Joe Doakes from Como Park emails, for the first time in a bit:
Hayward is a smart guy but he’s making the same mistake as all the other tuxedo conservatives: he assumes the people at the Fed know what they’re doing and are trying their best in good faith to make things better. I’m not convinced that’s true.
If the cause of rampant inflation was easy credit causing “too much consumin’ goin’ on,” then tightening interest rates would reduce the credit, reduce consumption thereby and reduce inflation. If the cause of rampant inflation is lack of supply, tightening interest rates does nothing to generate more supply so it won’t bring down inflation.
Case in point, trailers in the senior citizens mobile home park last year were selling for $80,000 when we bought ours. There were plenty to choose from. After Hurricane Ian there are two for sale, the cheapest is $120,000. Interest rates have nothing to do with it: this is a supply problem. Raising rates won’t put more trailers online.
Similarly, strangling American oil production limits supply, causing prices to rise for everything that needs oil, including consumer gasoline, but also higher priced diesel for trucks and trains to haul goods and higher priced electricity made from natural gas. Raising interest rates won’t put more oil online.
In fact, raising interest rates makes it harder for business to afford the higher priced oil, giving them a double whammy. Hayward’s asks whether the Fed is raising rates too fast. I question whether they should be raising rates at all.
Either I’m dumb as a box of rocks, completely failing to understand economics, or the Fed is pushing the rate hike button because it’s the only button they have to push. It’s not going to work and they know it so they need some distraction for the voters. Hence Putin, Ukraine, Trump, slavery…
Joe Doakes
Or “Fascists in the bushes”.
Good to see (read) JD again.
I don’t know if I’m smart enough to understand, much less explain this (and all before my second coppa).
According to Milton Friedman, [Inflation] is always and everywhere, a monetary phenomenon. It’s always and everywhere, a result of too much money, of a more rapid increase in the quantity of money than an output. Moreover, in the modern era, the important next step is to recognize that today, governments control the quantity of money. So that as a result, inflation in the United States is made in Washington and nowhere else.
Raising interest rates doesn’t help this either. Reducing government spending and stopping the printing presses does. The problem is that adding more money to the system and lowering interest rates to effectively zero (or negative numbers in EU) were both deemed useful tools when trying to avoid the consequences of the global financial cock-ups of the last 30 years. Notice I said avoid the consequences; the cock-ups were not resolved, their effects were merely lessened (the pain was merely dulled).
Even more problematic is that the medication taken to dull the pain is both “fun” and “addicting”. The wild ride upward of the last 3 years in the US stock market was effectively inflation in an investment context. But now the patient has to go without his drugs, so there’s a lot complaining (drops in the stock market).
Add to that the various dishonorable (aka corrupt) practices in both the political and financial world. You’re probably already aware of the political shenanigans of the last few years, but there’s another too. You can see one recent example in the UK.
The Bank of England wanted to jump on the bandwagon to raise interest rates too and for a while, did so. But then they found out that the managers of various pension funds, Really Big Pension Funds, with lots and lots of clients (aka voters) were in huge trouble because they had been investing in financial instruments called derivatives (basically gambling) so as to make up the difference between their promised returns and their actual returns (because interest rates are zero). When the interest rates were raised, the derivatives, which were bought, of course, on margin, were called and now all the funds are finding themselves unable to pay pensions. So, the BoE stopped raising rates and went back to printing money.
And that whole rant is just a little taste of the awful state of affairs in global finances and why raising interest rates doesn’t help. As JD said.
jdm is right. The FED DOES have another tool to combat inflation. Their current “Quantitative Tightening (QT)” where they divest some of the Treasury bonds they have added to the balance sheet over the years is a start, but what is really needed is to simply STOP BUYING unsold Treasury bonds, which is effectively printing more money to finance government deficit spending! Now if those bonds can’t be “sold,” the money cannot be spent, and that’s going to cause some serious heartburn among politicians of a certain addictive nature, but it’s about time.
Joe’s been missed in the past couple of months. Thanks for sharing.
Wealth creation depends on human intercourse (using the word in its non-crude sense). That’s how things work in a market economy, we meet, we exchange goods, and both of us walk away with more value than we had before we met.
When covid struck, governments all over the world decided, without evidence, that restricting intercourse would save more lives than restricting intercourse would cost.
The costs were imposed immediately. Production fell. Supply chains are complex things, and governments around the world broke them.
Governments borrowed money to patch over their covid business restrictions, and these were indistinguishable from purposely destroying wealth.
You don’t increase the supply of available goods by increasing the money to buy them, not in the short and medium terms. In the short and medium term you drive up the price of available goods.
Putin’s war doesn’t help, but this war was a direct consequence of Biden’s Afghan shit storm. It wasn’t just that we gave up and abandoned our Afghan allies, it was the incompetence of our intelligence services, the incompetence of the military, and the incompetence of the State Department that the Afghan withdrawal exposed. Not only didn’t we consult with our NATO allies in Afghanistan, we didn’t even let them know what we were doing. Plus you’ve got Slow Joe stuttering through lies about it on television. He still will not admit that anything was wrong with the collapse of our 20 year effort in Afghanistan. No one was fired. Milley and Austin and Blinken and Bill Burns still have their jobs.
That wasn’t just a green light for Putin to act in Ukraine, it was an f’n red carpet.
J., nobody in the right mind would buy goobernment bonds right now, at least not enough to make a difference. So we are back to just one lever.
Something to note here is that the Austrian school and many other libertarians describe inflation not as rising prices, but the rising money supply. So in that definition, it’s always going to be the fault of the Fed and fractional reserve banking. If we expand the definition to include rising prices, then certainly supply plays in there as well–things like “is the President issuing drilling permits, and is he cutting short welfare payments because they’re incentivizing many to avoid work?”
And the answer to both is “no”, and hence price hikes are horrendous.
The Fed will hike until something breaks. Buckle up.
I neglected to mention that the flip side of these fed rate increases is that fixed rate accounts like CDs and saving accounts (not just bonds) are increasing their rates too. I plan to take advantage of this. You can avoid the bleeding in the stock market (which in my opinion is going to continue) and get 3+% in a 3 month CD. Maybe more in the near future when the Fed raises rates again.
You’re right, Mr Ewing. I think that’s what makes this all so complicated. There are so many balls in play.
nobody in the right mind would buy goobernment bonds right now
I assume you mean US Treasury bonds. I agree it’s fun to rag on Our Financial Elites, but if what you say is true, how do you explain the ridiculously high (and still increasing) exchange rates for the dollar?
https://en.macromicro.me/collections/1767/us-dollar/14765/us-dxy-ffr
… apologies if “J Ewing” is not a Mr.
I neglected as well to agree with UMMP’s message too.
The official food price annual inflation number is 11%.
Six months ago, a small donut at Kwik Trip was 69 cents. Now it is 99 cents.
At Papa Murphy’s pizza, a year ago we had Seven Buck Tuesday. By last June it had become Ten Buck Tuesday. Now it is $10.99 Tuesday.
The food prices I am seeing in Wisconsin today are the food prices I saw in Hawaii just over two years ago.
Where the heck does this “11%” food inflation number come from?
Apparently, the Fed is trying to correct one mistake of excessively loose money by committing another of excessively tight money. It swings from one extreme to another.
They say, one good deed deserves another. Perversely, in the Fed’s case, as is often wont in general, one misadventure is leading to another. Costs to economy and society are huge.
how do you explain the ridiculously high (and still increasing) exchange rates for the dollar?
I can’t. It defies any textbook explanation.
^ No, it doesn’t
UMMP:
Lund’s grocery store, used to sell their rotisserie chickens on Friday nights, calling it the “5 Buck Cluck”. For the last year, it’s been the “6 Buck Cluck”. Now, it’s going to 7 bucks. That’s still a decent price to feed four people, but, I’m sure that they have lost sales.
What really ticks me off, is that beer prices are up about 14%. 😎
What really ticks me off, is that beer prices are up about 14%
Doesn’t help that one of the leading CO2 reservoirs (yeah, I was unaware of such a thing too) is tainted.
https://www.audacy.com/kluv/latest/the-world-could-be-facing-a-beer-shortage
bosshoss429 on October 5, 2022 at 10:40 am said:
UMMP:
Lund’s grocery store, used to sell their rotisserie chickens on Friday nights, calling it the “5 Buck Cluck”. For the last year, it’s been the “6 Buck Cluck”. Now, it’s going to 7 bucks. That’s still a decent price to feed four people, but, I’m sure that they have lost sales.
There will always be more people who can afford a $5 chicken than can afford a $7 chicken. This is the truth behind the “fight for $15” movement (obsolete that it is). Most fast food joints around where I live now offer $15/hour. The result is that a big mac, fries, and a coke now will cost you close to $9. The drive through line is still long, the people who are priced out of a Big Mac meal deal are people who can’t afford to pay $9 for it.
US bonds don’t have to be good as gold, they just have to be better than the competition.
^ In some ways, US Treasurys are living on their historic reputation. I’m sure the idiots in the OBiden administration have a plan to eff that up too.
s&p down 10 percent from last year dow about the same inflation up 10 percent makes no sense inflation should be pushing share prices up not down
if economy is so bad how come gold is 1700 and silver is 20 those prices are cheaper than any time all year why hasnt inflation pushed them 10 percent higher something not right whos manipulating precious metals and stocks
if your sitting at the gambling table and cant tell who the patsy is your the patsy thats what investment markets feel like at least if i put my money in the credit union at 2 percent im only losing 8 percent per year instead of everything
way to go lesko brando heckova job
Good to see you back in the saddle, bigman. 😁
My silver stockpile is up bigly lads, the lesser gold stash is up, too. Some folks might be tempted to cash in, but to me, measuring the value of my hard currency against federal fiat currency requires me to forget why I bought it in the first place.
Silver was $16.xx two years ago. I made another large buy at the beginning of ’22 at $17.xx
didnt buy silver or gold last year
bought other precious metals
mostly copper and lead
in a metric size
in bulk
🙂
bought other precious metals
As far as I’m concerned this is a very astute investment compared to either gold or silver.
Copper and lead are always good buys…but you don’t get the max value unless you diversify your portfolio with brass, sulphur, charcoal and saltpeter.
So, after OPEC decided to cut production the White House went into panic mode. Apparently now they are against cutting production and use of fossil fuels?
Biden’s posse of losers put every ounce of pressure they could on OPEC to keep pumping.
And the result was — you guessed it — even deeper cuts in OPEC drilling and pumping.
I think that the “international community” has an even lower opinion of the Slow Joe administration than I have. It’s failures to the right, failures to the left, failures behind, and failures ahead. We heading full steam towards more FAIL.
Holy crap this is bad.
Before Biden pressured OPEC to maintain production of oil at current levels, OPEC was talking about 100K to 1M reduction of BBL per day in output. After Biden exerted all of his influence to get OPEC to maintain current production, OPEC has decided to cut production by 2 million BBL per day.
Get ready for a cold winter.
Thanks for the heads up, UMMP. I have 3 full cords of dried oak, and when my propane tank is delivered, I’ll have 1000 gallons of fuel to keep my range going, and my 30 minute showers hot.
I’m in over my head here, not being a Doctor of economics, but I see JD and Hayward as being correct. Prices can go up because of scarcity, as in the mobile home market and also because the government “creates” money by lowering interest rates. President Brandon tried to argue that inflation was due to greedy corporations raising prices for the heck of it, which is typical Progressive hogwash. Same logic as imposing rent control. Number of apartments on the market contract because people remain in units they don’t necessarily need. Anyone remember Nixon imposing wage and price controls in the 70s? How’d that work out?
The graph of terror: https://tradingeconomics.com/united-states/food-inflation
Since March 2021 the rate of food price inflation has been fairly constant at about 1%/month and the curve is not getting flatter.
People will starve.
People will starve.
All part and parcel of the malthusian elite end-of-time plans. Seen Early Warning (1981) clip yet?
Saudi will pay for this in the long run. They forget why their Kingdom still exists. Good luck without the US security umbrella and relying on the Chinese and Russians.
or maybe saudi figured it out
usa formerly protected saudi in exchange for cheap oil
lesko brandon is giving nukes to iran
iran hates saudi not fundamentalist enough
saudi does not believe lesko brandon will defend saudi from nuclear iran
the protection for oil deal is broken and usa broke it
no point in saudi keeping up their end by selling cheap oil to usa anymore
maybe saudi can sell cheap oil to china in exchange for protection
elections have consequences even stolen elections
but hey no mean tweets
^^ Saudi will pay dearly for this in the long run. They forget why their Kingdom still exists. Good luck without the US security umbrella and relying on the Chinese and Russians.
Just another reminder that the Saudis are not our Allies, they aren’t even our friends. Perhaps King Salman was but MBS is a jumped-up 3rd generation trust fund baby with delusions of power.