The U.S. Labor Department released inflation numbers Thursday indicating “transitory” inflation is arriving as the Feds long have professed to desire.
I’m not going to quibble with the numbers, but the reported overall annual headline rate is 5 percent and the core rate (stripping out food and energy, which no one uses, right?) is 3.8 percent, both of which are multi-year highs.
Yes, the accuracy of those numbers is open to debate. What is not debatable is that the trend is up and one wonders how high the inflation rate eventually will rise, and for how long?
Janet Yellen, former chairwoman of the Federal Reserve and current Treasury Secretary, provided some insight into how the people pulling the strings think when she said higher inflation and likely higher interest rates would be a good thing for both society and the Federal Reserve,
Why would Yellen say that, other than to pay homage to Martha “That’s a good thing” Stewart? One stated reason is to encourage economic activity – stimulating spending by people fearing the goods and services they want and desire will only cost more tomorrow, or next week or next month.
Yellen specifically alluded to Joe Biden’s $ 4 trillion in planned spending, which critics liken to pouring gasoline onto the smoldering inflation tinder already put in place by massive Federal Reserve money creation.
Even if that proposed Biden spending causes higher inflation and interest rates, no problem.
Thus far, investment markets seem to be buying the transitory inflation narrative. If that sentiment changes, reaction will be swift as evidenced by sharp declines in stocks and bonds and increases in traditional inflation hedges such as precious metals and commodities, and non-traditional items such as Bitcoin.
This reckless willingness to gamble with inflation is because there is no other way out of our fiscal mess. Those in charge are praying that inflation will run just hot enough to stimulate the economy, but not so hot as to melt it down.
This country enjoyed strong growth in much of the 1950s and 1960s, both periods of relatively low inflation. The ongoing suggestion that we “need” inflation to have economic success is specious.
It is the people who have manipulated interest rates to artificially low levels while simultaneously spiking money creation to historic levels who “need” inflation to bail them out and, by extension salvage the overall economy.
Eventually, as consumers find themselves paying higher and higher prices for necessities of life, they will demand a definition for “transitory.”
As their investment accounts shrink, they will demand these same bureaucrats do something to salvage the mess.
All will do well to remember the thoughts of Ronald Reagan on inflation:
“Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.”
Any of those can be harmful to your well-being, even on a transitory basis.
Sam Ross Jr's site 