If you are bored today, tune into coverage of Federal Reserve Chairman Jerome Powell’s congressional testimony and keep track of how many times Powell mentions inflation.
Make it a drinking game just to keep your attention, downing one every time the I-word is used.
Powell and his ilk are walking a tightrope on the matter. He and his predecessors have shoved a torrent of liquidity into our nation’s money supply, but haven’t gotten the desired results because too many of you are keeping your spigot of personal spending set on trickle.
No doubt this in part owes to job insecurity, with so many currently — or about to be — unemployed due to heavy-handed intervention in the name of virus policy that has gutted private business.
Also, when reported inflation rates are relatively low, there is no urgency felt by consumers to spend now lest they be paying more tomorrow for what they could have bought today. The U.S. Bureau of Labor Statistics put the 12-month consumer price inflation rate at 1.4 percent for the past 12 months in its most recent report.
This doesn’t mean this is an accurate reflection of price inflation. If you have bought just about anything in recent weeks and months, you know costs are rising.
But the government’s method of tracking inflation, detailed previously in this space, allows the numbers to be fudged by substituting items in the basket (such as using chicken when beef prices rise) and hedonic adjustments, a sort of statistical voodoo in which inflation is artificially reduced by theoretical gains in productivity.
How does it benefit the government to under-report inflation? Let us count the ways.
It reduces cost of living adjustments paid to the burgeoning ranks of those on Social Security.
It keeps interest rates on the ever-expanding national debt lower than they might otherwise be and so reduces borrowing costs.
It puts a lid on employees being able to cite the inflation rate to demand wage increases from the companies whose ownership and management fund too many of our politicians. Those politicians are aware of how they can curry favor with executives who love to keep wages low, at least for the working class, by keeping reported inflation understated.
How fiddling with the models to keep inflation artificially low hurts is that it keeps Powell and his friends from meeting their target of 2-plus percent for an annual number, and encouraging you to spend all the money they have created.
But you never hear high-ranking government officials questioning the validity of the reported inflation rates.
Contrast that with Powell, and Treasury Secretary Janet Yellen (who used to have Powell’s job) both going public within the past week doubting the accuracy of the official unemployment number, put at 6.3 percent by the government’s torturers of statistics.
Powell and Yellen say 10 percent is closer to the truth. Even that probably is too low.
They question unemployment figures because both need that number to be as high as possible to justify their continuing to increase the money supply on a parabolic curve basis.
While private individuals haven’t been spending money, governments at every level have, or would like to do so.
From stimulus handouts, to talk of Universal Basic Income (more handouts but without a time limit) to talk in some quarters, such as Baltimore, of paying hoods a monthly stipend not to kill others, to proposed student loan bailouts, governments are always willing to spend your tax dollars and then some.
Excess money supply also has flowed into investment markets and alternative investments such as Bitcoin, catapulting them to record levels. Housing has rebounded on the back of excess liquidity and artificially low interest rates.
But, increasingly, knowledgeable people are noting the monetary and financial excesses and predicting gloom.
Hedge fund manager Ray Dalio sees bubbles in many investments.
Michael Burry, another investment guru whose prescient call that housing was a bubble in the mid-2000s was immortalized in the book and movie “The Big Short,” sees Weimar-style hyperinflation as a possibility in the U.S.
Post World War I Germany just printed unbacked money to pay off war reparations, crashed its currency and economy, gave rise to Adolf Hitler and eventually got us into World War II. That was the so-called Weimar Hyperinflation.
None of this could be described as desirable.
Yet Powell and Yellen and their friends are all to eager to take the risk of a historic repeat. They want to stoke the inflationary fires, believing that they can dial it back once things really begin to overheat.
They are supremely confident, although judging from their track records, there is no reason for that.
I’m not as confident, which is why I’m in investments to protect my purchasing power from inflation because, God knows, my Social Security won’t come close to keeping up with living expenses if and when inflation hits double digits or above.
I could be wrong. Powell and Yellen could keep the house of cards from collapsing, could continue to juggle the balls without fail, or any other metaphor you’d prefer.
But I’d rather side with the likes of Dalio and Burry, who have spent their adult lives battling and winning in the real world, not mostly navigating the halls of academia and government as have Powell and Yellen.
Sam Ross Jr's site 