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Inflation? Nothing to Worry About

So say Janet, Joe and Jerome...
 
TRANSITORY or not? asks Bill Bonner in his Diary of a Rogue Economist.
 
Economists are studying the numbers. Is inflation heating up...or cooling off?
 
Should they be looking at the Consumer Price Index (CPI)? The CPI-U (for urban customers)? With or without food and energy? The Personal Consumption Expenditure price index (PCE)? ShadowStats?
 
They watch the thermometer and check the skies.
 
In the following few words, we explain why we think they are wasting their time.
 
You can tell it's getting warmer by looking at data points. Check the thermometer every day and you may begin to see a trend.
 
But if you are planting a crop or planning a vacation...you might also check the calendar.
 
Yes, there are bigger patterns...longer...more durable...more predictable. Temperatures go up and down. You may see the temperature going down every day for a week. But come the month of May, the flowers come out anyway.
 
Politico gives us the forecast:
"The very firm conventional wisdom around the financial industry is that the recent spike in inflation – which just hit the highest level in a decade – will be entirely transitory."
Janet, Joe, and Jerome are telling us not to get too excited about the latest inflation numbers. Put away the umbrellas and raincoats, they say. Sunshine ahead.
 
They believe there is too much "spare capacity" in the economy. It will need to be taken up, they say, before business or labor have any real pricing power.
 
And those higher prices we are seeing? Don't pay any attention to them, they add; they'll be gone as soon as the problems in the supply chain are removed.
 
Then, too, they say that price levels were so low a year ago – caused by the COVID-19 scare – that the latest measurement of inflation is cockeyed. What we are looking at is a statistical aberration, they say, not real inflation.
 
On the other side, the inflation alarmists believe the "spare capacity" argument is poppycock. They see storm clouds building.
 
This inflation is "intentional, deliberate, and disastrous," writes colleague Simone Wapler. It is structural, not cyclical. So the "spare capacity" is irrelevant.
 
Venezuela, for example, has idle factories, idle land, and idle labor aplenty. But it also had inflation two years ago at 10,000,000%.
 
And in America, businesses can't find people to take up jobs. They are forced to raise wages. But it's not because there aren't plenty of idle hands available. More likely, it is because the feds were too promiscuous with their stimmy money.
 
In many cases, people got more money from being unemployed than they used to get on the job.
 
And then, too, 30 years of stimmy – with ultra-low interest rates and Fed-backed asset markets – has created a "financialized" economy...where the big money is no longer made by honest labor or investment – producing goods and services (real wealth) for others – but by borrowing and speculating.
 
Naturally, the rich – and the elite – have never had it better. They own the assets the Federal Reserve has been pumping up. Can you blame the not-so-rich for wanting to join them?
 
As we reported here, one of the latest fad cryptos went up 1,700% in just a week earlier this month. And the whole crypto sector came from nothing just over a decade ago to be now worth more than $2 trillion.
 
That's "wealth" that didn't exist a few years ago. And it's enough to make a whole generation believe it is more profitable to trade cryptos than to work.
 
Again, it was the inflation that caused the "spare capacity," not the other way around.
 
As for the "low base" argument, you can look through the freakish Plague Year figures by "stacking" the inflation readings up in two-year increments. What you see is the same rising trend line, but at a gentler angle.
 
Here at the Diary, we are sometimes right, sometimes wrong...and always in doubt.
 
Will the April numbers mark the decisive turning point – when inflation turns definitively and dramatically upwards?
 
Or will they turn out to be more like an exploratory mission by UFOs...before the full invasion force takes over the planet, making pets of the few humans who survive?
 
We'll know in a few months.
 
In the meantime, we reach for a deeper insight.
 
Consumer price inflation comes as a result of monetary inflation; that is all we know for sure.
 
Modern Monetary Theory (MMT) tells us that government is the source of money (which the MMTers believe is the same as wealth).
 
It's government printing and spending that make the money world turn, they say.
 
They add that the feds can print and spend as much as they want – "investing" to create a safer, more prosperous, and more perfect union – until consumer price inflation rises.
 
When that day comes, they promise, they will "pivot" to inflation-fighting policies.
 
But lo! That day has come in the inflation data.
 
And what's this? Quelle surprise! Their eyes still on the thermometer...they tell us why the recent readings are not to be trusted.
 
"No need to pivot just yet," they say.
 
We live in a world of perpetual springtime; they're convinced of it. Stocks always push up, like jonquils in April. The warm rain of deficits and money-printing eternally stirs the dull roots of the economy.
 
And any datapoint outside the springtime range must be a fluke.
 
They would do better to go back to the calendar.
 
It's not government printing and spending that create real wealth; instead, as sure as June follows May, they create real inflation.
 
And if you wait for the Bureau of Labor Statistics to confirm the trend, it may be too late to plant your radishes.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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