Wednesday, July 13, 2022

Inflation Inflates Again

Inflation stepped up the pace last month as it rose to 9.1%.  The Bureau of Labor Statistics stated in a press release today: 

The Consumer Price Index for All Urban Consumers (CPI-U) increased 1.3 percent in June on a seasonally adjusted basis after rising 1.0 percent in May, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 9.1 percent before seasonal adjustment.

The increase was broad-based, with the indexes for gasoline, shelter, and food being the largest contributors. The energy index rose 7.5 percent over the month and contributed nearly half of the all items increase, with the gasoline index rising 11.2 percent and the other major component indexes also rising. The food index rose 1.0 percent in June, as did the food at home index....

While almost all major component indexes increased over the month, the largest contributors were the indexes for shelter, used cars and trucks, medical care, motor vehicle insurance, and new vehicles. The indexes for motor vehicle repair, apparel, household furnishings and operations, and recreation also increased in June. Among the few major component indexes to decline in June were lodging away from home and airline fares.

Digging into the weeds provides little to no relief. The inflation rate by category is: 

Fuel Oil: +98.5%
Gasoline: +59.9%
Gas Utilities: +38.4%
Electricity: +13.7%
Food at home: +12.2%
New Cars: +11.4%
Transportation: +8.8%
Food away from home: 7.7%
Used Cars: +7.1%
Shelter: +5.6%
Apparel: +5.2% 

M2 May 2022

Monetarists expected the results over the last year as the United States money supply increased 40% in two years.  Two Johns Hopkins economists, John Greenwood and  Dr. Steve Hanke warned in a Wall Street Journal letter last week the Fed may move too far, too fast in the wrong direction: 

The relationship between money and inflation remains a mystery to many who should understand it—including Federal Reserve Chairman Jerome Powell. Late last month he said, “We now understand better how little we understand about inflation.” By analyzing the money supply during the global financial crisis, which started in 2008, and our current inflation, we can see why the U.S. economy and inflation behaved differently in those two periods. It’s all about money, not fiscal policy, supply chains or energy prices.

Money dominates. Broad money growth drives nominal spending. In normal times most money is created by commercial banks. When a bank makes a loan, it credits the borrower’s deposit account. The loan does not come from the bank drawing down on its reserves at the Fed. Banks can also create money by purchasing securities, again crediting the deposit account of the issuer or seller of the securities. Provided they can meet all capital, liquidity and leverage requirements, banks create loans out of thin air.

If the ability of banks to create money is impaired for any reason, the Fed can step in and engage in quantitative easing, purchasing assets on a large scale. This increases the money supply because asset purchases by the Fed from the nonbank public result in a payment passing from the Fed to the seller, which deposits the payment in a commercial bank. This is new money. In turn, the bank passes the payment back to the Fed, which credits the commercial bank’s reserve account. This is how QE increases both banks’ reserves and the money supply out of thin air.

During the global financial crisis—which we define as the period when the Fed was engaging in QE, 2009-14—commercial banks’ balance sheets were seriously impaired by bad loans to subprime borrowers and losses on securitized loans. Short on capital in an environment where capital and other requirements were being tightened, most banks stopped lending and creating money in 2008 and didn’t start lending again until 2012. Fortunately, the Fed stepped in to create money via QE.

The third round of QE ended in 2014. The money supply (M2) increased by only $3.4 trillion from 2009 to 2014, with $2.4 trillion flowing from Federal Reserve credit and a net $1 trillion flowing from bank credit. These changes resulted in a moderate M2 average annual growth rate of 6.6% over that period. Even with the Fed’s aggressive QE, money-supply growth and the resulting average annual inflation rate of 1.7% (calculated with a one-year lag) were modest.

The Great Inflation started with the Covid-19 pandemic. Commercial-bank balance sheets were in good shape, and, in the early stages of the crisis, Washington encouraged banks to lend more. Banks were ready and willing to create money, and they did. The Fed stepped in to create even more money.

As a result, M2 has risen by $6.3 trillion since the start of 2020, of which $4.8 trillion has come directly from the Fed and a net $1.5 trillion has come from the banks. M2 has increased an incredible 41% in only 2½ years—an average annual growth rate of 16.3%. No wonder the U.S. is suffering from its highest average annual inflation rate in 40 years at 5.7% (calculated with a one-year lag).

“Right now,” Mr. Powell said in a 2021 congressional hearing, “M2 . . . does not really have important implications. It is something we have to unlearn, I guess.” He and other central bankers must “unlearn” their disdain for monetary analysis before they make another egregious error. Because of their excesses, elevated inflation will continue for some time—at least 12 to 24 months.

This inflation cannot be reversed, but in its panic to raise rates and begin quantitative tightening, the Fed has, in the three months before June, allowed M2 growth to plunge to an anemic annualized growth rate of 0.1%. When broad money growth falls to near zero, nominal spending contracts and a recession begins.

If this minuscule growth in the money supply persists, a recession will start in late 2022 or early 2023. By raising M2 annual growth to around 6%, the Fed could avoid sending the U.S. into a steep recession, which would include a surge in unemployment. But, without M2 on its dashboard, the Fed is unnecessarily flying blind.

Ouch.   These two economists have been getting the inflation numbers right for the last year while the "experts" called it all "transitory.  Kind of like the experts who all missed 2008.  The Big Short, anyone?



Anonymous said...

No worries. This is the price we pay for no more mean tweets.

Anonymous said...

This has to be in order to usher the liberal new world order. Right from the mouth of one of Bidens staff!

Anonymous said...

Have you seen inflation in Europe?

The Euro is now less than the US dollar - great time to travel (except for the staggering shortages of manpower at aviation positions, hotels, restaurants on the continent)

Anonymous said...

Human population will reach 8 billion by the end of this year.
The implementation of Central Bank Digital Currency will follow a controlled collapse of central bank liquidity.
The systematic destruction of food production and processing has been underway since 2019.
Combine all of this with a forced delusion of men having babies.
Covid is the new influenza. Monkeypox is the new AIDS.

Some say a comet will fall from the sky
Followed by meteor showers and tidal waves
Followed by fault lines that cannot sit still
Followed by millions of dumbfounded dipshits

And some say the end is near
Some say we'll see Armageddon soon
I certainly hope we will
I sure could use a vacation from this
Stupid shit, silly shit, stupid shit

Tool- Ænema

Anonymous said...

That number wrong. Economy strong. Trump wrong. Says our pwesident.

Anonymous said...

But if the bank making my loan just credits my account without drawing down cash money from somewhere, I still have to repay that loan with cash money; in other words something for nothing?

Anonymous said...

High inflation, proxy war with russia, demented fool in the white house. But at least there's no more mean tweets, right Biden voters?

Anonymous said...

This is the price that we must pay for no more orange man and a VPOTUS with knee pads.

Anonymous said... other words something for nothing?

And your chicks for free.

Anonymous said...

It it’s only taken about 100 years for the European Central Bankers and their proxies in the Federal Reserve to rob us of all our wealth. Very few people even have any precious metals or even fiat reserves to fall back on. No, most people just have debt they incur to buy garbage made in China. So we will all go along with whatever the Money Masters tell us to do so we can get food and shelter.

This isn’t the fault of Biden or Trump alone. This is the consequences of The Creature from Jekyll Island

Anonymous said...

The economy will recover from the present wave of inflation. The country may never recover from the division, hatred, and dishonesty promoted by Donald Trump.

Kingfish said...

You don't t think inflation can destroy a country?

Anonymous said...

There probably won't be many comments on this article. The Federal Reserve scheme is complex and few can comprehend it.

I will boil it down to country simply, it's legalized thievery, and the only game in town.

Anonymous said...

I won’t give a shit about inflation as long as I can get medicaid to pay for my medical marijuana!

Anonymous said...

Liberalism> Find a cure.

Anonymous said...

I've got deer meat in freezer, Bass, Bream and Coopernose bluegills in a pond. I'm good. Hope in hitting lottery is the only thing that I have to look forward to. I can't ever get in Two Rivers early enough anyway for grilled oysters...

Krusatyr said...

Most of current inflation is driven by Biden's marxists war on oil and gas. You cannot touch a product or service in your life that isn't connected to oil by transportation, manufacture (including agriculture) and/or by freight. All inflated.

The above compound each other and are further ratcheted up by Biden's marxist policies at the border, foreign trade, taxes, regulations and cultural degradation.

Anonymous said...

10:37, bullseye!

Would it be any worse if Chokwe were president?

Anonymous said...

Very good, Blame Joe Biden!
All according to plan!

-Sir Evelyn Robert Adrian de Rothschild

Anonymous said...

If you only learned to live within your means, you would not worry about this little bump!

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Trollfest '09

Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

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Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

This is definitely a Beaver production.

Note: Security provided by INS