The mainstream media and the bubblevision might be stupid, but in reality they have the average American citizen pretty much figured out.
So when one sees headlines like this:
Investors pile into stocks, bonds as ‘mission accomplished’ on inflation, report says – Reuters headline via Globe and Mail
US inflation cooled in June for the 12th straight month – CNN Business
The usual suspects, the usual propaganda, the typical headlines and the American dopes all thinking that “inflation is cured” and other such nonsense like we’ll here from the Fed soon.
The reality is that Federal Reserve and the US Government can not stop printing money because the gig is up. If there is an actual event of deflation like what started in 2008, then the game is over. The United States can not finance its ever growing debt due to the expansive social and military industrial welfare state. Thus the ability to contract the actual monetary supply to achieve what is needed to contain, much less reduce prices is not there.
The will to do what is needed terrifies our political and financial elites thus why the rate of inflation may well fluctuate up and down by tenths of percentages month to month, but the inevitable rise in prices can not be stopped as the ability to liquidate debt via diluted Federal Reserve Notes is the only solution which appeals to an ignorant public.
Thus when one reviews these charts below, think about any time in reality where there has been a sustained drop in prices where the American public can enjoy some relief from a dollar which in reality is now worth less than 3 cents compared to its gold pegged value in 1913.
First and foremost, the housing disaster of 2007-2009 was supposed to cure the perpetual price increase in shelter prices if one is to believe the government:
Please note that the primary reason housing prices can not be allowed to correct to realistic valuations is that if the underlying values of homes were to correct properly, thus allowing rents to decline, then the underlying MBS would become worthless and another financial crisis would hit; this time it would be far more difficult as foreign buyers would not be available to “save” the US system.
At least we can afford to eat cheaper now though, right? Eggs are cheaper at the local grocer so all is well, right? Uh, no:
The reality is that all of the outsourcing of our manufactured semi-processed ingredients and chemicals in our processed foods along with the cost of government regulations on fresh foods has increased to a point where the lower class can no longer support themselves without government assistance. With what? That’s right, rapidly depreciating Federal Reserve dollars printed to prevent societal disruption.
Maybe just maybe, services have caused the so-called increase in the prices to decline?
What was amazing about what distorts the “rate” of increase of the prices in these indexes is the blatant dishonesty within the statistical calculations. For over sixteen years now I’ve been ranting about the hedonic calculation method but now the government is outright publishing lies. This fantastic posting from Karl Denninger at the Market Ticker pointed out how the BLS pushes the lies which distort the “rate” of inflation versus the real cost where he highlights a government published rate of reduction in health insurance by 25% year over year.
There is zero, I repeat, zero evidence in the reduction of private health insurance costs but the BLS decided to use the Inflation Reduction Act to claim that higher deductibles resulted in a lower rate of private health insurance price increases.
Thus overall, the truth is the “rate” of increases in inflation has declined but most of that has been tied to the baseline effects of June 2022’s extremely high rate of inflation due to the flat prices of the post-pandemic recovery of 2021.
When one takes a look at the Atlanta Fed’s longer term look at Consumer Prices, a more realistic picture appears when one considers the “rate” of inflation:
As I state within the graphic above, the fluctuating prices of energy which will begin to increase due to seasonal factors and a new distribution of crude oil in the “other” 50% of the globe will result in a higher price for American citizens. This impact will be sudden, without warning and will shatter the “inflation is beaten” narrative being constructed by the political elites.
In the end, investors, and especially individual citizens, need to prepare for one more spike in prices with regards to food, energy, and necessities before the threat of deflationary pressures appear in Q1 of 2024. The reality is that the rate increases from the Fed have not really impacted the markets with any substantial reductions in the inflationary pressures as the Fed Funds Rate has yet to top 6% and bring the inflationary impulse under control.
What the markets are refusing to acknowledge is that repeat of the mistakes of 1979 are possible, whereas I say they are probable. When I warned about this on June 15th, most people had forgotten that we have been here before. But this quote from my article on it should remind everyone just how fragile and honestly, incompetent faith in the Fed is and should be:
This excerpt from the July 1980 Greenbook of the Federal Reserve should provide a moment of reflection based on the recent reports and Fed statement today:
Granted, I am being quite selective, but the inflation impulse once thought conquered during the 1970’s came back with a vengeance shortly after this Fed statement. It was not until Volcker decided to salvage the US Dollar and spike the economy did in fact inflation come under control.
The idea that energy was the “only” major input causing distortions in CPI was a mistake in 1979, 1980, and now. The problem now is that the United States financial system has created a speculative bubble in every asset class and gravity will correct this.
The consequences of it however are if this will be a hard deflationary landing to finally flush the system, overburdened with zombie companies and bad banks since 2001 or to hyper-inflate the American currency to bail every political ally out in an effort to maintain political stability heading into an election year.
Sadly, Jay Powell is no Paul Volcker, so do not plan on the 1980-1981 solution.