nowhere. But they didn’t come out of nowhere. The Fed engaged in a huge amount of money-printing to inflate asset prices so that the people who’d made those gains would spend some of them and would further stimulate demand. And the government had a massive bout of deficit spending to boost demand.

It wasn’t just in the US but globally. In the US all this was magnified, with nearly $10 trillion in stimulus, that $4.2 trillion in money printing and $5.4 trillion in deficit spending. And it shows up everywhere.

Those $10 trillion are circulating, and they’re causing all kinds of things to happen, all kinds of distortions, and excess liquidity, and asset price inflation. The record amount of leverage multiplies all of this. And people react.

There are an infinite number of moving parts. But the only thing that came out of nowhere was the explosion of money printing and deficit spending. And the moving parts began to react in countless ways. Some of those ways were very predictable, such as a surge in demand. That was planned even.

So now we’ve got that, and central bankers and government officials are surprised that for the first time in decades, after nearly $10 trillion in monetary and fiscal stimulus in just 20 months in the US alone, inflation has exploded?

What is happening is that the Fed has lost control of its narrative that it had nothing to do with this inflation, that it’s just some supply chain issues that came out of nowhere. The Fed is still telling one story, when reality has already taken off to go its own way.

But the Fed can crack down on inflation. With its $8-trillion balance sheet that it can unwind and its policy rates at near 0% that it can jack up, it has lots of ammo to combat inflation. They would all boil down to reducing demand.

But changes in monetary policy take something like 18 months before they have any effect on inflation, and even after that initial lag, battling ingrained inflation is a long hard process. The longer the Fed waits, the deeper this inflation will be ingrained, and the harder it will be to dislodge. This situation – meaning the Fed’s efforts to dislodge ingrained inflation – is something that most Americans have never experienced as adults.

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  247 comments for “The Fed Lost Control of the Inflation Narrative

  1. Wut says:

    Wolf, I’d argue the Fed has hardly lost control of the narrative. In fact, I’d argue they gained further control of the narrative today.

    They are aware of the mess, I assure you they aren’t as blind as you’re suggesting.

    The goal is simple: currency devaluation through deeply negative real rates. It helps bubbles become smaller, even.

    When they lose control, we’ll all know.

    • Franz Beckenbauer says:

      “The goal is simple: currency devaluation through deeply negative real rates”

      Unfortunately Mr. Market disagrees. And he always wins in the end.

      So much for central bankers’ central planning wet dreams.

      • Wut says:

        Franz, Mr. Market hasn’t disagreed. Making the statement does not make it true.

    • 2banana says:

      The Fed knows exactly what they are doing.

      They are not some bumbling professors in an ivy covered tower.

      They have become the buyers and sellers of everything.

      The uber wealthy and big government politicians benefit.

      The middle class, working poor, savers and retired get wiped out.

      Now you can ask why would they do that…

      • Depth Charge says:

        I can’t post what needs to happen to them, because it gets deleted. Think “French Revolution.”

        • 91B20 1stCav (AUS) says:

          DC-the historical issue being that revolutions usually seem to start eating their own before the ‘others’ are fully-digested…

          may we all find a better day.

        • Wolf Richter says:

          Depth Charge,

          Please do NOT promote violence on my site. I understand you’re frustrated. I totally get that. But don’t call for violence in the comments.

        • Depth Charge says:

          Wolf – there is a difference between stating facts and calling for something. I have never said “everybody rise up and start chopping heads!” or anything of the sort. I have only pointed to history as a guide of what happens when things become so unbalanced. All revolutions are not violent. I do hope to avoid that in this country. I have my doubts given just how extreme the wealth gap has become.

          The FED is engaging in violence. They are mass murderers. They have destroyed countless lives through their despicable policies, leading to mass suicides, drug deaths, deaths of despair, etc. They are a vile, wicked crop of filthy dirtbags who prey upon society and put people in harm’s way by taking away their abilities to care for themselves. They have turned shelter into a luxury item. There is a special place in hell for these people.

        • Swamp Creature says:

          I agree with DC 1000%

        • Peanut Gallery says:

          Wolf, what are your comment “rules”?

          I feel like you heavily moderate. Sometimes I wish you would just let things be, but hey – it’s your site.

          So for those of us who are new, what are the things you don’t want on your site comments, so we know ahead of time?

        • Jake W says:

          i agree with depth charge. i’m reminded of the quote from thomas jefferson.

          “peace and friendship with all mankind is our wisest policy; and i wish we may be permitted to pursue them. but the temper and the folly of our enemies may not leave this in our choice.”

          i see the political left and right incompatible, and think we need a divorce. but being on the right, i don’t think the left will let the right go peacefully.

          you can desire peace, but recognize that it may not happen that way. that’s all depth charge is doing.

        • JayLah says:

          @Peanut Gallery

          There is a subheading titled “Commenting” at the top.

          https://wolfstreet.com/2017/10/07/finally-my-guidelines-for-commenting/

        • Nick Kelly says:

          ‘I can’t post what needs to happen to them, because it gets deleted. Think “French Revolution.”’

          Oh, what clever code! Not even ‘dog whistle’ code. So easily decoded. ‘I can’t say this, but I will…’

          ‘FED is engaging in violence. They are mass murderers’

          Then so is the Bank of England, the Bank of Canada, Japan’s central bank and the ECB. That’s a lot of murderers!

          I think the site is under- moderated, but I don’t blame WR because who wants to wade through all these paranoid rants.
          It has become worse in the last few months.

          Then there’s this one: ‘i don’t think the left will let the right go peacefully’.

          Yup, that gun loving left! Who has been the source of the threats against election officials, school boards, health care workers? Did the left phone Fauci’s kids with threats? Was it the left that stormed the capital? Actually, to try to be fair, you really couldn’t call that mob ‘the right’ they were just trash that thought they had ideas. If only the police had just dropped the first ten in front…

          I think WR should consider expanding his empire. Hire some
          media kid as a wrangler on something called ‘Wolf Pack Cultural Observer’ where all the ranters can howl, while the site about Business, Finance and Money has to be on topic.

          As we are finding about Facebook, that purposely incited extreme views to sell more ads, people would rather rant than think. They love the high of self-righteous anger.

          ‘They have destroyed countless lives through their despicable policies, leading to mass suicides, drug deaths, deaths of despair,’
          Could be a televangelist!

        • Depth Charge says:

          Uh-oh, somebody was triggered.

      • COWG says:

        Bingo !!

        They think they have been given the power to control and manipulate EVERY aspect of the economy…

        For those who have deleveraged, cut your expense to income ratio, and are keeping your cost of living low, it looks like fun times might be coming…

        • VintageVNvet says:

          Bingo indeed cowg:
          Been there and done that since 1956/57 depression AKA recession made dad sell the farm and two homes so we could at least stay in one he preferred.
          Been similar with every depression since, no matter what the various and sundry evil talking heads parroting the evils of the oligarchs and their paid political puppets say…
          Time and enough to get, at least, somewhat of a rational and reasonable relation between work and the benefit therefrom for all folks willing, able, and present to WORK!!!
          Please please please keep in mind,,, approx. $$600 TRILLION, in fake wealth versus much much smaller actual production/real assets…
          Not ever getting back to reality until that HUGE delta is resolved in favor of actual ”real” production of reality,,,
          WE the PEONS can only hope this occurs some time soon.
          Otherwise, per DC and many many very astute, clearly much more astute than this old boy…
          NOT very good results for any ”investment”, etc

        • Nick Kelly says:

          N-Viet: I had to go look this up because I’d never heard of a 57 recession. let alone a depression. Yes there was a brief recession but a mild flu compared to the 74 doozy that took out my dad’s sailboat co, third largest in Canada, branches in three provinces. Built a thousand Fireball class.

          But Depression? No. It was for us. House where I lived sold. My dad left Calgary went from CEO to running a BC marine gas station. Manager sure but also filling tanks.

          There is no valid comparison between the setbacks hit by all of us not born to wealth and THE Depression, the Dirty 30’s.

      • Anthony A. says:

        Well, when there are going to be winners and losers, somebody has to lose, and the game is designed for the retirees and savers to be the loser. It’s simple, really.

        • Swamp Creature says:

          Yep, Retirees are getting f$cked. I believe there are some people in the Government and Wall Street that might be silently happy to see 700,000+ Americans (mostly senior citizens) get eliminated due to the Covid-19 pandemic. Less benefits to pay out. Notice how Wall Street has gone straight up while Americans were dying in droves.

    • Jon W says:

      They cannot just devalue the currency through inflation unless they can stop rampant borrowing into asset speculation. But who is going to stop borrowing if it becomes apparent that the fed is committed to writing off your debts?

      In fact, if that expectation gets bedded in (which is starting to happen), even the most die-hard responsible people currently in cash will pile into any asset they can get their hands on as they realise the fed is about to transfer their wealth to the speculators. With negative borrowing costs, that would make the speculators go even more nuts.

      What does the fed do then?

      • Yaun says:

        @John W

        >What does the fed do then?

        Limit credit creation through regulatory means.

        We have seen it before after WW2. The FED pegged real yields negative for about a decade. After that bond holders had lost half their money and debt to GDP ratios had normalized. As you say, everyone would want to pile into credit under such circumstances and velocity grows. But the central bank can force the banks through lending standards / reserve ratios to limit private money creation.

      • Jacob Hunt says:

        You just summed up what’s coming!

    • Mike R. says:

      You are absolutely correct.
      The Fed/Federal Government realized an “opportunity” to use the COVID shutdown to flood money into the system, including this time, to the little people (hefty unemployment supplements, business grants, foreclosure blocking, etc.).
      They also know that this inflation will kill the little people as their wages will not rise near enough. Thus Biden’s 4 Trillion social package which is really a huge give back to the little people in various social spending. They threw a little “climate change” in there to distract. Why wasn’t climate change put in the infrastructure bill? Where it belongs.
      The Fed and a number of our Federal leaders want inflation (as much as the current system can put out). They are not worried about hyperinflation; there are plenty of asset reservoirs to prevent that. But they know the ground level price inflation will also hurt the little people. Still they have no choice. The system is creaking and groaning from too much debt and the only way out is inflation.

      • Jake W says:

        i hear this argument a lot, and i think it fails for one reason. you can never inflate your way out of debt, because the same things that cause inflation also encourage governments, individuals, and companies to take on more debt.

        it’s a fool’s errand, and one you only get to try once.

        • Wisdom Seeker says:

          The other reason it fails is that the system is already set up to siphon from the poor to the rich, through historically unprecedented excessively high profit margins on most every transaction. For the little guys, it doesn’t matter where you pour new money into the economy because the profit margins (on any purchase from a corporation) skim off a share of any spending by the workers, and dump it in some billionaire’s account. And the billionaires don’t give it back, they always want more, because that’s the personality type you have to have to become a billionaire – it’s how their brains are wired.

          Now toss in the political corruption as well – the “social spending” political package is really a bag of pork for elite special interests. Very little will actually go to “little people” who produce.

        • Mike R. says:

          Good comment, I agree. I didn’t say it would end well. All TPTB can do is try and create some “breathing room” or “margin” from massive debt deflation which I think you will agree would send us into an unprecedented depression. Those that advocate for this really have no conception how terrible it would be…probably in the realm of anarchy.

        • drifterprof says:

          WisdomSeeker: “For the little guys, it doesn’t matter where you pour new money into the economy because the profit margins (on any purchase from a corporation) skim off a share of any spending by the workers, and dump it in some billionaire’s account.”

          Yes. Excellent comment. Digital currency seems like an artificial way to avoid corporate overlords taking a cut of everything, but it will have to exist within the same system. So doubtful.

          Living in Thailand, it seems like the invisible corporate hands still do not skim virtually every transaction. The traditional local open markets (which include cooked meals as well as fruits, vegetables, etc.) are still person-to-person transactions without corporations taking a cut. These markets are everywhere, even in big cities. Hopefully they will survive the cultural changes.

      • sailorgirl says:

        The “Plan” was to tax the Uber Wealthy, (higher marginal rate, less deductions) Wall Street speculators ( Stock transaction tax and carried interest), Raise corporate taxes ( No free lunch) and transfer those proceeds to (Child care support, college debt write off, increase access to health care, infrastructure ( broadband access, Water storage and treatment, green energy infrastructure) and stabilize SS. All of these would have been good for the country long term. But politicians only work in short term election cycles. This is how we become a country of collective losers. Our future is not looking good. Inflation is the least of our problems.

        • p coyle says:

          whose “plan?” certainly not the plan of either side of the duopoly currently in charge. the current side of the coin that has the votes to accomplish this can’t even negotiate those things amongst themselves, let alone have a hope of getting some “bipartisan” support.

          pay attention to what they do, not what they say they want to do in order to get your vote and $.

          it’s not like this is the first time in recent memory we’ve been down this road.

    • hernando says:

      I’m not sure how it works exactly but I went to the Fed website in Saint Louis. The Money supply in circulation as of January 2020 was about 1,800,000,000,0000. In October of 2021 it was 2,202,000,000,000 about an 18% increase in 22 months. How does this affect inflation?

      Also, are these actions, in total, part of an economic war against nations holding our debt? Like China.

      Again, I don’t know. I do know that if I had 18% more cash in my monthly check I would buy a lot more stuff at higher prices. In addition, the low interest rates eat up any investment opportunities involving bonds and treasuries.

      • COWG says:

        h,

        If able, cut your current consumption by that 18%…

        Identify high quality items that will make your life better or more comfortable…

        Wait for the opportunity to buy new or slightly used at discounted to today’s price…then pull the trigger… be happy…

        The opportunities will be coming…

        For example, I’m watching the 2011-2015 Mercedes ml350… right now, absolutely not… let the prices drop 10k and I’m all over it…

        But if you aren’t prepared to be able to buy, it doesn’t make a bit of difference…

        • hernando says:

          I think everything may just keep going up this time. There is so much cash in the hands of consumers that wasn’t there before- and free give aways. Deferment of debt and rent and mortgage and credit cards and loans…. free money that will never be paid back.

          The economy has been destroyed for awhile and will continue. Bitcoin is clearly not the answer since it would have to challenge currencies around the world. It will shutdown in the end.

          Perhaps, high energy prices will transfer some of that slush from products to energy consumption and slow down the destruction. But then, I don’t know.

        • Anthony A. says:

          Hernando, people forget the last GFC we had 12 years ago. When the fun stopped, and it always does, there will be all kinds of debt being called by the lenders and then the market will be flooded with expensive cars, boats, RV’s, homes, etc that one can pick up for a song.

          I recall one Florida Dodge RAM dealer back then advertising “buy one Ram truck, get the second one for free” on our Houston, TX TV stations.

          Rather than buy a vehicle at the end of the GFC, I bought a 3 year old, 2,000 sq. ft. brick ranch house for less than half the cost it was sold for in 2007. Yep, $64/square foot, and in a nice area.

        • COWG says:

          AA,

          Me too !

          Picked up a 1900 sf in SwFL in 2013…

          Freddie Mac foreclosure for $ 95k…
          Pushing $400k or so they say today…doesn’t matter to me…

          Hernando, hang around here for a while… you’ll get a better education than you could ever pay for…

        • Catxman says:

          If Bitcoin was going to take off, it would have lifted off by now. I imagine the only men making money off it are the initiators of the whole scheme who are cackling to themselves and rubbing their hands while they sit over the softly glowing terminals of their workstations.

          As for the rush of money, I’m with Milton Friedman: you can do rash things occasionally, but as long as you don’t keep hammering the rash things (see Venezuela), you can keep your economy from exploding.

        • josap says:

          We looked for and bought our retirement townhome in 2011. $47K The HOA finances were great due to easement taking for light rail. So we got both good deals.

          It’s been only up for property values. And we don’t care if it goes down, we aren’t moving ever again. The last one living can use the property to pay for assisted living if needed.

        • Anthony A. says:

          Nice purchase COWG! When this bubble pops, it will be fun times again!

      • Janna says:

        Our area seems to have a coin shortage, particular in restaurants. One restaurant asked if we wanted our 21 cents back. Of course! They had to give us a quarter because that was all they had. At least 2 other area restaurants are only accepting exact change or a card. I grew up in the restaurant business and cash was always King. It is interesting to see this switch. I tried to convince my hairdresser to take cash. I asked her if she paid for card transactions and she said she didn’t know! Is anyone else seeing a trend away from cash as an accepted form of payment?

        • JessbyChocolate says:

          I’m seeing a trend away from credit cards by small businesses like hairdressers, dog groomers, coaches, music and voice instructors,etc. There’s no cash on hand for exchange either. Everyone accepts Venmo, Zelle, PayPal, etc. So you can transfer cash funds from your financial institution, or you can pay a fee for the privilege of using a credit card through one of these services. The hassle of cash is eliminated and the merchant fee to process credit cards is transferred to the customer. Cash is king for long term(annual) home rentals where I live in Florida, and I am a renter for now. I have excellent credit and a positive balance sheet, verifiable steady employment history, and cash reserves. My first choice single family home went to a renter who offered a year’s rent up front plus excellent verifiable credit, etc. I know this because the landlord told me. When I realized what I could be up against for choice 2, I immediately offered 6 months paid up in advance(yes I made a trade off of lost earnings on that money). This offer is what secured the deal.

        • Swamp Creature says:

          The Whole Foods near me discourages cash for payment. There is only one line for cash, and its always long.

        • Jake W says:

          swamp, many stores would like to eliminate cash entirely, but some cities have banned that because it hurts the unbanked.

          without cash, they don’t have to pay armored car companies to pick up the cash, they don’t have to worry about employee skimming, and they’re much less likely to be a target for robberies. definitely worth the 2%.

        • josap says:

          The small mom & pop places want cash and will give you a discount. Chains want a card.

        • Nathan Dumbrowski says:

          Here in California I am back to seeing gas stations with CASH being about 20 cents cheaper than credit/debit. Yes even debit is part of the higher rate. So your option is to walk in and pay the cashier in cash to get discount. So to answer the question I see cash is king in California gas stations

        • Wisdom Seeker says:

          @Jess – Venmo, Zelle and PayPal aren’t truly “free” either, they’re just “free for you for now” due to being subsidized by investors trying to get a slice of the Visa/Mastercard pie.

    • Maximus Minimus says:

      Can you explain how negative rates make bubbles smaller?

      • RH says:

        Negative rates, if they are made negative by inflation, not by actually “paying” banks negative rates on reserves as in the EU, mean that inflation is eating away at the value of homes, stocks, etc. The bubbles in those then are decreased in real purchasing power terms, because inflation also causes wages and other things to slowly rise.

    • gametv says:

      I am of the opinion that interest rates are getting pushed down as far as they can go and will soon rebound much higher. There are traders who have bought into the narrative that higher interest rates in the short term will simply lead to a market crash and general economic malaise and that will lead to lower long term rates.

      I think that narrative is running up against a wall of selling pressure that is about to be unleashed.

      Get ready for things to rebound in the opposite direction as longer term rates explode higher.

      Once the debt ceiling is fully raised, not just a temporary raise, the amount of new debt issuance will finally swamp demand and lead to much higher rates.

      Higher rates are simply delayed.

    • RH says:

      I do agree that the inflation extant in the US could not have been missed by them. They W A N T it, so long as it is not so great that it causes Americans to force changes.

      Regardless of their insolvencies, the banksters’ entities can borrow from their privately owned but deceptively named, “Federal” Reserve cartel at 2.5% or less a year and lend to you and me at 23% or more a year. The 2.5% rate is actually below the true rate of inflation. The more that the “Fed” can get inflation to rise without Americans rebelling the more that it can funnel to its true masters: the ultra-rich banksters and Wall Streeters.

      Thus, via its power to create US legal tender, namely US dollars, the “Fed” is gifting billions to the bankster, because when they borrow trillions at say 2.5% per year but the inflation rate is actually (for example) 5% per year, they are receiving an annual gift of $25,000 per million dollars borrowed just from inflation reducing the amount of what they borrowed more than the rate charged them.

      If they can just lend that million dollars loaned to them by their “Fed” cartel at 10% per year on average to their customers, then they are effectively getting an additional gift of $50,000 per million dollars that they borrow from their “Fed.” I say that is a gift, because many of the banksters and Wall Streeters institutions are often legally insolvent. A willing, non-crony lender would never lend such thinly capitalized institutions any sums at even 10% on average.

      That is why the banksters and Wall Streeters were desperate to preserve the current, ultra-corrupt, crony capitalism that is our financial and banking systems. Read about the sweetheart deals reportedly given to the “reformers” who wrote the Dodd-Frank bill, which was ludicrously alleged to be to reform the system. I saw briefly a Hoover Institution video that accurately discussed this.

      Unfortunately, both sides are not so captured (corrupt) by the ultra rich banksters and Wall Streeters as discussed by many online commenters on these subjects, that not one of them has a motive to change the system. The attempted changes to actually force the ultra rich to pay taxes have apparently now been mostly defeated!

      Read “Apple Successfully Avoids $50 Billion in American Taxes” in Gizmodo. That company is only an example of the tactics, such as transferring US jobs to quasi-slave factories and/or subsidized factories to drive US/EU based competitors out of business via deals with their CCP cronies, which have destroyed much of our and the EU’s manufacturing sectors.

      They have been knowingly helping the genocidal CCP’s policy to use the financial power of the entire Chinese nation to drive US companies out of business through subsidies, quasi slave labor, lack of labor and environmental protections, use of polluting (via CO2 and other pollutants) coal to generate cheap electricitny, etc. For example, read about how US aluminum processors were mostly driven out of business. Reportedly, only one remains.

      If that one goes out of business, American producers may then faced increased prices later when they become utterly dependent on aluminum producers controlled by the CCP. The ultra-rich do not care. I am sure that if the American economy were to collapse those parasites would just transfer their families to Monaco or other countries wherein they could nest. They have only nested in America because the US government has effectively been bailing them out of every financial loss for decades via the “Federal” Reserve’s money printing, QE, ultra-low interest loans, etc.

    • Bobber says:

      It’s a lie, not a narrative. The Fed has taken near zero action to normalize policy, contrary to its statements. Meantime, the stock market has risen 300% in the last decade, yet the Fed tells us the economy needs stimulus.

      • josap says:

        The stock market is not the economy.

        People working, getting a paycheck, paying the bills, and buying shoes for the kids = the economy.

  2. Red says:

    Will that was just lovely to read before bedtime. Hey Sweden you got room for a expat .

    • Depth Charge says:

      They don’t want you. My great grandparents are from Norway. I’d love to go back but am not welcome. Other countries don’t have porous borders and mass immigration schemes like us.

  3. Finster says:

    Excellent analysis, Wolf. Inflation is causing shortages at least as much as the other way around. When monetary inflation is accelerating, due to friction and inertia prices may fail to keep up, leading to an excess of demand over supply. Econ 101.

    The 1970’s inflation was also marked by shortages and hysteria that the world was running out of oil. But then a funny thing happened. The Volcker Fed tightened monetary policy, and the shortages, supposedly caused by everything except loose monetary policy, faded. By the early eighties there were headlines of an oil glut. Today’s shortages are as much a product of aggressive monetary policy as anything.

    • 2banana says:

      Well, that and the Iran-Iraq War which saw both side pump and sell oil at maximum capacity to fund their war efforts.

      • Finster says:

        The pattern repeats too often and has too strong a mechanistic underpinning to be mere chance. We saw another peak oil hysteria amid a surge of inflation in 2008. That too dissipated when monetary conditions reversed.

        More historical examples could be cited as well, but my point isn’t based purely on empirical experience … it’s just what you would expect from the laws of supply and demand … when prices fail to fully adjust to market clearing levels imbalances result.

    • Wisdom Seeker says:

      What’s sad is that the economy is bottlenecking to a halt while the US Manufacturing Capacity Utilization index is only at 75%, not even back to 2007 levels, much less 2000 or 1980 levels.

      Seems there’s a lot of Ghost Capacity…

  4. ivanislav says:

    Maybe I’ve been living under a rock, but I just checked the chart for AVIS (rental cars) and the stock moved from $171 to $357 between Monday and Tuesday. Thank you, Fed. I don’t know if we’re looking at a bubble that will pop or the early stages of hyperinflation. I can’t imagine this environment persisting and assume things will be forced one way or the other. And everywhere I look, the C-suite is investing in a future with magic internet tokens. Wake me up, please.

    • 2banana says:

      There will always be meme stocks.

      Pick a decade, I can give you dozens.

      • Michael Gorback says:

        Ok, first decade of the 18th century for $800 Alex.

        • 2banana says:

          The South Sea Company

        • BuySome says:

          Oooh, sorry…you forgot to say “What is,…”. Our lawyers have determined that your answer cannot be accepted, nor any others that might reflect poorly upon the markets or our show’s sponsors. And now a word from the fine makers of Geritol.

        • Nick Kelly says:

          Banana: “I knew it would come, but not like a thief in the night”

          Isaac Newton on the sudden crash in South Sea shares. He made a bundle year before and doubled down. Lost it all.

        • NBay says:

          Think Geritol was 20% ethanol……Night Train for good citizens.

    • Wolf Richter says:

      During that time period, it actually moved from $171 to $545 and now back to $285… starting to be a WTF chart :-]

    • Maximus Minimus says:

      The hopium says that since Hertz bought(?) 100K Teslas, AVIS will be cashing on the trend, and soar if it can lay its hands on some printed money. Nothing is real anymore, of course.

  5. Old School says:

    Fed is trying desperately to keep assets afloat. Price to sales fell to 0.8 in March of 1999. If we go back there that’s 1165 on SP500. Fed will do everything to keep that from happening, but if inflation gets out of control we could go below that meager number as 0.8 is not close lowest price to sales ratio in history.

    I could see it happening. People are acting nuts with money from politicians to boomers to young adults.

    • MonkeyBusiness says:

      The S&P will never see 1165 ever again. If that ever happens, the country is on its way to destruction and will not be able to get up again.

      • Augustus Frost says:

        I’m very confident the S&P will fall well below 1165 adjusted for price changes which is what matters more. This mania is the biggest ever in human history and the actual fundamentals (without the fake prosperity) are mediocre to terrible, far worse than September, 1929.

        The US is a Balkanized divided “society” where the underlying social and cultural rot has been disguised by borrowing and cheap credit.

        Nothing happens in a straight line but the negative fundamentals which will be evident at some point (this decade IMO) have substantially been in place for years and decades.

        Most Americans are destined to become poorer or a lot poorer.

        • MonkeyBusiness says:

          Now you are just hedging with the whole “price adjusted” thingy.
          Earlier you just said 1165 with no adjustment. So yeah, not going to happen as I said.

        • Jake W says:

          i agree with you it won’t drop to 1165 without a collapse. but i also think a collapse happens in the next 5-6 years.

        • Augustus Frost says:

          It’s psychologically determined. FRB can’t stop it. They couldn’t and didn’t stop it in 2009. What’s different this time? More “printing”? With the amount of leverage in the financial system, they can’t possibly react fast enough if psychology turns against them. That’s how crashes happen.

          However you want to measure it, this bubble is way bigger than 1929 and the losses are going to be bigger too.

        • MonkeyBusiness says:

          Augustus Frost. The Fed wasn’t actively doing an intervention back in 2009. No QE, no Alphabet soup of programs.

          The only way the S&P touches 1165 or even lower is if the whole country loses credibility domestically and overseas, and that can only happen when the country is close to dissolution.

          Can the stock market drop big time? Sure. Maybe 30% from this point? But 1165? That’s doom p***. They’ll just shut the market until morale improves.

        • Augustus Frost says:

          MB,

          I am aware of what you are telling me.

          What I am telling you is that the outcome isn’t mechanical. That’s what believers in (imminent) hyperinflation also think.

          The currently mania is psychological, not the result of positive fundamentals (which are actually mediocre to terrible) or because of central bank omnipotence.

          The mania psychology is worse or much worse in the US than in other countries too. That’s why the US stock market is so inflated versus other markets. It isn’t because US companies are so fantastically innovative versus their foreign competitors or US economic performance has been so much better here over the last 20 years.

          With the amount of the leverage in the financial system, NO ONE can stop a financial crash from happening if the manic psychology reverses. Moreover, central banks (including the FRB) don’t exist in a vacuum where they are immune to or operate independently of the surrounding psychological environment either. The FRB is substantially if not entirely infected with the same manic psychology expressed by market participants.

          In the ivory tower world inhabited by economists and academics where people more or less behave like robots, what you describe is impossible.

          In the real world of actual human beings where people disagree all the time under duress, it’s easily believable that what seems “impossible” is very likely.

        • Biloxi says:

          The only way stocks will fall in the current environment is if short term rates spike. Short of another calamity (meteor, nukes, covid return), you should only expect stocks to generally move up. The Fed cannot allow rates to hit 4% or greater because of the massive interest on the Federal debt. So you should expect stocks to rise for the foreseeable future as the ‘debt’ is inflated away by inflation and the Fed continues to buy bonds to repress interest rates. The end game is to make the US debt small in real terms so that finally interest rates may rise.

      • Harry Houndstooth says:

        History has shown that when extreme overvaluations correct in the stock market they overshoot the mean and go much lower.

        Stay safe.

        It is a privilege to have lived through this asset bubble. Put your skis on, this is likely going to be a 3 Black DIamond drop.

        It is time to sell. You can get some SRTY for 7.30

        • TheRealMRDyno says:

          HH, Wolf,

          Any evidence that SRTY is a valid buy today?

          It has gone down for 10 years, at -99.80% from oldest date on the Google chart.

          …but…, A recovery to 2/3 of initial price takes a $7k / 1k shares position today up to $21M !!!

          Seriously, any advice on this?

        • Wolf Richter says:

          It went from 86 to 245 in four weeks through March 20, 2020. That’s 185% gain in four weeks. If you think we’re going to get an event like we got in March 2020, than it would be a buy.

    • cas127 says:

      “Price to sales fell to 0.8 in March of 1999.”

      Good metric, Old School (P2S avoids many/most of the accounting games that contaminate PE ratios).

      Current PS of SP 500?

      3.2

      And anybody who thinks the health of the American economy has quadrupled in the last 20 years (some of the worst in US history for employment growth), well…I’ve got some real estate to sell you…

      • ivanislav says:

        “Price to sales fell to 0.8 in March of 1999.”

        That happened in March 2009, not 1999

        • Old school says:

          Check again. Price to sales was 0.8 in 2009, about 1.0 in 1999. In my lifetime I have seen it at 0.5 so and it has been to right around 0.4 a couple of times in the 20 the century.

          What seems impossible can happen in financial markets, maybe because someone is on the other side of the trade trying to take your money.

          Just think of how many people are going to panic if they think they can lose 75% – 88% of their money in stock markets. P/S hitting 80 year low is 88% loss.

  6. Dave says:

    There’s no inflation in Japan, and the BOJ has been printing like mad, and buying up the stock market, REITs, and almost anything else that’s not nailed down. It may be that the US economy is inefficient, unproductive and generally parasitic–similar to many third-world countries which tend to experience chronic inflation–and it’s low-priced imports from China and elsewhere that have masked this phenomenon–until now. It is impossible to overestimate the effect affirmative action, for example, has had in disincentivizing and demoralizing the workforce. And the bloated, parasitic financial sector is another element which damages worker motivation.

    • MonkeyBusiness says:

      “There’s no inflation in Japan”. Japanese people are very different from Americans. They are far more conservative spending wise.

    • drifterprof says:

      “It is impossible to overestimate the effect affirmative action, for example, has had in disincentivizing and demoralizing the workforce.”

      I remember the decades where, when seeking a job, I was somewhat resentful about “affirmative action” job opening advertisements. Not a good feeling that so many employers expressed such a strong preference for people of other races or gender.

      But it seems kind of wussy to be disincentivized and demoralized by that stuff. I just tried harder — there are always alternative employment paths one can pursue. And in at least a couple of cases, government jobs required them to hire me since I had clearly superior experience and educational background. I’m sure the preferred populations went through much more disincentivization and demoralization historically. I don’t believe in the “payback” concept. But sometimes that’s the way of the world.

      What disincentivized and demoralized me much more was corporate manager puppets who where merely tools for maximizing corporate profit and salaries of the higher level C-suite denizens. So many of these American managers were morally damaged, sadistic, psychologically aggressive, excessively authoritarian, and so on. Some poster here were in trades or professions where they seem to not have experienced much of that. But a lot of us have.

      • p coyle says:

        trades and professions that get graded by results on the ground. i doubt anyone with an overflowing toilet gives a crap about the ethnicity/gender of the plumber, so long as the toilet gets fixed. when everyone sits at a desk staring at a screen all day, not so much so. first world problems and so on…

        • drifterprof says:

          “trades and professions that get graded by results on the ground”

          In a lot of places, like where I grew up in middle-class California, trade professions were one of the most racist institutions.

          Then, after that, of course, “results on the ground” were probably a major factor.

  7. Franz Beckenbauer says:

    “This is a huge amount of money-creation. And this money went everywhere”.

    Nope.

    Gold and especially Silver are insanely undervalued. Just insanely.

    Hold on to your hats. It’ll be quite a ride.

    • Augustus Frost says:

      Gold is overpriced and silver near or at “fair value”. Look at the relative price versus the things people can buy with it.

      How many ounces do you think it should take to buy the median priced house or car? It’s already lower or far lower than the median over the last century. Gold is also near the upper end of the valuation range versus other commodities.

      I expect it will become even more overpriced at some point but at a later date, one or both are going to lose noticeable proportional value versus the goods that people actually need to buy.

      • Franz Beckenbauer says:

        If “fair value” means half the price of the last high in 1980, ignoring 30 years of inflation while everything else is at “all time highs” to you, you’re welcome.

      • Old School says:

        Gold is insurance. You have to pay more when things get scary. Cost mine around $1100 so that is probably the floor as it will stay in the ground below that price.

    • Harry Houndstooth says:

      The only thing we have “backed up the truck” on buying in this asset bubble is High Quality Gold Jewelry (5 figure stuff); I am buying gorgeous European (especially Italian) designer sets for close to the bullion price.
      My wife loves it. You are basically getting the craftsman’s work for free while investing in gold. My wife enjoys the “dividends” of wearing it.

      Do I know why gold is so cheap? No. But the fear of if underperforming or going lower does not mean I cannot recognize a bargain when I see one. I am buying.

      Gold vs. Bitcoin? Where’s the bargain? Can my wife wear a Bitcoin?

      There must be bargains on small gold producers. I am all ears.

      • Old School says:

        Probably buying one of the top three gold miners is good enough. Their earnings are levered 2 or 3 times gold price movement which is scary enough for me. If you believe gold is going higher it’s a pretty good play. Miners will be close to zero if gold goes to $1000.

      • p coyle says:

        5 figure gold jewelry at close to bullion price? is your wife mr. t? 🤣

      • Franz Beckenbauer says:

        That’s what i call a “win-win-situation” if there ever was one.

      • Franz Beckenbauer says:

        Without giving financial advice, Gold Royalty companies are at what i perceive to be a risk-reward-ratio that is utterly insane in a positive way.

        Pick one. There are some good ones out there.

  8. lostinspace says:

    Most of the young people I work with have paid close or more than $500.000 for houses in the salt lake city area and one man is desperately looking for a house he can afford for his young family but can find nothing. This looks a lot like 2007 to me x 2.

    • Jay says:

      Exactly, so all that’s happened is that mortgage companies have become just as speculative as they were in 2006-2007 thinking that housing prices will continue to rise.

      Some dude paying a crazy amount for a house in SLC, ATL, or Nashville better hope that their home’s value keeps rising. But with rising mortgage rates over the foreseeable future, there’s no way we’re not at or extremely close to the peak.

      Anyone who’s bought a house in the last 18 months is crazy. Everyone should have said NO! Otherwise, they’d better be ready to live in that house until the market recovers from whatever downturn happens, small or big.

      Unless the FED figures out the inflation antigravity formula and is able to keep interest rates low forever, housing has to start to decline soon due to rising mortgage rates. The Zillow situation suggests they know its already started in key markets.

      • Franz Beckenbauer says:

        There’ll be some Zillow walking corpses coming to the market shortly at firesale prices. Around 7.000 of’em.

        I wonder what that’ll do the the leveraged MBS on the banks’ balance sheets.

        Have you seen “Margin call” ?

        I have.

  9. me says:

    “It’s the Everything Bubble.”

    Well except for gold and silver.

    Pathetic moves there and totally missing out.

    • lostinspace says:

      I know it’s hard to keep the faith but one day that will change, I’m not selling any pm’s just yet.

    • Jacob Hunt says:

      I know… I wake up every morning expecting the move above $1800 to have happened.
      I simply can’t believe it???

      • Petunia says:

        Lots of the commercial uses of gold have dropped quite a bit in the last decade. Jewelry was a major user of gold but not anymore. The designer jewelry makers can sell gold tone jewelry with a logo for $700-$1000, so they don’t need to use gold. Watches with ceramic or titanium are more popular than gold watches as well. Designer handbags used to use gold hardware, but not anymore. The commercial users of gold seems to have shifted to other materials and the customers don’ seem to care.

    • 2banana says:

      Look at it as a buying opportunity.

      One of the few left in the everything bubble.

      We all know it can’t last forever.

      But it can last much longer than what logic would dictate.

    • Augustus Frost says:

      Gold is not cheap. Look at it’s relative price over time versus other physical goods and most services, not paper assets. Silver seems to be closer to “fair value” but it’s far more of an industrial than a monetary metal now.

    • MiTurn says:

      Me: “Well except for gold and silver.”

      And I’m glad…it allows me to continue to invest in silver!

      I’m very confident it will go up. That will probably be a negative indicator for the economy and the US dollar, but ya gotta protect what you got!

      • Michael Gorback says:

        Gold as a store of value, silver for spending. A 10 oz gold bar fits in your shirt pocket and currently stores about $18,000 in value.

        10 oz of silver is worth about $240.

        Which one do you use to hide wealth and which one do you use to buy food and gas? Are you going to the gas station and scrape filings off a 1 oz gold bar to pay for your gas? If so, invest in good old-fashioned balance scales.

        Think of gold not as a hedge against inflation but as a hedge against fear.

        As an aside Basel 3 obviously isn’t working.

    • Bobber says:

      The problem is that gold had a huge rally over the past 30 years. Gold ran at a pace that significantly exceeded inflation. The market is still digesting those gain, in my opinion. I do own some gold.

    • Depth Charge says:

      I buy gold and silver as a hedge against a complete economic meltdown and collapse like Venezuela. The chances of that are slim, which is why my PM allocation is also slim. It used to be 5% of my net worth. Now it’s down to like 2%, and I am very happy for that.

    • RH says:

      I know! It is hard to believe that investors would rather buy into the modern equivalent to tulips (effectively frozen tulips admittedly since the digital coins do not technically spoil like real tulips) than the precious metals that so many other producing countries like India, Japan, other Asian countries, and most third-world countries understandably value. Also, those metals have industrial and other issues, so the supply of them is limited and decreasing as to many.

      I suspect that the manipulation stories are right. Is there any real gold actually still stored in Fort Knox and other places, which has not already been “loaned” out to some connected banksters or Wall Streeters with cronies in government who have been engaging in market manipulation?

      For example, the price of Gamestop went down after the “Apes” cornered the short sellers initially, because the wealthy short sellers could keep making fake transactions among cronies to make the real price appear low. Eventually, they were forced to try to cover their shorts and the price shot up. I am not saying that such a stock was a good investment; merely, I am saying that our markets can be easily manipulated by the banksters, Wall Streeters, etc.

  10. David says:

    Inflation is always and everywhere a monetary phenomenon. The masters of finance are saddling the COVID bill on the least sophisticated financial actors, by robbing them of their purchasing power. Amen.

    • Michael Gorback says:

      A tired truism. Lacy Hunt went through Friedmans original paper and checked the math. Turns out Friedman assumed constant velocity of money, which ain’t so.

      M*V = GDP. If money supply is up so much why is GDP stuck in the mud? Because V has been sinking like a stone.

      RIP Friedman meme.

      • Bobber says:

        Lacy Hunt seems to assume zero default risk and complete control by the Fed. How else could you support buying long-term bonds?

      • Old School says:

        If money is printed it is being held by someone and they are looking to do something with it that will get them something they want or an investment that will not lose to inflation.

      • eg says:

        Precisely, M. Gorback, but it’s a zombie idea that never dies because it has infected the brains of so many loud voices in the public discourse and seeped into those of policy makers such that it seems ineradicable.

    • Raging Ranter says:

      It is not everywhere and always a monetary phenomonem. Even Paul Volcker didn’t believe that However, inflation does require monetary accommodation. And fighting inflation does require removing that accommodation. Thus whether it is a monetary phenomonem or not, tighter money is the only way to bring it down. Inflation does not just magically go away by itself, that is 1970s fantasy thinking. One does not need to be a Frridmanite or a “monetarist” to see that we need tighter money.

      • Depth Charge says:

        I like your moniker. That said, the FED is still stoking inflation while jawboning about tapering/raising rates. It’s the age old saying “don’t listen to what they say, watch what they do.” The FED is not taking this massive inflation seriously at all. They’re still pumping QE like there’s no tomorrow.

        Remember Powell’s “we’re going to let inflation run hot” statement? That’s what he’s doing right now, while lying to CONgress and the American people that he has an eye on inflation, is “frustrated,” etc. He’s a crook through and through. He is doing all of this on purpose for the wealthy while absolutely eviscerating the poor and the working class.

  11. Sams says:

    Inflation was defined as monetary expansion and still is very much a monetary. Depending on who that get the money and what they do with this money consumer goods price rise, real estate or other asset rise in price. The prices rise more or less relative each other, but monetary expansion is the driver. Flip side, the prices do not rise, it is the purchasing power of fiat money that fall.

    Inflationary mindset, well, some may have recognized that after monetary inflation prices will rise. The rational reaction to that is to exchange money for goods and assets. Maybe even leveraged.

    Raising interest rates is a boomerang sharp on all edges. One often effect of interest seldom talked about is that interest do expand the amount of money and interest rates are monetary inflationary. Only negative rates are monetary deflationary.

  12. historicus says:

    The Fed has been HIJACKED and answers to another master.

    They ignore their mandates/agreements/directives that allow them to exist and wield great powers.

    They have broken the real estate market by providing UNDER inflation money. The inflation they promote and let run forces holders of residential real estate to “hold on ” to their greatest hard asset.

    Why would the Fed buy mortgage backed paper at 3% when the last time we had inflation in this neighborhood….1999 and 2006, 30yr mortgages were 6%? Cui Bono?

    • Old School says:

      When the Fed chairman is mentioning diversity and global warming you know he has gone about as far from the original concept of the Fed as one can go. Kind of like billionaires riding on a corporate jet getting 2 mpg talking about ending fossil fuels.

      • p coyle says:

        “Kind of like billionaires riding on a corporate jet getting 2 mpg talking about ending fossil fuels.”

        and rubbing the poors noses into the ground simultaneously, with great fanfare, as the cop26 demonstrates. an estimated 400 private jets, so many some had to be flown to other airports to park so as to make way for the excess. 80+ car motorcades.

        yeah, these people are serious about the climate.

  13. Truckman says:

    Canada has retail sales down 2% from pre-Covid, UK is up 4%. Neither has the same ocean shipping problems as the US (though they are both well short of truck drivers). Neither has had the same level of QE. However, they like the US have massive inflation. So, there’s more to it than the Fed.
    Personally, I think that the underlying problem is that workers right up to middle management have been losing their standard of living for 20 years, and the Covid lockdowns gave them a chance to think about that. Accommodation costs are a big factor, whether rent, property taxes or purchase price. So is education – youth have been sent to college to do BS degrees (and I don’t mean Science) rather than training to be skilled manual workers like truckers, electricians, and nurses. So is inflation, the real one not the rubbish that governments have been lying about for over a decade. Most of all, a very large proportion of people now hate their bosses and the companies they work for. I had 25 years of respecting who I worked for, and feeling lucky to get paid. Anyone aged under 35 may never have experienced that. The beatings stopped during the lockdowns, and the slaves found they liked that. Companies are not only going to have to boost wages massively to get people to work for them again, but the culture will have to change completely. And that’s impossible with the sociopaths running big corporations and government. Humans are not Resources.

    • RedRaider says:

      I think there’s 4 main reasons why so many people aren’t returning to work.

      1. You nailed one of them – people hate their jobs. But they do like the income. We end up with an oscillation between these two extremes. I think we’re at the hate their job extreme. And the pendulum is about to start swinging in the opposite direction. It’s going to take a while.

      2. Boomer codgers are financially helping their grown children. Those children aren’t too far away from receiving their inheritance anyway. Instead of lump sum inheritances at death we might be talking a new trend in annual disbursements.

      3. It’s said that boomers continued working beyond retirement age. No doubt monthly SS check continuing to grow until 67 played a role in that decision. But the lockdown and the jab convinced them to say f**k it and retire.

      4. I think the dual wage earner family is morphing back to single wage earner family. 2nd car, eating out, daycare, higher taxes, etc do a good job at consuming that 2nd income. Why bother?

      • josap says:

        I agree 100% and see those things happening with friends and neighbors. Early retirement, single-earner families when they used to be dual, grandpa living with the daughter and doing child care for the little one.

        And the big one, people are not going to put up with the crap they used to for a job. Better pay and better conditions are being demanded. Unions are on strike, people are walking off the job at fast fooderies. There are more jobs than people to fill them. Labor now has value.

        • p coyle says:

          i for the most part agree with all of the above. add into the equation those who will choose to quit/resign/retire over the coming rules. even if it’s 10%. this is going to be a big mess.

    • Augustus Frost says:

      I have read sentiments like yours recently from numerous sources.

      Ultimately, those not working now by choice will have to go back to work when they run out of money or what they have doesn’t support their expected minimum living standards, whether they like their job and working conditions or not.

      That’s how it is in most of the world now and everywhere for most of world history. That people who are disproportionately broke or living on the financial margin think as you describe just goes to show how detached from reality most Americans are.

      It’s mostly not about what someone wants, it’s about what they can afford.

  14. 2banana says:

    To put that into perspective.

    The entire GDP of the United States is $21 Trillion.

    Imagine if you borrowed almost half the net worth you worked a lifetime to accumule…and spent it in a year.

    “In the 20 months since March 2020, the Fed has increased the assets on its balance sheet by $4.2 trillion, having nearly doubled its total assets to $8.6 trillion. This is a huge amount of money-“

    • Jake W says:

      that’s a bit of an overstatement. it’s not the net worth of the entire lifetime, it’s borrowing half of one’s salary from one year. the total “wealth” of the u.s. is much higher than $21 trillion, although much of it is based on the asset bubble.

      • Old School says:

        That was the big lesson from the Mississippi stock bubble. French citizens thought they were wealthy, but there was no income going to be generated by the stock investment.

        The government was all in on the bubble because they were broke before the scheme and it gave them a few years reprieve, but reality hit hard in a few years.

        I was thinking, once you give central banks a printer they are going to eventually abuse it. Fed printed to 7 or 8 trillion so we wouldn’t have to deal with reality. What’s the plan now?

        • Nick Kelly says:

          John Law’s original pitch line: ‘I can turn paper into gold’

          Law had killed a guy in a duel and escaped from jail in Scotland. He hung around the Dutch stock exchanges and was fascinated by the trade in options etc., some of the world’s first along with the invention of the company.

          He was turned down by his first big prospects in France but his ideas appealed to the perpetually broke French King, who had mortgaged the forests of France.

          At the height of his scheme, Law had become head of Finance, Chief tax collector and head of France’s largest companies. Towards the end as doubts grew, he banned gold and silver coins.
          In the crash he barely escaped with his life. The French never lost their distrust of paper money after this and it was French
          insistence on redeeming US $ for gold at 34$ per oz that made Nixon take the US off the gold standard.

    • topcat says:

      Try working out by how much the GDP would have fallen had the FED not poured money into the economy. I suspect by just about that 4 trillion . The fed merely kept the ship afloat. Do you people want a depression or what?

      • COWG says:

        Yup…

        The bottom 30% always live in a depression…

        The middle 30% are having a depression right now…

        The top 30% need to get crushed…

      • Jake W says:

        kicking the can down the road is not a solution.

  15. 2banana says:

    Which means:

    What you see now will not change or get any better before the 2023 elections. But could get a whole lot worse.

    Historically, the party in power gets the blame for inflation and hard times it produces.

    Currently, there is one party that controls the house, senate and WH.

    “But changes in monetary policy take something like 18 months before they have any effect on inflation, and even after that initial lag, battling ingrained inflation is a long hard process.”

    • Augustus Frost says:

      It won’t make much difference with the other party in the majority. Some of the economically insane proposals I have seen this year likely won’t be considered but otherwise, it’s business as usual.

  16. Michael Engel says:

    1) Fill the tank for $70 bucks. SPX is unstoppable. SPX might build a new backbone, for a spaceship vertical takeoff, but US500
    futures 5 min looks like a bust.
    2) Radicals are radical, they never compromise. Give them a
    hug and when it’s time to face reality give them an ax.
    3) NPL Commercial and c/c loans were converted to zombie
    loans. Banks profit is rising, because the risk of is down. Zombies are safe. Banks reducing reserve for losses, showing impressive profits.
    4) Due to the shredded credit cards and reduced available credit ==> Xmas will be a bust.
    5) Those ships in Long Beach will turn around, because the buyers
    shut their doors.

    • Nathan Dumbrowski says:

      Two items on item #5. Read that US, both coasts, warehouses are at or near full capacity. The article mentioned that the level of capacity is hovering around 2% capacity remaining. While another article from Los Angeles read LA port will start charging $100/day per shipping container that doesn’t move in nine days. So perhaps your item isn’t far off

    • Nick Kelly says:

      5) Those ships in Long Beach will turn around, because the buyers
      shut their doors.

      Turn around to do what? They aren’t burning fuel and not paying to anchor. China doesn’t want the stuff back. How does turning around help? Some of the stuff has been paid for under LOC, but it will have to be delivered or money refunded.

  17. Happy1 says:

    It has to inevitably end as no tree grows to the sky, but betting against asset inflation in the last 18 months would have been extremely painful. I’ve been pulling money out of stocks this year to decrease my exposure but there is no safe haven anywhere in this massive bubble and my stock holdings have still more than doubled from bottom last spring. It’s obviously unsustainable but if you jump off the merry go round early the FOMO would be unbearable.

    • random guy 62 says:

      Yeah I started getting nervous about stock prices early in 2021, and sold about 3% of my total holdings… just to put my money where my mouth is. I know you’re not supposed to try timing the market, so I left the rest alone.

      My belief that a correction was imminent has been dead wrong so far.

      Tempting to sell some more now, though…

      • anon says:

        We’re retired and rebalance our portfolio every year or so. Been moving, on average, about 3% out of equities every year since 2012.

        The tough part is that while in the past CDs paid a few percent in interest now theirvrates are all way below 1%. Why pay some middle class guy anything when you gat get money from the Fed for … almost … nothing?

        • RedRaider says:

          Those interest payments are why the retired are buyers even in a recession. Since you aren’t receiving your payments you’re not going to be able to buy during the next downturn. It makes sense to me to gradually reduce your equity exposure. I’m doing it too. Only I’m not too subtle about it. I’m already at 98% cash levels day trading to compensate for the erosion in my cash. I’m reducing the erosion by about half. Federal reserve policy and government spending has turned us into a nation of gamblers. It’s not going to end well.

    • Harry Houndstooth says:

      Hats off to Happy1

      Don’t let a double turn into a loss.

  18. Michael Engel says:

    6) China exported, but US refuse to import it. Back to the senders.

    • doug says:

      go long warehouses in China?
      Thanks ME for your comments

    • Nick Kelly says:

      A backed up port, trucking and rail system which is also creating internal US probs is not a ‘refusal to import’. The stuff was sent under contract not on spec. Some will have late delivery clauses, but the senders, who control the ships, are not going to take the stuff back and surrender any claim to payment.

  19. Xaver says:

    The FED will not really fight inflation, just do a little for show. Nobody of the powerful / rich has an interest or the guts to do it. Volcker is history.
    It’s much easier just to wait for the collapse of the bubble. Nobody will take the blame then.
    I would love it when the FED would change and act in a responsible way.

    • Yort says:

      The Fed will be forced to do the politicians desires when the CPI is running 6-7% just 6 months before mid-term elections.

      And if you folks get angry when gas prices are high, just wait until “ALL Prices” are higher by 6-7% next year just before mid-terms. And note that at least 50-70% have no clue the Fed is majority responsible for higher inflation, they will blame the 30-50% of what they actually “see”, govt stimmy checks by the trillions.

      The joke will be when Powell is replaced by Lael Brainard…that should fix the Fed independence…sigh

  20. The Bob who cried Wolf says:

    Excellent summary of the various posts you’ve put up over the last few weeks and months. Inflation is real and it’s not going anywhere anytime soon. Those of us who’ve been paying attention aren’t surprised, but most of the public hasn’t been. They just see gas prices and a few other things so harp on that. It’ll get really ugly when the realization by most of everything you said sets in.
    I still think you should create the Wolf index as a real measure of inflation. CPI is a joke.

  21. MiTurn says:

    Wolf,
    Thanks for making the effort to transcribe your audio posts. Helps us hard-of-hearing folks.
    :)

  22. CreditGB says:

    The US may not be able to service the debt it has without printing and inflation. How can rates be increased while the US carries this debt load.
    Dumb question? . Maybe the Fed’s answer is woven into the question somewhere. Dunno

  23. Augusto says:

    On the flip side there are lots of talking heads talking about deflation being round the corner once the “temporary” when shortages are filled, backlogs cleared. The worldwide debate about government spending is all about how much more. I haven’t seen a single government propose real spending cuts- slowing the growth in expenditures is about the best. The left wants more program transfers vs the right who focus on infrastructure and tax cuts, but they all push for more. And tax increase talk is pure fantasy…focusing in the US on 400 Billionaires…I’m sure everyone would be in favour of a new tax on birds and the oceans…as long as they get their check and don’t have to pay anymore tax. In some ways I feel for the Fed. Everyone wants free money and the supposed easy answers money printing provides. And when it all comes crashing down, inflation ,deflation, crack up, whatever the Fed will get blamed. After all it wasn’t anyone else’s fault….

    • Wally says:

      We have a government by Wall St for Wall St, as research showed again and again the will of the people has no impact on policy. Wall St has recently discovered they don’t need to produce profits, it’s easier for the government to print them. Ask yourself what Wall St would do next, that’s the future.

  24. Duke says:

    My mind is reeling with implications..

    Would a recession be good for the environment? Answer must be yes.

    Why not embrace BTC as the first uninflatable true store of value??
    It will take awhile to distribute and find an equilibrium but after that, can’t be printed.

    People can’t adjust to new $value (in real terms) on the fly… so how can you expect them to make rational decisions?
    Maybe we need a phone app that calculates prices in real terms on the fly (like goodgle translate does for words) so we can “see” the Real costs.

    I own lodging. Since it is ultimately substitutable or discretionary(ski town), all I can do is charge the most I people are willing to pay and hope that I will be able to buy Goods at these new inflated prices.

    Stability enables planning. Printing causes instability which makes planning hard. So we are in for a period of wild instability.

    If you buy a hotel at today’s price, the only thing that guarantees success is that asset prices keep going up. If my competitor buys a better hotel for less at bank owned auction in the future and can undercut my prices with better product, I’m doomed.

    Are we approaching the mother of all buying opportunities in the next crash? or will the party go on for years?

    Whoever can sell with insider knowledge before the printing stops and interest rate rise occurs will be positioned for the next great wealth transfer.

    RIGGED!

    Can we all just get paid by reading and watching each other’s content?

    Is anything sustainable?

    Is every vacation or leisure activity or disposable product environmentally destructive and guilt worthy.

    Does money printing fueled economy accelerate environmental destruction or speed up tech advances toward sustainable future?

    Is the fight for $15 ridiculously insufficient now? Should it be the more catchy “Fight for $15/hr(in real 2018 $)+CPI? And tied to inflation!”

    Thanks for uplifting article!
    I guess that is redundant.

    • Paddy says:

      “Why not embrace BTC as the first uninflatable true store of value??”

      Is that satire? Because it’s far from the first. The first dates back to Genesis 2 and will still have value through Revelation 21, but then for different reasons. It’s mentioned in both places (and numerous other) precisely because it is scarce and has great value; even at times when value has no relation to wealth.

  25. Eric Patton says:

    I apologize if this has already been addressed and I missed it, but does Wolf still have his short?

      • Depth Charge says:

        What are you shorting?

      • Michael Scott Gorback says:

        And he wears them just like his mama taught him: yellow stain in the front, brown stain in the back.

        • Wolf Richter says:

          There are plenty of trades I lost 50% on. So what? There are plenty of trades I made lots of money on. This is just one trade, and I’m keeping it for the story.

          Folks that bought Avis [CAR] at $545 on Tuesday are down more in two days than I am in 16 months.

      • Harry Houndstooth says:

        When the last bear throws in the towel, that is the top.

        Jeremy Grantham just threw in the towel.

      • Yort says:

        I initiated a short using options over the last two days with the intent of seeing 4875 to 5000 on SP500 over next two months, with a pullback/cashout hopefully around Feb/March. Really just hedging my long term portfolio to reduce downside risk approximately 33%. Will cut my future possible gains in half, yet up 34.44% YOY as of today, so really no need to be greedy as risk happens fast and furious, and I’m happy with 5 years of market gains in 1 year so no need to push my luck a markets are running on pure perceptions and very little reality, which usually means a reversion to mean is a high probability event.

        So sign me up for hedging against the “Fed Put”…yet I’ll cash out somewhat quickly as I will not be shocked if the Fed actually buys stock ETFs and not just bond ETFs if we fall more than 20-30%. Yet if inflation is high, that will not be likely…as at this point almost everyone knows that the stock market only benefits the top 10% by any degree of magnitude…

  26. 42 says:

    evibody wants the buck

  27. Mendocino Coast says:

    Great Pod : So Powell is saying June or July before any Rate Hike ” Excluding raising the Interest rates ”
    Does that mean he is looking for another 25 Mil Cash in then.
    Will the President replace Powell or Keep him , perhaps swap in one of his cronies ?
    Are there any good choices for Replacement ? and just who would that be ? looks like all the rest of them currently in the Fed are in on it just saying .
    I don’t see How Losing the Job would bother anyone who Made that Much Money already anyway ? Why work ?
    The way I see it any stimulus would be needed after they raise the Interest rates when things get Tough in the real world where you have to work to earn money

    • Nacho Bigly Libre says:

      Powell is doing the dirty laundry for this admin and shielding them from direct criticism. No one in the admin has called out the Fed to change its policy (except for the party pariah Manchin).

      Treasury secretary is singing the same tune as the Fed (“inflation is temporary”, “it will revert back in the medium term”, “improvement by the middle of next year” and so on).

  28. Inno says:

    “Inflation is always and everywhere a monetary phenomenon”
    -M. Friedman

  29. fred flintstone says:

    Fed reverse repo up to 1.35 trillion. They are starting to work hard to get the long rates up. Keeping short rates low. Its only a matter of a few months and the 10 year should be at 2-3 or higher. Japan is selling bonds. Europe is on the verge of joining.
    Powell knows that if the Deere workers are getting an immediate 10% or more increase, and they have not settled on just that yet, food prices are permanently moving up. Land prices in Indiana are sky rocketing. Land near me is now 13m to 18m per acre. Farmers will be demanding higher prices in spite of a bumper crop.
    The fed is way late and needs to panic.

    • Depth Charge says:

      Farmland has been in a bubble for almost 10 years. The price needs to come down.

    • FarmerForLife says:

      I just seen an auction on some mid-west ground with 153/43 base (corn/soybeans) go for $12,100 per acre. Such land was going for $6-7K just two years ago. What I am seeing is folks with absolutely no farming background spending literally millions getting into somewhat low quality farmland, and thinking that a 1.5-2% ROI is good enough.

      The Fed has now infested the food source with speculators who will have no ability their mega-loans to pay when there is a major drought and/or super low grain prices, which happens at least once every ten years. And this creates amazing purchase opportunities for those who save for that rainy day and understand that a 1.5% ROI on farmland is way, way too risky of an investment of capital.

      • 91B20 1stCav (AUS) says:

        Farmer-speculators expecting future bailouts, perhaps???

        may we all find a better day.

  30. Petunia says:

    Wolf,

    I think you are mistaken about the Samsung chip maker in Austin, TX. Read an article some months back about it. They were in the process of building their plant when the big freeze occurred. The damage was so extensive they basically had to rebuild a major portion of the plant and it has set them back quite a long time. I don’t think they are currently operational.

    I check the tech jobs in Austin once in a while and haven’t seen any listings from Samsung since early this year. Your favorite automaker Tesla, on the other hand, is always listing the same positions.

    • Depth Charge says:

      My new Samsung phone which I had to wait over 2 months for was shipped out of Texas. I wonder if it was made there?

      • Harvey Mushman says:

        I don’t like my Samsung phone… but then I always buy the cheapest one I can find :-]

    • Wolf Richter says:

      Samsung has been planning a second chip plant in Austin. The first chip plant has been operating for a long time. Samsung announced after the freeze that it lost something like $250 million in earnings from the shutdown of production during the freeze.

  31. Brent says:

    “I have given up newspapers in exchange for Tacitus and Thucydides, for Newton and Euclid; and I find myself much the happier.”
    Retired from politics, Jefferson wrote in 1812 to his predecessor in the presidency, John Adams.

    “If you see ten troubles coming down the road, you can be sure that nine will run into the ditch before they reach you.”
    Calvin Coolidge

    F.. them all.I am done worrying.Where is my old “Advanced Calculus” textbook ???

    • VintageVNvet says:

      B:
      Can only suggest “The Rise and Fall of the British Empire” by James,,, and then, while continuing with that by the very clear ”breaks,”
      ”The Fabric of Reality” by Deutsch; both fascinating with clear insights into current situations…

      • Brent says:

        😀
        VNV:
        F… them all but one-
        The Unites States Gyrenes !!!
        (Oscar Brand song “Who raised f… flag on Iwo Jima”)

    • MiTurn says:

      Brent –
      “Where is my old “Advanced Calculus” textbook ???”

      But do you still have the slide rule?
      :)

      • Brent says:

        Yes,Sir !
        As a matter of fact I do.
        Pickett 80 Basic Student Trig.
        In monochrome,nothing fancy.
        Purchased for $1.50 in 1975.
        And I am not ashamed to admit it in public !
        Currently used to prop up 2 bulky volumes of Tom Apostol “Calculus” which are too lazy to stand on their own and tend to fall.

  32. Gen Z says:

    Milton Friedman was right with inflation and money printer go brrr.

    Bank of Canada make Money printer go BRRR and buying mortgage bonds enriched the property owning class, while the working class suffer terribly that it takes 50 times the yearly gross minimum wage to buy a home in Canada.

    • The Real Tony says:

      Only homes in the Chinese areas skyrocketed in price. The real inflation in home prices is because the Chinese buy whatever the price is and actually buy more the faster prices rise instead of common logic buying less as prices rise. Resale townhouses and resale apartments in Edmonton, Alberta are still selling at less than half of what they sold for fourteen years ago back in the summer of 2007 non-inflation adjusted. An entry level resale apartment is just barely more than the price of the average new car.

  33. Sierra7 says:

    The FED really has no choice but to continue on the path of supporting the economy with it’s “paper” purchases; now it seems that they are “ready” to “taper back” a bit. If and when that happens in a real way and interest rates begin to ratchet upward then the reality of the past twenty or so years will be “in your face!”
    Interesting conversation between my credit union over number of CD’s I have coming due in November and December. The CU % is one tenth lower than last renewal…..I giggled a bit and told her, “Considering my age and my potential longevity I will just let them “roll over” for another year. Her reply: “I see what you mean!”
    History reveals to us that no economy has ever lasted “going up” in perpetuity. Not gonna happen.
    The FED so far has been successful along with the financial institutions including the national government that the solution is debt, and more debt. The enlarged packaging and sale of “debt” is just another sandwich that will eventually choke capitalist societies that become totally delusional as long as the party lasts. The end always “surprises” those who consider themselves financial geniuses.
    In a vernacular: “How much junk can a society consume before getting terrible stomach pains?”
    Like our political system that is exhibiting fetid cracks, our financial system will inevitably follow.
    We have ignored reality.
    Reality has not ignored a delusional society.
    Prepare yourselves with whatever system you have to shelter your whatever assets.
    The Great Depression exhibited a, “……strangulating lack of liquidity”. Cash.
    There were materials and foods available but hardly no cash to purchase those products.
    Today there is so much cash it can choke a “Black Hole in space!”
    Others smarter than I have always said that, “….markets can remain totally irrational longer than participants can remain rational!”
    The “money butterfly” in some nether lands will flutter and shudder from some unforeseen wind and will cause a financial tsunami across the rest of the world.
    I’m all for the FED to begin real tightening and to cause some real “pain” NOW. And to stick to it’s guns!

    • Depth Charge says:

      “The FED really has no choice but to continue on the path of supporting the economy with it’s “paper” purchases”

      This is a false dichotomy. I am so tired of hearing nonsense like this. The FED’s “wealth effect” is bullsh!t, and everybody knows it. Their QE is CAUSING the problems, not fixing them.

  34. Nick Kelly says:

    Good bit.

    Re: ‘So it’s not that they aren’t making semiconductors. They’re making more than ever. It’s that there is blistering sudden demand, and the industry cannot ramp up fast enough.’

    Maybe this will slow down the conspiracy theory that the shortage is the work of occult forces. The shortage and price bubble in lumber subsided pretty quickly as every mill in NA went into overdrive. This isn’t possible with the tech of a chip plant and they aren’t going to build new ones for a temporary spike. Most readers won’t recall the time the market was flooded with memory chips and the price crashed. But the chip makers remember it. Can’t recall if there accusations of ‘dumping’

    On to ‘it takes eighteen months for monetary policy to take effect’
    To stimulate a moribund economy, yes, not to deflate a bubble.

    If the Fed was to raise .25 % now, and announce another for Mar 2022
    it might take a few days to deflate the stock bubble by 20%.
    The Fed’s biggest problem now is its conviction that it must act slowly.
    The fire started by its overuse of fuel isn’t spreading slowly.

  35. Wolf!

    You say all these thing like they are bad things?

    These are WONDERFUL things!

    People getting paid more? Seems like a good thing.

    Jobs easy to get? Seems like a good thing.

    A lot of business for companies? Seems like a good thing.

    Supply chains fried by excess stress? Seems like a wonderful thing if it results in more domestic production.

    Ok, but your filet mignon got more expensive? The horrors!

    The poor FED gets picked on for using the only tools they have available when circumstances dictate that they be used. Seems to me the FED is the convenient whipping boy for the resentments some find so soothing.

    What is missing though is a systemic response to the issues that got us here. Without a systemic solution, everything will go back to the way it was for the same reason it got that way.

    Why is nobody suggesting systemic solutions?

    • Wolf Richter says:

      Printing money creates demand, and that’s why it is being done; and sooner or later it destroys the currency (inflation), which is why it’s very risky to do. Now we’re starting to pay the price. A destroyed currency is very bad for the economy, wages, wealth, etc. See Argentina.

      • Ramirez says:

        Not if the inflation is happening at all currencies simultaneously. The is a global attempt to devalue global debt. That is why the Chinese and Russians are fully on board.

      • Ramirez says:

        If you have cash surrender value in life insurance policy – cash it out. Soon to be worth a fraction of value…

      • Swamp Creature says:

        Yep, we are heading for another Argentina.

  36. Great insightful informative article!

  37. jon says:

    I don’t agree with the headline that “Fed has lost control narrative”. Fed very well knows what’s happening and they have full control. Inflation is high because of design and because this is what Fed wants.

    If some one thinks, FED would take away punch bowl, then they are dreaming.
    Inflation is raging high and FED is gonna start tapering just $15B/month. This is a joke.

    Depth Charge talks about French Revolution. This can never happen. People are keep in comatose condition because of small pittance provided by the government and for a reason

    • Xavier Caveat says:

      Yeah, all they really had was pikes and pitchforks fomenting the French Revolution, imagine what 400 million guns can do?

      • Nick Kelly says:

        The King didn’t have much more. The reason the African dictators can hold on so long is they have serious modern weapons: aircraft, tanks etc. The AK is quite an equalizer however, unless you are the open when plane sees you.

        BTW: if you think you are suffering now, check out conditions in a civil war. The Spanish one is recent enough to illustrate the power of aircraft, artillery etc. over small arms. And it was ugly.

        Until recently, before they mostly passed, Brit and German vets of war in North Africa would have get togethers. Civil war is different.
        To this day the Spanish one is not a welcome topic in everyday conversation in Spain.

        • Nick Kelly says:

          BTW: its not 400 million guns vs whoever you think are the bad guys, its more like 200 million guns vs the other guys 200 million guns.

        • 91B20 1stCav (AUS) says:

          Nick-well said… it’s a lead-pipe cinch that if current society totally breaks down, it won’t be a case of changing the channel or waiting for the end of the mini-series to keep any semblance of our now-JIT human-sustaining economies going in even the medium term (…i always ask the grandkids: “… what do you think happens to these people, and the people who knew them, now?…” at the end of whatever program/film (the issues contained in the entertainment usually seeming to be solved by violence)-we might watch together).

          may we all find a better day.

        • me says:

          Nick:

          Written by a person with no military experience at all.

    • fred flintstone says:

      Jon….yep…..this is no bubble…..this is a deliberate reduction in US standard of living……to pay for the out sourcing…..All we do now is provide protection for the factories overseas……aside from that we are all services that can be transferred in a ny minute. Next line by the bosses will be get to work….scum bag.

    • Old School says:

      The hundred year trend is stock market returns are about 6% above inflation. Fed has pumped it up the last decade to 2X that number, but give back time will be coming soon.

  38. CCCB says:

    The fed wanted inflation and they got inflation. The fed wanted money in the economy to prevent a recession due to the COVID shutdown and we haven’t had a recession. The fed wanted to stimulate the markets and it worked. Every asset market is higher.

    So what”s the problem?

    • Bobber says:

      Top 1% owns 50% of the wealth.
      Top 10% owns 90% of the wealth.

      The Federal Reserve Bank steals form the poor, gives to the rich.

      • Swamp Creature says:

        Bobber

        Wrong! The poor don’t have anything to steal. They are broke. The FRB steals from the middle class and gives the money to the rich.

        • Jake W says:

          yes. the people being stolen from are the 85 year old widowed retirees with a measly $150k in the bank. the kind of person who expected to earn 5% on it, so to have $7,500 a year, or $625 a month, to supplement her income.

  39. Yamo says:

    Biden & Democrats are really very stupid maintaining Jerome Powell & friends pumping this Inflationary weather.
    They will lose everything in the next mid-term elections.

    • MonkeyBusiness says:

      Dems don’t want to rule, so they will get what they want. They just want to be in power long enough to lift the cap on the federal deduction for state and local taxes (SALT).

      Heck, they are already losing. Just take a look at Virginia.

      Anyway, it’s just a carnival of scums.

  40. sam says:

    Oversimplified, but poignant thesis….
    “If you’re going to get into bed with the Devil, you better be prepared to f_ck.” Tom (Big Daddy) Donahue – the originator of SFO FM free-form rock format (KMPX ’67, KSAN ’68-’75). RIP

  41. Otto Maddox says:

    Not just buffoons, but evil buffoons.

  42. wkevinw says:

    One of the most important variables, which is also difficult to measure, is “sentiment”(/emotion) in the market.

    “Narrative”(/also called jawboning), is a big part of that.

    As far as I can see, the financial markets have a very big “sentiment” component at the moment due to the “narrative” in the past that the Fed would figure out how to make it all “end well”.

    I keep waiting for the “Paul Volcker” moment, where the powers that be decide that they must do something.

    Between 1968-1982 the S&P lost 60%+ of its real value, (roughly NO loss in nominal value). If that happened today, we would see ~1800 S&P in current dollars in 2035.

    The world didn’t end before. It can happen again.

    • Xavier Caveat says:

      When Wall Street crashed back then, there was nobody giving out free money to keep on keeping on. Our perpetual notion machine is in the shop for repairs, is the claim now.

    • Swamp Creature says:

      wkevinw

      You’ll never see a Paul Volcker moment. You’ll see another Argentina before anything else.

      • Jake W says:

        more likely zimbabwe, given that we have massive racial discord.

        argentina, as corrupt as it is, is one of the most homogenous countries in the world.

  43. Rowen says:

    The correct move would have been to use monetary/fiscal stimulus to expand capacity, improving the standard of living by decreasing costs (the China playbook post-2009). Stimulus could have gone into training more doctors and truck drivers, or building saw mills, etc.

    But then, how would that have helped the oligarchs?

  44. Yort says:

    I read in Bloomberg that 4% of those who dropped out of the labor force did so because of crypto gains, yet the average gains was around $50,000…so good luck with retiring “long term” on $50k, as unless crypto keeps going up doubling every year, $50k is not very much money in this high inflation Fed disaster…

    And I’ve also read that once the 5-7 month delayed Rent CPI hits, we should move from 5% to 6-7% on the CPI inflation numbers, which is really much higher as the govt uses equations that manipulate CPI lower since mid 1980s.

    For about two years I’ve posted here that the Fed is the most dangerous person to the entire globe. Now is unfortunately the point where we begin to see how much carnage the Fed forces upon the bottom 90% of all humans on Earth…although there are a few countries who are raising rates, and may not fall prey to the Fed siren song of asset inflation wealth effect for the top 10%, minimum wage service jobs for everyone else…

    Personally I don’t think the Fed is stupid, I think the Fed is a classic Psycho with Narcissistic tendencies, in which Congress has allowed and promoted to have God-like powers of the entire world populace. The irony is the current Congress will pay the price at mid-terms, just like we seen in Virginia this week. Yet nobody every said politicians are higher IQ long term thinkers, right…as the best politicians are full blown narcissists…HA

    • Gattopardo says:

      “Personally I don’t think the Fed is stupid, I think the Fed is a classic Psycho with Narcissistic tendencies…”

      Most people think that whoever disagrees with them is either stupid or evil. I’m positive the Fed ain’t stupid. It’s sort of unlikely they’re evil. Most likely is that they’ve been given a job to do, and have found out the hard way that it’s a tough job. They must have thought a lot of QE and alphabet soup was the best way to stop a meaningful recession, and now they find themselves in a deep trap. They must think that they’re 100% damned with a sharp recession if they go even slightly too hawkish, and so in their most Lloyd Christmas kind of way, they think we’re net better off trying to slowly work our way out of this mess. They know it comes with pain. Do you really think they’re going to tell us that?

      Just about everyone on this site disagrees with how they’re going about it. Of course, since it’s easy to sit here and type out what we think they should do. I think they should taper FAST, done by year end, and then wait and see what happens before raising rates.

    • Wolf Richter says:

      Yort,

      “yet the average gains was around $50,000…so good luck with retiring “long term” on $50k”

      Seems you don’t understand the cyrpto mentality. If they made $50k in 3 months, and that was a 300% gain, then they’re going to make 300% EVERY three months on an exponentially rising base. They penciled it out, and they’re going to be trillionaires in 15 years :-]

  45. historicus says:

    I dont think the Fed cares if they lost the narrative.

    The Fed is untouchable. Anything happen to those two Fed governors front running policy with their “wealth management”?

    The Fed is in constant violation of 2 of their three mandates as laid out in their mission statement. (stable prices and moderate, not extreme, long rates) for years…….crickets. Untouchable. Hijacked IMO.

    • Yort says:

      There is a chance the two Fed “Hawks” wanted to quit because of J-Pow mega-Dovishness…and perhaps being “forced” to sell their stocks at all time highs and quite instantly was the best cover for all parties.

      Everyone thinks the Feds are fools…yet they are all getting filthy rich, doves and hawks…and they all know the rules and none will go to jail because the are actually quick intelligent (and also manipulatively selfish short term thinkers).

      If J-Pow was really wise, he should pray that he gets replaced by the team Blue super Dove, as she will take all the blame when it all falls apart in the near future.

      Thus there is a chance J-Pow is setting up his own departure on purpose…

      All based on subjective reasoning, yet selfishly logical…as the elites don’t rule the world playing simple games, they attempt to plan it all out many years in advance with multiple contingencies in place to take advantage of near infinite possibilities. Yet what is better, having low IQ narcissist politicians run the whole show???

  46. Yort says:

    Us Productivity came out at -5% today, and Unit Labor Costs hit 8.3% (plus last month was revised up from -1.3% to +1.1).

    Labor costs up…productivity down…stocks at all time high because of future earnings potential???

    Thinks that make you go “Hmmmmm”…

  47. 2BFrank says:

    I have addressed this before, stock markets love inflation, where does your average person, who can’t buy another house or land, put their money to preserve some purchasing power not in a bank deposit, not in a bond, but in the stock market, at this point it becomes a giant FOMO process, fundamentals, like profits, are not relevant any more, see Zimbabwe or Venezuela, yes I know they were local currency stock market booms, but so will the US boom be, ie in US dollars.

    • jon says:

      Stock markers would hate inflation when the real rates are reflecting the real inflation. It means 10Y yield should be at 10 percent or so. Inflation on ground is 17% or so.

      Stock market loves cheap money which is what is happening right now.
      Let’ the rate goes up and see how does stock market behave!

    • Jake W says:

      wait until inflation hits earnings.

    • Yort says:

      I think the “average person” put their stimmy into buying “moor stuff”, as it took only 12 months for “Real Personal Consumption Expenditures” to recover this mini-recession versus the prevous 26 months of the prior recession, per this WH chart below:

      https://www.whitehouse.gov/wp-content/uploads/2021/11/figure-1-recovery-in-real-personal-consumption-expenditures-1926×1280.png

    • historicus says:

      only when the inflation is unaddressed by those charged with fighting it

      Which is where we are now

      So who decided the Fed would act in an abnormal fashion and not address the inflation they actually promoted?

  48. Swamp Creature says:

    Bidenflation has reared its ugly head once again today. The local Liberty gas station near me just raised the price of regular gas to $3.89/gallon. Last year the price was $2/gallon. That’s nearly 100% inflation. The published government bull s$it inflation numbers are just that. Total bull s$it.

  49. TheFalcon says:

    It may be easy to slip into a consumer inflationary mindset what with rent/utility/student loan moratoriums, stimmies, etc. Even without those confluence of factors, there is probably a general slide into an inflationary mindset because i want what i want and i want it now, don’t you see?

    When the markets turn as they always eventually do, when we dive toward and into a bear market on Wall St. and the RE market cools, when wealth evaporates, we’ll see how eager people are to throw their “disposable” income around. Give it a year or two. The madness always seems to go on longer than is imaginable, but never in perpetuity. Some level of patience is required, in a world where no one seems to have any.

  50. LordSunbeamTheThird says:

    How can inflation be spiralling out of control, when even if the Fed raises interest rates to a miniscule 2% the expectation is a stock market crash, cascading business insolvencies, widespread unemployment, baby boomer impoverishment, and government insolvency? Why is the dollar so strong, in 2007 I was on holiday in the US from UK and I got 2.20 USD now its a measly 1.37? Inflation in the US is most clearly not out of control.

    Inflation is out of control if you raise rates to 10% and everybody laughs and keeps going.

    • MonkeyBusiness says:

      The pound was overvalued back then.

    • DawnsEarlyLight says:

      The pound has always been overvalued as compared to the dollar. Should be renamed the ‘sinker’. Matter of fact, the cherry picking Euro should not exist at all.

  51. 2BFrank says:

    The FED hasn’t lost control it never had any, think about this how does the FED control oil prices, it can’t, all it can manage is to choke off demand to a limited extent by high interest rates, or stimulate demand by low rates which will drive the price up.
    All central banks have had a lucky 20 years or so of favourable global circumstances in which they have been able to blow an asset bubble without driving price inflation, that has now ended.

  52. CreditGB says:

    The Fed reminds me of the monkeys at the zoo. Introduce a new toy that makes noises when buttons are pressed. They sit around batting at it and are astounded by the results, then go back to batting at it to make more noises. Elites…..totally lost in their own houses and can’t escape.

  53. EcuadorExpat says:

    Bitcoin has replaced gold as a store of value, thus metals prices stay down. Most who put assets into crypto do it wanting to get rich. That is not what Bitcoin is about, but it is what a lot of the trash cryptos are about. Some say bitcoin is going to $100k, but I simply ask, 100k of what. At this point, we might consider that any increase in the price of bitcoin might just be reflecting the current rate of dollar inflation.

    Bitcoin gives one portability of assets. Most Americans never consider leaving the USA, but when it becomes a good idea, like it did for our ancestors, there are rules and policies in play that will not allow transfer of assets, or will strip them from you in the process. The USA government is definitely predatory to expats leaving the country. But then again, in the absence of the rule of law in the USA, it appears they are predatory towards everyone.

    Americans can’t imagine it, but here in Ecuador the cost of living is so low that my wife and I have been saving one of our SS checks every month for the past 5 years. Food is dirt cheap, seven avocados for a buck when in season. My wife just returned from a month in SoCal, she will never go back. $36 for half a bag of groceries. Here, it takes 2 people to carry $35 of food out of the Saturday market.

    Medical is 10-15% of USA prices, we self insured the first 10 years we were here. Banks pay at least 7% on cd’s, but only guaranteed to $33k. A young family here can prosper and get ahead on a $500 a month laborers salary.

    My wife recently made a purchase in a local Ecuador shop using Bitcoin, satoshi actually. It’s coming.

    We are not interested in making money or getting rich, but we sure would like to keep what we have. If Ecuador goes into the toilet, we are prepared financially and psychologically to move to a new location, but it won’t be the USA. 13 years out, and never looked back.

  54. Jack says:

    Overall a great article, but I have to differ from Mr. Richer’s assertions ;

    “That shows how the inflationary mindset has changed. And it’s not going to revert very easily.”! Does Not stand up to scrutiny if applied.

    There is very obvious answer to this blight and that is a couple of Rate Rises to show some aptitude and commitment to a healthy economy . The message that is so continuously “espoused “!! by the head honchos of the Fed and their masters!

    And to quote the well used statement of the market commentators “that Nothing cure high prices like high prices”!

    Unfortunately, we are continuously reliant on the statistics produced by the governments, the unreliable corporations ( with opaque and inventive accounting practices to deceive the market).

    If we rely on these sources of information to pass judgment on the performance of the economy in our country we will repeat the mistakes that happened Not long ago now.

    There seems to be little change in the attitudes of the vast majority of our population/s ( western economies) , to the great unjustified and ( well reported here on WS) destruction of the lives and prospects of a whole generation in the altar of populism and insane foolishness!

    The price which we will pay will be great, and I am Not talking in terms of Economic sphere alone .

    It is just as SHAMEFUL, that the “ GUY FOX’s” night have passed and gone again without IT being commemorated the only way it should’ Being CELEBRATED.

  55. eg says:

    I’ll be curious to see how this take ages. Seems like a lot of hysteria over short term data.

  56. Spencer Bradley Hall says:

    I’m an inveterate “FED watcher”. The FED and their technical staff has been making excuses for decades. Powell is just the latest. Powell doesn’t know money from mud pie.

    “Chairman Jerome Powell: “there was a time when monetary policy aggregates were important determinants of inflation and that has not been the case for a long time”

    As Marie Antoinette said: “There is nothing new except what has been forgotten.”

    As American Yale Economic Professor Irving Fisher stated: ““In my opinion, the branch of economics which treats of these five regulators of purchasing power ought to be recognized and ultimately will be recognized as an EXACT SCIENCE, capable of precise formulation, demonstration, and statistical verification.”

  57. Jack (TGL) says:

    Brilliant analysis. The one thing that a lot of people are missing is the fact that the US Dollar may suffer from a loss in value as foreign nations adjust their spending and interest rate policies. If the FED doesn’t compete in the global interest rate market by staying competitive with other central banks, the FOREX will move against the Dollar and this will cause a further loss of purchasing power here in the US. Imports will become more expensive, adding a substantial tail wind to price inflation. The FED can work to reduce discretionary spending with its tool box of demand killing options, but it will have a hard time tackling a declining US Dollar at the same time our economy starts to stall. In essence, and to some highly uncertain degree, the medicine will act to make the patient more ill. With the FED chairman facing a renomination risk, and with the political will to support a tightening of monetary policy 12 months before mid term elections tenuous at best, the can kicking and pandering to those who benefit from the artificial stimulus may act to limit what would otherwise seem like obvious prudence. The FED lost its independence, and to what degree this reality sets in around the world will determine just how much of a price we all pay here in the US, figuratively and literally.

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