Stagflationary Crisis: Understanding The Cause Of America's Ongoing Collapse

Authored by Brandon Smith via Alt-Market.com,

It is at times frustrating, but also interesting, to witness the progression of the mainstream’s awareness of economic crisis within the U.S. over the years. As an alternative economist, I have had the “privilege” of perching outside the financial narrative and observing our economy from a less biased position, and I have discovered a few things.

First, the mainstream economic media is approximately two to three years behind average alternative economists. At least, they don’t seem to acknowledge reality within our time frame. This may be deliberate (my suspicion) because the general public is not meant to know the truth until it is too late for them to react in a practical way to solve the problem. For example, it is a rather strange experience for me to see the term “stagflation” suddenly becoming a major buzzword in the MSM. It is almost everywhere in the past week ever since the last Federal Reserve meeting in which the central bank mentioned higher inflation pressures and removed references in its monthly statement to a “growing economy.”

For those unfamiliar with what stagflation is, it is essentially the loss of economic growth in numerous sectors coupled with a marked spike in consumer and manufacturing costs. In other words, prices keep going up while employment growth, wages, production, etc. decline.

I have been warning about a stagflationary crisis as the ultimate result of central bank bailouts and QE for many years. In 2011, I published an article titled 'The Debt Deal Con: Is It Fooling Anyone?' in which I predicted that the Fed would resort to a third round of quantitative easing (they did). This prediction was based on the fact that the previous two QE events had not resulted in the kind of results the central bankers were obviously looking for. At that time, the stock market remained a dubious mess on the verge of a renewed crash, the U.S. debt rating was about to be downgraded by S&P, true employment growth was dismal, etc. The Fed needed something spectacular to keep the system propped up, at least until they were ready to trigger the next stage of the collapse.

In that same article I also discussed the inevitable end result of this stimulus bonanza:  Stagflation.

QE3 was a dramatic con, along with Operation Twist. The Fed got exactly what it wanted — an unprecedented bull market rally in stocks and temporary stability in bond markets. As stocks jumped higher and higher despite all negative fundamental data, the mainstream simply regurgitated the fool’s narrative that a “recovery” was upon us. But now things are changing and no illusion lasts forever.

The second observation I have made is that central banking elites and their cronies tend to give warnings on great economic shifts, but only about a year before they occur. They do this for a few reasons. One, because they are the people that engineer these crisis events in the first place and it’s not very hard to predict a calamity you helped create. Two, because it makes them appear prophetic when they are not, while at the same time giving the public as little time as possible to prepare. And three, because it gives them plausible deniability when the crisis actually happens, because they can claim they “tried to warn us”, though unfortunately it was too late.

The Bank For International Settlements warned of the derivatives and credit crash in 2007, about a year before the disaster struck. In 2017, former Fed chairman Alan Greenspan warned of inevitable “stagflation not seen since the 1970s.” In later comments, he and others attributed this potential crisis to the policies of Donald Trump.

It is important to note that stagflation is entirely the fault of central bankers and not the presidency, though the White House has indeed aided the Fed in its efforts regardless of who sits in the Oval Office.

Years ago there was a rather idiotic battle between financial analysts over what the end result of the Fed’s massive stimulus measures would be. One side argued that deflation would be the outcome and that no amount of Fed printing would overtake the vast black hole of debt conjured by the derivatives implosion. The other side argued that the Fed would continue to print perpetually, resorting to QE4 or possibly “QE infinity” and negative interest rates as a means to stave off a market crash for decades (like Japan) while at the same time initiating a Weimar-style inflationary bonanza.

Both sides were wrong because they refused to acknowledge the third option — stagflation.

The Fed clearly found a way to direct inflationary pressures into certain parts of the economy while allowing deflationary pressures to weigh down other parts of the economy. They also are NOT sticking to their previous strategy of holding interest rates down while pumping up markets with talk of further QE.

Deflationary proponents used to sarcastically argue that if people really believed that inflation would be the consequence of Fed activities then they should jump into the housing marketbecause they would make a mint on price increases. Well, this is exactly what has happened.  Home prices have continued to surge despite all fundamentals, including dismal home buyer statswhich hit an all time low in 2016 and have barely recovered since.

I use home prices as a prime example of stagflation because the housing market constitutes around 15 percent to 18 percent of total GDP in the U.S. Since items like food and fuel are not counted in the calculation of the CPI index, housing should be the next consideration. Signs of stagflation in housing are a sure indicator of stagflation in the rest of the economy.

The manner in which housing is calculated in the CPI and GDP is a bit odd, of course. Housing is not included in these stats in terms of home purchases annually. In fact, home purchases and improvements are treated by the Bureau of Labor Statistics as an “investment” and not as a consumer purchase, which means they are not considered a measure of inflation. However, home values in terms of their “rental cost and change in cost” are counted in CPI.

As we all know, rent prices across the country have been skyrocketing in the past few years along with home prices, while at the same time home buyers have dwindled and the millennial generation is staying at home with mom and dad rather than paying out monthly for homes and apartments. That is to say, in a normal economic environment fewer buyers should result in lower prices, but this is not what has happened. The question is, how has the Federal Reserve and QE contributed to this example of stagflation?

First, the Fed’s artificial support for Fannie Mae and Freddie Mac after the derivatives debacle allowed for the continued propping up of the housing market when bad debt should have been allowed to cycle out of the system and house prices should have been allowed to fall.

Second, the Fed’s bailout funding of Fannie Mae directly benefited companies like Blackstone, which has become a partner with Fannie Mae and one of the largest buyers of homes in the country. Blackstone has not purchased tens of thousands of homes for resale, but for conversion into rentals. Blackstone’s vast purchases of single family homes has artificially boosted home values across the nation and given the false impression of a housing recovery that does not really exist.

Third, a very interesting discovery; while the central bank under Jerome Powell has become more and more aggressive in its balance sheet reductions, a move which has directly contributed to the recent decline in stock markets, there is one asset class that the Fed has been ADDING to its balance sheet — Mortgage Backed Securities (MBS).  These purchases tend to take place directly after older MBS have been allowed to roll over, meaning, the Fed is maintaining a relatively steady number of MBS while it is dumping other assets.

MBS represent around 40 percent of the Fed’s total balance sheet, and the Fed’s continued fiat support of the MBS market helps explain why home prices refuse to fall despite negative fundamentals. It is also interesting to me that the Fed has chosen to dump certain assets that appear to be causing a downward reaction in stock markets and other sectors while maintaining assets that keep housing prices high. It’s almost as if the Fed wants stagflation…

Finally, while the Fed’s interest rate hikes do not traditionally have a direct correlation to home mortgage rates, there is an indirect correlation. Fears of inflation sometimes ironically create inflation, and as the fed raises interest rates, mortgage rates tend to track. In 2018 mortgage rateshave spiked, climbing 48 basis points since the beginning of the year.

This contributes to higher home prices as well a perceived rental values according to the CPI.

The source of almost every instability within our economy can be tracked straight back to the Federal Reserve and the “too-big-to-fail” corporations they bailed out after the credit crash. The current stagflationary development is no different. Stagflation will ultimately result in extreme price increases on necessary goods and services far beyond what we have already seen while the public’s ability to keep up with those prices will falter.

The fact that this issue is FINALLY hitting the mainstream should be concerning to everyone. For when a crisis development is discussed in the mainstream, it means we are on the verge of that crisis reaching its nexus. In June the Fed will raise interest rates yet again despite failing fundamentals. The Fed will continue to cite inflationary pressures, and the Fed will continue to cut its balance sheet. There is no room for delusion on this anymore.  The Fed will not stop on its current path. In the meantime, central banks will continue to blame external forces such as trade wars and Trump era policies for stagflation while ignoring the trillions in fiat they have expertly poisoned our financial system with.

All bubbles collapse, but not all bubbles collapse in the exact same way. I believe the Fed has created a perfect storm of combined deflationary and inflationary factors; an economic bomb to surpass all economic bombs.

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Comments

The Navigator YourAverageJoe Thu, 05/10/2018 - 03:15 Permalink

Money worth less

or

worth less money

Or was it just paper and not really money in the first place. This is worthy of a 1 or 2 semester study at the college level, but I've never seen anything like this subject ever offered anywhere. It's only thru 50+ books and many YouTube hours that the TRUTH became visible. Start with Bill Stills Money Masters and grow from there. G. Edward Griffin wrote the Creature from Jekyll Island is another Red Pill point.

https://www.youtube.com/watch?v=we4i4AdGa-A (Money Masters)

https://realityzone.com/product/creature-from-jekyll-island-hardbound/ (The Creature from Jekyll Island)

In reply to by YourAverageJoe

ted41776 Wed, 05/09/2018 - 19:50 Permalink

there's no fixing it or stopping what's coming. still some room in lifeboats though, not much. plenty of hookers and blow at the bar for those who don't want to cramp their style in a lifeboat or think they can still get on one before it's too late

zob2020 Silver Savior Thu, 05/10/2018 - 08:01 Permalink

Gold standard was abandoned due to wasting immense sums in vietnam and more exactly the trade imbalance and as such outflow of gold.

The rest of that argument is like a question i made to my 14 years younger lilbro, then 5yo and the president came to their kindergarden. Asked him afterwards if he knew what the president does, didnt have a clue. Pressed to guess and that it might be something important his answer was that the president must be the one that determines what things cost in stores.

In reply to by Silver Savior

buzzsaw99 Yellow_Snow Wed, 05/09/2018 - 20:02 Permalink

yeah, not bad.  good point about the fed held mbs.  they can never sell that crap.

if i were to take issue with anything at all it would be this:

The other side argued that the Fed would continue to print perpetually, resorting to QE4 or possibly “QE infinity” and negative interest rates as a means to stave off a market crash for decades (like Japan) while at the same time initiating a Weimar-style inflationary bonanza.

Both sides were wrong because they refused to acknowledge the third option — stagflation...

never bet against MOAR. there will be MOAR.

other than that kudos to the author for a righteous piece.

In reply to by Yellow_Snow

SDShack buzzsaw99 Wed, 05/09/2018 - 23:17 Permalink

Actually, the Fed's entire Debt Based Ponzi is based on stagflation. They have to engineer ever increasing real asset prices (bubbles) because they have destroyed income increases (wages, savings). The entire purpose is to force the masses to take on more and more debt using real assets as collateral (i.e. home equity loan, business loans, etc.) This gives the illusion of wealth to the borrower because of easy credit, but they are actually on the hook to lose the asset to the lien holder if the "market" the asset is invested in collapses. And collapse it will, just like ALL ponzi's MUST collapse. The end result is no different from any Ponzi, take real assets away from "investors" using fraud. Only the Fed tool for their Ponzi is actually stagflation and ZIRP.

In reply to by buzzsaw99

Last of the Mi… Wed, 05/09/2018 - 19:58 Permalink

Printing trillions in QE for corporate welfare while eviscerating wage increases is just devastating to an economy. "Stagflation" is a really, really nice term for it. Masters of the Universe demand corporate welfare while suppressing wages through massive MSM immigrant propaganda, 403B programs and any way they can. The war against the employee has to stop.

youshallnotkill Wed, 05/09/2018 - 20:27 Permalink

Part of the problem is amateur politicians too incompetent to even get pay-to-play right.

How not to do it:

How to do it:

  • Set up a foundation that does enough do-gooder work to pass the smell test as not-for-profit charity.
  • Do not accept bribes from companies, but only solicit lucrative speaking engagement after you leave office.

C'mon, American law offers abundance of opportunities for corruption that skirts criminal law. HRC knew exactly how to do this, but these clowns can't even get their corruption straight. 

 

 

 

 

 

 

O C Sure Wed, 05/09/2018 - 20:29 Permalink

“stagflation is, it is essentially the loss of economic growth in numerous sectors coupled with a marked spike in consumer and manufacturing costs.”

Another example of the turning of names for which indoctrination requires. Lack of growth and higher costs are not two separate things. They are the result of the same cause: the-opposite-of-to-do, counterfeit, exchanged for to-do, money. No action swapped for action, nothing given for something. The growth is not at a “loss.” It is pilfered. Manufacturing costs are not having a “marked spike.” There are shortages. Why? Be-cause.

Let it Go Wed, 05/09/2018 - 20:30 Permalink

How much wealth will escape the next large economic crisis is very important because it will set the bar that determines the rate of inflation or deflation in coming years. Pensions, annuities, and even investments in stocks and such all fall into the area of paper promises that are often recorded somewhere far from sight as a digital entry on a computer.

The amount of wealth stored in these intangible areas based on faith have grown at a massive rate during the last several decades and were relatively minor players until recently. Currencies, also known as fiat money, are also just IOUs or paper promises. The article below delves into what might be left standing after the next financial melt down.

 http://How Much Wealth Will Escape The Next Melt Down.html

Snout the First Wed, 05/09/2018 - 20:51 Permalink

There's nothing wrong with our economy that:

1) Ending the MIC,

2) Ending the Welfare State,

3) Life sentences for all Central Bankers, and

4) A return to the Gold Standard

won't fix.

moonmac Wed, 05/09/2018 - 20:54 Permalink

There's no way the Fed can escape certain death after backing themselves into a corner surrounded by molten lava. They can jump into the fire to end it quickly(hyperinflation) or they can simply starve to death (deflation) or continue to cannibalize the young(stagflation) to survive another day.‎

Pomkiwi Grandad Grumps Wed, 05/09/2018 - 21:26 Permalink

Back then there were two other 'buzzwords' which economists discussed. One is 'fiscal drag' and the other is 'velocity of circulation'. When articles discuss for example the billions of overdue municipal debts, they don't comment on the effect this has on the local economy in terms of slowing circulation and the need for unpaid businesses to finance working capital as they wait for delayed payments.

 

In reply to by Grandad Grumps

hoist the bs flag Wed, 05/09/2018 - 21:56 Permalink

sorry Brandon... I've been around for a while and was there when you had your NeitherCorp website...a few years BEFORE you shut it down and created Alt Market and got all right wing prepper on everyone...you were pushing HYPERINFLATION in 2011-2013, just like those defunct assholes at inflation.us ...now you are talking stagflation, years later?

hindsight is always 20/20

MontgomeryScott Thu, 05/10/2018 - 00:43 Permalink

I came to this article for the picture (which I saved, and entitled it 'Titanic From a Distance').

It COULD be the RMS Olympic, I suppose...

When that ship actually sank, the inflation of water in to it's innards was at HYPER-INFLATED speed (the water wasn't STAGNANT as it drowned 1,513 souls out of the approximately 2,250 compliment).

whatisthat Thu, 05/10/2018 - 07:24 Permalink

I would observe it is beyond time to flush the corrupt manipulated markets and scumbag speculators (who produce nothing of actual value) down the proverbial toilet - which is the action now underway by the FED to save face and re-establish viability of main Street....