History is a funny thing, almost as funny as human nature. Markets, including their latest “temporary inflation” meme, are no exception to this psychological tragicomedy.
Temporary hope, timeless lies
Towards the end of 1864, for example, as Union forces under General Grant approached Richmond at the end of a long and grueling civil war in which the Confederate army was by then doomed to defeat, there was a sudden hope for politicians in Richmond.
Jefferson Davis, President of the Confederate States, described the rising toll, the dying southern currency and the depletion of food supplies as “temporary.”
Less than 100 years later, when the German Wehrmacht lost its 6th Army to a cold winter and active resistance from the Red Army, the propaganda machine in Berlin described this turning point at the end of the war in 1943 as simply a “temporary setback.”
Speaking of dying armies, Napoleon’s march to Russia in 1812 with 360,000 soldiers ended in disaster – just under 15,000 returned, prompting the infamous Bonaparte to declare, “This is just a small step from the sublime to the absurd.”
Temporary inflation: new fantasies
Fast-forward to the Fed’s current war against natural market forces, and we see yet another ridiculous example of a losing war in which the inflationary death toll is called “temporary” by the financial authorities.
Market bulls, politicians, and central bankers have an uncanny ability to ignore the obvious and promote the fantastic – as fantasies are often easier to bear than reality.
The most recent example of fantasies is politicians’ claims that inflation of + 4% YoY in April and May is simply “temporary.” Simply put, we are told not to worry about inflation.
That is, we can all calm down, because inflation, as we are asked to believe, today is as “temporary” as the “annual” quantitative easing that Bernanke promised back in 2009, when the Fed’s balance was less than $ 1 trillion, and not the current $ 7 + trillion dollars.
That’s all the promises about “temporality”.
As for the fact that inflation is not “temporary”, countless warnings, evidence and solutions have already been provided for current and future inflation. Like Robert Lee’s outnumbered army, mathematics makes an inflationary future and the slow death of the dollar inevitable.
And yet, now more than ever, there are those who tell us not to worry about inflation or its consequences.
Arguments against inflation
Many analysts, despite all the facts, still believe that deflation is ahead of us, not inflation.
Regrettably, however, it seems necessary to revisit history, economic real-world politics, and mathematics to help inflationary truth penetrate the minds of unbelievers. That is, it’s time to test their arguments.
In the course of the big debate (or war) about inflation and deflation, again, fair arguments are being made against inflation as a long-term reality.
The latest and most common arguments against current inflation include the widespread belief that supply chain disruptions to everything from lumber to computer chips are only “temporary.” Once these “temporary” disruptions are resolved, supply will recover and inflationary forces will disappear. Fair enough.
Another argument that has a bullish impulse against inflation is the accusation of rising car prices as a “temporary” rise in CPI-measured inflation. Also true.
Deflationary experts remind us that inflation rates are unnaturally high because they measure price increases for silly little things like food and energy. So if you subtract them from the equation, then inflation really does approach 2%, so why panic?
Again, if your report card has three fives and two deuces, that’s not a problem either, as long as you’re just not paying attention to those two failures. Besides, who needs food or energy anyway?
Deflationists (as well as supporters of Modern Monetary Theory) will continue to remind that even extreme monetary expansion triggered by money printing is not inflationary, since all money created does not become part of the “circulating money” in the real economy and therefore does not have an inflationary impact. And this is also true.
Finally, deflationists say huge levels of debt, decades of exporting inflation abroad, and slow economic growth in a pandemic economy will reduce demand and keep prices low, not high.
But here’s the catch: “fair” is not the same as “true”, and regardless of whether someone believes it or not, inflation is not only coming, it is already here and will not be “temporary”. “.
Inflation: Definitely Not “Temporary”
So how can we know for sure?
Well, first of all, the very CPI scale used to measure inflation is rigged and measures inflation in much the same way that Lance Armstrong’s lie detector detects lies.
Thus, experts can defend the “temporary” nature of price increases for everything from computer chips to used trucks all day long, but they ignore the more serious issue of defending their non-inflationary narrative with a discredited CPI scale.
Inflationary reality, which is not “temporary”, is added to the very definition of inflation, which is less dependent on this fictitious CPI scale, and much more on a single indicator: the increase in the broad money supply.
In case such an increase does not convince you that inflation is inevitable, simply consider the following increase in the money supply M1. After all, a graph speaks louder than 1000 words (or billions).
Moreover, even if one calls money printing (i.e. monetary policy) inflationary due to the lack of circulation of printed dollars stuck behind the Hoover Dam of the Fed, Treasury Department and TBTF banks, the inflationary effects of fiscal policy cannot be denied. , that is, money flowing directly (and at great speed) into the real economy.
Biden, for example, is proposing a $ 6 trillion budget to Congress. Will they accept him? Or will it be cut to a meager $ 5.5 or $ 4.8 trillion?
After all, with all the money spewed out of Washington, it means next to nothing to a nation addicted to counterfeit money.
On the other hand, we all know how addiction ends: you either quit or die.
Moreover, the simple fact that the Fed is supporting inflation itself is quite telling, since there is no better way to get out of the $ 30 trillion public debt hole it has dug than to deliberately increase inflation to pay off debt with increasingly depreciating dollars.
The Fed, like any general losing the war, will pretend that such a dying dollar is “temporary” or that it controls the “battle against inflation.”
They call their battle plan “symmetric inflation targeting,” pretending to keep inflation in check.
But then again, if the Fed controls the very scale that measures inflation, they may be able to bluff (lie) a little more on announced inflation. In any case, the end result is inevitable.
But think about it for just a second: the Fed measuring its own inflationary policy is like a Wuhan laboratory measuring its own virus leaks.
Ode to Fed Apologists
However, apologists / supporters of the Fed will maintain their fantasies that the Fed will ultimately “solve” the inflation problem as soon as the situation escalates. In that case, they say, the Fed will step in with the necessary “cut” in QE.
In addition, Fed apologists will make even more ridiculous claims that the Fed is very concerned about unemployment and that if job reports (and non-farm employment data) continue to disappoint, the Fed’s superheroes will have to keep printing money to buy bonds. and keep rates low.
After all, the Fed was created to help the people, right? The Fed’s mission is to keep employment high, right?
Well, if you believe that, do a favor and read about who created the Fed and why.
The Fed’s Real Mandate: Pretend
But even if you’re bored of reading historical data, just stick to math and basic realism. The Fed is not going to “cut” not only to help improve employment.
Instead, the Fed is going to refrain from cutting because they have brought the country to its highest level of debt risk; thus, if they ever “cut” QE and allowed rates to rise naturally, Uncle Sam would be insolvent in no time.
To put it simply, “downsizing” is not an option; it is a buzzword for troops losing morale.
This means that printing presses will continue to generate billions on a monthly basis, and deficit spending (along with the Fed’s balance sheets) will grow at trillions a year, which means that inflation is far from “temporary”.
Does this mean that the rate of change in inflation on an annualized basis will accelerate? Not. The inflation rate, including the fictional one from Washington, will have peaks and troughs, and this does not mean that by the time you finish reading this article, it will reach 18%.
It is also pointless to argue that periods of disinflationary “relief” will not make headlines soon if, for example, lumber and car prices return to their average levels.
And, yes, maybe another “expert” will be able to convince us that COVID has a downward effect on demand and, thereby, reduces CPI inflation.
Again, nothing moves in a straight line, including inflation, but the trends and realities (monetary and fiscal surpluses) described above are not “temporary,” and therefore inflation itself is not.
Of course, inflation is a mortal enemy. It eats up market yields, savings accounts, currency power, and therefore purchasing power.
Like winter near Moscow, Borodino, Petersburg or Stalingrad, this is a quiet killer.
Like Napoleon’s army in Russia or Lee’s in Gettysburg, financial leaders have now shifted markets, economies and currencies along the fine line from sublime to ludicrous, but like many of their loyal soldiers and current investors, those who have the most to lose simply don’t know what dangers are.
This is neither sublime nor ridiculous; just tragic.