Is An Inflation Comeback In The Works?

Tyler Durden's picture

Authored by Bonner & Partners Bill Bonner, annotated by Acting-Man's Pater Tenebrarum,

Exterminating Angel

Amid all the sound and fury of the Trump news cycle, hardly anyone noticed. There is a specter haunting this economy. It is the specter of inflation…

 

See, if you want to whip inflation now, you don’t need to do any of the really difficult things, such as printing less money… or God forbid, return to honest, market-chosen money (shudder!). All you need is intelligent nutrition!

 

Bloomberg has the report:

The U.S. cost of living increased in January by the most since February 2013, led by higher costs for gasoline and other goods and services that indicate inflation is gathering momentum. The consumer-price index rose a larger-than-forecast 0.6% after a 0.3% gain in December, Labor Department figures showed Wednesday. Compared with the same month last year, costs paid by Americans for goods and services rose 2.5%, the most since March 2012.

French investment bank Natixis makes a related observation:

The return of inflation in the euro zone with the rise in the oil price will drive the European Central Bank to give up QE […] Our estimate is that an end to QE would raise interest rates by 110 basis points.

Wait – inflation is what the Fed has been looking for. And the latest numbers reveal it may have already reached the Fed’s target of 2%. If you’ll recall, the Fed set itself two targets: Unemployment would have to fall below 5%. And inflation would have to rise above 2%. Reaching those two targets would prove that the economy was healthy enough to allow the Fed to raise rates.

Higher rates of inflation – higher prices – signal more consumer demand. And more labor demand, too. It suggests there are more people with more money ready to spend it. How could that ever be a bad thing? And now, with the Fed’s key targets hit, we’re ready to return to the good ol’ days, right? Oh, dear, dear reader – if it were only that simple!

 

Year-on-year change rates of TMS-2 (broad true US money supply, black line), M1 (red line), CPI (blue line) vs. the FF rate (green line). Keep in mind that large increases in the money supply will initially mainly lead to shifts in relative prices. CPI doesn’t reflect that the prices of stocks, bonds, real estate and other long-lived assets have increased massively. There are as a rule very long time lags between these initial effects of monetary inflation and a rise in all prices. As long as the public remains unaware that the inflationary policy is deliberate and will never end, there is still time to nip the worst in the bud. Once the public becomes convinced that the inflationary policy won’t be reversed, it is too late. At that point the genie is out of the bottle and prices will adjust upward rapidly, as people will try to get rid of cash balances as quickly as possible. That hasn’t happened in a long time, but it would be quite erroneous to think that therefore, it can no longer happen – click to enlarge.

The typical U.S. household’s income is below the level of 1999. Higher consumer prices will make it harder to keep up living standards. But the bigger problem is debt. Real money – backed by gold – is limited. This limits the amount of debt, because there’s only a limited amount of money to lend.

The post-1971 fake-money system, on the other hand, allowed debt to creep up and then gallop away. Now, there’s more than $200 trillion of it worldwide – about three times the global economic output.

And here’s the thing: As debt rises, inflation becomes an exterminating angel. Welcome at first – then deadly. Rising prices signal to lenders that the amounts they are owed are losing buying power. They will demand higher rates of interest to protect themselves.

 

Great Extinction

But this is a world whose major institutions – banks, pension funds, governments, large corporations, all the major players in the Deep State system – have flourished on extremely low interest rates.

Now, like dinosaurs that have adapted to the tropics, they’ll shiver, die, and go extinct when the chilly winds blow. And they could blow hard. Even an increase of just 1% in the cost of servicing debt – if applied to the world’s debt load – would cost more than $2 trillion a year in interest.

Everyone who had to borrow – those aforementioned major players – would suddenly find themselves unable to continue living in the style in which they’d become accustomed.

 

We sometimes wonder if the Deep State is worried that people have a name for it these days. The Kabuki theater of partisan bickering still works as a distraction, but not as well as it once used to, not by a long shot. Many propaganda efforts are failing nowadays, because they are so obviously at odds with reality and because the internet has broken the Deep State’s information monopoly.

 

Ordinary households would be in trouble, too. Mortgage rates would go up. House prices would fall. Credit markets would “seize up,” making it difficult to refinance old loans.  They would have to cut back, laying off workers and canceling expansion projects – or go broke.

Your stocks could easily drop to half of today’s prices… and stay there. Your pension might have to be trimmed. Even the government, if forced to pay more to service its debt, would have to reduce spending.

But don’t worry. The central banks have the matter in hand, right? Now that inflation and unemployment are in line, they can let rates rise, right? This will tamp down inflation, right?

 

Recession Warning

It won’t happen. As we’ve been warning, the Fed can never voluntarily return to a normal interest rate policy because it has created a world that depends on an abnormal one. Here’s what will happen: The Fed will talk about raising rates. It may even raise them another quarter point or more.

 

Fraud Central and two reminders of when things started to really go wrong big time…

 

But a recession and a bear market are coming, probably before the end of this year. If President Trump were smart, he’d be trying to get them to start soon so he could blame them on Obama. The longer they take to arrive, the more they have his brand on them.

Markets and economies are part of the natural world. They have to breathe in and breathe out. Their lungs fill with ambition and optimism. Then, they must exhale, blowing out the mistakes and disappointments.

But when the “correction” comes, the giant raptors in Northern Virginia and the mega-fauna of Manhattan will howl for succor. The Fed will immediately abandon its pretense of returning to normal. Instead, it will buy stocks and bonds.

 

Once upon a time, people were told that what used to be warehouse receipts for actual money would henceforth be their money. Their actual money would be kept safe by the wise men issuing the scrip that could no longer be redeemed. And what could they do? There was a law that said it was going to be so. Besides, there was an emergency, and it would be unpatriotic and small-minded to complain. The next logical step in this progression will be the ban of the irredeemable scrip. After all, who needs it, when digits in a computer are just as acceptable for payment? Only criminals would complain about their property being locked up in the fractionally reserved banking system forever. And why would anyone mind that every movement of their money could now be subject to surveillance by the State – unless they had something to hide? As the wise political philosopher and former German information minister Joseph Goebbels once said: “If you have nothing to hide, you have nothing to fear.” Modern-day politicians and their advisors frequently had occasion to remind us of this maxim in recent years. Obviously, they recognize wisdom when they see it!

And it may ban cash… impose negative interest rates… rain down money from helicopters…. and come up with novel new ways of distorting, delaying, and defrauding the economy.

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Dr. Engali's picture

Meh...., Ben taught Janet how to kill inflation in less than 15 minutes.

Jim Sampson's picture

It'll be interesting...  Higher prices on food because of tarrifs and having to pay americans to harvest.  Really, everything will cost more. 

Looney's picture

 

Hyperinflation is the government’s only hope to wipe the national debt off. Overnight.

Looney

jus_lite_reading's picture

Personally, I still feel we may be a few years off before they do that. As was the case back in 2008, we are still the best house on the worst block.

knukles's picture

Sure....  The filthy rich will bid up the price of mega mansions, Lamborghinis and Dom Perigon hire an illegal maid or two.
But the rest of us ain't got the money to support any robust spending if inflation comes back

in short, the middle class, whose spending historically drove the economy, cannot today weather any additional adverse climes.  There is no cushion anymore.

Logan 5's picture

nickles bitchez!

 

Oh Wait! Dr. Copper ain't doin so well today so maybe that Gerald Ford era slogan (WIN) needs to stay on the back burner.

 

Anyway, fuck the elitist merry go round & their paper money... You win with nickles either way...

JRobby's picture

All by design

They always (with the help of the FED/CB's of course) "inflate the debt away" to a "manageable" level.

When you think about the cycle of enrichment for those at the highest wealth levels you start to think about things.

Like 5 million magazines locking in simultaneously.

laser's picture

Calling for inflation is like calling a bad dog. At first , it won't come. When it does, it knocks you down on the front porch and runs into the house and starts tearing up the furniture.

 

Hi Bill

Silver Savior's picture

Nickels are cool. I have accumulated about $1500 face value over the years. People who spend nickels are crazy.

jus_lite_reading's picture

Exactly. If we experience say 10% annual inflation, that would be a significant hit to our wallets. But these 1% Billionaires like Fuckerberg wouldn't even notice. Just like in 2008. Exactly like in 2008 in fact. Middle class experienced epic inflation (8-12%) and the Fed said, "oh no, inflation, there's no stinking inflation cause we removed the things causing the inflation in our metrics, like gas, and milk and food. You know things you need everyday but they were too volatile so we removed them and et voila! No more inflation" ... as the rich got richer by the biggest gap in history.

Reminds me of 1789 France...

 

Ramesees's picture

Yes, people that have lots of money are not affected by 10% increases in food prices as much as blue collar folks.  That is a tautology, not a valuable insight.

BTW - Robespierre ended up on his own guillotine.  Remember that when you advocate for an American Reign of Terror.  

new game's picture

1789 French Revolution, the deplorables morph into gladiators to take back the wealth.

East Indian's picture

1. Govt issued money, backed by tangible goods; 2. No compound interest 3. No fractional reserve banking 

 

slightlyskeptical's picture

It would take inflation in the triple digits for them to pull it off this way.

Eventually they will just forgoe the debt based system and just print a pure fiat global electronic currency.

If it comes to that hopefully they will abolish fractional reserve banking and install draconian death taxes or we will see inflation in the triple digits.

John Law Lives's picture

Maybe people will be hungry enough to eat central bankers when food inflation rages.

FreeShitter's picture

So I guess I better buy that 75K F250 now?

J bones's picture

Ehh maybe a 65k platinum ecoboost.

new game's picture

'17 cummins 1 ton larado. aisin tranny, 3.72 rear end...

Dangerclose's picture

If you are going to use cash, wait a while and buy it cheaper.  Remember, deflation will hit on items normally purchased with debt/credit.

oddjob's picture

I suppose if you think they will get cheaper as they make less of them, hold off. Buying used?, go find a used f250 with a 7.3 powerstroke, if you can.

Gilnut's picture

If you're going with the 7.3, make sure it's the 00 or 01, they turned to shit after that.

oddjob's picture

I was thinking 94 to 97 w/ Banks turbo.

Dr. Engali's picture

No worries. It won't be long before the robots are picking our food too.:

 

https://youtu.be/e_qlQD8QjKA

brushhog's picture

Youd rather it cost less and have 94 million unemployed?

knukles's picture

Somebody's gotta fix the robots.
A friend of mine's wife would excel yelling at them 24/7/365.

Or you can move to Africa.  Betcha there'll be places not getting robots for quite some time.  Up the river back in the jungle where Mad Mike Hoare invented recon by fire.

Humanity is fucked is all I can say.  We're working ever so diligently to make ourselves extinct.

general ambivalent's picture

Don't worry, the robots will be sent off to the FEMA Camps where libtards, trumptards, and anarchobanktards will fix them up and cheer on their heroic draining of the swamp.

There's no inflation in the camps. Well, at least not monetary inflation...

new game's picture

retrace a comin and it aint gonna be pretty. enjoy each day if it is the last...

GunnerySgtHartman's picture

The Fed can go to hell ...

FreeShitter's picture

Thats where they all spawned from.

GunnerySgtHartman's picture

What's the saying - heaven doesn't want me and hell is afraid I'll take over?  Seems apropos for central banking in general.

lasvegaspersona's picture

Lets see...2 DOW doublings since 2008...nope..no inflation here...just growth!

syzygysus's picture

Easy, just raise interest rates to 10%.  BAM!  NO INFLATION.

 

So easy a Keynesian wouldn't do it.

 

Can you imagine the chaos....

Sonny Brakes's picture

That was how it was handled when I was growing up.

wisehiney's picture

When the oil prop snaps, deflation it is.

Until the fed snaps.

Then inflation it is.

devo's picture

About 4 months ago we tightened the wallet and haven't bought a single non-discretionary item. Main reason is inflation has eaten into any disposable income. Makes me wonder where future corporate profits are going to come from (and why stocks are priced for perfection) when people can't afford things (even moreso than now).

Silver Savior's picture

I have stopped buying even if I can afford it. I am completely disgusted right now. Everything flows to silver and gold!

devo's picture

Sorry, can't edit. I meant to say we haven't bought any discretionary items. All necessities.

new game's picture

not alone, and getting rid of shit and stuff on craigslist. suckers are out there. just price it to sell and  they come runnin...

 

or burn it, seriously. awesome fires from plastic junk...

 

free at the end of the driveway it great humor...

gatorengineer's picture

I never knew inflation left.... another Lefty piece Tyler come on

Jäger's picture

I paid $1.03 for a gallon of milk and 69 cents for a dozen eggs an hour ago at Aldi.

brushhog's picture

I just milked my cow for 2 gallons. And pulled another 6 eggs from the coop. Total feed cost...47 cents.

baldknobber's picture

I'm not sure what time zone you are in, but you need to get your lazy ass out of bed and milk those cows at 5:00 A.M.

 

Like my Dad told us when I was young  "Them cows don't care if it's Christmas"      :)

Silver Savior's picture

Here low grade milk is about $3.45 and most milk is over $5 a gallon. Eggs are about $2.95 a dozen. I would say inflation is alive and well.

Killdo's picture

Japanese have the best eggs I have tried anywhere - and they cost less than 2$ a dozen as far as I rememeber (I was there last year). They have consumer protection agencies monitoring quality. Milk too - food is so much better there and cheaper

RedBaron616's picture

A gallon of skim milk, MAYBE. Certainly you will never find whole milk for $1.03 a gallon in any store in America.

HRH Feant's picture

I get organic whole milk and cage-free organic eggs. Both cost around $5 each. One pound of organic butter is usually about $4.50.

As for a garden? Oh hell yes! I have been planning mine all winter! Getting ready to build raised beds, fill them with dirt and plant!

scuttlebutt's picture

At the beginning of a debt cycle, debt is inflationary.

At the end of the debt cycle, debt is deflationary.

Where are we now?

Sonny Brakes's picture

This reminds me of a paradox. Back when I used to enjoy watching television I realised one day that I was the product television was marketing. Then I realised that I was paying a cable bill every month for the privilege. I haven't had cable since the 90s.

Killdo's picture

product of TV are sheeple and fear

Silver Savior's picture

I want them to use negative rates so smart people will remove their money from accounts and put it in gold and silver. I love not giving a damn.

I have been hunkering down and I hardly ever buy anything non food. The whole system is unsustainable and I can't wait for that new currency to replace USD.