I’ve said inflation will rise much higher than the Fed believes and will persist much longer and that it will eventually kill the latest stock market bull and the economy. If these inflation predictions prove wrong, I’ll stop writing my blog. Simple as that. That is how firmly I believe what I am saying and how much I’d rather be accurate than convey false information or bedevil people with failed predictions of doom, even though doom makes great clickbait. I won’t continue writing economic doom if I am wrong.
The last and only time I made such a bet was in 2017 when I bet the stock market would plunge in January of 2018, then hit worse troubles in the summer, then crash much worse in the fall. It did all of that. The Dow experienced its worst January plunge in history (started in January, 2018, and continued through February). Then the long-leading FAANG stocks got their teeth busted off in the summer, falling as much as 40%! And, finally, the worst part of the crash happened in the final quarter of 2018 when the market fell so severely and relentlessly through the fall that it broke several daily records. It even forced the Fed to lose face in order to arrest the fall by reversing itself entirely on its promise that tightening would continue for a couple more years and would be as boring as watching paint dry. (And, of course, the Fed’s tightening schedule was exactly what I based all of my 2018 predictions on.)
Having brushed off hyper-inflation rants in prior years, I started giving inflation a lot of coverage in the last year because I believed inflation was likely to become the driver in our economic malaise in the months ahead. High inflation is a task master that will not be ignored, not even by the Fed, which tried ignoring inflation in the sixties and seventies to the great detriment of all.
As testimonial evidence that inflation is going exactly as badly as I said it would, numerous overly respected economists are finally catching up with me:
Economists surveyed this month by The Wall Street Journal raised their forecasts of how high inflation would go and for how long, compared with their previous expectations in April.
Economists are still lagging economic indicators, though, refusing to believe inflation will run as hot as I’ve been saying for the past year. So, I also predict they will be catching up with more in the months ahead as they slowly raise their tepid predictions to where mine said a year ago we’d be heading. Just you wait and see. The only reason they are now adjusting their predictions upward from where they were is to catch up with reality, which has passed them by. Revision has been thrust upon them. They are predicting nothing. They are merely telling us what is already obvious.
We cannot expect economists to see what is coming further down the road with any clarity because, you have to remember, many of these same experts are the blind leaders in global economic thought who never saw the Great Recession coming, obvious as it was to some of us at the time. That was a major fail on the part of nearly all economists, which happened because their brains are fused with theories.
The Federal Reserve saw it least of all as Ben Burn-the-banky infamously said there was no recession anywhere in sight while standing knee deep in the middle of one. Yet, these are the blind leaders everyone turned to for answers after the Great Recession wiped us out, leaving the nation, as Speaker of the House John Boehner proclaimed, “broke.” After all, who better to tell us how to solve the catastrophe than those who foisted it upon us because they could not even see it when it was developing?
Yet, I also predict in the slightly more distant future, everyone will turn to them again. How dumb is that? (Why? Credentials over thinking. Always. People who cannot think for themselves or even recognize clear thinking when someone shares it with them rely on credentials, even when the highly credentialed people fail miserably at their primary task. As I’ve said before, we never learn. I keep writing hoping someday we will, but I think, at this point, it is an exercise in futility.)
You have to take a time machine to the seventies to find a time like the present
As an example of how flaccid the thinking among economic experts is, look at the graph and commentary near the start of the following video by the nation’s leading economic newspaper. It points out that inflation is not as high as it was in the seventies and says it will not get that high now. The brilliant economists in the video (and the commentator) entirely miss the fact that inflation already is that high because inflation in the seventies was measured much differently than it is now. We’ve already reached the double-digit inflation I predicted if inflation were measured honestly. (More on that after the video.)
The video is worthwhile, however, as a reminder (especially to any who were not alive in the seventies) of the degree to which inflation came to dominate political thinking and the public psyche for years. It shows how important inflation can become. It also shows you just how much inflation has already come to dominate this year’s news (as I have been saying it would):
As they were ridiculed for doing in the video, the Fed today is still saying, “Trust us, trust us. Inflation will not be that bad.” What I find striking in the video is how the stated causes of inflation back then are so similar to today, yet the economists in the video are still saying things won’t be as bad this time (even though they already are if measured the same way!). They argue that things are different now than during that time even though the video shows they are not different in the least! Here were the causes given in the video for what became known as The Great Inflation. See if they are different than today (other than being worse today):
- First, a rise in government spending under LBJ (which pales to utter insignificance when compared to the explosion in government spending in Trump’s final year and Biden’s first year).
- The government’s final move off the gold standard by President Richard M. Nixon. (Did we suddenly go back on the gold standard, and I missed it? And soon we’ll be going off Nixon’s paper standard and onto the digital standard, likely as our answer to economic collapse that is coming.)
- Pressure by the executive branch on the Fed to push more money into the economy and to keep interest rates low. (My gosh, those guys were pikers compared to today! Wow! Could we ever school those neophytes on how to print more money and keep interest rates low!)
- Strikes by workers for higher pay as a result of inflation, causing a vicious circle in unemployment that eventually reached 10%! (Are not 6,000,000 – 14,000,000 unemployed people today, depending on who you include, refusing to go back to available jobs unless they get much higher pay and other conditions they want? What difference does it make if the strikes are organized by unions or financed as a general strike by government provision under both Trump and Biden? Except that a general strike is bigger and worse, regardless of the cause.)
- As wages went up, companies started raising prices even more, creating “a game of leapfrog.” (Hello! Already in full swing!)
- The Fed being blind to the inflation that was happening and not willing to commit to price stability, allowed it to get even worse. (Ahem! This is different today only in that blindness doesn’t get to be recognized by nearly everyone until well after the fact when everyone finally wonders how the fools could have been so blind, as economists argue to save face, “No one could have seen this coming.” Yeah right! I am here to say you can see this coming and COULD see it coming all of last year!)
That looks as close to an exact repeat as you can get between two different time periods. Only, this one is firing up faster. The video even notes that consumers protested rising meat prices back then. (Have you seen the cost of meat lately??? My gosh! It’s gone through the roof! I had to downgrade my last group barbecue plans to a cheaper cut because the cost of meat had more than doubled from last summer!)
The coup de grâce came in the seventies under Carter when oil prices soared and fuel lines became commonplace. (Fuel lines at the pump due to production shortages are not here yet, but oil prices have certainly been on a tear with OPEC at the center of the news cycle just as it was back then, so today is not all that different from back then. With transportation bottlenecks everywhere, fuel lines could develop quickly, too.)
The economists in the video are blind to their own blindness because the comparisons the video gives between the seventies and today are obvious and everywhere in the evidence this Wall Street journalist lays down! You can check off every box, except the fuel lines, and they may well be coming soon to a gas station near you, depending on what OPEC does and whether transportation bottlenecks start to impact oil tankers, as they most likely will!
You have want to disbelieve inflation could be that bad and have to be willing to trust the Fed again based solely on its credentials in order to not see that we are already reliving the seventies. We just haven’t been living it long enough for everyone to catch on. Economists will be the last to catch on because they are looking at it all through theory, not through daily experience at the meat market and at the gas station like you are. Even their theories are messed up.
Fed and the Bureau of Lying Statistics cooked the books
Because inflation became so heated and hated in the seventies, the government and the Federal Reserve found ways to reduce official inflation numbers (which, coincidentally, helps the government reduce the increases it has to give in Social Security benefits as well as other things the government pegs to inflation) and improves the appearance of GDP by lowering the downward adjustment for inflation. All administrations appreciate that.
The biggest change in the calculous was to reduce the impact of fuel prices and to reduce the impact of housing prices — both of which are currently the most intense areas of inflation, now ruled out of consideration by revisionist thinking. All of which means, if we ever nominally hit the double-digit numbers of the seventies, we will be way worse off experientially than people were in the seventies.
If housing costs were realistically included in inflation, we’d already be at double-digit inflation because housing is weighted at about 30% of CPI, and national housing prices have leaped upward about 25%. However, CPI’s housing component is calculated by the best guesses (yes, just guesses) of ordinary home owners via a survey that asks them what their house would rent for. The CPI housing costs for homeowners are then pegged at that rent equivalent.
Need I point out that most homeowners, not having been in the rental market for years, have no idea what their homes would rent for! This means that home ownership costs in CPI are entirely provided by the least knowledgable people. (And there is no adjustment inputted for the ignorance factor!)
As much as those best guesses by many people who haven’t rented a house for a decade or more tend to downplay inflation, numbers are skewed even more right now due to an anomaly: The government has artificially frozen the rental market all across the nation with moratoriums on evictions and freedom from even paying rent. So, rents have been iced over. That means the rental portion of housing costs in CPI (as opposed to just the guessed homeowner portion) has also been frozen! Unless the government institutes further price controls when moratoriums come off at the end of this month, rental rates are likely to soar in the months hereafter as they catch up with skyrocketing housing prices.
That means ALL housing prices in CPI this year have been based on frozen rents. In spite of all of that, housing prices are already one of the biggest contributors to today’s rise in CPI just due to the number of people who did not opt for forbearance or who are guessing their houses would rent for more.
In my next article, I’ll lay out where inflation has gone since my last recent update because there is too much to include here just from the last two weeks. I can hardly keep up with the number of ways in which inflation is soaring and the reasons it looks to be more persistent than the Fed claims, even after upping their forecast last month from “transitory” to “possibly persistent.” You’ll see more adjustments to their projections, too, as they stumble to catch up with what is already happening.
Please don’t let them off too easily when their easy-to-foresee failure smacks them in the face and clobbers all the rest of us because of them.