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Is The Fed At The End Of Its Rope?

Is The Fed At The End Of Its Rope?

Authored by Michael Maharrey via SchiffGold.com,

The Federal Reserve delivered another 75 basis point…

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Is The Fed At The End Of Its Rope?

Authored by Michael Maharrey via SchiffGold.com,

The Federal Reserve delivered another 75 basis point interest rate hike at its July FOMC meeting. This pushes the federal funds rate over the 2% threshold to between 2.25% and 2.5%.

The mainstream media emphasized the size of the hike. One headline called it “a second super-sized hike,” with many other mainstream pundits noting that it matched a June hike was the biggest since 1994. But it wasn’t as big as the full 1% hike everybody thought was on the table after we got June’s flaming hot Consumer Price Index (CPI) data.

Here’s the question: has the Fed reached the end of its rope? Will this be the last hike in this cycle?

The corporate financial press seems to think the Fed will hike again in September, and the central bank certainly left that impression. The FOMC statement said it “anticipates that ongoing increases in the target range will be appropriate.” Powell said another “unusually large increase” could be appropriate at the September meeting.

But the FOMC state left some wiggle room, saying, “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

In other words, the Fed can stop hiking at any time.

Federal Reserve Chairman Jerome Powell left even more space to retreat from the inflation fights, saying there is “significantly” more uncertainty right now than normal and the lack of any clear insight into the future trajectory of the economy means the Fed can only provide reliable policy guidance on a “meeting by meeting” basis.

The markets seemed to interpret the Fed’s stance as more doveish. Stocks were up, as was gold.

The Fed may well need that wiggle room.

With this 75 basis-point hike, interest rates are now equal to the peak of the last hiking cycle in December 2018.

Passant Gardant published a graph that indicates the current interest rate is above the maximum that the economy can handle before plunging into a recession.

As you can see, the peak of the rate hike cycle gets lower and lower with each subsequent tightening. No matter how emphatically Powell insists that the Fed can raise interest rates, slay inflation and bring us to a soft landing, reality says otherwise. There is nothing to lead us to believe that the Fed can get rates to 2% without crashing the bubble economy, much less hike them to 3.5% or 4%. (And that’s not even enough to slay inflation.)

When interest rates reached this level in 2018, the stock market crashed and economic data went wobbly. In response, the Fed reversed course and put tightening on pause. In 2019, it cut rates three times and relaunched quantitative easing (although it refused to call it that.) This all happened long before the extraordinarily loose monetary policy launched in the wake of the coronavirus pandemic.

Today, there is even more debt and malinvestment in the economy than there was in 2019. It seems unlikely the Fed can push rates any higher without a complete economic meltdown. And we may already be past that point of no return. Despite claims to the contrary, it appears the US economy is already in a recession and has been all year.

The FOMC conceded that the economy appears to “have softened.” But the committee remains sanguine.

“Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low,” the FOMC statement said.

During his post-meeting press conference, Powell insisted the economy was not in a recession.

“There are too many areas of the economy that are performing too well. I would point to the very strong labor market. [It is] true that growth is slowing.”

As Peter Schiff noted, the Fed chair apparently picked up its copy of White House talking points declaring that two consecutive quarters of negative GDP growth doesn’t mean the economy is in a recession.

“If you think the Fed is independent, today’s press conference should put that myth to rest. Powell clearly got the Biden administration memo that recession is not defined by two consecutive quarters of falling GDP. Powell even said it’s not his job to declare a recession,” Schiff said.

Powell has to downplay the GDP. In the first quarter of 2022, GDP came in at -1.6 percent. The Atlanta Fed projects another -1.2% decline in Q2. Using the common definition, that would mean we’re in a recession now, and we have been all year.

While Powell and others keep saying the economy is strong, the only data they consistently point to is the labor market. But the job market is a lagging indicator and even it looks shaky. As Schiff pointed out during an interview with Laura Ingraham, we’ve seen three straight weeks of increasing first-time jobless claims, and they’re at the highest level since October last year.

Meanwhile, if you look at that last job report, even though we added about 400,000 jobs in the establishment survey, the household survey lost about that many jobs. But if you actually look at the jobs, almost all of these new jobs were for people who already had jobs. These were people taking second and third jobs because they’re struggling to pay the bills. And you have a lot of retirees who are being forced back into the workforce because inflation has eviscerated their incomes, and now they have no choice but to go to work. So, these are not jobs that people want. These are jobs that people are forced to take because the economy is so weak.”

Meanwhile, we’re seeing big pullbacks in the housing market, manufacturing and retail. And the average American isn’t buying the “economy is fine” narrative. Consumer confidence fell to a 19-month low in July.

This is eerily similar to the early days of the 2008 recession when the mainstream media and government officials kept saying everything was fine even as the economy was going up in flames.

No Stomach for This Fight

This economy was built on easy money and debt. It looks like taking away the easy money punch bowl has already popped the bubble. This latest rate hike will only make the rip in the bubble bigger, letting the air out even faster. It’s only a matter of time before the entire house of cards economy collapses.

In reality, this needs to happen. The economy needs a recession to cleanse all of the misallocations and distortions out of the economy. But that would mean a lot of pain. Despite the recent hikes and all of the tough talk, one has to wonder if the Fed has the stomach to follow through with this inflation fight and allow the economy to crash to the ground.

For now, the central bankers at the Fed and the policymakers in DC can try to spin away the recession in the hope that inflation will magically go away before things get really bad, so they can go back to business as usual. By “business as usual,” I mean borrowing and spending and printing money out of thin air.

The trajectory of balance sheet reduction reveals that the Fed doesn’t really have the stomach for this inflation fight.

The FOMC statement claimed that “the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”

The problem with this statement is that it’s now the end of July and the Fed still isn’t reducing the size of its balance as described by the plan.

The balance sheet peaked in April at $8.966 trillion. Since that time, the Fed has reduced the balance sheet by a mere $66 billion. That’s just 0.74%.

The plan announced in May was for $30 billion in US Treasuries and $17.5 billion in mortgage-backed securities to roll off the balance sheet in June, July and August. That totals $45 billion per month. In September, the Fed plans to increase the pace to $95 billion per month.

At the time, I noted that this wasn’t an impressive balance sheet roll-off given the historically high CPI. At $95 billion per month, it would take 7.8 years for the Fed to shrink its balance sheet back to pre-pandemic levels. And it’s not even keeping pace with its own tepid plan.

If the Fed was really serious about fighting inflation, it would be rapidly shrinking the money supply.

So, the question remains: is the Fed at the end of its rope? And when it inevitably reaches that point will it let go, keep tightening to fight inflation, and take the economy into freefall? Or will it surrender to inflation and pivot back to easy money and quantitative easing, letting inflation run wild in order to rescue the economy?

Tyler Durden Thu, 07/28/2022 - 08:21

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Government

Woke Airline Policies Threaten Safety, Workers Say

Woke Airline Policies Threaten Safety, Workers Say

Authored by Janice Hisle via The Epoch Times (emphasis ours),

Southwest Airlines Co. is…

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Woke Airline Policies Threaten Safety, Workers Say

Authored by Janice Hisle via The Epoch Times (emphasis ours),

Southwest Airlines Co. is basking in accolades for its “diversity, equity, and inclusion” (DEI) efforts, award-winning customer service, and record-breaking quarterly revenues.

A traveler walks past a Southwest Airlines airplane as it taxies from a gate at Baltimore Washington International Thurgood Marshall Airport on October 11, 2021 in Baltimore, Maryland. (Kevin Dietsch/Getty Images)

Behind the scenes of that rosy picture, heartaches are afflicting Southwest, called “the airline with Heart” because of its heart-shaped logo and a corporate culture steeped in “The Golden Rule,” treating others the same way they’d like to be treated.

But eight current Southwest employees, including three minorities, told The Epoch Times that “woke, leftist” DEI policies, as implemented, have tarnished the cherished Golden Rule principle, fractured a once-cohesive workforce, and, ultimately, may put safety at risk.

Faced with pandemic-related staffing shortages and pressure to add minorities, the company has changed the way it hires, trains, and disciplines workers—mostly to benefit less-qualified new hires representing the diversity rainbow, the employees say.

One Southwest flight attendant, a Hispanic female, said: “They are compromising safety for the sake of race, gender identity, and sexual preference … They’re risking people’s lives because of agendas.”

Southwest, one of America’s largest air carriers, didn’t respond to messages seeking comment.

Similar issues have spread industry-wide, according to 10 airline employees who agreed to be interviewed. Four are pilots and six are flight attendants; most have 20 or more years of experience. All of them, including two American Airlines pilots, spoke on condition of anonymity to protect their jobs.

While no one thinks the policies are causing an imminent threat of a plane falling out of the sky tomorrow, all of the interviewees agreed that each time a standard is lowered, or a less-qualified employee is hired, the risk that something can go horribly wrong inches forward a notch or two. In an industry that depends on a near-miracle integration of people, machinery, and computers, even a few deviations can culminate in catastrophe.

Still, some employees worry about what could happen if current trends continue to stress out and distract safety professionals. Said one flight attendant: “It’s a recipe for disaster. I just hope I’m not at work when it happens.”

Us-Versus-Them Mentality

While promoting diversity sounds like a great idea, the inclusionary policies have actually become exclusionary at Southwest, employees say. Disparate treatment has divided their ranks into two distinct camps: those with “desirable” or “approved” personal, social, or political characteristics—and those without.

Minorities or people with leftist political views, varying gender identities, and alternative sexual orientations appear to be given wide latitude. This “protected class” is allowed to bend or break rules, and new hires in these classifications may be given extra chances to pass required skills tests, the employees said.

At the same time, veteran workers—especially those who are white, heterosexual, and conservative—find themselves in the crosshairs for almost anything, including making a personal statement of religious or political beliefs, the Southwest workers said. Even minorities can be shifted into this targeted group if they espouse personal beliefs running counter to causes that the company supports.

There are two sets of standards: One for us and one for them,” said an experienced flight attendant.

One of her colleagues said: “The company is trying to eliminate anybody who does not agree with their agenda. The last few years, anybody who speaks up against them, they want gone.” That flight attendant said she had no problems at work until she posted her Christian religious beliefs on her personal Facebook page, along with her support of President Donald Trump. A coworker reported the posts to Southwest, and the flight attendant said she has faced repercussions ever since.

She and others say the targeting of conservatives is common—and they point to the recently publicized case of fired Southwest flight attendant Charlene Carter as a prime example.

‘Targeted Assassinations’ of Conservatives

Last month, a federal jury in Texas awarded Carter more than $5 million after finding that Southwest wrongfully terminated her and that her union didn’t live up to its duty to represent her. The company fired Carter after she expressed her pro-life views to a union leader via social media and opposed the union’s pro-abortion activism.

The company supported the union’s political activism, Carter’s suit says, by accommodating work-shift changes for union members so they could participate in the Women’s March on Washington, D.C., in January 2017. Marchers were protesting Trump’s inauguration; one of the primary sponsors of the event was Planned Parenthood. Southwest also showed “solidarity” with the protesters by bathing its airplane cabins in pink lights on some D.C.-bound flights, Carter’s lawsuit says.

Documents in the case revealed that some union officials and political activists were singling out dissenting Southwest employees for “targeted assassinations,” meaning that they would try to get the company to fire them, using the company’s social media policy as a bludgeon.

In an interview with The Epoch Times on Aug. 8, Carter, who lives near Denver, Colorado, said she can’t believe that some leaders of Transport Workers Union of America Local 556, who helped set her up to be fired, are still working for Southwest.

Carter also validated her coworkers’ concerns about the disparate treatment of employees who dare to oppose leftist agendas. “I think there are a ton of cases out there just like mine,” she said. Terminated employees from Southwest and other airlines have been continuously contacting Carter for help after learning about the July 14 verdict in her case.

Carter spent five years fighting in court; she thinks she was one of the first casualties of the erosion of Southwest’s unique corporate culture, which she witnessed during the latter part of her 20-plus years at the airline.

“We all loved our jobs; we all loved each other—our CoHearts, that’s what we called each other,” Carter said, pointing out that the airline’s stock ticker is LUV, a nod to its birthplace at Love Field, Texas.

Corporate Culture Shift

But corporate leadership and philosophy shifted. Carter said, her former coworkers tell her the culture is now one where people are fired on a whim, and they’re encouraged to file complaints against each other over perceived insults, such as failure to use the “preferred pronoun” of a person asserting an alternative gender identity.

Employees who face such accusations are presumed guilty, a current flight attendant said, and they risk suspension or termination. “That is how we are treated now,” she said.

“It’s gotten ridiculous,” Carter said. She was astounded to learn that lapel pins, designating preferred pronouns, are being offered to staff.

A fellow flight attendant says the company’s priorities are misplaced.

“We used to be focused on hiring ‘the best of the best,’” she said. “So why is it now that we feel at Southwest Airlines that we have to use the right pronouns and we have to acquiesce to someone’s gender-fluid mentality?”

The DEI Effect

The interviewed employees blame DEI policies for sowing the seeds of division. Ironically, before DEI was implemented, “people were never labeled,” a flight attendant said. “I find it very divisive,” she said, “because now everyone is labeled, divided by race, gender sexual orientation … whatever.”

This is wrong—all the way wrong,” she said.

The company’s annual report, in its DEI section, says, “Southwest Airlines recognizes, respects, and values differences. … At Southwest, DEI is and always has been a part of our DNA.”

All four major airlines—and many other American companies—publicly disclose DEI-related information, such as data on minority recruitment and the racial makeup of their workforce.

Every airline is trying to push forward with minority hiring because they want to ‘show that they care,’” aviation analyst Jay Ratliff said. “They’re being asked, ‘How many women are within your pilot ranks? … How many pilots of color?’”

If an airline’s diversity metrics seem low in comparison to their competitors’ numbers, the company’s reputation and bottom line can suffer, Ratliff said.

That’s not necessarily fair, he said, because few people have the ability, interest, and financial means to qualify as a commercial airline pilot. Amassing the FAA-required 1,500 hours of flight time with an instructor can cost $75,000 or more, pilots said.

Last year, United Airlines announced its goals: to train 5,000 new pilots by 2030 at its new flight school, with “at least half of those students to be women or people of color.” The first class of new recruits “exceeded that goal,” with 80 percent of the 30 students fitting that category, the airline said in a report.

Considering that white males make up about one-third of the American population, a Southwest pilot said that composing a class with 80 percent minorities and women looks like “DEI special-status hiring on steroids.”

Scoring Systems Push Diversity

DEI data play a significant role in corporate ESG scores—ratings of a company’s “environmental, social, and governance” performance. It’s a complex—and controversial—way to assess which companies are considered “good corporate citizens.”

Most of the interviewed airline employees believe that the pursuit of ESG scores is driving corporate personnel practices, including ignoring well-qualified male applicants while eagerly hiring less-experienced female and minority candidates.

Increasingly, ESG scores can help determine whether a company sinks or swims. A good ESG score can attract investors, government contracts, and favorable loan-interest rates—benefits that are especially important for the airline industry, in which lucrative U.S. Department of Defense contracts are at stake and profit margins are razor-thin because of astronomical costs for equipment and personnel.

ESG ratings have existed in some form for decades, yet they barely registered a blip on internet searches until a few months ago, amid the Biden administration’s continued push for businesses to address environmental concerns and to institute “green” policies, which weigh heavily in ESG scores and DEI metrics.

Florida Gov. Ron DeSantis recently announced his intent to push back against ESG, calling it “leveraging corporate power to impose an ideological agenda on society.”

Refinitiv, a company that produces ESG scores, says its process for calculating the ratings starts with collecting more than 630 ESG measures from each company’s public disclosures. Other ESG assessors have their own rating systems, which means results can vary depending on which assessment method is being used. ESG advocates are now working on standardizing how these scores are calculated.

Several airline employees said it would benefit their company, their industry, and society in general if ESG scores and DEI programs were abolished.

One Southwest pilot with decades of experience said such measures create unnecessary complications with no positive effect on the airline’s core mission.

Why do we need DEI programs? Why do we need ESG? A lot of the public isn’t even aware these things exist,” he said. “The passengers just want people like me to get them, and their bags, to the same place at the same time, safely … DEI and ESG do nothing to support that—zero.”

“I need these DEI programs and ESG scores to go out the back of the airplane like the jet fuel that we burn.”

Non-Pilots Hiring Pilots

Southwest’s annual report says it has been “evolving hiring and development practices to support diversity goals.”

Those changes are troubling to the interviewed employees and to the pilots’ union. In a letter to members last month, the Southwest Airlines Pilots Association pointed out that, for the first time in the company’s 51-year history, a non-pilot is in charge of hiring pilots. The “system chief pilot” used to have that responsibility. “We are just a single step away” from hiring pilots based upon mere reviews of their resumes, association president Casey Murray wrote to union members. Southwest has about 9,600 pilots, the letter said.

Putting a non-pilot in charge of hiring pilots most likely will affect the quality of the pilots who are being hired, Southwest interviewees said. People who lack specific knowledge of this specialized job would have a hard time telling the difference between a good hire and a bad one, pilots said. One of the interviewed pilots said that the chief pilot told him: “The diversity department has a very strong voice in who gets hired.”

Southwest wants to hire more than 2,000 pilots in the next year, the union’s letter said, questioning whether those new hires will be required to meet Southwest’s traditionally high standards. “Across the entire commercial aviation industry, employers are fighting for an ever-shrinking pool of qualified pilots,” yet Southwest may be at a disadvantage to compete for those pilots. Contract negotiations with Southwest’s pilots are lagging, compared to progress with other airlines’ pilot unions, Murray said.

“Pilots are the fuel that powers Southwest Airlines, and right now Southwest’s supply of fuel is running low. Time is growing critical, and options are becoming limited,” Murray wrote.

Seeking the Best (Non-White) Pilots?

Current pilots also say they have learned that hiring decisions are being driven by a job candidate scoring system; they’re unsure how long it has been in place, how it works, or whether it unfairly elevates minorities. The company controls all of that information.

Still, the employees feel confident in anecdotal evidence suggesting that the scoring system, coupled with other hiring practices, could be producing a pattern of discrimination against men, especially white men who come from military backgrounds—previously highly sought-after job candidates. “We could be wrong, but I don’t think we are,” said one pilot who has military experience.

That pilot said he thinks the vast majority of his colleagues have heard accounts of possible discrimination similar to the following:

When a well-qualified former military pilot applied for a job, Southwest never contacted him for an interview. But the applicant learned that a woman was hired as a pilot, despite having half as much experience in the airline industry.

Further, the man had experience as a captain while the woman had only been a first officer, who sits next to the captain in the cockpit. “It’s a completely different world” when a person shifts into the captain’s chair, said the pilot.

We’re leaving a lot of people behind who are better-qualified, just because they’re the wrong color, or they’re identified the wrong way. That’s concerning. We’re not putting the best up-front,” he said. “We have people’s lives in our hands. It’s just like with doctors. If you go to a doctor, you want to go to the best doctor you can.”

An American Airlines pilot with decades of experience said he was less troubled than some of the Southwest interviewees who worried about the effects of reduced standards as a result of the increased emphasis on diversity hiring. However, that pilot said he would become very concerned if standards are lowered “to the point where people aren’t flying as confidently.”

A second American Airlines pilot said he has observed that “training is not nearly as comprehensive as it used to be,” he said. “But these people who are starting out are flying with people who are supremely qualified to be flying airplanes—so mistakes can be covered.”

He thinks the reduced standards could eventually cause problems if the hyperfocus on diversity continues: “If you’re looking for a diverse workforce and not a qualified workforce, you’ve got issues. … You haven’t seen any accidents because of ‘diversity,’ but the potential is there.”

All 11 people who were interviewed for this story, including Carter, the ex-flight attendant, said personal traits such as gender and race shouldn’t be part of the equation at all.

“From the cockpit door forward, guys and gals of all ethnicities are after the same thing—and that’s a safe flight,” said one of the American Airlines pilots. “They don’t care who sits next to them as long as they can do the job.”

More Than Snack Servers

Most air passengers think of flight attendants as hospitality ambassadors who make them comfortable with beverages, snacks, blankets, and pillows. But their main purpose is to assist in the rare event of an in-flight emergency.

Six Southwest flight attendants, along with Carter, say they feel less able to perform crucial duties because of the climate in which they’re now operating—and new hires appear to be less equipped to shoulder those responsibilities.

They have just made it such a hostile work environment. Southwest has made it that way, and flight attendants are afraid to do their jobs,” a flight attendant said. “But you’re supposed to put a smile on your face and pretend that everything is grand.”

The flight attendants describe feeling as though a backstabber is always ready to pounce, to report any action or statement that doesn’t fit the corporate ideology. They’re being held to strict conduct and uniform standards while “accommodations” are extended to people in protected classes, such as a minority woman who was allowed to wear a nose ring—which got a white female in trouble—and a male flight attendant who described himself as “nonbinary”—neither totally male nor totally female—being allowed to wear a skirt that appeared to be shorter than regulations allowed.

The nonbinary employee seemed to be using his position at the airline as a platform for LGBTQ activism and self-promotion, rather than focusing on benefiting the company or its customers, fellow flight attendants said. They shared screenshots of the nonbinary employee’s social media posts. One is a selfie of the mustached man posing in his Southwest uniform, with the comment, “My dress looks better on me than most chicks.”

That employee no longer works for Southwest, flight attendants said. Yet they said they were aware that a couple of employees faced disciplinary action for referring to the nonbinary employee as “he” in a members-only Facebook group for flight attendants.

Antics Embarrass Fellow Flight Attendants

One flight attendant perceives that the company is making skewed, unfair hiring decisions, and creating a level of absurdity that’s hard to stomach. She knows of people who are related to Southwest employees and have college degrees—which go beyond the high-school education requirement for flight attendants—“and they don’t get hired, and yet we have this guy, with a mustache, in a skirt, distracting us all because the company wants to fight over his pronouns.”

Being a flight attendant used to be considered prestigious and classy; Southwest was viewed as “Mount Rushmore,” a pinnacle for flight attendants, who felt proud just to be hired.

Now the pride is not about the brand of Southwest Airlines,” a flight attendant said. “It’s about how different I can be as an employee of Southwest Airlines—like, ‘Y’all need me more than I need you.’”

Public perception of the role has diminished, not just at Southwest, but across the industry. Airlines grant diversity-based exceptions to people who don’t want to look or act professional, the flight attendants said.

It used to be unusual to see flight attendants behave in ways that brought embarrassment to their coworkers. Now, quite a few of the new hires who were prized for their diversity “are rather risqué,” a flight attendant said. “They become very emboldened; they feel they can get away with this because they are in a protected class.”

Still, Southwest has had to fire employees who pushed the envelope too far, including one minority flight attendant who solicited sex in a social media video and another who videoed herself twerking. In both instances, the videos, provided to the Epoch Times, show the employees in Southwest uniforms.

Such conduct disgusts the flight attendants, and their concern is more than superficial. “If we relax the appearance standards and we’re letting people lower their professional standards, then they obviously are not equipped to handle any type of safety issue that can happen on that plane,” a flight attendant said.

“Where do you draw the line and say enough is enough?”

Commitment, Skills Insufficient

One of the flight attendants who has been targeted for religious and political views said her commitment to her job boils down to this: “I will give my life for my passengers and my crew, if that’s what I need to do. My last words will be, ‘Let’s roll,’” she said, referencing the famous words spoken by a passenger on one of the U.S. airplanes that were hijacked on Sept. 11, 2001.

She doesn’t see that same level of grit from the new hires. “They don’t have the same tough mentality,” she said. Nor do they have the same work ethic, which might be attributable to differences between the younger and older generations.

The older flight attendant described being busy from the beginning to the end of each flight while many of the new hires tend to just serve one round of drink orders, “then they go back to the back (of the airplane) and sit down for the rest of the flight.”

The new employees aren’t demonstrating mastery of the skills they were supposed to have been taught, or willingness to perform them. A passenger was having a medical emergency but the flight attendant in charge of that section “wouldn’t even come out of the galley to assist,” said one flight attendant. Instead, she and a second colleague had to take care of the ailing passenger.

Such an incident stokes her worst fear: “Somebody’s gonna die. With the lack of training that we’re seeing in the new hires that are coming out … there’s going to be somebody who’s not trained, facing an emergency.”

Read more here...

Tyler Durden Thu, 08/11/2022 - 06:30

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Government

‘Ding, Dong Inflation Is Dead’… But Probably Isn’t So Don’t Get Your Hopes Up Yet

‘Ding, Dong Inflation Is Dead’… But Probably Isn’t So Don’t Get Your Hopes Up Yet

Authored by Bill Blain via MorningPorridge.com,

“Inflation…

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'Ding, Dong Inflation Is Dead'... But Probably Isn't So Don't Get Your Hopes Up Yet

Authored by Bill Blain via MorningPorridge.com,

“Inflation is everywhere a misunderstanding of what actually caused it..“

The pace of US CPI inflation moderated slightly, but it’s too early for the market to conclude rate hikes are over. There are many imbalances still to resolve – especially in consumer credit. Meanwhile, the new UK premier’s clumsy attempts to blame the BOE raise questions.

Markets surged last night on the back of lower-than-expected US inflation. Markets globally rallied, anticipating a slowdown in the pace of Fed Interest Rate Hikes, and a resumption of the long bull Equity market. Bonds rallied. Joy, joy… joy..

Oh dear. It may be well to remember the Happy Munchkins in the Wizard of Oz singing Ding Dong, Inflation’s Dead…” but, that occurs right at the start of the film… before things get “challenging”. I’m not saying End-of-the-World.. just not-quite-as-rosy-as-you-hope!

The pace of US consumer price inflation fell to 8.5% y-o-y, down from 9.1% in June. It’s well to remember what the CPI number shows is fast prices are rising, not how much they have risen – it’s a subtle, but critical difference…

8.5% Inflation means prices are still rising, (Doh!), just less quickly than last month. Rising prices mean the Fed, and other Central Banks still have to address them. (Which is why expecting Central Banks to mellow rate rises/tighter monetary policy on a single snapshot number is a foolish hope.) 8% inflation sounds so much better than 9%, but it’s still inflation; an imbalance between supply and demand that prices are trying to correct. Result: central banks will keep raising rates to stun demand – if they are brave enough to court criticism from politicians.

The US number shows there are still significant inflationary pulses – and concurrent consequences – surging through the US economy. The lower number will focus analysts on just how quickly the inflation pace will start to fall. The oil shocks in the 1970s lasted effectively a decade. The first 1973 shock took around three years to abate, and was followed by an even stronger price shock in 1977 that took till the early 80s to resolve.

A one-month reversal in a longer-term inflation trend is not unusual – it’s far too early to say a one-month slight improvement in the pace of rising prices means the top has been crossed. But the inflation charts do show it is unusual to get consecutive months of declines, and then a sharp increase again. Its more common for inflation to remain stubbornly high for a number of years following an upspike. (That said… in time of “policy experimentation”, like 2010, an upspike was swiftly followed by a down spike.)

What the US CPI number did confirm is the US economy is in a very different place, and a different stage, to Europe and the Global economy. The key difference is the US report showed energy prices are normalising and reducing as petrol prices moderate. Jet fuel costs declined bringing down the cost of travel. In Europe – there is little chance of energy price moderation – if anything consumer energy bills will become increasingly chaotic and damaging to sentiment. Queue the great divergence between US and Europe – and what that means in terms of investment opportunities.

On the other hand; the US numbers show rising interest rates are impacting consumers cash, food prices continue to rise sharply while housing costs are also spiking. Ah… common experiences Europe and the US share.

The CPI numbers suggest the US economy is still in trouble. Over the past few months I’ve been watching things like Auto-loan delinquencies – as rates rise, and car prices surged on the back of availability and supply chain issues (primarily the shortage of chips), car financing costs became increasingly unaffordable. Auto-loan defaults are rising – but they have not become a crisis because – thus far – the used-car market can very quickly absorb repossessed cars. The reality is 20% of US autoloans go to sub-prime borrowers – who are the ones living pay-check to pay-check, and following years of declining real income (and now a crashing real-income shock) lack the financial resilience to keep paying.

Figures from the Fed show US Household debt is increasing – up 2% in Q2 2022 to $16.15 trillion (!). Officially, that’s because of repressed spending during the pandemic.

In reality, it’s cash-strapped US consumers are living off credit. Much of that credit is real: mortgage and auto-lending, but other numbers like credit cards and  from new DeFi lenders showing rising shadow-banking sector lending problems. The default crisis impacting lenders like Klarna comes on the back of cash-strapped consumers using credit to buy their daily milk, bread and petrol. You can’t repossess a bag of shopping.

The inflation driven economic threat in Europe is also about consumers. Years of low incomes, wage constraints, and job insecurity across much of Southern Europe leaves a massive number of consumers with precious few savings. The middle classes have been decimated by rising costs, consumer debt, and taxes.

(It’s a truism: if you can afford a lawyer and an accountant, you can avoid taxes… which is why tax gatherers, like the UK HRMC go for the weakest targets to collect unpaid dues. It takes less effort to extract a million in taxes from 10 struggling middle-class businessmen that it takes to get Amazon to pay a single cent. If there businesses collapse – so what, the tax got its money…)

Who is to blame for inflation?

The UK’s prime minister in waiting, Tank Girl Liz Truss ,says it’s all the Bank of England’s doing. Which is somewhat harsh.

  • I was unaware Bank of England Governor Andrew Bailey triggered the Russian invasion of Ukraine after first persuading Angela Merkle to close her nuclear plants and give German energy security to Vladmir Putin. `I though the Energy shock and food inflation shock were exogenous.

  • I was unaware it was Andrew Bailey who decided Tory MPS could give billions of govt money to their chums to not deliver functional PPE to the health service during the pandemic.

  • I was unaware it was Andrew Bailey who came up with (actually brilliant) furlough scheme to preserve jobs and consumer security (that was a very clever civil servant who has got zero credit for his efforts.)

  • I was unaware it was Andrew Bailey who set the government’s spending plans…

What I thought was Andrew Bailey and his colleagues at the Bank of England were maintaining a low interest rate economy to keep the pandemic economy functioning through the challenging pandemic years, and to keep the gilt market looking attractive so the UK Debt Management Office could continue to fund the Government’s funding schemes – all the while fretting about how to normalise ultra-low interest rates put in place to stimulate the economy in the 20-teens without destabilising everything.

Liz Truss doesn’t think so. That’s why she will not be getting my vote. (Not that I have one to give her.. but that’s not the point.)

The point is our next prime minister and First Lord of the Treasury will be chosen by 160,000 rank and file conservative party members. They are generally older, well-off, white, male and Eurosceptic. 63% are male. 80% are in the wealthy ABC demographic. 58% are over 55 and remember the Glory of Margaret Thatcher with religious reverence.

Which is why I think someone has been whispering in Tank Girl’s ear – I suspect the Minister for the Spanish Inquisition (Jacob Rees-Mogg). Now, Tank Girl wants to remove the Bank’s independence and replace inflation targeting with money supply targeting. Christ-on-a-bike: did I just drop through a worm hole into 1981? Big hair, shoulder pads, Duran-Duran and economic disaster…

I fear She opened the door into the Treasury’s Black Museum – and unlocked the box of Tragic Economic Mistakes, unleasing the Zombies of Monetarist Economic thinking like Mad Paddy Mitford (who says her plans are brilliant – unsurprisingly) and Tim Condon. Oh dear. Lord spare us…

If so, then we really are rubber ducked. Monetarism, ahem,  was such a success back in the 1980s – NOT! In the form of Thatcherism, the consequences are today’s broken Britain, the imbalance between London and the regions unknown outside the M25, the rebellious Scots and a host of long-term structural problems.

If someone had unleashed the Zombie Vampyres of Monetarism, then I’ll be sure to carry my crucifix, a sharp pointy wooden stake, and flask of Lagavulin (my holy water) when next in London.

Although its only August, the Christmas shops are already opening. I am tempted to write to Santa now. “Dear Father Christmas… I have been a very good boy all year. Please can we have a completely new UK Government?”

Tyler Durden Thu, 08/11/2022 - 07:20

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COVID antibody declines prompts call for booster jabs ASAP

Figures from the UK Office for National Statistics (ONS) have revealed that the number of people with higher
The post COVID antibody declines prompts call…

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Figures from the UK Office for National Statistics (ONS) have revealed that the number of people with higher levels of COVID-19 antibodies in their blood is declining quickly – leading to calls for booster vaccination campaigns to be started as soon as possible.

The ONS survey – based on swab and blood samples from thousands of households across the country – found that the proportion of people in England with antibody levels of at least 800 ng/ml fell from 82.4% in March to 71.9% in mid-July.

The 12.7% decrease is “obviously concerning,” according to Dr Quinton Fivelman, chief scientific officer at private testing company London Medical Laboratory, who says the trend is the same in other countries of the UK.

“We already know the latest Omicron BA.4 and BA.5 sub-variants are the most contagious yet and remain a potentially considerable threat to our health,” he said. “The UK population needs to retain a substantial number of antibodies going into the dangerous winter months.”

The finding comes as the percentage of people testing positive for COVID-19 continues to decrease in England, Wales and Scotland, with an uncertain trend, in Northern Ireland, according to the ONS’ latest update, which was published on 5 August.

Fivelman’s concern is that if the rate of decline continues, only 60% of the UK population will retain substantial antibodies if the next booster campaign for the over-50s and vulnerable people gets underway in early October.

“The new Omicron BA.4 and BA.5 sub-variants do not produce as high an immune response as the previous strains, so re-infection is more likely to occur,” he points out. “Higher levels of antibodies are important to neutralise the virus, stopping infection and limiting people transmitting the virus to others.”

On the plus side, the UK’s baseline antibody level of at least 179 ng/ml, determined at the height of the Delta variant, has held firm. In all 97.8% of people in England had antibody levels of 179 ng/ml in mid-March, and this had fallen only fractionally, to 96.3% by mid-July.

One issue facing the government is that new versions of the Pfizer and Moderna vaccines that have been tweaked to improve efficacy against Omicron may not be available in time for an earlier start for the booster campaign – or indeed October, unless the Medicines and Healthcare products Regulatory Agency (MHRA) can approve them quickly.

Both shots – based on the original Wuhan strain of SARS-CoV-2 and the BA.1 Omicron subvariant – are currently under review at the regulator.

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