Central Banks in Latin America’s Largest Economies Grapple with Raging Inflation: Brazil with Shock & Awe, Mexico Eyeing the Fed

In the US, raging inflation is not far behind. But the Fed is still recklessly pouring fuel on it.

By Wolf Richter for WOLF STREET.

The Central Bank of Brazil has embarked on a series of shock-and-awe rate hikes in order to not fall further behind. The Bank of Mexico has largely mirrored the Fed’s rhetoric, expecting this raging inflation to go away on its own somehow, but it has started to rase rates in June, very gingerly. And the Fed has made a verbal U-Turn, but is still running the money-printer nearly full blast and is still repressing its policy rates to near 0%.

Consumer price inflation in Mexico spiked in November even more than the already high expectations, to 7.4%, from 6.2% in October, the red-hottest inflation since January 2001, according to Mexico’s INEGI today. The Bank of Mexico’s target range is 3.0%. Inflation is now surging broadly across the economy, with the core inflation (without food and energy) hitting a 20-year high of 5.7%:

The Bank of Mexico has raised its policy rate by 1 percentage point since June, in four increments of 25-basis points each, from 4.0% to 5.0%. At its meeting next week, it will likely raise its rate another 25 basis points to 5.25%, thereby falling further behind raging inflation.

Following its last meeting, Banxico said again that it expected inflation to be transitory, carefully echoing the Fed’s Powell. This was shortly before Powell “retired” the term, however. But due to magnitude of the price shocks, and their spread across the economy, Banxico said it deemed it necessary to raise its policy rate.

Short-term rates that are kept below the rate of inflation – so negative “real” interest rates – are considered very stimulative and inflationary. And it takes monetary policies about a year or two to have the first impact on inflation. You cannot just turn the dial on inflation. This is going to be a long battle.

Bank of Brazil faces an even bigger inflation fiasco.

Consumer price inflation in Brazil in October jumped to 10.7%, approximately matching January 2016, which had been the highest since 2003. November’s reading will be released on Friday, and it’s likely very ugly, in light of what Mexico experienced.

This inflation started to take off in late 2020 and hasn’t looked back since. Blamed for the November jump were the usual suspects, fiscal stimulus, supply chain woes, a weaker currency, and severe droughts.

Once inflation takes off like this and gets entrenched in the economy, after all this massive stimulation, including interest rate repression, then it takes a long time – measured in years – and often a lot of hardship to get inflation back under control.

So the Bank of Brazil, in an effort to not fall even further behind, nailed another shock-and-awe rate hike yesterday of 1.5 percentage points, though it wasn’t a shock since the central bank has been telegraphing these monster hikes.

The 1.5 percentage point hike brought its Selic rate to 9.25%. Since March, when the rate hikes started, the Selic rate has jumped by 7.25 percentage points, from 2.0% to 9.25%.

The central bank “foresees” another rate hike of this 1.5-percentage-point magnitude at the next meeting, which would bring the Selic rate to 10.75%. And it expects the Selic rate to rise to 11.75% during 2022, as it is trying to get its policy rates to catch up with this raging inflation.

“Price increases were higher than expected, both in the more volatile components and on the items associated with core inflation,” it said in the statement.

The Bank of Brazil has been grappling with this inflation since March. Throughout this time, the Fed was in denial about inflation, first denying that it even existed, saying that it was just a result of the “base effect,” then denying that it was spreading in the economy, and clinging to this nonsense that this inflation would soon go away on its own.

But even the Fed has made a U-Turn, and markets might not fully appreciate yet what this multi-decade high, global inflation that continues to heat up will do to central bank policies as they belatedly are trying to get it under control, and how long it will take to do so.

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  182 comments for “Central Banks in Latin America’s Largest Economies Grapple with Raging Inflation: Brazil with Shock & Awe, Mexico Eyeing the Fed

  1. Depth Charge says:

    “The Bank of Mexico has largely mirrored the Fed’s rhetoric, expecting this raging inflation to go away on its own somehow, but it has started to rase rates in June, very gingerly. And the Fed has made a verbal U-Turn, but is still running the money-printer nearly full blast and is still repressing its policy rates to near 0%.”

    This is why the FED and .gov have ZERO credibility. If they were taking this seriously, they would IMMEDIATELY end QE, and do an emergency rate hike, somewhere in the vicinity of 500 basis points, with future hikes announced, which would indicate their intention to snuff it out immediately.

    • sunny129 says:

      ‘FED and .gov’

      are captive to vested interests including Wall ST. TOP 1% and some top 10% of investors holding nearly 90% of Wall St wealth. Not to forget 15-20% ‘Zombie companies barely surviving b/c of ZRP and QEs. The margin interest for retail investor is nearly 1 trillion. Companies keep buying back shares after borrowing at ZRP.

      The question will be will it be just 10% or over!? Will find out tomorrow am!

    • char says:

      Inflation is not the worst thing that could happen. Worse is deflation and a collapse is even worse. Something not unimaginable with Covid. One should also not forget that the more important people have more debt than they have cash/cash equivalent. They like negative real interest rates.

      • Wolf Richter says:

        char,

        A little deflation would be the best thing that could happen to make up a tiny little bit for the loss of purchasing power that decades of inflation have inflicted.

        2% inflation followed by 2% deflation, swinging back and forth to stay at neutral over the long term — THAT would be fair for all participants in the economy, and not just one group.

        • Wolf Richter says:

          char,

          And don’t come up with the Loock-at-the-Great-Depression stuff. That wasn’t 2% inflation followed by 2% deflation. There was no safety net in place at the time, and the downturn self-propagated because people who were laid off couldn’t spend anymore, and couldn’t pay rent and mortgages anymore. And it spiraled down from there. That’s not the case today.

        • dishonest says:

          A LOT of deflation is needed to make investors over the past decade whole.

          And bring back Volker. !.5 basis points is tiny.

        • char says:

          I don’t believe that with things that are already baked-in in the economy, and that happens on the timescale of quarters not decades, should be changed. You could want to see a different wealth distribution, and a flatter distribution is absolutely necessary in the US, but price level is way to inexact a method.

          I’m against zero inflation in the long term. Average inflation of 2% (so sometime 0% and sometime 4%) is in my opinion best. There are two big reasons for that.
          1) Low inflation helps in forcing people to pay back their debts even if they only pay interests. Especially important because people don’t live forever.
          2) Lowering prices is hard for many goods and services. by keeping them nominal constant you can lower prices and find the optimum price.

        • leanfire_Queen says:

          > THAT would be fair for all participants in the economy, and not just one group.

          You cannot really have that when the old had it so much easier than the young. This is the period in which that dynamic is compensated.

          The retirees without assets are sacrificed, the young’s position improves. This partially compensates for the state of housing shortage and the high cost of higher ed which mostly hurt the young.

      • YuShan says:

        There is no historical evidence that CPI deflation is somehow bad for the economy. The BIS published a report on this about 10 years ago, where they investigated more than a century of episodes all across the world. With google you will find it somewhere.

        The confusion comes from The Great Depression experience, which was basically a banking crisis caused by the bursting of a bubble. This has CPI deflation as a side effect, but that was not the cause of the crisis.

        It is not the CPI deflation that is doing the damage. The damage is done when bubbles are inflated (i.e. malinvestment). When the bubble burst, the losses THAT WERE ALREADY BAKED IN THE CAKE then become visible to all.

        The BIS recommendation for central bank policy was therefore that their policy should be be such that bubbles are avoided.

        • Augustus Frost says:

          You are confusing everyone with logic. Can’t have that.

          The idea that CPI deflation is a problem by incentivizing people to postpone purchases thereby stagnating the economy is nonsensical. It’s evident with housing (since it’s an also viewed as an “investment”) and can be inferred (or demonstrated) for some big ticket items like cars but as a general principle, not much or anything else. As the most obvious example, people spend thousands of dollars on electronics relatively regularly. If people behaved per this claim, they’d never buy it.

          The evidence shows they usually don’t and didn’t, because it is contrary to the incentives people have to experience the quality of life they prefer.

          Price deflation is bad for corporate profits and big debtors including governments.

          In an economy with stable money, it shouldn’t be (and historically wasn’t) unusual outside of disaster conditions (natural or human caused) since the supply of goods and services won’t usually change drastically on short notice.

          Purportedly, in the 19th century, prices fell 37% in the UK. Also from 1830-1910, essentially flat in the US. I don’t have the original source for this data but it’s what I read.

          Institutionalized inflation is another form of theft, characteristic of a dishonest society. An income and wealth transfer from savers, creditors and producers to spenders, debtors and free loading parasites (rich or poor).

        • YuShan says:

          @Augustus Frost
          Yes, deflation should be the natural state of things. When we have improvements in productivity, products become cheaper, because you spend less resources (human or otherwise) to produce them.

        • rankinfile says:

          @Yu Shan Logic would dictate that we should have lower expenses for k-12 education considering school age population is half that of 1970.The costs continue rising despite less students.

      • Don says:

        “Inflation is not the worst thing that could happen. Worse is deflation and a collapse is even worse. ”

        From me, deflation and a collapse would be by far the better of the two options.

        • Augustus Frost says:

          You are assuming a society in which those who experience negative outcomes will accept their losses.

          In corrupt modern society, that’s not going to happen. Instead, they use the political system to force the prudent and responsible to make them whole or bail them out. This is true from top to bottom, not just the rich.

          People spend their money however they please and then when things do not work out, someone else is supposed to and is required to make up for it. No accountability, except by the taxpayer.

          It’s one of the primary reasons Western civilization has experienced substantial social decay.

        • Jake W says:

          augustus, that’s the main problem with democracy and one man one vote that many, like de tocqueville have written forever.

          if a particular action, like a redistribution transfer, is not legitimate by an individual by force, it’s no more legitimate because 51% of people ganged up to force it. but that’s not the way modern decayed society sees it.

        • char says:

          Yes, some people are lucky to work for the bankruptcy court during a depression. Lucky you. But that doesn’t mean that it is good for the average American

        • leanfire_Queen says:

          > “Inflation is not the worst thing that could happen. Worse is deflation and a collapse is even worse. ”

          You can still have both in the same economy: inflation for those who use healthcare services, deflation for those who work with technology and work remotely.

      • Nick Kelly says:

        ‘Neuhauser argued that while the standard approach for investors on previous stock market pullbacks has been to “buy the dip,” the increased risk of a policy error in 2022 jeopardizes positions in traditional growth names.’

        He’s with CNBC. Note: ‘policy error’ This guy and a bunch of others agree that policy has been ‘ultra loose’ thus creating unprecedented valuations but they keep using the word ‘error’ to describe even baby steps towards normal. What ever happened to the idea of a healthy correction’?

        OK, Powell may have been traumatized by Trump’s abuse, but that was then. At some point valuations will regress to the mean. This either happens gradually or abruptly. It is the latter that is dangerous.

      • Gilbert says:

        “ Worse is deflation and a collapse is even worse. ”
        You mean when people’s money goes further? And debt becomes undesired? Yup, I’ll take that any day over inflation.

      • Tom says:

        Inflation is what all western government need to get rid of their debt, the more and the longer, the better, stagflation is what we’ll get, most likely.

        • Wolf Richter says:

          Tom,

          It doesn’t work that way today. Today we have 7% inflation and 0% interest rates, which encourages more debt. So the debt is growing faster than inflation can eat it away.

          This is different from yesteryear, when we had 7% inflation and 10% interest rates, which discouraged new borrowing, and caused bankruptcies and debt restructuring in the private sector, which reduced the weight of debt.

          Today we have the opposite, and the longer this is allowed to persist, the worse the debt burden will get.

    • Hyperinflation as an Artform says:

      When CPI by the Fed’s own rigged measure is 15% they ‘will’ end QE and reverse into emergency rate hikes.

      And shortly there after will be the biggest BTFD market panic of a lifetime. Because what comes next is shock & awe money printing which creates a panic into all assets on a scale not believed to be possible. That’s where the hockey stick curve of hyperinflation begins.

      • char says:

        Why end QE. Inflation is due to people suddenly spending money differently. Not because there is to much money. This has to run out. besides Covid has costs society megabucks and inflation is the best way to pay for it. Also hyperinflation is not something to blame for by the central bank. It is always due to a greater problem

        • Wolf Richter says:

          char,

          You live on another continent. So sure, you wish lots of inflation on other countries because 1. it doesn’t impact you, and 2. because it causes hardship and chaos in those countries, and makes competition easier for the companies in your country. Inflation, once it gets this high, is very destructive.

        • Depth Charge says:

          char-

          I am not sure what sort of illicit substance trip you’re on, but it’s not a good look at all.

        • rankinfile says:

          The definition of inflation is too much money chasing too few of goods.

        • Wolf Richter says:

          rankinfile,

          That is only one factor, and it’s not a factor at all with services, which are two-thirds of the economy. Inflation is a complex phenomenon with lots of moving factors; some of them are psychological, some are monetary, some have to do with production and supply chains, some are fiscal in nature, etc.

    • raxadian says:

      Mexico will always get fck due to being next to the great USA, this a historic proven fact.

      Brazil? They did it mostly themselves.

    • Marcus Aurelius says:

      During the greatest wealth creation of all time, America 1865 to 1910,. we were on a GOLD standard (and Silver) and prices came down, year after year after year.

      Why? Inventions, economy of scale, and manufacturing processes.

      BUT, this threatened the investor class whose Bonds were based on the previous Price Levels.

      This had to be reversed and the solution was printing paper notes (inflation) to “keep prices stable”. (To protect the Bond holders and Banks).

      The honorable solution would be to increase the “value” of Gold from $20 to whatever was necessary. Eventually they did this, 1933, by confiscating the GOLD (the people’s money) at around$20 an ounce, and letting the Federal Reserve Corporation to sell it for $35 and KEEP the increase for themselves, thus stealing from the people.

      Extremely clever move.

      The honorable thing to do would have been to announce to the public that each ounce of gold they had was now redeemable for $35 United States Gold Back Notes. But that would have given this “money” to the people, rather than the private stock holders of the Corporation. They bought the Gold for $20 and then sold it back to the public at $35, thereby cheating every American of $15 per ounce.

      The smart people never turned in their Gold, or did what the 1% did…..moved it to Europe.

      Today, you have to pay $1,780 paper notes for that ounce.

  2. J-Pow!!! says:

    Our inflation is clearly transitory! It was a transitory expansion of the money supply! Hahahahahahahahahahaha!!!!!!!!!!

    • Djreef says:

      🤑

    • Swamp Creature says:

      J-Pow!!!

      Inflation was transitory until J Powell got re-appointed. Now it’s not transitory anymore. Liars, Liars, pants on fire!

      • He isn’t reappointed yet. With Brainerd as vice chair with oversight of the banks, and Bidens radical OCC nom withdrew but maybe not her ideas. Progressives have some pull here. (who knows what the GOP wants? Mostly to sound like populists and act like oligarchs.) Fed bailout poliicy might come up short when it’s needed. They jack up the monetary base, and then they step away?

        • Thomas Roberts says:

          The only somewhat justifiable possibility I can think of to explain the way the FED behaves is that. This whole wealth inflation though debt thing, they are doing is basically a game that everyone else is pushed into playing as well, and that, if America lasts the longest, it will be the winner, propelling America forward at everyone else’s expense. Alternatively, others started this game and they have to play as well.

          It’s more likely that rich entitled people who don’t know what they are doing, are pandering to idiots as they try to make themselves rich, with short term thinking that damages the economy long term, but the above are my only leading alternative possibilities.

    • The Wealth Effect Is A Ponzi Scheme says:

      I pledge allegiance to the flag of the United (lol) States of J-Pow!!! aMErica

    • rankinfile says:

      Everything on a long enough time line is transitory.

  3. Gattopardo says:

    Does that make the USD the mostly deeply negative real rate in the world? At least among reasonably major currencies?

    USA! USA! USA!

    • Nicko2 says:

      USD Carry trade. 😎

    • Escierto says:

      And yet the USD continues to set yearly highs crushing every other currency except China and Russia. Both of them have huge gold holdings and plan on being the last men standing. The US is a train wreck.

      • Auldyin says:

        @E
        Yup!
        Makes you feel sorry for all these ‘little’ economies trying to do the ‘right’ thing and yet the floating world money only trusts the dollar (even at negative interest) and scurries there every time there is any kind of scare.
        Only question , can it go on forever?
        Russia and China (and others) have got the message I think. IMO.

  4. Cobalt Programmer says:

    1. Iron sharpens iron while inflation reduces inflation.
    2. Be greedy when others are fearful. If all the other countries increases rate, their economy will contract. At that time if we cut rates further or increase printing, then we expand.
    3. Inflation pay for themselves. More inflation will bring in more earnings and tax income. Government can pay their debt finally.
    4. Consistency is the secret to success. We keep the rates super low until the economy improves.
    5. Mex and Brasil are third world countries. Why should US go in their way?

    • Ron says:

      Are you out of touch with reality inflation is a killer of people’s ability to live ,wait till stock market correction,or geopolitical problems China-Russia when people can’t eat its game over

    • Nick Kelly says:

      Is this sarc?

      • Ron says:

        No reality

      • Freedomnowandhow says:

        Cobalt has it right as the U S. Dollar can buy much more from these countries, and U.S. dollar investors can buy those country’s debt vehicles at 7% or more. Remember with N.A.F.T.A and Trumps plan American Banks have a free for all investing, or buying loans in Mexico, along with Brazil. Venezuela has the problem of so much debt to foreign banks, that they have to socialize their main assets, to protect them from venture capitalists dealing in dollars, not their sovereign currency. The Euro was invented for the same reason, there is power in numbers.

    • Ed C says:

      Are you nuts? I am retired and my meager pension is NOT inflation adjusted — I didn’t work for the government and wasn’t in the military. Inflation is the worst thing, other than health problems, that a retiree can hear.

      • Don says:

        Couldn’t agree more. This inflation is completely destroying my retirement budget–it has me really scared. I hate to say this, but I’m rather hoping that the economy crashes because that would put the breaks on inflation.

      • Djreef says:

        👍

      • Swamp Creature says:

        Ed C

        According to J Powell you are just collateral damage.

      • char says:

        Isn’t social security inflation adjusted which is likely most of your pension

        • Don says:

          It’s inflation adjusted, not cost of living adjusted–very different animals.

        • Ron says:

          They just raise Medicare premium get money back rinse -repeat

        • monday1929 says:

          Yes Char, and I guess I will get 15% pay raises each year? I assume you are either very young, or you are Jerome Powell.
          Either way, grow up.

        • El Katz says:

          char:

          Social Security isn’t a “pension” in the language of the United States. Some can have a pension, but not be eligible for Social Security. Others have Social Security but no pension. Some have both. Some can have neither.

          If one says his “pension” doesn’t inflation adjust, he probably means just that….. his pension which was provided by his employer or union…. does not inflation adjust.

      • Truckman says:

        Ed C
        You have my sympathies, but on a practical level:
        1. No one in power cares
        2. They really don’t
        3. At least a quarter of them can see financial advantages in your poverty and misery.

        And to be even more blunt – what are you going to do about it?
        Switching your vote from one big party to the other makes no difference, as you must have noticed by now. They don’t care about protests either.

        The worthlessness of pensions for ensuring comfort has been coming for a very long time. It was quite clear from the big numbers (like birthrate, wage rises vs inflation, and globalization) 20 years ago that standard pensions would not support a standard lifestyle by the year 2030. QE has just advanced that date a bit

        Personally, I have got my expenditure way below the average pensioner, so now I’m just comfortably off whilst you are looking for your pitchfork. The most effective ways are staying healthy, moving somewhere where the average person is honest but poor (which means small town or rural), doing most of my own repairs and maintenance, growing some of my own food, and having storage (including freezers) so I only buy stuff when it’s on sale.

        • Marcus Aurelius says:

          You are correct, realistic, and honest.

          Thus, you will be hated by many.

          Too many people expect somebody or something else to take care of them, directly or indirectly.

          Either a Pension, Social Security, God, or chance. Sorry.

          You can only change yourself. You can only protect yourself. You can only provide for yourself.

          Your advice is correct, but it requires WORK for those who wish to live off others. It requires no work when one decides to take care of themselves.

          1) Get into “perfect” shape
          2) Eat real food only
          3) Learn to grow food
          4) Cut all expenses to “the bone”.
          5) Wear out what you’ve got
          6) Plan all trips and spending.
          7) Get a Job. Get 2 Jobs.
          8) Learn a hobby where you can make things to sell? Build Furniture? etc.?
          9) You were born “alone”. You have actually lived your entire life “alone” and you will die “alone”. So act like it.

          It is so easy.

      • Auldyin says:

        @Ed
        Yup!
        This is how ‘they’ are collecting all the ‘tax’ they weren’t honest enough to ask you to pay when they told you all these grand schemes and wars at election time.
        That’s how the ‘democracy’ game works.
        If you don’t get the spending you are stuffed. Sorry.

    • georgist says:

      > At that time if we cut rates further or increase printing, then we expand.
      Can you define “expand”? Do you mean citizens have more spending power? Or numbers get bigger?

    • Wisdom Seeker says:

      I call BS Re Cobalt’s claims.

      History does NOT show that “inflation reduces inflation”. History shows that inflation is self-accelerating unless painful steps are taken to rein it in. Weimar. Argentina (multiple). Zimbabwe. Venezuela. Mexico. US 1970s…

      3) History does NOT show that “Inflation pay for themselves. More inflation will bring in more earnings and tax income. Government can pay their debt finally.”

      When the inflation is driven by government borrow-and-spend policy, the government’s debt increases AND the inflation increases BUT the productive capacity of the nation does NOT increase. So long as there’s more government spending chasing fewer products and services, the government debt/revenue balance does not improve.

      I challenge anyone here to name one time in one country in which inflation reduced inflation, or in which sustained borrow-and-spend inflation led to an improvement in the government’s debt/revenue balance.

      If governments could get out of debt traps through inflation without pain, ALL of them would be doing it!

      • Wolf Richter says:

        I think Cobalt Programmer was being sarcastic. That’s how I read it. But I seem to be in the minority here :-]

        • robert says:

          That’s what I thought too, but it does sound like official government policy regurgitated.
          You can’t tell these days.

        • Wisdom Seeker says:

          Ahh…. The trouble with sarcasm built around lousy economic thinking is that it’s indistinguishable from what you read in the media! Hard to tell who’s being serious, who’s spouting propaganda without actually believing it, and who’s simply deluded!

      • Truckman says:

        Inflation reduces inflation in the classical sense – increased prices reduce demand. However, rapid inflation across the board in a nation tends to destroy the currency also. Inflation does reduce inflation if you pay in gold.
        Perhaps more importantly, inflation results in a relative reduction in the cost of Luxury goods and services, which is why the rich in inflating countries (like all of your examples) had more servants. See it from the point of view of the rich and powerful, and it all makes sense …. until the revolution ;)

        • Augustus Frost says:

          Wages for domestic servants were low in both the US and UK when prices were stable, but it’s not clear it was due to inflation or lack of it. There are many other factors.

          My maternal grandparents were well off when my mother was a child and teenager (up to 1958) but I wouldn’t call them rich by today’s standards. Not rich by my definition since most “wealthy” people rely on a lot of debt for their lifestyle.

          They had a full-time live-in maid and for a short time, a gardener too. Either would cost a fortune now, and most of the supposedly wealthy cannot afford it today or in the recent past.

      • Brant Lee says:

        But can’t we fall back on our “Productive Capacity” to come out of this?

        That is if we had any. I guess that won’t work.

        • Augustus Frost says:

          Unfortunately not, we’ve already eaten most of our “seed corn”.

      • Auldyin says:

        @WS
        “Inflation is everywhere and always a monetary phenomenon”
        M F spilled blood for that after 20 years of BS about all sorts of ‘excuses for inflation.
        Amazing how people forget and go through all the BS again and again.
        What bets the return of ‘Price controls’ soon?
        Just sayin’

    • Yamo says:

      CP…
      US is acting like a third world country debasing their currency thru inflation, US has become a Mex and Brasil joke, a bad joke

    • Maximus Minimus says:

      Rate cuts stem inflation according to sultan of Turkey.
      Sorry Jerome, only second place for you in this competition.

    • Martok says:

      C’mon man, you gotta read up about Paul Volcker and what he did with inflation in the 80’s, – I remember it too well!

      “The Federal Reserve board led by Volcker raised the federal funds rate, which had averaged 11.2% in 1979, to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well, which helped lead to the 1980–1982 recession, in which the national unemployment rate rose to over 10%.”

      • Double Bluff says:

        Volker seems to be admired on this site but he destroyed the livelihoods of millions of farmers, miners, lumbermen and other productive workers. Helped turn the economy over to bullshit jobs, to steal a phrase from David Graeber.

        • LordSunbeamTheThird says:

          Exactly. I’m reposting this from another site cos the whole Volcker inflation slayer narrative is WRONG. I think Volcker the inflation slayer is to buy into a false narrative. He presided over a controlled devaluation of the dollar. The central bank has the option to deflate to the extent that the past periods of over target inflation are corrected. He didn’t stop inflation, he reigned it in. He brought the runaway horse to a stop but didn’t bring it back to the stable.

          His time 79-87 had a cumulative 74% inflation!!!! uncorrected, the dollar lost over 40%. Thats destroying the savers. He made no attempt to disinflate, all was water under the bridge.

          If Volcker stands as an example for today, then when a modern Volcker arrives I would be dumping dollars for -anything- else.

          I see Volcker as simply managing a controlled devaluation of the dollar (a default basically) and I think thats what the US is doing now. Certainly kudos for not letting the whole thing blow up but I think if you were to ask the now passed on (poverty struck) retirees of the period they wouldn’t recognise him as an inflation beater.

        • Michael Gorback says:

          Double Bluff I’ve been saying that here on a regular basis for years. Yes Volcker broke inflation but at the cost of two recessions. It was a very difficult time.

          Does anyone with enough nerves to form a synapse really think you can shrink the money supply (which is what he did) without consequences?

          There is no painless exit. The only question in my mind is whether steps will be taken to reverse inflation before there is a loss of faith in the currency and it collapses. Those are the two exit doors: painful recessions or Weimar.

          Since taking steps to curb inflation would require public officials to bring on a recession don’t count on them to take the fall. That leaves currency collapse.

          Reminds me of a cartoon I once saw. There’s a guy standing next to a demon in front of two doors labeled “Damned if you do” and “Damned if you dont”.

    • TimTim says:

      Cobalt programmer,

      I see what you are doing there, dry sarcasm and wit.

    • CRV says:

      Inflation will always outrun tax incomes, because of lagging wage rises.
      Price rises are a result of money printing and low interest rates are 1) manipulated = not set by market forces but by central planners, and 2) a result of money printing.
      Taking away one result, rasing rates, doesn’t stop the money printing and the rise in prices.
      Stopping the money printing and start contracting is the only solution. This will start deflation, which makes the ‘rich’ lose value on their assets. That’s why they are so afraid of deflation and the necessary measures will not be taken.
      Those who have no assets will welcome a little deflation, because their income will buy more. But too much deflation will make them lose their jobs. Therefore the necessary measures will not be taken.

      The game has been going on for too long to end without pain for everybody.

  5. Rowen says:

    That whole floating exchange rate system kinda supposed that the central bank of the reserve currency wouldn’t increase its money by 33% overnight.

  6. Xavier Caveat says:

    Every Latin American country went through a bout of hyperinflation in the 1980’s-90’s which wiped out savers as suddenly their money wasn’t worth anything, while we had a couple of instances in the 1780’s and 1860’s in the USA.

    • RH says:

      Yes and the banksters’ parasitic “Federal” Reserve, which reportedly has funneled TRILLIONS to its banksters’ (often insolvent) banks and financial institutions for decades, is creating massive inflation that is destroying the earnings of all nations connected to the US dollar. For example, if a company in Mexico or the Philippines sells agricultural products to the USA and inflation takes off, its capital reserves (if in dollars from its accounts receivable and payments that it received) will be eaten up by inflation. To purchase fertilizer, agricultural machinery, or other goods, it will have to pay a lot more dollars to get what it could get for fewer dollars before.

      Of course, as the pensioner commenting above noted, all US and other pensioners are seeing the value of their pension payments get diluted more and more. This is similar to what happened to Soviet pensioners when the Soviet Union collapsed: their pension payments could barely buy them a few meals, so they were rooting through the garbage of others to eat.

      That desperation may yet be coming to the USA. The bloodsucking, trillionaire parasites have successfully sucked out most of the wealth from most Americans’ pensions, savings, etc.

      • monday1929 says:

        RH, Not “reportedly”. Citi alone, the parasitic leach, got Trillions in secret bailouts, in addition to those announced in 2009. This only became public knowledge in about 2011 over the FEDS objections.
        Talk about the “Deep State”; it’s right in front of our eyes and is an open “secret”.
        Robert Rubin was never prosecuted/jailed per recommendation of Financial Crises Inquiry Commission, and we get to spend devalued currency with his signature on it!

        • Wolf Richter says:

          Citi got “trillions in secret bailouts” is complete BS. There were stories circulating to that effect, but those stories were BS all the way through, just like those stories about $15 trillion in repos in 2019. I cannot believe that this long-debunked BS keeps getting spread here.

          Banks got short-term emergency loans. For example: The term might have been 30 days. If a bank got a 30-day loan of $10 billion (with a B), it had to pay off the loan after 30 days, so it got a new 30-day loan and paid off the old 30-day loan, month after month, never owing more than $10 billion. And at the end, after it raised capital by selling shares, etc. it paid off that $10 billion loan. But some morons out there in the publishing industry just added up all the loans that bank got, without subtracting the payoffs. Those morons did the same with repos. It makes good clickbait but it’s BS.

        • Jake W says:

          by that standard, including all draws and no payoffs, i’ve borrowed a million dollar from american express over my lifetime…

    • Ron says:

      We could be next

  7. Augustus Frost says:

    I don’t know debt levels in Brazil or Mexico but know both are a lot lower versus the US. It’s a function of fewer people willing to lend in the domestic currency in the past due to the lack of currency stability.

    While cluelessness is always a valid reason for the actions of central planners, it’s also possible the FRB knows the US economy’s actual fundamentals (as opposed to the fake ones from fiscal and monetary policy) are mediocre to awful.

    • Petunia says:

      Just saw a headline that says Cramer says economy is a juggernaut. That’s a signal to be afraid, very afraid.

      The country is broke. You see it on the streets of every major US city. You can see the crime stats too. Next year is going to be one for the history books.

      • Brant Lee says:

        No kidding, we had better nail down and hide everything we own. Do you see how a hundred people are coordinating together to rush a mall and carry away the goods? I’m looking for the next thing to be where homes get raided the same way. There is no defence against it.

      • roddy6667 says:

        The economy is a juggernaut, but the polls show most people are not happy.

    • Wolf Richter says:

      In these countries, if there is a problem with debts, it’s with their foreign-currency debts. They tend to blow them up periodically, especially when there is a lot of inflation in local currency and US interest rates rise.

      • Swamp Creature says:

        I’m wondering if we are getting ready to see some major currency devaluations such as what just happened in Turkey? First, we had negative interest rates, then massive inflation, and then devaluation. What does this do to one’s savings??

        • TimTim says:

          Well, to me it does feel like the viral ( and other preceding) bombs went off in major economies. This led to massive creation of currency and other financial instruments. This and other consequences of those bombs have filtered through to emerging markets, exploding their levels of inflation.

          Whilst indeed high in developed nations at present, how long before the very high rates in emerging markets get imported back into those ‘developed nations’

          Say, in commodity price inflation; coffee and urea anyone?

          ( Not in the same cup, obviously…)

      • Philippe says:

        Wolf, Brazil has almost no foreign-currency debt (almost all the public debt is in reais owned by nationals

        • Wolf Richter says:

          CORPORATE. State-owned corporate. Petrobras, 64% owned by the state. Same as in Russia (state-controlled oil and gas companies, defense companies, miners, etc.) and Mexico (Pemex, etc.). That’s how these countries borrow in foreign currency. These companies all have HUGE amounts of foreign currency debts.

        • Philippe says:

          @Wolf. Well, I don’t agree. It was true in 2016 but not anymore. Petrobras has 250 bi R$ of net debt (45bi dollar) for 170 bi R$ Ebit. Even if its debts are in dollars, its earnings are linked to dollars. It is no longer a huge amount of debt. The company has done its homework after the Dilma governement collapse. That’s the biggest corporate state-owned company. Brazil has several problems including disastrous politicals (like in most place) but sorry, no debt problem

    • Philippe says:

      I live in Brazil so I can tell you about debt levels here. Public debt is about 80% of gdp but thanks to the big currency reserves the net debt is more like 60%. By the way, the debt is mostly in local currency and mostly owned by nationals. Balance of payment is positive, trade balance is hugely positive. Well, there is a goofy president and politicians have done fiscal expansion lately but the CB is truly independant and brazilians are really taking inflation seriously due to recent past experience so politicians watch out a little bit more than in other places. Local currency is under pressure but frankly sometime I ask myself if in the long run it is not better to own brazilian reais than us dollar given what the fed is doing with it!

      • TimTim says:

        Interesting post, thank you.

      • Augustus Frost says:

        I was in Brazil in October 1992 and April or May 1993. My recollection from the last visit is that inflation was running 40% per month. One revolving credit card (the one I know) had a monthly interest rate of 50%, or 10% after inflation.

    • Maximus Minimus says:

      Usually these countries have debt as much as they can borrow. They want all that’s in the first world, but don’t actually produce anything like.
      Oh wait…

    • endeavor says:

      I don’t know debt levels in Brazil or Mexico but know both are a lot lower versus the US.

      Brings to mind the old meme: Debt that can’t be repaid will not be repaid.

  8. ru82 says:

    They keep saying supply chain issues. I think that means they cannot produce enough goods for the current demand.

    I was reading in the Wall Street Journal sort of saying the same thing.

    A bicylce store said in 2019 they sold 13k bikes, in 2020, they sold 18.2k, in 2021 they are track to sell over 22k and could sell even more if they had the supply. That is a 69% sales increase and the owner says he has a supply problem and inflation problem. LOL Then the owner goes on to say parts like brakes, derailers, cranks, etc are all up 15% to 20% in just one year. Well yeah, people are spending their free money and now wage gains like crazy.

    Many manufacturers are producing more items then they did in 2019. It is a weird type of supply crunch where supply is not meeting demand but supply is actually up.

    • ru82 says:

      Another big Bicycle company said before the pandemic they sold about 200k bikes a year. In 2020 they sold 250k and all their stock. He said he could have sold 125k more if he had the stock but the Asian suppliers could not ramp up production that much.

    • random guy 62 says:

      This is spot on. The supply chain crisis narrative is inaccurate. It’s a demand crisis.

      Our industry (truck equipment) got absolutely slammed with orders in early 2021 at a pace we had never seen. Backlogs shot up like a rocket. That demand trickled downstream all the way to raw materials. It did not take long for all our suppliers of base components to be overwhelmed. Most industries don’t have a spare 30% capacity just sitting around waiting to be used at a moment’s notice – especially metals and shipping industries.

      We are producing at a solid pace similar to a normal year. The issue is ridiculous demand brought on by a shift in consumer behavior from services to goods, and a governments showering people with cash to make it worse.

      • Wisdom Seeker says:

        Re “Most industries don’t have a spare 30% capacity just sitting around waiting to be used at a moment’s notice – especially metals and shipping industries.”

        Funny you should say that…. the Federal Reserve data on industrial capacity utilization says that there ought to be 30% headroom nationally… LOL they are dreaming!

    • Djreef says:

      Yes, ‘supply chain issues’ is synonymous with ‘shortages’.

    • Petunia says:

      It’s a lack of good leadership issue. Liberalism is killing off the country.

      • Gattopardo says:

        Yes, indeed, it’s the liberalism that’s at fault…. from the previous president, having gifted the bulk of the PPP “loans” and two rounds of stimmies (remember “go big or go home”), and of course for picking such a flaming liberal for the Fed chair.

        • Petunia says:

          The uniparty just finished another round of collusion to raise the debt ceiling. None of them are conservatives, they are all liberals, with our money. It’s all a show for the voters. It’s a total lack of leadership.

        • Petunia says:

          P.S.

          Nobody at the fed is a conservative. Wall St. is not conservative.
          They all belong to the same cabal.

        • RedRaider says:

          I tend to think of all USA political, corporate and union interests as the vested interest party.

          It’s the main reason I voted for Trump (twice) and will do so again. My, how the vested interest party hates Trump. I got my moneys worth tenfold.

      • Robert Russell says:

        Leadership is not a partisan issue; both sides suck! And the policies that have been killing the country for the past 40 years have ultimately been supported by both sides. Gridlock and failure to do anything are not partisan issues, both sides work hard at it, but like to blame the other side. The Chinese may not be democratic, but they sure know how to get it done! And Wall Street has only been too happy to play their game!

        • crazytown says:

          It is a partisan issue, but it’s not red vs blue its honesty and integrity vs grifting and stealing and lying and cheating. Both red and blue are on the same side, I hate them all.

    • Dan Romig says:

      Speaking of bicycles, I ordered (with $1,000 down) a Minnesota company’s gravel race bike on 8 October. It’s a carbon-fibre frame which is initially made in Taiwan and then the frame is finished and the bike is assembled by the manufacturer here in the Twin Cities.

      The bike was supposed to be ready in mid-November, and has been all set for a while — except for the shifters and cranks which are on wait from Shimano. “Sometime in December,” I was told on 1 December.

      No worries, only two close calls today on patches of slippery ice on the north side of Lake Nokomis while riding my back-up road bike (sarcasm & not fun). Wide studded snow tires would be nice now that it’s winter.

      The sports car, the motorbike & the main road bike are all in hibernation for the winter. Salt is good for seasoning food and ruining vehicles.

      • Maximus Minimus says:

        That’a a new level of just-in-time manufacturing. Next, you order a microwave, and they will assemble it for you.
        It was pioneered by the home builders: here is a planned hole in ground, and if you want a piece, fork over 20,000.
        I know who I can thank for that.

  9. NoPrep says:

    Helpful and informative post as always!
    Me? Working on my art. Work in progress but maybe this one’s a keeper …

    Inflation rising, high price frustration
    Doing a number on the people of the nation
    My head is feeling like a hardened lump
    As I pay this week’s price at the pump
    I’m in the market and playing the long game
    And I’m really worried, cause things don’t stay the same
    My wife is worried too, she asks me what’s up
    Try to stay afloat, keep something in our cup
    I listen to Powell, I listen to Yellen
    Could there be something hidden going on, but they aren’t tellin’
    But the sun is shining, and tomorrow’s another day
    And I’m playing for keeps, planning to stay

    Cheers

    • Ace says:

      That’s really good, you have talent.

      • NoPrep says:

        Thanks Ace. I think this one needs a little more work. But some of my lyrics actually become part of published songs where I put a singing voice into the words. Often it’s a oddball love song I come up with. But I’ve one song about racecar champ A.J. Foyt, another about Edward Teller, so I do try different things to keep things interesting and fun.

    • Anthony A. says:

      Thanks for the great jingle! -:)

    • ru82 says:

      Nice

  10. historicus says:

    What in the world are central bankers doing PROMOTING ANY INFLATION?

    Who gives them the power to TAX the holders of the nation’s currency?

    The Federal Reserve is WAY LATE, and 1/4pt hikes are absolutely meaningless.

    Brazil et al obviously don’t understand MMT…

  11. Global economists must be puzzled that inflation would rise simultaneously in EM and Developed economies, aided by cross border capital flows and a transitory pullback from globalization. US manufacturing? What do those average wages look like? If that sticks inflation is here to stay. Likely this is leading to an overcapacity bubble and with a tight labor market and debt overhang that spells econonic slowdown.

    • cb says:

      it’s simpler. It’s just massive monetary expansion – the creation of new money.

      • historicus says:

        How is it proper to have such control over our money supply in the hands of an unelected cabal deciding things behind closed doors, unaccountable?
        The Fed is there to make a fertile environment, not manufacture runaway markets, inverted interest rate realities with a promoted inflation.
        The Fed is there to assuage short term banking issues, not continually fluff the pillow, leave two mints on the pillow each morning, and seemingly guarantee higher valuations.
        Who knew the Fed would abandon their historical and mandated duties? Who is certain they will not raise rates to meet the inflation and tamp down the inflation which they are mostly responsible for creating?
        M2 up 30%, interest rates zero? Inflation circa 6%?
        and the mantra is “we can’t raise rates because there is too much debt.” How can that which created the problem also be the solution?
        The Fed has been hijacked. Who benefits? Follow the money….

        • phleep says:

          “How is it proper to have such control over our money supply in the hands of an unelected cabal deciding things behind closed doors, unaccountable?”
          I think it would be even money to be WORSE to democratize decisions on money supply and interest rates. The masses would be baying for MORE. What do they know or care about the macro boomerang it creates? I don’t expect the IQ level out there, and the long term perspectives, that we find in this forum. As bad as the technocrats are, at least they have some thin shred of perspective, vantage on the data, and sense of what is at stake. The actual functioning, sane middle class in the USA is not as prevalent as one might think. Look where discretionary money is going right now — clamoring impatiently for consumer trash and rocketing meme stocks and online gimmick “assets” to the moon. But yeah, I sure wish the Fed would show some backbone.

        • Jake W says:

          phleep, i agree. the problem is not that the fed is unelected. the problem is that the elected people (congress) to whom the fed is supposed to be answering don’t do anything besides talk

        • They could disband the Fed and transfer all the policy functions over to Treasury, except the banking. Fed conducts all the transfer payments, and some of them are not legal. Like if you said to your banker I want a loan to buy some drugs and he said, sure, assuming you have a legal front. The banker gets his cut and the Fed gets theirs, and both are indemnified. Your banker cannot do that loan, but the banker at the governmental level can move millions without scrutiny, in the name of national security. The banker doesn’t need to bend the rules for personal gain, he makes fees on the transaction. Bernanke arranged for pallets of hundred dollar bills distributed to Iraq (contractors?) in an off balance sheet war. You can only imagine how real foreign aid works. Then you can freeze the bank accounts of people you don’t like, I mean they don’t like. So they don’t really like crypto because it exposes them, as being marionettes of subterranean public policy, but they love the way that ponzi scheme provides positive feedback to theirs. (symbiosis) They are sort of like the drug dealer who is against legal pot, they operate under cover of authority, and they charge black market prices. Which in the case of their charter banks means low lending rates. An international bank cannot loan money to drug dealers, but they can package up (plain brown wrapper) the foreign aid for poppy growers in Afghanistan. Maybe half the DOD budget is black contract. Congressmen can’t see what they are spending. Who fulfills those orders? And nobody wants to look either. Insider trading at the Fed is child’s play, doodles on the margin. All in the name of empire.

        • cb says:

          Do you maybe Andrew Jackson had a clue?

      • Auldyin says:

        @cb
        Got it in one!

  12. Michael Engel says:

    1) JP : Inflation Transitory in retirement. A bearish option :
    2) NDX daily is an island. Tomorrow NDX will turn down to close
    Dec 6/7 open gap. Next week NDX will turn up to a lower high.
    3) If correct, this week : the DOW will be on DM countdown week #4, SPX on week #3 and NDX on week #2.
    4) By moving higher next week to a lower high, the DOW might still be on
    week #5, SPX on week #4 and NDX on week #3.
    5) JP sacrificed “Inflation Transitory” to bulls. JP doesn’t care about central banks idioms. Let them face reality.
    6) On the week after Xmas, on Dec 27, the DOW might form a Schabacker Viking Horn.
    7) There are bullish options : NDX will move higher to an all time high, AAPL will become a CNBC $3T co and DM weekly bearish countdown will be cancelled for good. Transitory is dead !

  13. cb says:

    “after all this massive stimulation, including interest rate repression,”
    ——————————————

    more to the point: after all the massive money creation.

    Price inflation(inflation 2) follows an expanded money supply (inflation 1).

  14. Catxman says:

    As the “free money” tapers off, purchases of goods across the spectrum should taper off with it. Stimulus money is the distortative factor here. There simply was no way for the government to “target” different income groups with “free money” in different amounts, i.e. $1000 for the lower income, $1500 for the middle class and so on, so they poured gasoline on the whole fire in equal amounts …

    • Jake W says:

      there wasn’t any reason to target “free money” to anyone. the only thing they should have been doing is closing the economic activity gap with unemployment. that’s it.

  15. Ace says:

    Unlike Greenspan’s gradual hikes of .25 basis points, the Fed should hike .50 basis points, and soon, but the chances of them doing this are probably slim and none, since they really just care about making sure the filthy rich –who have more money than they know what to do with –make even more money than they know what to do with. Okay, I’m being a little facetious, but does it not seem that way?
    The top 10% is $17 Trillion dollars wealthier than before the pandemic, thanks to unprecedented money printing. Everyone else who gets up in the morning and goes to work for $15/hour, well, they got a couple of $1200 checks to keep them from complaining too much.

    Now we have an asset bubble that is so big, it’s not even a bubble anymore. It’s a volcano that is going to blow like Mount St. Helen one day. I never thought I would see stocks with multi Trillion dollar market caps, and the analysts just keep raising their price targets. And there are probably a hundred more with a combined cap of a few Trillion that don’t even have profits. When does it stop? Really, is the Fed just totally oblivious to the insanity that is going on?

    • COWG says:

      “ When does it stop?“

      When the leverage pukes….

    • historicus says:

      Heard a story yesterday…
      House bought Naples FL in 2017 for $2 million, sold for 5.5 Million.
      The Fed has the world upside down with 30yr mortgages 3.1% with inflation running over 6%. Last time inflation was anywhere near these levels, 1999 and 2006, the 30yr was 6%.
      And the Fed STILL BUYS MBSs!!!!
      And Fannie and Freddie to back mortgages up to 1 Million?
      The gap between Fed Funds and inflation has NEVER BEEN GREATER…yet the Fed does nothing.
      They edited out their 3rd mandate “promote moderate (not extreme) long term interest rates” from their publications and website.
      The Fed has been hijacked. Cui Bono?

    • Robert Russell says:

      They are not oblivious. They know what they are doing, and it is working out exactly the way they want … Unfortunately! Inflation works well for them, but they have to scream “Oh no … not the briar patch!”

  16. Michael Engel says:

    1) Traders move to BTC/USD, ETH/ USD, and to SPX, because they don’t trust Christine printing, European zombie banks and her zombie states.
    2) USD pairs with emerging currencies is rising. Turkey is deflating. Iran IRR is mining a black hole.
    3) Foreign entities sent SPX vertically higher. They lifted AAPl to $3T. They became wealthier on paper.
    4) When Savanna and Long Beach bottlenecks will be over, China’s mfg will starve for new orders.
    5) If SSEC weekly will breach BB#1 – Jan 6 2015 hi/ Feb 9 2015 lo – China will sink the global economy with them.

  17. fred flintstone says:

    Our military supports these incompetent crooked dolts. If Argentina acted like us they would have another revolution……we just have inflation. Everybody is living the good life here because some over seas sweat shop still accepts paper dollars as currency. When that day ends……hopefully I’ll be pushing up flowers.

    • 8_mile_road says:

      //Everybody is living the good life here because some over seas sweat shop still accepts paper dollars as currency. //

      Here is something I don’t understand: What would be the best currency if Dollar is not the best one? Chinese dollar (Yuan)? Japanese Yen? Or the best simply doesn’t exist because all are fiat currency.

      The Chinese has been loading physical gold over the last decade. If the Chinese decides to peg up Yuan with gold, what will happen next?

      • Ron says:

        The USA has more gold than any other country we will follow suit

        • carbpow says:

          Australia and Russia have much more gold than the USA, but it is in the ground :)

        • Sams says:

          Do they?
          Why did it then take seven years to transfer half of Germanys gold holdings from the USA to Germany?

        • historicus says:

          The USA has about $250 Billion dollars of gold.

          The Fed buys $120 Billion a month of federal paper.

          The Fed’s balance sheet is circa $8 TRILLION. Thats 8,000 billlion.

          The US gold holdings are a drop in the ocean of fiat currency.

      • Sams says:

        There may not be a best currency.
        Expect a lot of bilateral trade agreements and some barter.

      • Major Gantt says:

        You are assuming the rules of the financial system will stay the same. They will not. Those with the power rewrite them periodically. Last time was 1971.

      • Matt says:

        Theoretically, if inflation went high enough in USD, wouldn’t it just not matter anymore what other currency you used? At a certain point the barter system is better than taking massive guaranteed losses.

      • Auldyin says:

        @8mr
        Great question.
        Traditionally, the ‘best’ currency was always the currency of the country with the largest GDP and hence military power.
        Used to be UK but has been USA since WW1.
        It’s getting ‘dodgy’ now because China is challenging US Gdp dominance and if you add Russia, they are ahead together in power terms.
        It’s the most fascinating situation in my lifetime as I wasn’t around at WW1. I pray to be around to see how it all plays out, and I’m hopeful it can be done without all the wars this time, but US will have to give way gracefully which UK was not prepared to do.
        Jaw, jaw is ok so long as it never turns into war, war and that depends on the electorates seeing through the propaganda of all the ‘militaries’ if history is any guide.
        Just sayin’

  18. DR DOOM says:

    Every one will be waiting for the CPI Friday of which the experts expect a +.7% tick up. Powell will talk about his tool kit and then go to nappy time. Will the default of Evergrande be launched as a deflection if the print is as expected? MSM has been given its marching orders from the Administration on negative inflation coverage along with its other problems that are piling up. It will be interesting to see how the spin cycle reacts. If past response’s are an indicator could be nappy time for all.

    • Old School says:

      Professor Steve Hanke in the summer said inflation would end the year between 6% – 9%. He said it was basically a simple calculation. If he new it, Fed knew it, but sold us B.S.

      • DR DOOM says:

        Steve Hanke teaches what Milton Friedman taught us and the Exchange Equation which Dr Hanke used for his prediction . The Keynesians at Fed cannot recognize the Exchange Equation or Monatary Economics or Friedman or Dr Hanke at Johns Hopkins. Mrs Magoo and Powell have their own version of the Exchange Equation. Their version of the Exchange Equation should be called the Theft Equation and is also a simple calculation. De-basement + robbing time value of money = $ for Wall Street.

  19. Yort says:

    JPow has a solution for staving third world countries due to Fed induced food inflation:

    “Let Them Eat SPAM”

    Since JPow is long the stock indexes, he thus owns Hormel, maker of SPAM…and Hormel shares jumped 4.7% today so at least the Fed is “winning” while humans literally starve across the globe…

    CNBC article Dec 9, 2021:

    Spam sales hit record high for seventh straight year in 2021, says Hormel Foods CEO

    “But when you think about the labor increases we’ve had, increases in our packaging, other supplies, getting the product shipped … I mean that inflation, it’s real. It’s significant,” Snee said. “It’s being passed along in the form of higher pricing.”

    • Depth Charge says:

      Spam is expensive. More like “let them eat seasoned cardboard, or starve.”

    • TimTim says:

      Hands off our Spam!!!

      Spam is great. Especially fried in lard with fried eggs and some baked beans.

    • phleep says:

      The lower end of incomes (half of USA folks, more elsewhere) are going to be eating banknotes soon. Those who have title to real assets are relatively in clover — until maybe the streets erupt (flash mobs might be a hint). But I don’t think people failing to have means to eat globally is so simply attributed, in all, to the Fed. Those people have been finding ways to starve since forever, and it is not the Fed’s job to extricate them (despite its being the de facto global central bank). I guess I will only feel something about all that when Hobbes’ brutal state of nature starts showing up on my doorstep. Nothing new in my inertia there, either. Remember USA pre-WW2?

  20. Depth Charge says:

    Before any of this stimulus was even distributed, I was talking about the massive inflation it would cause. Now here we are. How is it that I saw what was going to happen, but Jerome Foul couldn’t?

    • COWG says:

      I was just thinking about the fact we’ve been talking about this for several years around here…

      Backed up with data…

      If you’re surprised and ill prepared for this, you weren’t paying attention…

  21. Yort says:

    When it is all said and done, JPow will have starved more humans on Earth than since WW2 via 27% global food inflation for just 2021 alone. So congrats Jeremy, you are saving the poor by placing them on a starvation die-ts?? What a bastard…

    Per Bloomberg:

    When the lumber bubble burst, some — including Powell — cited it as an example of how pandemic inflation could soon fade. But global food prices, after a lull in June and July, started climbing again. Helped by some bad weather around the planet, they were up 27% in the 12 months through November, reflecting jumps in everything from meat and wheat to coffee and cooking oil.

    • Depth Charge says:

      And lumber is back up at $1,000 or whatever – WAYYYYY higher than normal. Powell is a dangerous idiot.

  22. Ross says:

    Biden just doubled lumber tarrifs on canadian lumber. For who?

    • Wolf Richter says:

      Canadian lumber mills are going to pay for these tariffs because prices in the US are set by the market, and US mills don’t care about the tariffs, and there is plenty of timber in the US. It has the effect of Canadian lumber mills paying our taxes, and that’s good.

      The US has a gigantic trade deficit and needs to crack down on imports. And tariffs take some of the incentives out for US companies to purchase imports.

  23. 2BFrank says:

    The problem with inflation is it needs a really responsive central bank AT ALL TIMES the Central Bank needs to keep an eagle eye on inflation continuously because once it is allowed to exceed 2-3% you are then in the land of bad choices, you can choose to destroy savers by not increasing rates fast enough, or you can choose to destroy jobs and workers by getting ahead of inflation, the only choices are bad choices.
    Since a central bank consists in the end of people they do what people do, prevaricate, when you sit on the fence you get splinters in your arse,

  24. Beardawg says:

    Seems like USD, though overly printed, is still winning. Other countries with int rates approaching or breaching 10% with inflation numbers to match. US will not hit 10% rates and unlikely to see a 10% inflation rate across all industries.

    J-Pow sux, but apparently less than the other CB foolz.

    • Nicko2 says:

      USD, and by extension, the Fed….rules the world. Don’t fight the Fed.

      • historicus says:

        Nicko
        “Don’t fight the Fed.”

        Is it okay to confront the Fed? To ask why they do not adhere to their mandates?

        *Mandate #1 The Fed is supposed to promote maximum employment yet what they do with rates has had the OPPOSITE EFFECT. The free money to promote inflation is borrowed by the federal government and paid out in a fashion that discourages employment. Fail.
        Mandate #2 The Fed is supposed to promote stable prices, yet they promote just the opposite, INFLATION, which is now running circa 6%. Fail
        Mandate #3 The Fed is supposed to promote moderate (not extreme) long term rates, but we have near record lows, 30yrs almost 3% below inflation. Those rates are IMMODERATE and EXTREMELY low. Fail.

      • Jake W says:

        yeah, we don’t need an economy. since we’re the reserve currency, for now, we can just print our way to prosperity! why should any of us work?!

    • Yort says:

      Sure “Winning” short term when the Fed hit the nitrous switch at the starting line, yet now at the half-way point in this race the engine is red-lining and about to throw a few rods through the block and burn down the economy but hey, at least it was fun while it lasted as currently the top 10% own 90% of all stocks…zoom, zoom, booooom, splat…

      Per WSJ:

      Some 56% of Americans in a new WSJ survey said inflation was causing them major or minor financial strain, including 28% who said they felt major pressures.

      • ru82 says:

        and Warren Buffet said he still cannot believe people keep flooding to his Nebraska Furniture Mart stores willing to pay higher prices. Crazy

        Count me in. I ordered an ottoman and it will take 6 months for delivery.

  25. Michael Engel says:

    1) Inflation might deflate TY, US 10 year T note Futures prices, to 120 area,
    slightly above 2018 low. But “Inflation Transitory” isn’t dead.
    2) Reaction might send TY to T1, T2 and possibly to a new all time high, to negative rates.
    3) CEW, Wisdom Tree emerging markets currencies ETF, retraced 0.624 of the move from Mar 23 2020 low to Dec 14 2020 high.
    4) If TY cont to deflate to the 120 area, CEW will rise to a lower high.
    5) TY reaction to T1, T2 and possibly to negative rates will send CEW back to Mar 23 2020 low area.
    6) This simple mechanics means : a global recession.

  26. historicus says:

    Michael
    “Inflation might deflate TY, US 10 year T note Futures prices, to 120 area,”

    a unique take on economics.

    And what if QE stops and the 120 Billion, the 120,000 MILLION A MONTH support mechanism of the Fed disappears, and real economics begin to return, what then of a 10yr yielding 5% below the current inflation rate?

  27. Yort says:

    Hey Wolf – Any guess if 1.5% GPD in 2022 with 7-10% inflation qualifies for a “STAGFLATION” admittance by our Village Idiot Fed?

    Well at least stagflation will be “transitory”…along with the entire Universe, but hey, humans live forever so no biggie Jay…

    We now know why JPow got his contract extended as the Pres needs someone numb and dumb enough to take the blame for inflation at Mid-terms to advert a complete team blue wipeout in November 2022…

    Per Oxford Economics:

    The impact of three Fed rate hikes in 2022 starting in March, earlier than markets currently expect…Our modeling suggests real GDP growth would slow to a stall speed of around 1.5% annualized in H2 2022, versus our 2.7% baseline forecast:”

    • Wolf Richter says:

      2% real GDP growth for the US is pretty good. We haven’t had 3% growth since 2005. 1.5% growth is very common and not bad. So today, it would not qualify as stagflation, but normal-ish growth with lots of inflation.

  28. YuShan says:

    The USA prints trillions of dollars out of nowhere and hands them out. People then spend them to buy so much real stuff, to the point that we even get massive supply problems.

    And no, these supply problems are not caused by covid. It is classic overheating of the economy caused by too much money creation. The entire world is swamped with dollars and this drives up prices worldwide because there is no production capacity to match it. Labour shortages are pointing in the same direction.

    If you think about it, the really weird thing is that people still accept these dollars as payment for real goods and services. As long as people accept this clown money as payment, inflation will remain, even in countries with more sound monetary policies, because the dollars suck up all the goods in the world economy.

    It would be in the interest of the rest of the world to stop accepting dollars, at least at the current exchange rate.

    • Jake W says:

      the supply chain problems being caused by covid argument had some merit in the first month or two when the facilities didn’t know how to safely operate and just closed down. but by may or june of 2020 or so, factories were operating, people were wearing masks and taking precautions, and production was back. the argument certainly doesn’t have merit now 18 months later.

    • COWG says:

      YuShan,

      Let me quibble with you on a couple of your points…

      First off, I don’t think there is a supply “ problem”… I view it more as a supply inconvenience… not a permanent fixture… if you want something, for the most part, it’s available with patience or a revisit of your choice…… and generally speaking, it was Covid related… but it is available, if you want it bad enough…

      Secondly, there is no labor “shortage”… there is lots of labor available… just not at the price employers want to buy it at… employers are not willing to buy that expensive labor… yet… because they don’t want to be stuck with it if in 6 months all the free money runs out and people will want a job at any wage… for example, if WalMart offered a starting job at $40 an hour, I guarantee you, there would a line 2 miles long for employment… Extreme, I know, but just trying to illustrate a point…

      I do agree the Fed printing has caused a change in behavior… how long that behavior lasts is anyones guess… however, you must realize that peoples behaviors prior to all of this was due to reasons as well… and if those reasons reassert themselves, it will go back to as it was before…

  29. fred flintstone says:

    Well…….here we are again……cpi reports up to highest level since 82……..and the 10 year bond yield promptly tanks to 1.48……..Powell is an example of how evolution failed. I am starting to think he not only is crooked but a mix of dumb, stupid and entitled. I bet this moron is not vaccinated……which might be good news.
    Harsh words……but earned. For those of us that have served this country…..some giving up our lives or bodies……I am truly sorry to see your futures being taken away by a pack of greedy morons.

  30. The Real Tony says:

    It looks like inflation will turn to hyperinflation in America until the U.S. dollar is finally supplanted as the world’s reserve currency. Hopefully Powell will resign and forget about the next 4 years he’s reappointed for, for his own well being and the well being of all Americans.

    • Anthony A. says:

      The people behind him to take that job are no better. Might as well leave him there as Joe’s scapegoat.

  31. Citizen AllenM says:

    Well, raging inflation is basically profit margin inflation caused by the pandemic. Not to beat up on one company, but the usual margin on 90% silver $10 face is around 9-12%, today the margin is 28%!!!
    So $205 for $10 face, when the melt value is $160?

    I smell the remnants of a buying panic, and the grey dog keeps sliding- now $22 an ounce.

    I would note most of the commodities are now down significantly from their recent high prices….

    But inflation is raging and corporate america reports record profits?

    Something just doesn’t add up.

    But hey, after all this stimulus is done….well, a huge gap.

    And assets ultimately will have to reflect values of less money blasting through the economy….and higher interest rates are going to be a big shock to the system.

    Someday this war’s gonna end…

    • Jake W says:

      they’re reporting record profits because for now, they were able to raise prices more than the extra costs of their inputs. i don’t see that lasting, however.

    • The Real Tony says:

      Pandemics cause deflation not inflation.

    • YuShan says:

      It is insightful to play a bit with the Kalecki equation. I did this ~10 years ago using the Fed Flow of Funds and plotted all the components.

      What it boils down to in most cases is that corporate profit margins go up when you have credit expansion, either private or government or both. At the moment we have both and in the case of government credit expansion, it is extreme!

      This means the opposite is also true. When credit expansion is slowing or goes negative, this will shrink profit margins.

      This is why rising interest rates (if significant enough to slow credit expansion) kills the stock market. It is not only because P/E ratios have to fall to compete with higher yielding bonds, but the “E” in the P/E ratio falls too. It is a double whammy. Of course we had the opposite situation in the past decade.

      If that ever reverses (and this may be forced upon central banks and government at some point if inflation remains out of control), it is going to be epic. Most investors have never seen such thing before.

  32. Michael Gorback says:

    Margins usually peak at price peaks. Maybe this indicates a top in silver although IMHO this is premature prognostication.

    Initially most people don’t notice inflation. If a box of Coco Puffs goes up 2 cents nobody pays much attention. When Coco Puffs are up 50 cents people start to notice and behavior changes. Then the BLS substitutes Froot Loops for Coco Puffs in the CPI basket.

    “Someday this war’s gonna end”. Popular medical aphorism: All bleeding stops.

  33. Swamp Creature says:

    The only thing we don’t have from the Carter years is gas lines. I see that ending soon. I beleive this administration will begin price controls and manditory allocation of supplies of gasoline across the country, giving Blue states a bigger share of supplies than Red states. Look for gas lines to reappear in these states. There is a country western song that was popular back in the Carter days called “The gas line blues”. That could be a number one hit once again.

    • Wolf Richter says:

      You’re funny. We’ve got gasoline out the wazoo. We’ve got domestic oil production out the wazoo. Frackers are finally making money at this crude oil price, after losing a gazillion over the past decade with dozens of them going bankrupt. But refiners and the distribution channels are ripping everyone off. What you’re seeing is pricing power — not shortages.

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