Ramblings

[Joe King]

^^^^ lol Simple math shows that if their margins stay the same and the price of goods has gone up, their margins will increase, resulting in higher profits.

Ie: 5% of $120 oil is more than 5% of $75 oil.

Or do you think they should reduce their profit margin in order for you to have cheaper prices? their prices are up,, why shouldn't yours be up too?


Same thing applies to gov revenue. The gov is cleaning up right now. Is gov being accused of price gouging too?

 

[Casey Jones]

With true Cost-Of-Living rises (misnamed "inflation") running at 14 percent, that's not that much of an increase.

But there's no question, the Globalist Attack has been good for Woke mega-corporations.

And they're taking advantage of their protectionist sponsors in Washingtoon.

Now, riddle me this: Why are they making it HARDER, not EASIER, for small startups to come in and provide real price competition?

Could THAT be Brandon's fault? Or the fault of his controllers?

 

[JayDubya]

Build Back Better? With What Resources?

Some of the latest from Doug Casey

Here's the current budget deficit.

The blue is good and the orange is bad. You can see a lot of orange, and after 2008 things have been decidedly "orange."

Since there is no actual cash in the piggy bank the US government has to borrow it. Meanwhile, debt spirals higher. Total US debt now tops $90 trillion with unfunded liabilities clocking in at $169 trillion.

Folks tend to forget that a government doesn’t produce anything. It merely sucks up resources from the productive and redistributes those resources. The most "productive" governments manage to do this with the least amount of friction or capital stripped from the system, while allocating the resources the most efficiently. And since governments are awful at both of these things, the most "productive" governments are those who do the least, instead leaving it to the private sector to cater to the wants and needs of society.

In any event, the ever-continuous intrusion into citizens’ lives while "providing" for them things such as education, healthcare, pensions, and myriad other things which governments should have no hand in cost money. A lot, especially when the allocation of resources is not governed by the cruel hand of the market. Profligacy abounds in these situations, and so as the debt spirals out of control so does the printing of money.

You would think that by now folks in Europe (and around the world) would be waking up to the fact that the belief in "renewables powering the planet" is what has largely caused the energy crisis and that "doubling down" on renewable energy is as bad an idea as putting your special bits in a toaster. But it seems that this isn’t the case. We should not underestimate egos and political ideology.

One reason I have been saying that the probability that a debt reset is in the offing is because the numbers are just too egregious to be managed at this point. Median income per household in the US in 2020 was $67,521. Now consider that when doing simple math by taking US debt and dividing it by citizens we clock in at $778,000 per citizen (not per household). Now, not all citizens are contributing to the pie so to speak. Babies, for example. A more accurate take therefore is dividing this number by the number of US tax-paying citizens. When doing so we clock in at over $2 MILLION per citizen.

Do you understand now how hopeless this situation is?

So there are now only two solutions I can think of. One is a hyperinflation of the currency and the other is a debt reset.

This brings up other probabilities.

Those in power know that a hyperinflation would likely see them being replaced. History shows us this is true. No, rather they will try to self detonate the system, have an enemy to blame it on (Covid, Russia, etc.) and retain control… or dare I say gain even more control. This is what the entire WEF plan is all about. Right now they’re still using the mask of democracy, but as we’ve seen in the last two years this is merely a mask. Leaders all over the world have been bought and pressured or murdered (Magafuli) when not complying. The corruption is now increasingly brazen and blatant. The energy put into masking it grows weaker each day while the excesses and theft grow more egregious. Surprised? You shouldn’t be. This is the fourth turning.

Something else to consider is that while the Biden administration is sending tens of billions of dollars to thugs in what is arguably THE most corrupt Eastern European country (ostensibly to fight a bad man), they can’t actually afford it. The US military may well be the largest in the world, but as is the case with all militaries it requires funding. Cut off the funding, and no army can or will fight. This is true even if gender confused soyboys in San Francisco champion "taking it to Putin" while placing Ukrainian flags in their bios… right next to their pronouns.

And that means that the acceleration of the collapse of the US government and indeed the European Union (who are just as broke) is being accelerated.

What you choose to own in such a coming storm is going to be critical if I’m even half accurate.

At risk of sounding like a prepper, I continue to believe that energy at its base level is a no-brainer, if only because every single thing that makes our lives more comfortable, more easy is some derivative of fossil fuels. Then moving down the chain of needs, naturally food/agriculture and in this space fertilizer is in critical shortage. Precious metals are a hedge against total collapse in currency markets, though I don’t think we’re there yet.

Is the West Ceding Everything to China?​

China is 18% of the world’s people and GDP. But it makes roughly 50% of the world’s metals, 60% of its wind turbines, 70% of its solar panels and 80% of its lithium ion batteries.

The first question is this. Will these woke politicians permit the mining of the elements required for the production of "renewables?"

The second question is will the manufacturing capacity and capabilities be built in Western nations to turn the lithium, cobalt, nickel, copper etc into said renewables?

Will it be done in time?

Look around you at the "leaders" and what they’re saying. We are still in the denial stage and double down stage of ideological stupidity. And that probably means we the West cede not only fossil fuel energy security to Russia and China, but also "renewable energy" capacity.

 

[Uglytruth]

Don't forget a while back they raised the only one child deal. Imaging if we are invaded by an army of 20 somethings that already "own" everything.... we think of as ours. Given away by immoral degenerates in suits.

 

[BarnacleBob]

The greenback is now 104+....

 

[Uglytruth]

Consumer sentiment plunges to record low in June, according to University of Michigan survey

The University of Michigan’s gauge of consumer sentiment fell to a record low June reading of 50.2 from a May reading of 58.4.

www.marketwatch.com

Consumer sentiment plunges to record low in June, according to University of Michigan survey​

Last Updated: June 10, 2022 at 10:32 a.m. ETFirst Published: June 10, 2022 at 10:07 a.m. ET
By

Greg Robb​

Follow

5

Index declines to 50.2 from 58.7 in prior month​

Consumers shop at a Costco warehouse store in Miami.​

The numbers: The University of Michigan’s gauge of consumer sentiment fell sharply to a record-low reading of 50.2, down from a May reading of 58.4. Economists polled by the Wall Street Journal had expected an June reading of 59.
The level is comparable to the low point reached in the middle of the 1980 recession, the university said.
Americans’ expectations for overall inflation over the next year rose to 5.4% in June from 3.3% in May, while expectations for inflation over the next five years jumped to 3.3% from 3% in the prior month.
That’s the highest level since 2008, according to Kathy Jones, strategist at Charles Schwab.
Key details: According to the Michigan report, a gauge of consumers’ views on current conditions tumbled to 55.4 in June from 63.3 in the prior month, while a barometer of expectations fell to 46.8 from 55.2.
Big picture: Higher gasoline prices and overall inflation are weighing on sentiment. The share of consumers citing inflation as the biggest reason for their negative outlooks was the highest since 1981, said economists at Contingent Macro.
What are they saying: “Grim, but spending and sentiment have diverged,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Sentiment matters to politicians, but spending matters to the economy.”

 

[madhu]

Stock markets are down and futures are down big time. Longs are facing the music, shorts have become bankrupt, no rally at the end of the day. No more PPT? No more bailouts from uncle fed reserve, No more free money to Wall Street, I mean ordinary investors and everyone is working harder than before and will be happy owning nothing after the reset. But there is a disconnect everything is more expensive to buy. Being set up hyperinflation followed by deflationary implosion. The Ukrainine war may create global inflation that might then trigger debts to western banks to be written off. Usdx has fake rally and oil prices cannot be sustained at these highs. If the global economy is not affected by these oil prices and high usdx then something doesn’t make sense. Of course the markets have been engineered to last this long after 2001 and 2008 crises and so markets don’t make any sense any more

 

[BarnacleBob]

 

[Scorpio]

«The Big Bull Market in Commodities Has Only Just Begun»​

Commodity prices are on the rise. Leigh Goehring and Adam Rozencwajg say why they expect prices to continue to climb and how investors can best gain exposure to resources such as energy, metals and agricultural commodities in today’s inflationary environment.


Commodities are experiencing a boost. While inflation and worries about the health of the global economy are unsettling the stock markets, prices of resources such as oil, gas and grain are trending upward. The S&P Global Natural Resource Index, which includes a broad range of companies from the sector, has advanced 15% since the beginning of the year.

S&P Global Natural Resources Index​

12-month percentage change

S&P Global Natural Resources Index

S&P 500

Quelle: S&P Global Market Intelligence, themarket.ch
Against this background, The Market/NZZ spoke with Leigh Goehring and Adam Rozencwajg. The highly respected industry experts are known for their profound insights into the commodities industry and together manage the Goehring & Rozencwajg Resources Fund, which is now also being launched in a Ucits version specifically for European investors.

«This rally hasn’t even started yet,» Mr. Rozencwajg says. «Huge changes in investment flows are about to take place with large implications. Investors should use any pullback as an opportunity to increase their exposure,» Mr. Goehring adds.

In this in-depth interview, which has been edited and condensed for clarity, the two investment professionals explain why commodities and commodity stocks can play an important role in weatherproofing a portfolio, why they are bullish on the sector from a fundamental perspective, and how investors can best gain exposure.

more:

«The Big Bull Market in Commodities Has Only Just Begun» | The Market

Commodity prices are on the rise. Leigh Goehring and Adam Rozencwajg say why they expect prices to continue to climb and how investors can best gain exposure to resources such as energy, metals and agricultural commodities in today’s inflationary environment.

themarket.ch

 

[madhu]

Oil and commodities are acting like silver markets.

 

[BarnacleBob]

Here is the exact reason I predicted a .75 rate increase.... its all about managing perceptions. A .50 increase is standard operating procedure, but a .75 increase would be perceived by the public as the Fed "fighting inflation". This was the Feds safe move, as it changed absolutely nothing financial or economic.... purely a psychological operation!

Fed raises interest rate by 75-basis points in historic move to fight inflation

Fed raises interest rate by 75-basis points in historic move to fight inflation | Fox Business

The Federal Reserve on Wednesday approved the largest interest rate hike since 1994 as officials try to tame runaway inflation, which surged to another 40-year high in May.

www.foxbusiness.com

 

[Uglytruth]

Here is the exact reason I predicted a .75 rate increase.... its all about managing perceptions. A .50 increase is standard operating procedure, but a .75 increase would be perceived by the public as the Fed "fighting inflation". This was the Feds safe move, as it changed absolutely nothing financial or economic.... purely a psychological operation!

Fed raises interest rate by 75-basis points in historic move to fight inflation

Fed raises interest rate by 75-basis points in historic move to fight inflation | Fox Business

The Federal Reserve on Wednesday approved the largest interest rate hike since 1994 as officials try to tame runaway inflation, which surged to another 40-year high in May.

www.foxbusiness.com

Agree. So your thinking .75% next month also? I doubt if inflation is tamed in that timeframe.

 

[BarnacleBob]

Agree. So your thinking .75% next month also? I doubt if inflation is tamed in that timeframe.

Yep, .75% next month... the only action that will diminish the current CPI inflationary pain would be to severely cut .gov spending, which is the cause, the FFR, etc. et al is reaction to the spending... The economy just cannot absorb all of these trillions upon trillions of .gov spending... Its rather nice of Chairman Powell to serve as the proverbial scapegoat for the agent politicians & USA owners....

 

[Uglytruth]

Last month when they raised .5% then came out & started talking I was thinking we were going to get .75 or maybe even 1%. They want to stop it so it needs a shock. 1/2% is no shock. While 3/4 is a little more 1% or more would make things interesting. With the selloff over the last month I think those in the know are moving to the short side of the boat until signal changes. That way they can make money both ways but the short side is more dangerous.

 

[BarnacleBob]

I think there is a Fibbo retracement underway with at least a minimum 38.2% correction, prolly gonna be closer to a 50/61.8% correction of the top.... the 3/4 is quite the distraction from the real cause, inflation is just the effect... the Hypertiger explained the current events quite logically, rationally & well, even though he was hated & rebuked by the pansies on the site that denied his hypothesis now proven as facts.... "Inflation greater than previous Inflation plus One" ..... and as HT would say "enjoy the shattering of your cherished dellusions"... I sure miss him posting here!

 

[Scorpio]

from the cheap seats,

cramer was on speaking repeatedly how the slaves or labor was the problem, that the more slaves should be on unemployment,
that capital needed to take precedent to fix this

from my seat, I haven't heard something that stupid in quite some time,

they say raising interest rates is the way to get a handle on this inflation thingy

nothing could be further from the truth,

-monetary expansion must slow
-the safety net from .gov needs to end to get the slaves off their asses and back to work
-.gov spending needs to slow dramatically
-non-productive business enterprises need to shutter
etc.

the massive fiat creation has resulted in innumerable dislocations throughout the economy

without a purge of those, there is no fixing of this,

 

[chieftain]

Whilst some can't see the forest for the trees, those that choose not to are far more problematic.

 

[Casey Jones]

from the cheap seats,

cramer was on speaking repeatedly how the slaves or labor was the problem, that the more slaves should be on unemployment,
that capital needed to take precedent to fix this

from my seat, I haven't heard something that stupid in quite some time,

they say raising interest rates is the way to get a handle on this inflation thingy

nothing could be further from the truth,

-monetary expansion must slow
-the safety net from .gov needs to end to get the slaves off their asses and back to work
-.gov spending needs to slow dramatically
-non-productive business enterprises need to shutter
etc.

the massive fiat creation has resulted in innumerable dislocations throughout the economy

without a purge of those, there is no fixing of this,

I was listening to Tom Luongo in an interview with Rich of CryptoRich. To Tom's credit, he didn't let the conversation steer into crypto.

He posited a theory I find intriguing. First, he's making Jerome Powell out as one of the White Hats - for the moment. Because Powell may well be committed to normalizing interest rates, no matter what Puddinhead demands.

Not to combat inflation, which he probably cares little about. To draw eurodollars BACK. To entice capital to return.

Luongo asserts that Powell realizes that the empowerment of oligarchs of the WEF and the Soros compound, have been YUUGE beneficiaries of seigniorage - the New Money is flowing their way. They're suddenly empowered, with the Financialization of America and the EC.

Stopping this, with market-based interest rates, pulls the cash foundations RIGHT OUT FROM UNDER Herr Klaus' arse. He becomes one more crackpot egghead. Soros has to actually manage his money, instead of using Craigslist to recruit arsonists and Crisis Actors.

Luongo stresses he doesn't think Powell any kind of patriot - he's one more Central Banker, with all the evil that entails. It's just, he believes, that where the Woke mob is going, is a bridge too far.

 

[Uglytruth]

from the cheap seats,

cramer was on speaking repeatedly how the slaves or labor was the problem, that the more slaves should be on unemployment,
that capital needed to take precedent to fix this

from my seat, I haven't heard something that stupid in quite some time,

they say raising interest rates is the way to get a handle on this inflation thingy

nothing could be further from the truth,

-monetary expansion must slow
-the safety net from .gov needs to end to get the slaves off their asses and back to work
-.gov spending needs to slow dramatically
-non-productive business enterprises need to shutter
etc.

the massive fiat creation has resulted in innumerable dislocations throughout the economy

without a purge of those, there is no fixing of this,

Don't you see this as they created the problem by zero interest rates, ppt, printing endless money, etc.....?

If intrest rates were more of a normal 5%-7% range bubbles would not have happened or at least been much smaller. They made the decisions to lead the slaves in the direction they wanted so they could be fleeced. Decisions would have changed. Cash flows would have changed. Stocks would have been lower. Housing prices would not have bubbled. Not supporting the stock market would have lowered "values". More wealth would have flowed into safe traditional safe type of bond investments or even the economy with remodeling, travel, different purchases.
Then consider the babyboomer age & what side of the boat they were heading towards but were forced to the other side of the boat due to zero % returns and a HEY LOOK OVER THERE the stock market is on a tear. Factor in the deindustrilization of the US economy over the last 40 years that CREATED wealth and now just shuffles it around to a few big box type of stores / industries.

The whole thing is so warped and twisted no one can even guess what reality is in a make believe world.

A while ago I posted a CPI calculator. In 1994 I made 54K. In 2022 I need to make 105K to be even. Well I have not come even close. But it got me to thinking the other way. In 1994 I made 54K........... So because it was almost half it would have been like making 27K in 1994. That means my house would not have even been purchased & my entire life completely different. I'm living a total lie in a fake world they created. Every decision I have made has been wrong and based on their reality instead of mine.

 

[Scorpio]

Don't you see this as they created the problem by zero interest rates, ppt, printing endless money, etc...

of course, but you are conflating multiple issues when the only one to worry about, which was already stated, then you neglected it
was the primary cause was excessive monetary expansion, with all the rest effects of that

 

[JayDubya]

Economists Can't Account For 98% Of Rising Inflation​

http://danielamerman.com/va/ccc/J5InflationMystery.html

Economists no longer understand how inflation works.

That is the conclusion of a fascinating - and deeply worrying - article, "On Inflation, Economics Has Some Explaining to Do", that appeared on page 2 of the June 17th Wall Street Journal.

According to the article and the prominent economists interviewed, the leading inflation prediction methodology used by economists completely failed, leaving the Federal Reserve, White House & European Central Bank stunned and blindsided by the highest rates of inflation in 40 years. By one estimate, the main inflation model used by economists can explain only 0.1% of the 6.6% increase in inflation above its 2% target. As for the remaining 98% of the actual inflation we've gotten? Well, that's quite the mystery, as far as the current state of the art in economic theory goes.

Now, ordinarily, theoreticians having modeling problems with their theories would not be a concern for the average person. However, we are currently in an extremely difficult situation, with high rates of inflation, fast-rising interest rates, crashing markets, and strong near-term chances for a global recession. It is the decisions of the government and Federal Reserve that ultimately created this situation.

If the highly credentialed decision-makers don't even understand how they created this terrible situation, then that means their chances of resolving this problem without major hardships for the entire nation may be very low indeed. This could have extraordinary implications for all of us when it comes to our financial security, the value of our savings, and even our day to day future quality of life.

This analysis is part of a series of related analyses, which support a book that is in the process of being written. Some key chapters from the book and an overview of the series are linked here.

“Economists do not have a satisfactory theory of inflation at this point”​

Greg Ip was the author of the article, and I have been reading his work for a number of years. I would characterize him as being the top economics writer at the Wall Street Journal, and like the newspaper itself, he seems to have a mixed role that goes beyond being an ordinary reporter. The Wall Street Journal is both a newspaper and the mouthpiece for the heart of the financial establishment. It is where Wall Street, the government and the Fed sometimes talk amongst themselves, and present what they want to be communicated to the corporate and financial industry. So too, with Mr. Ip. For those who have a subscription, his article is linked below.

https://www.wsj.com/articles/on-inflation-economics-has-some-explaining-to-do-11655294432

The beginning of the article is startling.

"Having failed to anticipate the steepest inflation in 40 years, you would think the economics discipline would be knee-deep in postmortems.

Not yet. Outside of a handful of individuals, economists have thus far devoted remarkably little attention to how their theories and models got inflation so wrong."

"Economists at both the Federal Reserve and the White House were blindsided. The European Central Bank recently reported that the accuracy of its inflation forecasts 'declined significantly during theCovid-19 crisis.'"

The theoretical failure is explained as follows.

"Nowadays, working economists try to predict inflation by comparing the demand for goods and services and their supply as represented by the “output gap”—the difference between actual gross domestic product and potential GDP based on available capital and labor—and by the Phillips curve, according to which wages and prices accelerate when unemployment falls below some natural, sustainable level."

"These models worked reasonably well over the roughly 40 years before the Covid-19 pandemic, but not since. “Economists do not have a satisfactory theory of inflation at this point,” said Harvard University’s Larry Summers"

Larry Summers is, of course, much more than just a Harvard University professor. He was Secretary of the Treasury for Clinton, and Director of the National Economic Council for Obama. He was also chief economist for the World Bank, and was president of Harvard as well. Mr. Summers remains highly influential, and for someone with his stature and establishment credentials to make the flat statement that “Economists do not have a satisfactory theory of inflation at this point" is extraordinary. This is particularly true in our current circumstances of raging inflation.

This helps to place in perspective current Fed Chair Powell's frequent assertions that the Federal Reserve has the tools to control inflation. Keep in mind that Powell has no choice but to make that assertion, for if the Fed were to admit that it couldn't control inflation, that could by itself trigger a crisis.

The problem is that if the Fed doesn't have a theory to accurately explain the current inflation, if its models are all wrong - then it necessarily doesn't know if it has the tools to control inflation. If they don't know what is currently causing far higher rates of inflation than they anticipated, then they don't know what will stop that inflation. I would characterize Summers as being much more of an intellectual heavyweight in the economics area than Powell or Yellen, and if Summers says they don't understand what's happening, then the Fed and Treasury are flying blind, whether they will publicly admit it or not.

(For regular readers, as previously mentioned, the output gap is the fourth component for the full Taylor Rule equation. Inflation, natural interest rates, and differences between potential and actual GDP are theoretically assumed to be tightly intertwined, and are the sources of the equation for determining the interest rates needed to bring down inflation.)

A Staggering Miss​

The two paragraphs below help to show just how far off current economic theory is when it comes to explaining our current very high rates of inflation.

"While all of these critics got the direction of inflation right, their analyses can’t explain, at least using pre pandemic relationships, the magnitude, i.e., how inflation suddenly shot from around 2% before the pandemic to 8.6% now—6% excluding food and energy."

"Alan Detmeister, an economist at UBS and formerly the Fed, ran a statistical exercise earlier this year that found that the output gap, derived from actual GDP and Congressional Budget Office estimates of potential GDP—both adjusted, and unadjusted, for inflation—can explain at most 0.1 percentage point of the rise in inflation since the middle of last year, and the unemployment rate can’t explain any."

Per current theory, prices are supposed to be up by 0.1%. If we look at year on year inflation, prices are actually up by 6.6% above the 2% target. This means that the best mainstream economic theory for inflation can only explain about 2% of the current rate of inflation (0.1% / 6.6% = 1.52%), leaving 98% as a mystery.

So, we're not off just a little bit. This isn't some sort of adjustment that's needed. This is a total model failure.

Supply Side Simplifying Assumptions​

What is the source of this complete model failure - which can also be stated as the people who are supposed to be bringing inflation under control having no idea what is going on?

As regular readers know, I've been explaining our current inflation in supply-side terms from the beginning. I did call the non-transitory and major increase in inflation - and accurately identified the source - within one week of the release of the April 2021 Consumer Price Index, as explored in the analysis "The Current & Future Supply Side Inflation Shocks", linked here.

The culprit was initially excessive deficit spending, as shown in the brown background area above, and as explained in my analysis "Combining Three Distinct Sources Of Inflation", linked here. In an economic experiment - that was not part of longstanding economic theory - the stimulus checks flooded the economy, giving consumers lots of money to spend.

At the same time, the U.S. & other governments shut down much of the global economy in another novel experiment - which would come to create major supply chain difficulties. Apparently, what none of the experts at the Fed or Treasury thought through was how the two novel experiments would combine.

What the stimulus checks and pandemic shutdowns created in combination was too many dollars chasing too few goods - which as I identified and explained in my May of 2021 analysis, was the economic equivalent of writing out a prescription for high rates of inflation that would be ongoing. This combination of those two sources of inflation is shown in the green background area above, and it increased inflation to a level that was almost five times what it had been between 2009 and 2019.

These difficulties were greatly exacerbated by the global supply issues caused by the Ukraine War and the related sanctions, as shown in the blue area above. Even with just the first three months of inflation data since the Russian invasion, the average rolling three month rate of inflation for the U.S. is now up to over 10% - meaning that mainstream economic theory expectation of a 0.1% increase in inflation is only explaining about 1% of what we are seeing.

How could that be? For an answer, let's return to Mr. Ip:

"Economists have treated the supply side—autos, housing, restaurants, energy, healthcare, finance—as homogenous and elastic: When demand for nursing home beds or cars rise, so does their supply, and prices rise only a little, if at all.

But in the last two years, supply hasn’t been homogenous. Some industries like e-commerce have hired easily, while others like nursing homes have lost workers in droves. Food sold to restaurants didn’t substitute easily for food sold in supermarkets. Supply hasn’t been elastic: Increased demand for cars and houses boosted prices, not output."

Modern economics and finance are both based upon simplifying assumptions, which are used to reduce the inherent complexity to the point where the equations become useful. In essence, the correct theory often depended on the choice of assumptions.

As a very quick overview of the current applicable theory, inflation increases in the short run are created by a change in the relationship between the dynamic aggregate demand curve (AD) and the short-run aggregate supply curve (SRAS). A central bank can act to close the gap that is creating excess inflation, by moving the dynamic aggregate demand curve. The central bank moves the curve by changing the real (inflation-adjusted) interest rate. Raise the real rate (as the Fed is attempting to do), and consumer expenditures and business investments drop, which reduces demand, and which then reduces inflation. That's the theory, anyway. (This can also be reduced to the more common sense perspective that whenever supply gets out of whack with demand, then prices change. If supply exceeds demand, then prices go down, and if demand exceeds supply, then prices go up.)

My apologies if moving AD and SRAS curves on a graph sounds a bit esoteric, but if you want to understand why your stock portfolio has taken a 20-30%+ plus hit, or why mortgage rates have jumped over 6%, or why the purchasing power of your money in the bank is falling at a 10%+ annual rate, or why millions of people could be losing their jobs in the coming months, this corner of economic theory - and its failure or success - is a critical underlying reason.

Now, we don't need to understand this theory. We don't need to agree with the theory - we may think it is rarified academic nonsense. The theory doesn't even need to be correct.

But nonetheless, the Federal Reserve has enormous power over interest rates, the economy, and the markets. The Fed is made up of economists, who are following a particular set of theories that are more or less universally believed to be true - within their profession. These policymakers have the power to take actions based on those theories, and those actions can have life-dominating effects for the population at large, regardless of whether the underlying theories about supply curves, demand curves, output gaps, and inflation are correct or not.

The recent 0.50% and 0.75% increases in interest rates - and the anticipation of the future interest rate increases - are occurring because of these economic theories. The real world implications have devastated the stock and bond markets, slashing the net worths of tens of millions of investors, even while rapidly changing the home market and the home-building industry.

Large layoffs have already begun as an increasing number of companies decide that the still to come interest rate increases called for by the theoretical model are likely to create a recession. Likely well under 1% of those who have lost or will lose their jobs have any idea that they are being sacrificed in the attempt to move the theoretical intersection of the AD and SRAS curves on a graph and thereby theoretically dampen the rate of inflation - but it doesn't matter, the real world life-changing job losses for what could become millions of people will still occur.

Massive Economic & Investment Changes Based On Erroneous Theories​

Ironically, what makes this bizarre situation even worse, is that we don't have a theory that the theories are wrong - we have the fact that we know that at least some critical parts of the theories are wrong.

According to the theory - current inflation should be somewhere in the general neighborhood of 2.1%. That doesn't need to be precisely true, the 0.1% increase was the estimate of one economist. (And for those who read the WSJ article, yes, Detmeister said he could explain about half of the remaining gap (with 20/20 hindsight), but keep in mind those adjustments are not part of the standard theory.)

Nonetheless, in the real world, we have a catastrophic model failure in front of us. We know the theories about the supply curve, and the particulars of its intersection with the demand curves are wrong, and that this is producing a rate of inflation that is completely outside of what the standard theories call for. We know that the Fed, the White House, and the European Central Bank have all experienced this catastrophic model failure, even as the value of our money in the bank falls each month.

The Federal Reserve has (aided by the spending power of the money in our bank accounts) taken an unprecedented degree of control over interest rates, the economy, the markets, and our lives - and it will exercise those powers whether it really knows what it is doing or not.

We should therefore anticipate a series of market-changing actions from a Federal Reserve with unprecedented powers (from a historical perspective), that because they are based on an incorrect set of theories, will likely have different results than what the Fed thinks they will. These actions and the resulting differing results may dominate the economy, rates of inflation and investment markets over the coming years. Hopefully, this analysis has been helpful to you in understanding one of the critical underlying sources of what is changing the markets and why.

 

[Casey Jones]

I guess inflation is hard to figure out - if figuring it out correctly gets you Cancelled, fired, removed from tenured university posts.

So we will keep the mAsses wondering.

How long until the Spin Doctors find a way to blame DRUMPF?

 

[BarnacleBob]

1955 Miami Suburb (Westwood)

 

[Casey Jones]

1955.

I know in 1963, a home in a fashionable new ex-urb on the West Side of Cleveland, went for $13,900. Because I grew up in that house.

So, a smaller, cookie-cutter house in Florida, half that.

Of course, it had neither structural ability to withstand hurricanes, nor a basement, nor air conditioning. Houston never really started growing until home air conditioning became affordable; and I expect it was much the same in parts of Florida.

 

[BarnacleBob]

 

[BarnacleBob]