The Fed Did It! Inflationary Collapse was Already Here.
For almost two years (starting in 2020 before you could see anyconsumer inflation at all), I have faithfully and consistently traced our trajectory toward scorching inflation that would cause a market disaster. Prior to that, inflationary burn-out was not an argument I ever made on this site (unlike some who perennially hyperventilate about hyperinflation).
Starting in 2020, however, I said inflation would be the news of our time.
I also recently laid out in a series of Patron Posts the massive economic collapse that we will see unfold now that inflation is forcing the Fed to tighten and cutting off the escape route the Fed has deployed whenever its tightening causes markets to crumble. That route, of course, would be a rapid return to quantitative easing, which rising inflation will no longer allow.
Well, that is, until now when the Fed may try to use wartime sanctions as an excuse to return to easing in a wartime stance, in spite of inflation. If they do, hyperinflation is the certain result, since we were already going to have continued high inflation. IF the Fed goes back to the easy answer of easing in our present high-inflation, high-shortage, low-production environment, we’ll move from the seventies-style inflation (complete with energy crisis) I predicted and traced out for the past two years to full Weimar-Republic inflation. I’m not saying the Fed WILL do that, but I could see it using the present sanctions as cover for such a move.
I have consistently predicted we’d enter a stagflationary recession at the start of this year, which would be prior to Putin’s War against Ukraine, and we are entering it, as the article below will show. I’m going to lay out the proof this inflation would have continued hot even without sanctions, using pre-war statistics, because we are about to see an even sharper rise in inflation due to the global sanctions imposed on Russia, and many will likely claim all the inflation in the months ahead is due to those sanctions, giving the Fed cover for its years of financial profligacy. In other words, “There is nothing the Fed could do about this; it is all because of the sanctions we had to impose to stop Imperial Putin.”
(I’m not arguing against the sanctions. I’m just saying they will make inflation worse, but they will also, therefore, easily become the convenient scapegoat for the collapse that was already assured by failure of the Fed’s repeated debt-based, money-printing recovery programs.)
Inflation was especially baked in by the Fed and the government over the past few years due to the COVID-lockdown shortages and the helicopter money and the momentous bailouts, and you can trust me on that because I laid out how all of it would proceed month by month, several steps ahead of the inflationary events over the past two years, and all of it, right to the end of the bull market in the Russell 2000 this year, has gone exactly as I anticipated before there was any thought around the world about Putin invading Ukraine.
The Atlanta Fed was already forecasting the economy this quarter would fall as close to recession as you can get without being in recession. Now, since the start of the war, it is forecasting this quarter will be recessionary. My only argument would be that it was generally right but overoptimistic:
As I pointed out more than a month ago, using an earlier version of this graph, we were practically in recession back in January, and the war now has just tipped the balance as to which side of zero the Atlanta Fed believes we’ll end up on this quarter.
If the Fed is allowed to use the convenient excuse that this stagflationary recession is due to sanctions that it cannot do anything about, once gain, we will learn absolutely nothing as a nation about how destructive the Fed truly is to our economy with all of its central-planning manipulations. That’s my concern — that here we go with yet another “rince and repeat” Fed “restoration” cycle.
So, as the war and its sanctions intensify inflation and recession, let’s not take our eyes of the fact that both were already baked in. Unfortunately, there are not enough people who read here to have seen it coming. Most do not believe an inflationary recession (stagflation) was already wrapping its fiery arms of death around us. So, they’ll accept the new narrative as it develops if the Fed and its pocket politicians take that route, as seems probable to me.
To make it clear we were already here in an inflation vortex to hell, I’ll present the data I collected prior to the invasion to show the degree to which we were already caught in an inflationary vortex before I write my next Patron Post on how the war and all the global sanctions will likely bring profound shifts in the “world order,” altering and accelerating the path toward globalization and control. To lay all of that out, I’m going to present the many data points I already collected as evidence that the continuing rise in inflation was baked in before the invasion without much of my own commentary. In other words, just the facts:
The clear and present danger of continuing high inflation
That’s the definition of “stagflation.” And here we see that drop was recessionary (any reading below “50”):
On February 17th, when Putin’s troops were still circling and Putin was lying by telling the world no invasion was on the horizon, Bill Blain wrote,
Aggressive moves to combat particularly aggressive inflation were already in play. In fact, the war has actually softened expectations of Fed tightening where inflation had been driving investors to price in the fastest Fed tightening in history as I pointed out in more than one article.
I.e., it was baked in … as follows:
Now add to that the additional catalyst of war and the broadest and most intense sanctions ever tried. (But keep in mind those sanctions would have been doable and readily survivable if not for the incredible amount of dry rot we built into our debt-based, paper-money, economic structure that was already to go up in a great conflagration on its own.)
As Blain laid out, the economy was pumped up with massive money stored away in assets, and it took a pandemic, as I’ve said all along the way, to create the kinds of shortages that get people to release all that money to bid up prices. On top of that, of course, the pandemic redirected the money pumps to start shoving money into the pockets of the masses so they could spend as usual even when they weren’t working to produce or transport anything to spend it on because these laborers were all locked up by their governments!
“Years” of inflation were baked in, according to Blain, who wrote all of this before the war and any thought of sanctions.
Just the inflationary facts
You know where we have already seen that incendiary inflation the most:
At the same time when mortgages hit record size, mortgage rates went on a tear as well:
Worse than the “Taper Tantrum.” That’s a double whammy on your most expensive budget item if you bought a home in the past year, and it’s slowly working it’s way down the rent stream as well.
In case you think you’re going to steady your nerves about that with a soothing cup of coffee, Goldman’s head commodity strategist and one of the closest-followed analysts on Wall Street, as ZH described him, said he’s never seen commodity markets pricing in the shortages they are right now:
We were “out of everything,” according to the commodities expert who had never seen any thing like this, before any thought of war or sanctions. Coffee futures are, as a result (pre-war), back in the all-time high zones:
And so it goes with producer price inflation in those background figures that drove me to show for months that an inflation conflagration was about to show up in consumer prices:
Measuring that as the accumulation of price increases in index value and not as monthly percentchanges, that looks like this:
Things have been a little steep on the producer side since I started predicting high consumer inflation back when we first emerged from that crash in 2020, saying all along the way this massive problem of too much money chasing too few goods would become hot enough to speed up Fed tightening and kill the stock market. As you can see, there was NO interruption in that flight path all the way through the end of 2021 where the data stop.
All before war and sanctions.
Does anyone see a gap in the graph below between the cost of goods for intermediate demand (the products that go into other products) and the cost of goods for final demand (retail) to where consumer prices might have some catching up to do?
Do you think they won’t?
Here is the cumulative difference between what percentage of price increases has been handed down from producers to the consumer and what has not — the area in red representing the difference in percentage price increases between producers and consumers each month that have not been passed along … yet:
Good luck with companies just indefinitely sitting on all of that! Because, yeah, that’s what companies do.
And that was published just before the war and all of its related sanctions. It is what was already baked in. That is why investors were betting on more and more Fed rate hikes in 2022 to fight all of what they saw coming and why bonds were pricing upward before the sanctions over Putin’s War.
Yet, the increases that have already priced through to consumers (that are not part of the red zone in the graph above) are, frankly, already astounding:
And you can’t outrun that inflation in car prices because…
… because you’ll be out of gas.
That, too, was pre-war. Of course, the wartime sanctions will make that worse and already are making it worse if you’ve stopped by a fuel pump lately, but it was building even before the war. Meanwhile, our national Strategic Petroleum Reserve is already at its lowest in twenty years, so don’t expect any reprieve:
All blocked up and nowhere to go
Port blockages are a big factor in the shortages that are part of the inflation recipe, so to understand where inflation was headed prior to Putin’s War, one needs to know whether these port backups were starting to clear out or not.
A month prior to the war, the Wall Street Journal reported the situation as follows:
So, in short, “No.”
Here is what shipping constipation looked like at the start of the year:
And to put that picture in perspective as to what it means:
Clearly NO headway has been made since the backlog began to develop one-and-a-half years ago! The only thing that changed is that ships started waiting out at sea for their turn at port, rather than at anchorage around congested ports. That’s not a reduction in backups. It’s a traffic revision due to congestion. And that is where things were just before the war and its sanctions. So, do not accept the likely coming lie that all inflation from this point forward is due to the war and its sanctions. There was NO reprieve anywhere on the horizon!
Underfed because overFed
One of the places we feel inflation the most is in our grocery budget. We have to feed the car with fuel and feed ourselves as high priorities, and both costs were rising right up to the war (but, of course, will rise a lot faster now due to the sanctions on Russian grains and the war tearing up the fields in Ukraine (Europe’s breadbasket) making a massive drop in crop sales there a certainty, pushing up corn prices and, therefore, ethanol prices, in addition to petroleum prices.
Now, US and Canadian citizens might feel they’re safe from all of that, but they’ll need to rethink that. When Europeans find their food sources greatly cut back, they go to faraway markets, including the US and Canada to buy the food they need. That increase in demand in those markets drives up prices in those markets, as does (even worse) all the speculation that is built into our commodities casino. As with stocks, investors believing corn prices will go higher, bid up futures on corn prices up, and that hits you right in the ol’ breadbasket because all the producers of products using corn or corn syrup have to pay those prices that have been bid up by speculators, so all the speculation passes down the food chain.
(That is one reason I believe we need to redesign the laws that govern commodity markets to strip out the dominant casino-like aspects that make all consumers pay more for everything just so the rich can have another casino to play in where they can get richer still without actually producing anything or providing any service — the kind of argument I make in the final chapter of my book Downtime: Why We Fail to Recover from Rinse and Repeat Recession Cycles.)
The world, as a whole, had already closed 2021 at a cost level for food matching the highest indexed food prices over the course of, at least, three decades:
You can see the rise in food prices is a global phenomenon that was building continually throughout 2021:
And you’ve undoubtedly already felt food inflation building rapidly in your own local grocery stores prior to the war, but here are just a few items that are endemic of what is happening and was already about to happen to an even greater extent across the board before there were any stirrings of war in Ukraine:
Of course, rising fertilizer prices due to the cut-off of Russian oil and gas will make that worse, as will rising corn prices for the reasons mentioned earlier. It will cost a lot more to feed cows:
Again, that milk was spilled before the war and its sanctions. Even your basic hotdog was set for soaring prices prior to Putin’s War:
All of that was already scheduled by Warren Buffett to rise this month. And not just a little either! A LOT:
All of that was already baked in because that’s what happens when all those producer price increases that had not been passed along yet, which I mentioned above, finally get priced in quickly because producers had cut their profit margins back as long as they could to avoid losing market share, but are now finally giving up on holding back the tide. So long as they believed the Fed’s assurance that these problems were transitory, they could hold back on passing along their own cost increases in order to maintain market share; but it was never about to be transitory as the Fed had been telling everyone:
So, don’t think when you see prices leap up at the supermarket this month, that it is all because of the sanctions just imposed around the war Putin just created just because of the timing. These prices were already scheduled to blow through the roof in March before anyone had a ghost of an idea that such a war was coming, and retailers are likely to use this timing to pass through even more of the inflation they have been holding back as they now have cover, too.
My concern, as I say, is that the Fed will seize the opportunity to tell everyone that none of this is their fault, extending from years of money printing, so there is nothing they could have done about it or can do about it; and the government will tell you that none of this is the government’s fault either, extending from all their COVID lockdowns and their helicopter money to the masses. The Fed and all of its financial media parrots and dodo birds may even use this argument as an excuse to let things run hotter by going back to easing to avoid crashing the markets they are married to, so long as Fed can use this crisis to keep the blame for inflation off its back.
Just remember that correlation is not always causation, and this is one of those times. Huge price increases, as shown above, were already baked in prior to the sanctions of war and were already set to start showing up at the grocery store in a big way “in March” and “later this year.” The sanctions, of course, will make that inflation worse, and the average person and business will find blaming the sanctions conveniently easier to understand and explain than blaming all that has already been done by the Fed in years past. After all, most economists and stock brokers don’t believe any recession was coming at all, and have been parroting each other already in saying we were in the greatest economic boom ever. If that’s how it goes then , once again, the Fed gets away with the troubles it created, and we get to attempt to do it all again.
However, QE or low interest won’t work this time around because they will fan the fires of inflation already hugely at play and quickly spin them up into a hyperinflationary inferno if tried. I’m not saying the Fed will go that route, but it has a habit of doing so! Printing your way out of an economic collapse has always been a tempting easy solution.
Loyalton. California, wildfire tornado
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