You missed one very important component. Due to the looming entitlement crisis financial repression is all but certain.
Politicians don't want to act like adults and pass reforms.
There's not enough money to pay for all the promises
So financial repression is the only play left. The Fed will print a lot of money, and then continue to use manipulated CPI numbers to pretend that inflation is less than it is. The result is your savings and wages will be inflated away.
Fun fact, if you calculated inflation the same way we used to, it would be over 10% right now
If the early numbers are true, it looks like this Black Friday and weekend will be a bust compared to 2019 according to CNBC. Only purchases I made were $22.50 for a highly discounted H&R tax prep package from amazon and .99 to DiscoveryPlus promo. My gifts to friends and family will be more focused and tailored such as experiences (theatre tickets and gift cards) and for those who have everything, some donations to a favorite rescue charity. I literally expect nor want anything tangible from anyone. It is a great feeling and position to be in when you really have no needs and very few wants.
Will letting in 10s of millions of illeg...I mean "guest" workers "push" the existing workers up the ladder to help fill the employee shortage, or will we just have a bolus of low skilled workers that is now even more dependent on the government?
Friedrich von Hayek, who got his Nobel in economics for his work on inflation, wrote that there is no equivalent way to destroy an economy as insidiously, without people understanding where the destruction is coming from. Actually, the logic of inflation is to buy now at those inflated prices, because the money you sock away is going to be worth less when you try to spend it in the future. Inflation is not only eroding your income, it's eroding your savings. Now that's a destructive reality. Inflation's long term effect is to discourage businesses from investing in the future because, added to the uncertainty whether the investment will work out, it's unclear that an investment that does work out will yield enough in inflated dollars to be worth more than the initial investment is worth. And when one does end inflation a whole heap of businesses and jobs that have been created with government largesse disappear = a deep recession. Progressive economic policies are based first and foremost on economic philistinism.
Indeed. I keep seeing articles like the one linked below that say consumer spending is up “despite high inflation”, when inflation is up BECAUSE of high inflation! When the same goods jump in price over a short period of time then consumers have to spend more money to get the same stuff. Of course spending is up.
In the 70s, President Richard Nixon enacted a wage and price freeze and imposed a surcharge on imports. Then he unilaterally canceled the direct international convertibles of the United States dollar to gold, which devalued the dollar. On top of that, two oil shocks drove gasoline prices up in the 70s (OPEC) imposed an embargo against the United States in 1973 and then again in 1978 by Iran.
The above is supposed to be comparable to just in time, global market demand, supply chain destroyed by a pandemic!
The Chicago school of economics and chicken little have something in common, the sky is always falling, but the chart below puts things in perspective.
Thank you. This was very helpful. I lived through the 70’s and don’t want to be caught unaware this time. Our family will adjust and be careful. One thing we did was get out of all our credit card debt and change our mortgage from an adjusted rate to fixed.
I recently heard an interview on Megyn Kelley’s podcast where she interviewed Peter Sdhiff (her episode 199). It really scared me - did anyone else listen to this and how does he compare to the grumpy economist
Good article. The disparity between demand (fuelled by manna from heaven) and supply (fewer workers) is huge. It will take months to get the supply of goods back online, allowing inflation to continue. The quicker, more unfortunate recourse is to slow down demand. The Fed will have to hint at an interest rate hike, I think. A quarter point at their next meeting, another quarter point after that. Will a recession ensue? That's anyone's guess (I don't think so) - but one thing will surely happen: a correction in the most inflated metric of all. The equity markets. If there's a correction there, a demand correction will soon follow.
Here's the decision I made this week which will no doubt add (marginally) to the problem. My furnace is over 25 year old. It works, but it isn't very efficient. I could get another few years from it, but my trusted plumber tells me we can't be sure when it will quit for good.
Other decision-making input:
--- my plumber is experiencing supply chain issues and isn't sure that a new furnace or spare parts for the older one will be available later in the winter should problems arise;
--- my savings account is yielding nothing, so with inflation the value of my money there is shrinking;
--- inflation will drive the cost of replacing my furnace up in the near future. I'll almost certainly pay less for a new furnace today than I will in six to eighteen months.
--- and oh,BTW, the gas company sent me a letter last week that informed me natural gas prices will go up 52% starting the next billing cycle. No way I can fix that by turning down the thermostats, but a colder house heated by a new high efficiency furnace might mitigate the problem somewhat.
Botton line? I can "earn" more (value) on my money by spending it on a new furnace than by keeping it in the savings account. So, I sign the contract, write the check and make my contribution to inflationary pressures. C'est la vie économique. Et merci, Monsieur Brandon.
Mr Google says, "As measured by the CPI, the annual rate of inflation from October 2020 to October 2021 was 6.2 percent." 4-6% return doesn't keep pace.
This author seems to be using only the official definition. Real inflation has been running at least 8% for the last five or six years. What's different now is that the government has finally decided to bring their fake measurements somewhat closer to reality. That's probably a good thing.
Great summation of inflation in general and our own current inflation chapter in particular. The incompetence and irresponsibility of our political class, who blithely create dollar bills in excess of economic growth, is nothing less than breathtaking. They are greatly hobbling the future of their children and grandchildren who remain clueless about this inescapable threat to their well-being.
Actually they have a lot of cool shopping carts my kids like: police car, firetruck, taxi, school bus shopping carts at our local supermarket. The kids love them! I don't think they had those back in the day
Progress is, in part, making what works, work better. To wit: we actually do have some changes in shopping carts. Smaller carts for smaller shopping needs now exist.
I don't trust store employees to buy my groceries. Sure, some things are easy - brand name products and specific sizes. But I don't want them picking out my produce or my dairy, for example. I may want to price-compare; they're surely not going to do that for me.
In 1980, the CPI for the year was about 14%. Paul Volcker, Chairman of the Federal Reserve, in an attempt to break the back of inflation had raised the Fed Funds rate to about 19%. Shadowstats.com tracks CPI as it has been calculated at various times. The latest 2021 CPI reading if calculated under 1980 methods is about 15%. Higher than in 1980. In contrast, in 2021 the Fed Funds rate is effectively 0%. In addition, for well more than a year, the Federal Reserve has purchased $120 billion per month to maintain historically low (5000 years) rates of interest across the curve and for mortgages. 14% / 19% in 1980,versus 15% / 0% in 2021, transitory indeed.
A quick listing of very scary data points...drop on top of that the upcoming Omicron related shutdowns, and the left will be much closer to their goal of destroying the US.
You missed one very important component. Due to the looming entitlement crisis financial repression is all but certain.
Politicians don't want to act like adults and pass reforms.
There's not enough money to pay for all the promises
So financial repression is the only play left. The Fed will print a lot of money, and then continue to use manipulated CPI numbers to pretend that inflation is less than it is. The result is your savings and wages will be inflated away.
Fun fact, if you calculated inflation the same way we used to, it would be over 10% right now
If the early numbers are true, it looks like this Black Friday and weekend will be a bust compared to 2019 according to CNBC. Only purchases I made were $22.50 for a highly discounted H&R tax prep package from amazon and .99 to DiscoveryPlus promo. My gifts to friends and family will be more focused and tailored such as experiences (theatre tickets and gift cards) and for those who have everything, some donations to a favorite rescue charity. I literally expect nor want anything tangible from anyone. It is a great feeling and position to be in when you really have no needs and very few wants.
Will letting in 10s of millions of illeg...I mean "guest" workers "push" the existing workers up the ladder to help fill the employee shortage, or will we just have a bolus of low skilled workers that is now even more dependent on the government?
Friedrich von Hayek, who got his Nobel in economics for his work on inflation, wrote that there is no equivalent way to destroy an economy as insidiously, without people understanding where the destruction is coming from. Actually, the logic of inflation is to buy now at those inflated prices, because the money you sock away is going to be worth less when you try to spend it in the future. Inflation is not only eroding your income, it's eroding your savings. Now that's a destructive reality. Inflation's long term effect is to discourage businesses from investing in the future because, added to the uncertainty whether the investment will work out, it's unclear that an investment that does work out will yield enough in inflated dollars to be worth more than the initial investment is worth. And when one does end inflation a whole heap of businesses and jobs that have been created with government largesse disappear = a deep recession. Progressive economic policies are based first and foremost on economic philistinism.
Oh, so when this administration decides to stop spending and cut regulations everything will be fine? I guess there's no need to worry!
“Economic writing these days is especially bad”
Indeed. I keep seeing articles like the one linked below that say consumer spending is up “despite high inflation”, when inflation is up BECAUSE of high inflation! When the same goods jump in price over a short period of time then consumers have to spend more money to get the same stuff. Of course spending is up.
https://mobile.twitter.com/ageofinfovores/status/1463546409202847746
In the 70s, President Richard Nixon enacted a wage and price freeze and imposed a surcharge on imports. Then he unilaterally canceled the direct international convertibles of the United States dollar to gold, which devalued the dollar. On top of that, two oil shocks drove gasoline prices up in the 70s (OPEC) imposed an embargo against the United States in 1973 and then again in 1978 by Iran.
The above is supposed to be comparable to just in time, global market demand, supply chain destroyed by a pandemic!
The Chicago school of economics and chicken little have something in common, the sky is always falling, but the chart below puts things in perspective.
https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
Yes $5 a month is an incredible bargain for Common Sense. And Common Sense is very well named.
Thank you. This was very helpful. I lived through the 70’s and don’t want to be caught unaware this time. Our family will adjust and be careful. One thing we did was get out of all our credit card debt and change our mortgage from an adjusted rate to fixed.
The one kind of debt that everyone should avoid is credit card debt. That is the worst kind of debt.
Check out Suze Orman. She has great financial advice.
Regarding credit cards, my parents always taught me to pay in full, every month. Never ever carry a balance. This advice has served me well.
All my credit cards have high APR & 5% Cash Back. The credit card companies Pay Me. I don't pay them, they pay me.
Make the credit card companies work for you, not the other way around. Pay in full every month. Get rewards. Get Cash Back.
I recently heard an interview on Megyn Kelley’s podcast where she interviewed Peter Sdhiff (her episode 199). It really scared me - did anyone else listen to this and how does he compare to the grumpy economist
Good article. The disparity between demand (fuelled by manna from heaven) and supply (fewer workers) is huge. It will take months to get the supply of goods back online, allowing inflation to continue. The quicker, more unfortunate recourse is to slow down demand. The Fed will have to hint at an interest rate hike, I think. A quarter point at their next meeting, another quarter point after that. Will a recession ensue? That's anyone's guess (I don't think so) - but one thing will surely happen: a correction in the most inflated metric of all. The equity markets. If there's a correction there, a demand correction will soon follow.
The Grump is spot on.
Here's the decision I made this week which will no doubt add (marginally) to the problem. My furnace is over 25 year old. It works, but it isn't very efficient. I could get another few years from it, but my trusted plumber tells me we can't be sure when it will quit for good.
Other decision-making input:
--- my plumber is experiencing supply chain issues and isn't sure that a new furnace or spare parts for the older one will be available later in the winter should problems arise;
--- my savings account is yielding nothing, so with inflation the value of my money there is shrinking;
--- inflation will drive the cost of replacing my furnace up in the near future. I'll almost certainly pay less for a new furnace today than I will in six to eighteen months.
--- and oh,BTW, the gas company sent me a letter last week that informed me natural gas prices will go up 52% starting the next billing cycle. No way I can fix that by turning down the thermostats, but a colder house heated by a new high efficiency furnace might mitigate the problem somewhat.
Botton line? I can "earn" more (value) on my money by spending it on a new furnace than by keeping it in the savings account. So, I sign the contract, write the check and make my contribution to inflationary pressures. C'est la vie économique. Et merci, Monsieur Brandon.
Mr Google says, "As measured by the CPI, the annual rate of inflation from October 2020 to October 2021 was 6.2 percent." 4-6% return doesn't keep pace.
This author seems to be using only the official definition. Real inflation has been running at least 8% for the last five or six years. What's different now is that the government has finally decided to bring their fake measurements somewhat closer to reality. That's probably a good thing.
Great summation of inflation in general and our own current inflation chapter in particular. The incompetence and irresponsibility of our political class, who blithely create dollar bills in excess of economic growth, is nothing less than breathtaking. They are greatly hobbling the future of their children and grandchildren who remain clueless about this inescapable threat to their well-being.
Y'know what's *most* astonishing about grocery shopping then and now?
Fifty years later...shopping carts are pretty much unchanged. #InnovationAnyone?
Actually they have a lot of cool shopping carts my kids like: police car, firetruck, taxi, school bus shopping carts at our local supermarket. The kids love them! I don't think they had those back in the day
If shopping carts were smaller, no one would notice that they are getting less for the money.
Progress is, in part, making what works, work better. To wit: we actually do have some changes in shopping carts. Smaller carts for smaller shopping needs now exist.
I don't trust store employees to buy my groceries. Sure, some things are easy - brand name products and specific sizes. But I don't want them picking out my produce or my dairy, for example. I may want to price-compare; they're surely not going to do that for me.
Were *you* bored when you took the time to write your previous reply?
All seriousness aside, can't you come up with a more mature comment?
So bored…that you continue to reply. and reply in content-free fashion.
In 1980, the CPI for the year was about 14%. Paul Volcker, Chairman of the Federal Reserve, in an attempt to break the back of inflation had raised the Fed Funds rate to about 19%. Shadowstats.com tracks CPI as it has been calculated at various times. The latest 2021 CPI reading if calculated under 1980 methods is about 15%. Higher than in 1980. In contrast, in 2021 the Fed Funds rate is effectively 0%. In addition, for well more than a year, the Federal Reserve has purchased $120 billion per month to maintain historically low (5000 years) rates of interest across the curve and for mortgages. 14% / 19% in 1980,versus 15% / 0% in 2021, transitory indeed.
A quick listing of very scary data points...drop on top of that the upcoming Omicron related shutdowns, and the left will be much closer to their goal of destroying the US.
Great points, DSB. A favorite government tactic - change how inflation is defined to make it appear less of a threat.