February 18, 2021
1970’s-Style Inflation Is Coming
Don’t say I didn’t warn you…
The possibility of a 1970’s-style America in the year 2021 is increasingly looking like a reality.
And let’s be honest, bell bottoms and wide-collared shirts are just not a good look on anyone.
Jokes aside, real inflation is coming… And we’ve got no Paul Volker here to stop it.
Biggest Money Supply Increase In 150 Years
We only have to look at the massive increase in the nation’s money supply to recognize that inflation is lurking in the months ahead… if it’s not already here.
Last year, as our nation tried to fight the COVID-19 pandemic, our government injected a massive amount of liquidity into the economy. As a result, our money supply saw a sharp 24% increase, the biggest surge in our 150-year history of tracking our currency system.
And just in the last two months, the money supply has jumped even higher, with some estimates predicting a 40% increase before the end of the year. And that’s just here at home… Keep in mind, Central Banks around the world are all doing their part to contribute to this global inflationary slush fund. As a result, every nation is increasing its broad-based money supply, known as “M2.”
President Biden Talks His ‘Book’
Judging by recent events in Washington, D.C. and at the Federal Reserve, there’s no plan to stop the money printing anytime soon. In fact, the administration is already laying the groundwork.
In his first “Town Hall” event on national TV Tuesday evening, President Biden predicted that it would take another year to slow the spread of COVID-19. That “dark winter” that he warns us of… will only get warmer through the bright light of money printing machines.
Last month, when our economy actually added jobs, Biden told the world that it would take 10 years to get back to pre-COVID employment levels in the U.S.
This talking down of the economy is in part by design. He’s “talking his book,” as they say… In other words, by telling us how bad the economy is, President Biden is hoping to encourage lawmakers to pass his massive, enormous, totally unaffordable $1.9 trillion stimulus package. He’s also hinting to the Fed that they need to stay “accommodative.” (That’s Fed-speak for eager and helpful.)
Not that he needs to hint…
The Fed is already signaling that it’s ready, willing, and able to print money… And it’s doing so with little to no fear of inflation!
Speaking recently at the New York Economic Club, Fed Chair Jerome Powell said that although he’s seeing some inflation, it’s just “a transient thing that we think will pass.”
Powell also acknowledged that some people worry when the economy fully reopens, “there’ll be a burst of spending and that because people will be enthusiastic that the pandemic is over potentially… that could also create some upward pressure on inflation.” (I guess I’m one of “those people!”)
Don’t worry, Powell tells us… because that sort of inflation “would be something likely to be transient and not to be very large.”
Translation: no big deal… Nothing to see here, folks.
So basically, the Fed is telling us it intends to continue ignoring any immediate signs of inflation.
Retail Sales and Producer Prices Rocket Higher
Sure, money printing is good for stocks… But do we need it?
The stock market is now trading at obscenely high levels – as my guest Neil Grossman, a former Central Banker, tells me in this week’s podcast… And yet, there’s little to stop the market from moving higher.
On Wednesday, retails sales for the month of January were reported to have grown at a massively higher rate than economists had anticipated. Sales jumped 5.3%. Most analysts thought they’d grow a little more than 1%. Economist Mark Zandi was the outlier for being bullish enough to believe sales might grow 2.5% or so, thanks to the stimulus checks. They soared more than DOUBLE that!
Meanwhile, producer prices ticked higher… suggesting producers are indeed paying more for their raw materials. Typically, those costs are passed on to consumers and we’ll likely soon see evidence of that uptick in prices in the Consumer Price Index.
Recommended Reading: “ID Coin” Could See Nationwide Roll Out
2020 was a cyber security nightmare, but now the biggest employer in the United States is finally making plans to fight back with new “ID Coin” tech. A top analyst following the story believes this could spark a $6 trillion potential market… while handing early investors a small fortune. He explains everything here.
Yet… Biden still wants $1.9 billion for our struggling economy. This includes $128 billion for schools that aren’t even open. (The Biden administration is hoping to have schools open one day a week by summer. Yes, you read that right… By summer, when school is no longer in session.)
Meanwhile, the $128 billion is for the next SEVEN years to helps schools equip themselves, allegedly, for coronavirus. Yet, as Marc Goldwein of the Committee for a Responsible Federal Budget points out, there’s only $6 billion of the proposed $128 billion in the Biden plan will even get spent in fiscal 2021. The bulk of the spending comes in 2023 and 2024 and it ramps down through 2028.
Is that how long the teacher unions want to keep the schools closed?
Some Minnesota schools, for example, are already making plans to continue their virtual teaching this fall. Meanwhile, “teaching” is now a debatable term, as I reported this week, judging by the state’s proposed changes to their social studies K-12 curriculum. They’re suggesting they ditch the teaching of the holocaust, WWI and WWII in order to make room for more inclusive studies.
So, we’ve got a Federal Reserve that’s saying Don’t worry about inflation, we can manage this. They’ve upped their inflation targets. We’ve got a Federal Government aiming to pump more money than we’ve ever seen into the bank accounts of hundreds of millions of Americans. And we’ve (fortunately) got an economy that’s on the mend thanks to the vaccines.
Where does that leave us? In stimulus heaven. Or more likely, stimulus hell…
Inflation is bound to hit. That’s what the recent creep-up in bond yields is telling us. And even if we don’t see it in wages, it’s likely to hit the economy in other ways… through a run-up in asset prices.
All that is seemingly fine and good… until it’s not.
Almost every asset bubble of the last couple of decades – from the tech-stock boom and bust to the 2008 financial crisis – all of them have come in part as a result of an over-active Federal Reserve.
So, don’t say I didn’t warn you.
- The Fed has to treat the inflation crisis like NASA treated Apollo 13 in 1970 – act immediately or have an undoubted calamity on their hands.
- Around 2000, America had a four trillion-dollar deficit that took over two centuries to accumulate. In the last year, we’ve already exceeded that amount.
- If you took all the outstanding bitcoin, you could buy about three-fourths of the world’s gold reserve held by all central banks.
- California Governor Gavin Newsom is officially up for recall as petition signatures to remove him have risen past 1.5 million.
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Publisher, American Consequences
With Editorial Staff
February 18, 2021