Something Big Has Already Broken: Price Stability

The Fed will tighten “Until Something Breaks?” Wait a minute…

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

There is a lot of tongue-wagging on Wall Street and in the financial media to the effect that the Federal Reserve will tighten – meaning hike rates and shed assets – until something breaks.

But that’s kind of funny when you think about it. Because the biggest thing that the Federal Reserve is in charge of, the most crucial thing that underlies a healthy economy and a healthy labor market has already broken: price stability.

It broke into tiny little pieces. Instead of price stability, we have raging inflation. And now the Fed is trying to fix it.

But hedge fund gurus and bond kings and stock-fund apostles and other crybabies on Wall Street who don’t give a hoot about this raging consumer-price inflation because they’re rich and don’t mind having to pay a little extra for some stuff, but who’re losing their shirts because asset prices are skidding lower, and they do mind that, well, they’re on TV and on the internet and on Bloomberg and the Wall Street Journal bemoaning the consequences of the end of free money.

And they’re right: these asset prices have gone down in reaction to the Fed’s tightening policies this year that are beginning to reverse many years of money printing and interest rate repression.

The years of QE and near-0% interest since 2008 have created the Everything Bubble, and now the Everything Bubble is deflating.

And these hedge fund gurus and bond kings and stock-fund apostles and other crybabies on Wall Street are saying that things are already breaking, that markets are stressed, and that in x months, like in November, something big will break that will cause the Fed to pivot into cutting rates and restarting another money-printing binge.

That’s what they want: They want the Fed to cut rates and restart QE as to re-inflate the Everything Bubble so that these folks can get even richer. They have big investments, and those investments have now soured, and they want the Fed to U-turn in order to bail out their investments.

And they don’t give a hoot about this raging inflation because they’re rich and don’t even notice if they have to pay extra for consumer goods and services.

And if something breaks, meaning if some portion of the market crashes somewhere, or rates blow out somewhere, say in the repo market like it did in late 2019, that no one outside the repo market even noticed, or if something even bigger breaks, they hope that the Fed would then cut rates and restart QE to re-inflate their asset prices.

And in fact, they want something to break, they’re praying for something to break, they’re trying to scare markets so that something will break, in order to force the Fed into this pivot.

The simple fact is this: stocks, bonds, the housing market, cryptos, etc., etc., they were all hyper-inflated by years of the Fed’s money printing and interest rate repression, that started in late 2008. And after a brief pause in 2017 through 2019, the Fed went hog-wild starting in March 2020 when it printed $5 trillion in two years and threw it at the markets.

Since 2008, the Fed has printed $8 trillion and threw this money at the markets. And for most of the time since 2008, the Fed has repressed short-term interest rates to near 0%.

Big institutional investors and speculators could borrow short-term in the repo market for near 0% interest. This was as close to free money as you could get, and they borrowed this nearly free money and speculated with it, and now the interest rate in the repo market is over 3%, and it may be over 4% by year end, and higher next year, and that’s a bitter pill to swallow if you’ve gotten fat after 14 years of free money.

The free money era got started in Japan 22 years ago. And by 2008, there still wasn’t a lot of consumer price inflation in Japan. And so when the Financial Crisis broke out, the Federal Reserve saw that QE and 0% interest rates didn’t cause a lot of consumer price inflation in Japan, and so it too tried those emergency measures to bail out the banks and the hedge funds and whoever held a lot of assets. And when it didn’t cause consumer price inflation, but just asset price inflation, meaning it inflated stock prices and bond prices and housing prices, the Fed enlarged QE and extended it, and kept 0% interest rates in place for years.

And when the European Central Bank saw that these policies didn’t trigger a lot of consumer price inflation in the US and Japan, it too dove into them in 2012 in response to the euro debt crisis, and it expanded them and fattened them up over the years, and it didn’t cause a lot of consumer price inflation either, only asset price inflation.

Back then, these policies didn’t cause a lot of consumer price inflation because consumers didn’t get this money. Central banks handed this money to big investors, and they bought more investments, and asset prices continued to inflate, but little of this money got spent in the economy, and didn’t trigger consumer price inflation.

Meanwhile, savers and yield investors saw their cash-flows crushed, and they relied on this cash-flow to spend, but that cash flow dried up and they couldn’t spend it, and that actually weighed on consumer spending.

So when the pandemic hit the markets in March 2020, central banks went hog-wild, printing huge amounts of money around the globe, and repressing interest rates to zero % or below zero %. And they figured none of this – despite the huge unprecedented magnitude – would cause consumer price inflation because it didn’t do it in the years before.

And governments issued a huge amount of new debt, and they could because central banks were buying huge amounts of government debt at the same time as part of their QE, and then governments threw this borrowed money at everything they could see: consumers, businesses, state and local governments, trillions of dollars in direct payments and subsidies flooded every aspect of the economy. And this money did get spent.

And the gains in the stock market, in cryptos, in the housing market, in the bond market were so huge that people started spending some of these gains to buy $100,000 pickup trucks, home remodels, consumer electronics of all kinds, patio furniture, you name it.

And central banks still thought these monetary and fiscal trillions – in the US close to $10 trillion – wouldn’t cause inflation. But they were wrong. Consumer price inflation suddenly took off in early 2021. The dam had broken. 40 years of price stability had broken, and inflation was washing over the globe. Even in Japan now. And massively in the US, and even more massively in Europe. The whole thing just exploded.

And central banks – still delusional back then about the idea that their radical policies would ever break price stability because it hadn’t done it in the prior years – well, they brushed off the problem, they called this inflation temporary, and kept printing vast amounts of money and repressing interest to 0%, or below 0%, even as inflation was beginning to rage, in an act of incomprehensible recklessness, and it wasn’t until earlier this year that it seriously dawned on them that something huge had broken into a million little pieces: price stability.

But now they have figured it out. Now they see it. The biggest thing they’re in charge of – price stability – has broken, and they broke it, and the government’s radical stimulus policies starting in March 2020 broke it, and there is now so much excess liquidity out there chasing after all kinds of stuff, that it will be very hard to crack down on inflation effectively, and to re-establish price stability.

Inflation dishes up lots of surprises. It has a life of its own. You think you got it whacked down, and then it rises from the ashes all over again. That happened in the 1970s and early 1980s. This is what central banks are facing.

But the Fed has now figured it out. The Fed has pointed out many times over the past few months that a healthy labor market needs price stability; that consumers need price stability; that you cannot have a healthy economy without price stability.

So OK, their version of “price stability” isn’t my version. Their version of price stability is 2% inflation as measured by the core PCE price index, which is the lowest lowball price index we have. And my version of price stability is 0% inflation based on some realistic price index. But hey, close enough given where we are – which is raging inflation.

Price stability by whatever measure has broken. It probably cracked in late 2020. By early 2021, the pieces of price stability were scattered all over the place for all to see, and I started screaming about it then. But the Fed was still hammering away at these scattered pieces with QE and 0% interest rates to break them into even smaller shards.

For the economy and the labor market to function, for consumers to earn and spend at a healthy pace, price stability needs to be fixed.

And the Fed knows that. And it’s hiking interest rates and shedding assets in order to fix the biggest thing that it is in charge of that has already broken.

A repo market blowout or a hedge fund implosion or whatever is a minor event compared to the raging inflation. And for hedge fund gurus and bond kings and stock-fund apostles and other crybabies on Wall Street to say that the Fed will tighten until something breaks is just hilarious – because apparently they totally missed that something huge has already broken, and that the Fed will need to fix that, even if it ruffles some feathers.

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  138 comments for “Something Big Has Already Broken: Price Stability

  1. BuySome says:

    Hmmm, the 2% balloon ride or the 0% staycation. Well Bob, I’m gonna have to go with curtain number three and a chance to win that big beautiful new green 2023 Hupmobile Deflation Wagon with a matching picnic basket. Let ‘r buck! Now, where did I misplace that damn meteor I had with me?

    • WA says:

      The really bad thing is mortgage rates are rising (cars, banks, different loans) and the prices still remain at peak and keep inflating. So customers have to pay significantly higher and many things ar unaffordable.

      This is a good time for a buyers strike, specifically for non-essential items. Postpone big buys through leases till price corrects for rates.

      • joedidee says:

        we’re waiting for all those retailer gluts to come on market at 50% off
        if not – we’re good
        fed didn’t break anything that wasn’t already flawed and ready to break
        over past 40 years of work I’ve been laid off over 5 times(programmer with skills)
        always got up and went on to next GAINFUL employment
        got lots of work – time to go do it as mortgage still needs to be paid

        • anon says:

          joedidee wrote about being laid off and finding new work as a programmer with skills.

          That, too, was my experience back when I was working.

          Find a job. Work your tail off. Get ‘right sized’.
          Rinse. Lather. Repeat.

          Heck … now I’m retired and the headhunters … uh … ‘recruiters’ are still phoning (gasp!) and emailing me.

          Get skilled. Keep learning. NEVER EVER burn bridges behind you. It works!

          Keep going joedidee … my Social Security depends on good guys like you! ;-}

  2. SpencerG says:

    I hate to break it to both the Fed and to Wolf… we aren’t going to get to either 2% or 0% inflation any time soon. When inflation escapes its cage it is a bear to get it back in there. The real target ought to be somewhere between 3 and 4%.

    This is a real fiasco that we are facing but it can get BIGGER… all that has to happen is too many people end up out of work for too long.

    I remember 1981… and being THANKFUL that I found a minimum wage job at a shrimp processing plant in Alabama that summer. I got laid off in the middle of the summer because the shrimp weren’t running and the plant manager told me he had to save the jobs of the people with kids instead of teenagers.

    • VintageVNvet says:

      Good points SG, but I totally DIS AGREE with your suggested inflation target of 3-4%.
      NO inflation is good,,, absolutely NONE of it for any working person, no matter if on W-2 or 1099.
      As has been pointed out clearly on here many times, ANY inflation is a tax on working folks at all levels.
      That alone is all WE the PEONs need to know about inflation.
      Similarly, the entire concept of ”Growth” for the sake of growth is also totally wrong, and almost always also a tax on savers and workers who end up paying for the ”growth” in both direct taxes and fees from GUV MINT as well as clear declines in quality of life due to traffic, crowding, crime, etc.
      While Wolf’s focus on price stability is absolutely correct, so should be our focus of environmental stability of all kinds.

      • VintageVNvet says:

        Anyone can use the ”OFFICIAL” BLS inflation calculator to see the ”official” and shameful tax on WE the PEONs:

        According to that official GUV MINT propaganda, a kid or anyone else who wanted to earn the same buying power as the $10.00 PER HOUR that I did as a kid in 1956 doing ”piece work” both in office and in the field must earn over $100.00 PER HOUR this year — right at $110.
        Of course no kid can do that, even though it is very clear that the criminals manipulating the trillions or perhaps now quadrillions of ”derivatives” AT OUR EXPENSE, do that every day, eh
        SHAMEFULL theft, far damn shore!!!

        • WA says:

          Yes, the value of labor goes to heck in a straight line, thanks to asset price bubbles.

          That’s even worse than inflation.

        • Flea says:

          Hilarious 10$ a hour in 1956 ,hard to believe

        • elbowwilham says:

          How did you make $10 an hour in 1956 as a kid? Minimum wage was $1.
          I made $10 an hour as a 20 year old in 2000 and felt like I was doing ok.

        • VintageVNvet says:

          Mowed lawns and trimmed yards towing my mower behind my bike with other tools in the baskets used to carry the papers I delivered 7 mornings a week.
          Typed documents at speed 90 WPM, with pay of $1-2 per page.
          Very motivated as had the Cushman Golden Eagle scooter firmly fixed in mind…
          Of course neither of the three ”jobs” were full time, and only took cash payments.
          Only problem was collecting for the paper route when folks would leave town without paying me, but the tips made up for those losses.

    • Somethingstinks says:

      Listen Forrest, if you get out in the real world you will see the damage that’s going on due to inflation to working people, not the palace dwellers. How about you put your magic shoes on, run outside like the wind and look around with your eyes open, instead of looking inside your box of chocolates.

    • Augustus Frost says:

      3% to 4% inflation will eventually impoverish most retirees who retire anywhere near the current retirement age.

      There will be nothing close to the 10% “historical” return on the stock market after the mania is confirmed as over, nowhere near it. Prices are going to at minimum revert to historical valuations or near it. My opinion is below prior to a new long-term bull market.

      Even without QE and ZIRP, real after-tax interest rates are likely to be close to zero or negative. So, anyone generating returns from a taxable account will likely be receiving negative returns.

      Real estate in many markets is also in a bubble. No predictable returns there either, especially in the almost certain less robust employment market.

      • cb says:

        Augustus Frost said: “Even without QE and ZIRP, real after-tax interest rates are likely to be close to zero or negative.”


    • Wolf Richter says:

      If inflation sticks around 4%, which is not unrealistic, and when that becomes clear to the market, the 10-year yield will stay above 6%, and mortgage rates will stay above 7%. So now you can reprice all assets accordingly. You will need something like a 6% dividend yield on the S&P 500 index, so OK, start doing the math of how far the S&P 500 index will have to drop to get to a 6% dividend yield. I’m OK with that.

  3. Finster says:

    Excellent commentary, Wolf. Much needed eloquent push back against all the Wall Street hysteria about rising interest rates and falling asset prices. Starting at 3.5%, unemployment has room to rise before it hurts nearly as much as 7%-9% consumer price inflation (which really should be 0%). The “recession” that Wall Street fears is the one on Wall Street.

    • Bobber says:

      Aren’t you concerned about what could happen to Cathy Wood’s career? I’ve been worried about that all week.

      • cb says:

        Maybe she’ll win a Nobel prize. Happened to Bernanke.

      • Evan says:

        That got a literal LOL out of me…

      • PalermoDeluxe says:

        I totally am very concerned… I mean Cathy is so hot:). I saw a pic of her in this short skirt the other day. Man, if she lived near me I’d jump her bones.
        Seriously though, I am so concerned for her. She’s such a sage, a futurist, she knows what’s going to happen and she’s telepathic with a sixth sense.
        If I see her, I’ll just give her a big hug and tell her everything will be okay and she can sleep at my place until she gets back on her feet:)

  4. Xaver says:

    Yep. ZIRP made sense only for the rich.
    But 40 years of “price stability”? Prices of most goods about doubled during this time. 2% inflation per year is not price stability. It’s welcome for politicians and their debt policies. They will spend the 2% plus the 2 to 3% of productivity gains per year.

    • Rob says:

      1.02^40 = 2.2 so doubling of prices sounds about right.

      • Augustus Frost says:

        Prices have easily more than doubled since 1982. It’s not even close.

    • The Real Tony says:

      I was rich and ZIRP put me in the poorhouse. I owned a lot of land in Alberta, Canada and it fell in half during ZIRP since 2007. ZIRP also destroyed my banks accounts.

    • historicus says:

      Bernanke came up with that 2% inflation target ….. when financials were in turmoil. Then it became a mantra, just as the “dual mandate” became a mantra and carved the “promote moderate long term interest rates” mandate out, as the Fed pounded long rates to immoderate ALL TIME LOWS.
      2% inflation increases prices 22% in ten years…and that’s a goal of “stable prices”?
      If one can swallow the “2% target” and imagine a trend line of that 2%, then a 9% spike……that chart would suggest that if the Fed TRULY wanted to stay on the 2% trajectory, they would be pushing for price ROLLBACKS to get back on that trendline…….they don’t. They frame victory as lesser inflation TACKED ONTO the spiked prices. This to me is a “tell” revealing the disingenuous nature of the Fed and the lap dog financial media that won’t ask the question…..Why anymore inflation?

      • Depth Charge says:

        “Bernanke came up with that 2% inflation target…”

        No, it was Greenscum in 1995.

        That being said, we have zero representation in CONgress. They are as much to blame as the FED. They have been actively destroying the working class and the poor for over 40 years straight. Despicable.

        • historicus says:

          “At least since 1996, the US Federal Reserve has used monetary policy with the aim of keeping inflation at 2%—a number that Ben Bernanke, the former Fed chair, made an explicit policy target in 2012. “

  5. Dave Brewer says:

    Starting to have my doubts, Wolf. The year-on-year figures might still be raging, but the month-on-months ones are snoring.

    Check out the monthly index numbers for both CPI and PCE. CPI peaked in June, down in July, down in August. PCE down a whisker in July, up a whisker in August. Hate to say it but Biden is right that prices are roughly stationary just at the moment. Maybe momentum will resume in September, maybe not. But hard to see rates needing to go much higher on the latest inflation figures as they stand.

    • Wolf Richter says:

      Dave Brewer,

      “but the month-on-months ones are snoring.”

      Seems you missed the last CPI and PCE reports? Did you not read them right here?

      Core PCE (lowest lowball number the government puts out) month-to-month jumped by 0.6%, third-highest in 42 years, after June 2022 and April 2021. And then we have to back to 1980 to get that kind of month-to-month. That’s what the Fed uses for its inflation target.

      We’re going to get the September CPI tomorrow, so stay tuned. Core CPI going to be pretty ugly on a month-to-month basis. Overall CPI month-to-month may be ugly too because gasoline prices have been rising.

  6. Michael Engel says:

    1) NDX & SPX had a bad day, but the close was fun and entertaining :
    SPX closed at 3,588.84 > Sept 2 2020 high @3,588.11.
    2) SPX weekly breached Sept 26 low, but closed above Sept 26 close.
    3) SPX weekly is below ma200, but it’s only Tues. SPX might still go lower.
    4) JP sent SPX down for nine weeks because he is mean. Next week
    T of T&K of the weekly cloud will lose its top and the week after next week will lose Aug 22 high. T&K will flip, become bullish, despite the hawkish Fed.
    5) When the reaction phase will be over SPX and NDX might move higher, come back under June 30 close, and start the Xmas run.
    6) Xmas 2022 might cont til Xmas 2023 and overextend beyond Xmas 2024.

  7. RP says:

    My suspicion has been the Fed and other central banks are not so stupid but have let inflation run hot to deflate the value of huge debts run up during the everything bubble.

    Now we still have negative real interest rates for the foreseeable future, as nominal rates run below inflation rates. However they are cornered now as inflation could destroy currencies, so they have to shut down inflation, at least raising rates as fast as other major currencies.

    The end result I think will be the big debts run up over the everything bubble will be deflated, but at huge cost to the public who have to bear high inflation for years. Same kind of thing with how second world war debts got whittled away.

    • Einhal says:

      “Inflating away the debt” only works if you’re not adding to it at an even greater pace. We are.

      • Augustus Frost says:

        My thoughts too. Virtually no one seems to grasp this basic fact.

        That’s why if central banks are trying to do this (again), it will fail to accomplish the supposed goal.

    • cb says:

      RP said: “My suspicion has been the Fed and other central banks are not so stupid but have let inflation run hot to deflate the value of huge debts run up during the everything bubble.”

      Never let a catastrophe go to waste. Covid was useful cover to inflate the money supply in their endless justifications and track covering.

      common thieves manipulating stupid and gullible, and through many self interested, people

      • Tom S. says:

        The Fed lied when they said they weren’t worried about inflation, then they lied when they said inflation was transitory. The only thing that was really transitory was the layoffs due to Covid shutdowns. PPP took care of that. The Fed suppressed rates to make PPP “affordable” up front. Buy now pay later. Congress should be holding the Fed more accountable for pricing going haywire. CBO hardly worth their paychecks either.

        • historicus says:

          in a system that boasts of “checks and balances”, who checks the Fed? The Senate Banking Committee, who when allowed to question focus on gender inclusion and green energy? Nope. Sherrod Brown? Give me a break.

    • Cytotoxic says:

      Debt doesn’t kill you so much as interest on debt does-and inflation causes that interest on debt to balloon while killing the economic growth that stabilizes debt loads. This ‘paying off debt with inflation’ canard needs to die already.

  8. Somethingstinks says:

    What they realize is when you push a majority of population to such an extreme breaking point, they end up opting for the party that says sieg heil. Think about it… if your life is getting miserable by the day while the schmucks with connections buy 2nd or 3rd private jet or another island, at some point you are going to want a scorched earth policy. Especially if the said schmuck turns around and scolds you for eating that 2 for 5 quarter pounder, or using your Toyota Tercel.

    • Einhal says:

      Yes. That’s how Cuba fell. Corruption and wealth concentration leads to revolutions.

      On a related note, El-Arian was interviewed yesterday, and said that the Fed was forced to slam on the brakes because it diddled and did nothing for over a year when it was clear inflation was becoming a problem.

      He’s right. The smooth landing may have been possible had he not let it get out of control in the first place.

      • Augustus Frost says:

        There was no possibility for a smooth landing a year ago. There is never a “soft landing” after a mania and this is the biggest one, ever. That’s a belief in something for nothing.

        American living standards are destined to decline noticeably for most of the population and there is absolutely nothing that can be done to prevent it, only “kick the can” to a future bigger day of reckoning.

        • cb says:

          “American living standards are destined to decline noticeably for most of the population and there is absolutely nothing that can be done to prevent it,”

          Nothing? Re-flow wealth and taxes to eliminate rent?

          eliminate the bankers cabal – the FED?

          slash max politician pay to nationwide median income?

          adjust the corporate limited liability protections?

          link personal liability to paid lobbyists?

        • Depth Charge says:

          Living standards have already dramatically declined for the masses. All you have to do is look at rents and auto prices alone. They have carved out an inordinate chunk of monthly disposable income. This doesn’t even take into account food, energy, etc.

          I just got my yearly car insurance renewal this month. It went up over 10%. Where do they think that extra 10% is coming from for most people? It has to come out of somewhere else in the budget, most likely foregoing a discretionary purchase. Goodbye corner coffee shop, or local pizza joint, etc.

          This is why I wholeheartedly disagree with Wolf on a FED rate hike pause for a couple years. That would be absolutely disastrous for the masses and the economy as a whole. Businesses are getting destroyed by inflation, if anything due to declining discretionary spending.

        • Swamp Creature says:

          Ben Bernanke just got the Nobel prize for economics. He did one heck of a job. Bailed out all the big banks and Wall Street and let all the mom & pop businesses and homeowners go under, and created the foundation for the inflation that we have now.

        • Pilot Dave says:

          One fact ignored by all Officials and Talking heads – Wolf included:

          Absolutely everything in a store got there with diesel fuel, and most was made with oil / diesel… direct impact on CPI.. which ignores energy costs.

        • Wolf Richter says:

          Pilot Dave,

          “CPI.. which ignores energy costs.”

          CPI doesn’t “ignore” energy costs. That’s ignorant BS. CPI reflects the final retail prices that consumers pay for goods and services, which include the costs of energy of producing and transporting the product — and that’s included in “core CPI” and overall CPI.

          In addition, overall CPI includes energy prices that consumers pay directly, such as gasoline, natural, gas and electricity.

          Why don’t you ask a question if you’re so clueless, rather stating this BS? I mean, something like “Are energy prices included in CPI?” would have worked.

      • Michael Auten says:

        Have you not noticed? We have landed already! It’s smooth landing :) SPY reached 3600 from 4800. Hear any complains?

    • Alba says:


  9. Einhal says:

    No. The inflation disaster is collateral damage from the printing and spending of $5-$6 trillion to make up for the effects of $1.5 trillion in lost economic activity are a result of the not-based-on-science lockdowns.

    • Crush the Peasants! says:

      Fixed it for ya.

      “Yes. The inflation disaster is collateral damage from the printing and spending of $5-$6 trillion to make up for the effects of $1.5 trillion in lost economic activity as a result of the not-based-on-science lockdowns.”

      Now that is the demand side. But contraining supply is also a result of the not-based-on-science lockdowns, as well.

    • Mr. House says:

      Or the lockdown was an excuse to make you accept the spending of 5 to 6 trillion because the problems from 2008 were never fixed and its always better put off peasants in the streets. People will accept things they normally wouldn’t when they’re scared.

      • Mr. House says:

        Glad to see you’re finally allowed to point this out without your comment going poof!

  10. Nick Kelly says:

    All good stuff and agree the Fed had to stop fooling around. Chance of soft landing gone now. Lost when Fed’s baby steps got crushed by…
    But, stuff will break and by far the biggest so far on the Fed’s radar will be the crash in Brit pound, gilts etc. This is more important to the Fed than the crash in Cathie’s tech stocks. Here geo-politics plays a role. The UK is a close US ally and those are hard to come by. Just ask Vlad.
    It would be nice to be a fly on the wall in their discussions about this, which will probably include talk about a standby credit line.

    • Depth Charge says:

      “Chance of soft landing gone now.”

      You’re just parroting. As Augustus pointed out above, there is no such thing as a “soft landing” after a massive speculative bubble, in this case an “everything bubble.”

  11. Jtanon says:

    Brilliant piece, Wolf. This should be a signature insight raising your profile and getting you into the WSJ/Forbes etc. group of outlets. The argument about the Fed/US govt shifting from a loose monetary policy for assets into loose monetary/fiscal policy for consumers amid the stress of the pandemic is one I’ve seen nowhere else and hit me with a big “why didn’t I think of that” moment.

    I have two non economic suggestions:

    1) Tighten up the writing in the initial section.
    2) The argument would have more force if you provided some data and charts supporting the argument about the asset-to-consumer shift in 2020.

    But that aside – good going.

    • Degobah Smith says:

      I agree, brilliant piece. Kudos to Wolf, but he will never get into the WSJ/Forbes cabal of outlets. Wolf tells the truth, explains complex systems with extraordinary eloquence, and makes the “dismal science” accessible.

      This is anathema to the wizards of Wall Street who prefer to keep us, the peons, in the dark while they work their “magic” behind closed doors and enrich themselves at our expense.

      Alas, for them, their genie has escaped his bottle and is now wreaking havoc across the land. I sense that it will not end well for the wizards.

      • Cold in the Midwest says:

        Precisely. Hard to picture Wolf at the WSJ. He would have to answer to an editor, and goodbye clarity, conciseness and truth.

        He would also have to “fit in” with the other content. I can see it already: “I understand your point about CA real estate prices Wolf, but our other contributor SoCaljim has already published a piece saying the market will continue to go up….”

        Let Wolf stay unleashed.

        • Wolf Richter says:

          I have total blast being the top head honcho of my media mogul empire where only my readers can fire me. I would never give that up voluntarily.

    • Wolf Richter says:



      FYI: This is the transcript of my podcast, THE WOLF STREET REPORT. There are no charts in my podcasts because that’s my vacation from charts, and I’m just talking. Listen to the podcast here, more fun listening to it:

  12. phleep says:

    With all this free money and bets wrong-footed, you betcha something will and should break: segments of this global economy built on that rotten and unsustainable foundation. The wrong-footed “hedge fund gurus and bond kings and stock-fund apostles and other crybabies on Wall Street,” all leveraged up on the previous regime, rightly should squeal. They are crying for us to hop back on the slippery slope to their obscene profits and our inflationary suffering. No thanks! Time to call a halt. Those of us with some kind of resources squirreled away, should batten down the hatches and we all should undergo and sustain exposure to this storm, so true repair can begin.

  13. Spencer says:

    Wolf has some uncommon, common sense. And there are some real dangerous influential antagonists. Wolf’s there to separate the wheat from the shaft. He is a must read.

    Inflation is the most destructive force capitalism encounters.

    • Depth Charge says:


      • phleep says:

        I have become accustomed to Wolf’s style. Lots of other media sounds like “reality TV,” like a game show now. Sugar-coated, dumbed-down fluff. It takes a lot of skill to clarify and explain this stuff meaningfully to a naive guy like me. But it has helped me this year immensely. I am up double digits on my portfolio.

  14. phleep says:

    September producer prices are still up above 8% annualized. The evidence of containment of inflation is not there. I suspect tomorrow’s consumer report will be similar. Grocery prices have spiked for me.

    • Flea says:

      Totally agree grocery prices up,buy everything on sale .Even get cereal for grandkids99 cents or snacks 99 cents my kids are starting to feel inflation . But I’m just a old geezer ,who lived thru 70-80 s make fun of me . Now starting to realize ,experience is a valuable tool .How long until they confiscate saving accounts

      • phleep says:

        > How long until they confiscate saving accounts

        Interesting. Aren’t they kind of doing that now? Didn’t the printing already tax our savings and transfer them to others? Buying votes, I guess? But the other team’s moves weaken the public financial stability just as much. Like Truss’s borrowing for a rich folks’ tax cut.

  15. Augusto says:

    The price stability the Insiders want is ever increasing asset prices, as they own the assets, as well as deflating expenses, including lower and lower wages for those who serve them. Maybe they are right and deflation is coming, but it feels more like not, except for assets. Depreciating assets and sticky inflation with a working class, staying at home, quietly quitting or able to extract inflationary benefits from politicians, means less for insiders and more whining on the Financial channels. The insiders might have to park the personal jet or sell one of their 5 homes…tough times are a coming….

    • Not Sure says:

      Wolf has included an excellent graph in many of his articles tracking the buying power of the dollar over time. The GFC was the only real blip of deflation on that graph. The dollar experienced very slight deflation for a short period and then immediately resumed its fall. It’s an unrelenting trend from the top left corner to the lower right. The U.S. median house price and other asset prices are the inverse of the dollar’s value. They show little blips or flat spots here or there, but asset prices have always been on an unrelenting march upward over time.

      The BLS CPI calculator says that when I was born in 1984, the dollar was worth 3 times its current value. When my dad was born in 1956, the dollar was worth over 11 times what it is today. When his father was born in 1924, the dollar was 17 times its current value. And let’s face it, those are watered-down figures. The reality is much worse when real estate and stocks are figured in.

      So many commenters on here keep feeding their fantasy about deflation that will never come. It’s nuts, literally insane. Deflation WILL NOT happen. The Fed and treasury will not allow that, at all costs. My fellow Wolfstreeters need to get that through their heads. The Fed may put up a little fight here or there during periods of heavy inflation, but the trend is undeniable… The dollar will keep dropping in value until some other currency eventually comes along and replaces it as the world’s reserve… Just like every other reserve currency in all of human history.

      • eg says:

        Reserve currencies are a feature of empires. Are you calling time on the American one? Because over 700 military installations around the world say otherwise.

    • Randy says:

      Too many folks here talk as if a stock market plunge only hurts the wealthy.

      On an absolute dollar amount sure.

      But there are many middle and upper class (not super wealthy) for whom the stock market probably plays a more significant role in their well being than the oft cited 1% (or 0.1%).
      Admittedly I can’t back this up with some study, but believe it is true. It is almost certainly true for me and my income the last twenty plus years has been around 150% FPL.

      [Ah hah…there’s one acronym y’all probably dont know ! (Federal Poverty Level).]

      Too many very knowledgeable people just don’t consider enough perspectives.

      • Cookdoggie says:

        Yes, and the last 10 years took their assets into the stratosphere too. It’s all relative. If they didn’t bank some of that to protect the gains, that’s on them. I heeded warnings way back in 2013, went too conservative and watched all my cohorts zoom away laughing that “the first million is the hardest”. I have zero sympathy if it all burns down, I’ll open my cash hoard and walk around buying their corpses for pennies on the dollar.

  16. nsa says:

    The elites and their (not your) central bank know exactly what they are doing… think otherwise is delusional. The central bank has published numerous papers on the subject of inflation…..even quoting Keynes extensively: “inflation is just another method of taxation which the government uses to obtain real resources”. Let’s hear from a former central banker and nobel laureate, the Helicopter Man, himself: “The US government has a technology called a printing press, which allows it to produce as many dollars as it wishes at zero cost…..a determined government can always gnerate inflation….”. Your rulers know exactly what they are doing…..stealing what little you have.

    • Flea says:

      Feds have a 5-10-20 year plan,we just don’t know what it is

    • Randy says:

      Why is it JUST the Fed and the government that are responsible for inflation according to all the posters here ?

      Even if they are responsible for most of it why don’t the CEOs, CFOs, VPs, marketing heads of businesses large, medium and small bear some responsibility ?

      I find this omission very odd.

  17. Yancey Ward says:

    The million dollar question is, “Will Powell’s nerve hold?”

    The effects of the increases in rates in the short term debt profile are still not being seen, and won’t be seen until a year into the rate hiking cycle. If Powell really does stop at 4.5%, then he will fail in his fight against inflation, because this means the rate increases stop this January. I think he will have to go much further than 4.5%, but I just don’t believe he will have that much courage.

  18. andy says:

    Wolf (or anyone who’d like to chime in),

    a question regarding brokered CDs please..

    I looked up some, and there was a Chase bank’s 5-year 5% callable CD (new issue) available. Or, Wells Fargo’s 3-year 4.3% non-callablle CD available.

    Are these something you would consider now?

    And besides obvious shortcomings (like absence of FDIC insurance, price fluctuations, or ‘callability’), are there other things to consider before buying one?
    Are these CDs any better than bonds?

    Many thanks in advance.

    • Anthony A. says:

      Brokered CDs have FDIC insurance. All bank CDs do. And yes, they are callable….but so what? Even if they get called a year out because of a drop in rates, you still made some money at the high rate.

      They are better than bonds because they are FDIC insured where bonds are not secured.

      I am buying brokered CDs from Chase, B of A, Wells, and a couple of smaller banks. I am setting up a ladder of maturities and replacing as they mature. You can do the same with Treasuries. I am dong that too with 3, 6 and 12 month treasuries.

      I’m 95% fixed income in my portfolio now.

      • andy says:

        Thanks Anyhony,

        I just assumed there is no FDIC insurance in a brokerage account. With a regular CD at a bank FDIC is the first thing they show you. Did not see it in ‘brokered CD’ info. Live and learn. Glad I asked.

        I wanted to find longer term ‘fixed rate’. Like 5% 5-year non-callablle would be great. You know, for when they cut rates into the negative. I know, I know they won’t :-)

        • andy says:


        • andy says:

          Just few mins after I posted brokered CD question I got email “Get $1000 for opening Merill Lynch account”.
          Need $250K and 90 days to get the reward. That’s like 1.6% annualized.

      • Wolf Richter says:

        Anthony A. and Andy,

        Most brokered CDs or any CDs are NOT callable. But some are callable. If they’re callable, it will say it on the screen where you buy them. Callable CDs should offer higher yields than non-callable CDs — which explains the 5% of Andy’s 5-year CD, which is higher than normal rates.

        • Anthony A. says:

          Agreed, some of the brokered CDs I bought in the 4+% range are callable. Some others are not. I guess it depends on the bank’s call on duration and forecast of interest rates, etc.

          At Schwab, where my accounts are, each CD that is callable is labeled as such. I should have been clearer on this in my response to Andy.

    • Flashman says:

      Why would anyone keep money at Wells Fargo?

    • El Katz says:

      Brokered CD’s have FDIC insurance on the same terms as deposits made at the bank. On most sites (Fidelity for example), it lists the terms of each CD (callable, FDIC insurance, etc.) right on the selection screen. Just keep them under the aggregate FDIC insurance limit for your particular situation (other bank deposits plus the brokered CD at the same institution) and you’re golden.

      • andy says:

        Yes El, I’m seeing it now. Not sure how I missed it. Thank you.
        Not worried about FDIC limit. Thanks Obama! :-)

    • Wolf Richter says:


      “callable” means that they can be called, and when they’re called you get face value plus any interest outstanding. So if two or three years from now, interest rates drop to 3%, Chase will call that 5% CD. You get a higher yield now, but you may not keep it for 5 years.

      If yields continue to rise, they won’t call the CD.

      So this is a calculated bet on your part that interest rates will not fall a few years from now, but will go higher, but not much higher. If you think interest rates will go much higher, you don’t want to commit to a 5% five-year CD.

      • andy says:

        Thank you, Wolf. That makes sense.
        I think I will research those ladders for when I’m out of puts for good. Started to get cash out slowly.
        Then come foreclosures. So maybe 2-3 year CDs for now.

        • Anthony A. says:

          Andy, if you want to have some fun with chasing interest rates, you can play the 3, 6, and 12 month treasury bills, and build a monthly ladder that matures a bond each month, if you make buys at the right times. There are no coupons on these as they are bought under par so you pay less than face and at maturity get back face value.

          This can be done at most brokerage houses as they sell T bills either through the auction process (Treasury Direct) and aftermarket sales. Schwab and Fidelity even have Ladder Building Tools to do this process.

          Right now, T bills yields are about the same as short duration CDs and are as safe, if not safer, seeing they are gov issued.

        • Anthony A. says:

          Andy, I should mention that the T bill laddering I am doing is best done inside an IRA where paying taxes on these gains are not an issue. In a taxable account, those transactions would be taxable and if you have many of them, it would just complicate things.

        • andy says:

          Thanks again, Anthony. Apreciate the detailed explanation.
          I am looking to get my first brokered CD on IRA. Trying to distance from tading too much (it works till it doesn’t). The ladders will be my next study area. Not so much study as the need for experience and feel of it.
          Last 2-3 years I was into studying options. Was preparing to short the market. This worked pretty well so far.
          Now is time to brush up on no-risk passive income. Then later roll it all into foreclosures when bottom gives in. I think rollercoaster is just starting.

  19. SocalJimObjects says:

    PPI up 0.4%, hotter than expected. Since CPI follows PPI, we are possibly looking at a bloodbath tomorrow? The PPT might have to come out in force.

  20. historicus says:

    Let no crisis go to waste.
    How can we make a ton of money off a COVID scare?
    We will get long hard assets and have the Fed print TRILLIONS to assuage the ill effects of the lockdowns.
    It is all so counter intuitive……cripple the economy…but then make a ton off the overdone central bank relief . Brilliant.

    • Mr. House says:

      Two years on and they still can’t “tell” you were it which shall not be named came from, and the fact that it was infected with politics from the start should have been enough to tell most what was going on. But people get caught up in hysteria, esp those pushed by the media every second of every day for an entire year. Does anybody remember when the Yahoo finance ticker also briefly displayed covid stats? That didn’t last long because whoever was in charge of that realized that was even a bit much.

      If covid proved anything, it proved that many parts of our society have way too much power and we need to decentralize ASAP. Market wants that to happen, thats what 2008 was, so why do the “authorities” do the opposite?

  21. cb says:

    “The simple fact is this: stocks, bonds, the housing market, cryptos, etc., etc., they were all hyper-inflated by years of the Fed’s money printing and interest rate repression, that started in late 2008. And after a brief pause in 2017 through 2019, the Fed went hog-wild starting in March 2020 when it printed $5 trillion in two years and threw it at the markets.

    Since 2008, the Fed has printed $8 trillion and threw this money at the markets. And for most of the time since 2008, the Fed has repressed short-term interest rates to near 0%.”

    even the too highly rated Friedman, Bernanke’s hero, knew inflation was a monetary phenomenon

    • phleep says:

      When Bernanke complimented Friedman to his face and said we won’t do it again, Bernanke was referring to “we” as the Depression era Fed, and meant what “we” won’t do again, is let deflation happen again (by failing to print more). So Bernanke was not indicating any insight into the situation now. Bernanke was a scholar of the big D, deflationary Depression, not what we face now.

      Popular history is re-appraising Bernanke intensely now. And not for the better. But I would say Powell really was the sorceror’s apprentice, the naive dilettante who overplayed the Bernanke approach, just as the shadow bank fools overplayed the JPMcredit default swap, back in the 2000s.

      • cb says:


        all jokes, who staged the ongoing moral hazard, manipulations, and continuous inflation, with insider bailouts and worker/saver suppression that we have had to this day …………………..

        they have fomented class and generational discord ………

        they don’t rise to level of maggots, on their best day ………..

  22. cb says:

    “Big institutional investors and speculators could borrow short-term in the repo market for near 0% interest. This was as close to free money as you could get, and they borrowed this nearly free money and speculated with it, and now the interest rate in the repo market is over 3%, and it may be over 4% by year end, and higher next year, and that’s a bitter pill to swallow if you’ve gotten fat after 14 years of free money.”

    So now the FED supports their favored grifters from the other side …….
    paying them on reverse repos and reserves, allowing them a safe haven and a profitable spread on short term money. Fidelity and others pay 2% or so on money market funds and park it with the FED at 3% plus. The banks pay joke rates on deposits, yet receive 3% plus on reserves.

    • Wolf Richter says:

      The near-0% repo market rates disappeared in March. Borrowing in repo market now costs over 3% too. The Fed pays 3.15% on reserves. Borrowing in the repo market is around the same rate, but banks that borrow in the repo market, have to post collateral, and so there are costs involved, which is why banks do NOT borrow in the repo market, but they LEND to the repo market.

      These are the rates since the last Fed meeting:

      Federal funds rate target range, to 3.0% – 3.25%.
      Interest it pays the banks on reserves, to 3.15%.
      Interest it charges on overnight Repos, to 3.25%.
      Interest it pays on overnight Reverse Repos (RRPs), to 3.05%.
      Primary credit rate it charges banks, to 3.25%.

      • historicus says:

        Paying on excess reserves stared in 2008?

        What is the cost of this “new” program?

        It was said that banks should be paid on excess reserves….and they pointed to Milton Friedman who said banks should be paid on reserves……but he didnt mention “excess” reserves. The “gift” that keeps on taking. A lock for the banks.

  23. ru82 says:

    What is funny is that mortgage rates are now in the mid 6% range. Not sure if people recall, but mortgage rates quickly dropped from 8% in 2002 to the mid to low 6% range in 2002 and stayed in this range from 2002 through 2008. These low rates helped create the Housing Bubble 1.

    Now we think 6% is high. The home buyers in 2002 through 2008 thought 6% was low. LOL

    • ru82 says:

      I meant rates dropped from 8% in 2000 to 6% in 2002.

    • butters says:

      Back then, it was still ‘affordable’ with higher interest rates. Even 3.5% mortgage rate is high for current ‘valuations.’

      • PL says:

        I hope people aren’t looking at 3.5% as “high”. I sure hope they have space above 3.5%.

  24. Crush the Peasants! says:

    Commenting on the negative consequences of government policy, i.e., the lockdowns, is banned on Wolfbook? Or is that Witter? Whocuddanode?

  25. gametv says:

    producer price inflation at .4% for the month – ouch! that is not settling down.

  26. Bobber says:

    I would argue that something bigger than inflation has broken as a result of monetary/fiscal policy…and that is trust in government.

    Wealth has been transferred from wage earners, retirees, and conservative savers to speculators and Wall Street, pursuant to a thoughtless ill-planned monetary “experiment” that did not make sense from the beginning, from a long-term perspective.

    Monetary problems were continually kicked down the road, for future generations to deal with.

    The government’s solution to a debt problem was to encourage more debt via interest rate repression and QE, a clearly flawed strategy that assumes consumer spending somehow creates a virtuous cycle of growth.

    Hundreds of billions, if not trillions, of taxpayer money was wasted on fraud and giveaways to meritless individuals and businesses, via unemployment insurance waste/fraud, PPP Program, and other poorly designed bailouts.

    The government grew its deficit via spending increases and unfunded tax cuts in a clearly unsustainable manner, stating that now is not the time to make necessary sacrifices. Government stubbornly and idiotically doubled down on the same policies that created the problem.

    Economic prospects of younger generations were sacrificed to grow wealth for the top 1%. Home ownership is no longer a reasonable goal for those who do not currently own a home. Retirement at 65 is no longer a reasonable possibility for those who missed the everything bubble.

    Could go on and on……

    Government needs to clean up its act and end the constant promotion of moral hazard and “kick the can” thinking.

    • cb says:

      Sort of sounds like class and generational warfare doesn’t it?

      I would say the FED has been deep into it for many, many years. Anticipated fraud from inception?

    • Wisoot says:

      Replace ‘the government needs to’ with I need to.

    • Randy says:

      Not disagreeing with anything you wrote.

      But a certain set of poor folks I believe are infuriated (?) as much by investors of all ilk bring able to buy up much housing stock… this more than the Fed or government screw ups tops their list of asset bubble grievances.

      This doesn’t get much play by wolfstreet commentators.

      It certainly pissed me off… enough that I am now a political independent.

      • Randy says:

        investors of all ilk bring able to buy up much housing stock…

        should read:

        investors of all ilk being able to buy up much housing stock…

  27. Swamp Creature says:

    We should have been retired but are still in the workforce just to make ends meet. Don’t mind working but its now changed from being able to purchase discretionary items to paying just to keep the food on the table, and gas in the car etc. They are wiping out the middle class in the USA. Pretty soon, we will look just like every third world country. A few crooked rich bastards and everyone else fighting for the crumbs that are left.

    • jon says:

      I come from 3rd world/developing country to USA 25 years back.
      I have been observant of system both here and back home for 2 decades or so.
      USA definitely is much better but sadly is going the way of 3rd world in the last 2 decades.

      • Butters says:

        Invite 3rd world, be one.

        It’s harsh but not meant as an anti migrant sentiment.

        • David H says:

          How could you possibly not mean that as an antimigrant sentiment? Wolf…Please. This is trash. How many commenting rules does this violate? I hope at least one..

    • eg says:

      The US urban empire has internal rural colonies — 1st world islands in a 3rd world countryside.

  28. JamesO says:

    this highlights the current state of affairs … in the US we have a government of the billionaires, by the billionaires, for the billionaires. the 2 political parties and ‘divisive’ discourse is simply to keep our eye off the ball and at each other’s throats. the real war is the rich vs everyone else. we’re getting our butts kicked. so not ok.

  29. Poor like you says:

    Wolf, I get it. I finally get it. You’ve finally gotten through my thick skull this time. I’m finally starting to understand what you mean by “…so much excess liquidity out there chasing after all kinds of stuff…”

    There is staggering amounts of money still floating around. Money in inflated stocks. Money in inflated real-estate. Money in ever more expensive durable goods. Supply is low. Prices are high. Wages are up. Everyone has jobs. Over 50% of households are STILL awash in an ocean of cash, and they’re STILL spending it like it’s never going to dry up.

    Inflation is here. The “good times” are over, and the sad, sad part is that for the bottom 50%… It really was never there. The ones suffering the most of all from inflation will never see another dime of that 10 trillion dollar stimulus.

  30. TheBenBernank says:

    Had a folk music friend show me a link in 2012 to cartoons explaining QE. In celebration of the destruction being wrought by QE and the Nobel in economics, google The Ben Bernank. QE explained and QE revisited cartoons pop right up, taught appropriately by ‘bears’. You’ll never think of Berkshire Hathaway the same way.

    Unfortunately, it didn’t explain the inflation bit and QT at the other end.

    I only discovered Wolstreet in 2016. Wolf, thanks for educating us all that the the current inflation and small investor wealth destruction was inevitable.

  31. Troy says:

    Great article Wolf

    I’m gonna donate some of my CA stimmy for ya!

  32. eg says:

    I’m not convinced that price stability as we have understood it for the past 40 years is going to be possible in a world of war, global fracture, pestilence and a painful energy transition.

    • jon says:

      I agree with you but FED should be able to keep up the price of money aka interest rates in line with inflation.

  33. gponym says:

    I look forward to each new article here but this one is a favorite because it skewers the wealthy who believe that our country and economy are here for their benefit. “Crybabies” is a good word for them.

    In a time like this you begin to see behind the curtain of the financial media. You discover who parrots the gospel that’s trickled down upon us by the rich, versus who remembers that there are a whole lot of us who make up this economy and country.

    Very few struck it rich during this latest period of regulatory capture by the metastisized financial sector. More than a few will suffer if it gets taken down a few pegs and unfortunately most of those have already been suffering from the cancer for years. As almost all have suffered: the captains of finance arranged the economy so they got fatter, while millions of good jobs were tossed overseas or were ground up into buybacks or simply went up in smoke.

    Ill-gotten gains, indeed.

  34. cookdoggie says:

    Today’s CPI print is music to the ears of those of us who have spent years waiting for a market reset. As for Wall Street, perhaps the words of the great philosopher Billy Joel may soothe:

    “…and we will ALL….go DOWN….TOGETHER….”

    • SocalJimObjects says:

      The PPT showed up!!! It’s now a question of whether they can win the day only to lose tomorrow.

      • John Galt says:

        Bear market rallies have a savage way of taking down their quickly run-up highs, down to lower lows. There is NO reason for a 3+% rally with a 9.6% inflation print, so expect a massive fall shortly.

  35. Wisoot says:

    Two things Wolf.
    One. If you were them what would you have done. Its an honest question. If you could see a way to feather your families nest with no impediments to your activity might you have done the same thing of kicking the can down road. Human nature tendency to go with flow.
    Two. We have all watched on as a bank of international settlements has created a network of these people who benefit from living outside above the law. By our silence and compliance we must take responsibility of the part we as individuals played to get us here. It is now time as France demonstrates 18 Oct to fix it ourselves. Might add that for last few years the World Trade Organisation has no committee to resolve disputes via appellate body -ask the US why that is. But how convenient right?
    Three. What is a simple barter system that supports a thriving biodiversity on planet Earth. What does good look like?. What the mind perceives and conceives, it can achieve. What is the solution? Your focused thoughts create.

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