Connect with us

Government

Peter Schiff: Inflation Crashes The Party

Peter Schiff: Inflation Crashes The Party

Authored by Peter Schiff via SchiffGold.com,

It’s dawning on many investors that our post-Covid financial problems may not be as easily solved as Washington claims…

The latest clue that trouble.

Published

on

Peter Schiff: Inflation Crashes The Party

Authored by Peter Schiff via SchiffGold.com,

It’s dawning on many investors that our post-Covid financial problems may not be as easily solved as Washington claims...

The latest clue that trouble is brewing has come from the sudden and dramatic arrival of inflation. On May 12, it was revealed that the Consumer Price Index (CPI) had risen 4.2% year-over-year, the fastest pace since 2008.

Some tried to downplay concern by pointing out that the gains resulted from the “base effect” of comparing current prices with the artificially depressed “Covid lockdown” prices of March and April of last year. But that ignores the more alarming trend of near-term price acceleration.

According to the Bureau of Labor Statistics, in every month this year, the month-over-month change in prices has been greater than the change in the previous month.

In April prices jumped .8% from March, versus an expected gain of just .2%. Clearly, if this trend continues, or even fails to dramatically reverse, we could be looking at inflation well north of 5 or 6 percent for the calendar year. That would create a big problem.

Despite Federal Reserve officials’ recent assurances that the inflation problem is “transitory,” many investors are concluding that the central bank will have to deal with this problem by tightening monetary policy far sooner than had been expected. This would make sense if the Fed cared about restraining inflation or, more importantly, had the power to do anything to stop it. In truth, we are sailing into these waters with little ability to alter speed or course, and we will be wholly at the mercy of the waves we have spent a generation creating.

Since the era of central bank activism kicked into high gear in 2008, with the quantitative easing programs created in the wake of the Financial Crisis, the U.S. economy has largely avoided the spike in consumer prices that would typically result from monetary stimulus. It is my belief that the injection of trillions of new dollars into the economy merely offset the downward trajectory of prices that should have occurred during a severe recession. But more significantly, the money the Fed created at the time flowed more directly into assets rather than consumer goods.

Interest rate suppression, which is the mechanism of quantitative easing, stimulates the economy through the financial system. Low interest rates encourage more borrowing and have the effect of pushing up asset prices, particularly for stocks, bonds, and real estate. That explains why the era of QE was particularly good for those people who owned lots of those assets (the rich). Lowering the cost of capital also helped businesses hire and expand, thereby increasing the supply of goods and services, keeping consumer price inflation in check. More importantly, a strengthening dollar from 2011-2020 helped keep import prices low and helped sustain rising trade deficits. This allowed us to “export” our inflation to our trading partners as the dollars printed by the Fed flowed out, while real goods flowed in. However, many of the dollars earned by our trading partners were recycled into our financial markets, namely into large-cap tech stocks, adding fuel to the growing asset bubble.

But the stimulus we have seen in the post-Covid world works on a very different level. Although the Fed is currently engaging in a quantitative easing program that is almost 50% larger than it was at its peak a decade ago ($120 billion per month in bond buying now vs. $85 billion then), the real bulk of the Fed’s efforts now involve underwriting the Government’s massive direct stimulus program, which has totaled more than $4 trillion in direct payments to businesses and individuals since March of 2020. According to the CBO, in 2021 more than 40% of the $5.8 trillion expected to be spent by the Federal Government will be financed by debt issuance rather than taxation. The bulk of that debt is financed by Fed money creation. (These figures do not include the $2 trillion in unpaid for infrastructure spending that is currently working its way through Congress.)

Throughout much of the past decade, mainstream economists urged that stimulus effort needed to pivot from the “monetary stimulus” of quantitative easing to the “fiscal stimulus” of government deficit spending. Now we see that since deficit spending is simply financed by monetary expansion, the two are roughly one in the same. But each effects the economy in slightly different ways.

This current stimulus of direct payments to consumers, businesses, and governments, results in spending which creates demand for goods and services. The problem is that this demand is occurring at a time when the supply of goods and services is being artificially suppressed. Through a variety of enhanced unemployment benefits, child-care tax credits, direct stimulus payments, and increased welfare benefits, the government has created conditions where millions of low-income workers make the rational choice to stay home. Recent calculations by Bank of America estimate that workers who earned $32,000 annually before the pandemic could receive more money on unemployment than they would from actual work.

Under these pressures, it should come as no surprise that the April jobs report showed only 266,000 new jobs created when almost one million were expected. Employers were looking to hire, but far fewer people were willing to work. This explains why the labor force is still eight million jobs smaller than it was before the pandemic, even as the economy has largely reopened.

So, we find ourselves in a situation in which the government is simultaneously increasing demand and reducing supply. This is the classic recipe for consumer price increases, and it is showing up in force. The bad news is that nothing on the horizon suggests that government policy will change to address the crisis. History shows that once consumer price increases take hold the cycle becomes very slow to change and hard to break. The experience we had in the last era of catastrophic inflation provides a harrowing example.

The average CPI increase from 1960-1965 was just 1.3%. But in 1966, because of the major increases in deficit spending resulting from the Vietnam War and LBJ’s Great Society, the CPI jumped to 2.9%. It did not fall below 2% again for any calendar year until 1986, a cycle of 20 years. During that period, the CPI (despite continual methodological adjustments which sought to minimize the results) averaged 6.4%. This meant that by 1987 prices had risen by a factor of more than 3.5 times from the base in 1965, causing the dollar to lose 73% of its value over that time.

But it is important to appreciate the extraordinary efforts it took to break the cycle. During the height of the crisis, which lasted from 1973 to 1982, and began after President Nixon ended the U.S. dollar’s convertibility to gold in 1971, the CPI averaged 9.0%. It peaked at a staggering 13.5% in 1980. Two things were needed to reverse the trend.

The most obvious factor was the Fed’s willingness to raise interest rates far above the level of inflation. The very high rates slowed the velocity of money, discouraged borrowing and consumption, encouraged savings, and restored confidence in the dollar. The tough medicine was delivered by Fed Chairman Paul Volcker who ignored the howls of protest from economists and raised the Fed Funds rate to an astounding 20% in 1981. And unlike prior Fed Chairmen, Volker did not relent from the high rates as soon as the CPI dipped. He kept them high until he knew the job was done. The Recession of 1980-1982, at the time the worst downturn since the Great Depression, was the price of the policy. But in the end, it paid off.

The other factor in breaking the back of inflation was the pro-market, lower marginal income tax rates, and anti-regulatory policies of the Reagan administration. The free trade boom over the next 40 years also helped keep price increases in check by tapping the US economy into the price-cutting efficiency of the emerging markets.

But as we kick off the newest chapter of America’s dance with inflation, can anyone expect the type of serious monetary and fiscal responses that were required 40 years ago to be used, or even considered, again?

In 1980, when Volker moved boldly to contain inflation, U.S. Federal Debt as a percentage of GDP stood at 31%, a generational low. As of December 2020, those levels are more than 4 times that at 129%. More importantly, back in 1980, the average maturity on the national debt was close to thirty years. The current average maturity is just over five years.

That means higher rates don’t just impact new deficits, but the entire accumulated national debt as low-yielding debt matures and must be refinanced at much higher rates. While the Congressional Budget Office now predicts that debt to GDP will hit 195% by 2050, I expect that level to be hit much sooner. Similarly, corporate, and personal debt levels in 1980 were a fraction of where they are today. This means that the cost of raising interest rates now will be far higher than it was in 1980.

Higher rates would also severely impact the stock market. We have seen time and again over the past decade just how sensitive stock prices can be to higher interest rates, which raise the cost of capital and cut into share buybacks and dividends. But in comparison to the overall economy, the stock market is significantly larger now than it was in 1980. As of May 2021, the market capitalization of the Wilshire 5000, the broadest U.S. stock index, was 227% of the size of U.S. GDP. In 1980 that level stood at just about 40%. This means that a bear market in stocks would hit the broader economy much harder than it did in the early 1980s.

The real estate market likely would be hit even harder than stocks, where homes are bought based on monthly payments, not price. Those payments are in large part a result of record-low mortgage rates. As a result, home prices are now at record highs. A surge in mortgage rates would cause housing prices to drop, setting up default levels that might be reminiscent of 2007 and 2008. This will create losses for government-guaranteed mortgage lenders, which will require bailouts with more money printed by the Fed.

But suppose the Fed really was willing to bite the bullet and step out in front of inflation no matter the cost. Could it deliver? Bear in mind that the last time the Fed moved to tighten policy, its efforts were incremental in size and glacial in tempo. After running its quantitative easing program at full throttle for more than five years, the Fed finally began to “taper” its asset-buying program in December of 2013. From that point, it took almost five more years to fully wind down the program and lift rates from zero to 2%. (The 2% rates achieved in October 2018 resulted in the largest December drop in stocks since the Great Depression). If inflation took hold at 6 percent now, such slow and casual moves would be insufficient to make a dent. Does anyone really think the Fed could cancel its $120 billion monthly QE program and raise rates to even 2% in a year or two? Not likely.

On the fiscal side, we are in the opening bars of a crescendo of government spending and activism that will make LBJ’s Great Society look tame by comparison. The Biden administration has massively expanded the welfare state and looks poised to double down on these policies for years to come. Its tax policy will hamstring the American corporate sector and force businesses to relocate overseas. The lost economic activity will be replaced by government spending. But unlike 1980, we can’t expect Ronald Reagan to ride to the rescue. The fiscally conservative, free-trade wing of the Republican party has been taken out and shot by big-spending, anti-trade GOP Trump populists. Practically, this means that we have no defense against inflation, and once it takes hold and metastasizes, we will have little capacity to stop it from spiraling out of control. The result would be a falling dollar that diminishes the real value of Americans’ savings and investments.

President Biden has repeated endlessly that no American making less than $400,000 per year will pay more in taxes. That is a lie. Every American, regardless of income, will be hit by the “inflation tax” that will eat away at their savings and diminish the purchasing power of their paycheck just as surely as payroll or income taxes. This idea is explored in greater detail in our February report Taxed by Inflation.

Investors should do what they can now to protect their wealth from the effects of the inflation tax by seeking assets that will potentially hold up if the dollar does not.

Tyler Durden Fri, 05/28/2021 - 15:40

Read More

Continue Reading

International

United Airlines adds new flights to faraway destinations

The airline said that it has been working hard to "find hidden gem destinations."

Published

on

Since countries started opening up after the pandemic in 2021 and 2022, airlines have been seeing demand soar not just for major global cities and popular routes but also for farther-away destinations.

Numerous reports, including a recent TripAdvisor survey of trending destinations, showed that there has been a rise in U.S. traveler interest in Asian countries such as Japan, South Korea and Vietnam as well as growing tourism traction in off-the-beaten-path European countries such as Slovenia, Estonia and Montenegro.

Related: 'No more flying for you': Travel agency sounds alarm over risk of 'carbon passports'

As a result, airlines have been looking at their networks to include more faraway destinations as well as smaller cities that are growing increasingly popular with tourists and may not be served by their competitors.

The Philippines has been popular among tourists in recent years.

Shutterstock

United brings back more routes, says it is committed to 'finding hidden gems'

This week, United Airlines  (UAL)  announced that it will be launching a new route from Newark Liberty International Airport (EWR) to Morocco's Marrakesh. While it is only the country's fourth-largest city, Marrakesh is a particularly popular place for tourists to seek out the sights and experiences that many associate with the country — colorful souks, gardens with ornate architecture and mosques from the Moorish period.

More Travel:

"We have consistently been ahead of the curve in finding hidden gem destinations for our customers to explore and remain committed to providing the most unique slate of travel options for their adventures abroad," United's SVP of Global Network Planning Patrick Quayle, said in a press statement.

The new route will launch on Oct. 24 and take place three times a week on a Boeing 767-300ER  (BA)  plane that is equipped with 46 Polaris business class and 22 Premium Plus seats. The plane choice was a way to reach a luxury customer customer looking to start their holiday in Marrakesh in the plane.

Along with the new Morocco route, United is also launching a flight between Houston (IAH) and Colombia's Medellín on Oct. 27 as well as a route between Tokyo and Cebu in the Philippines on July 31 — the latter is known as a "fifth freedom" flight in which the airline flies to the larger hub from the mainland U.S. and then goes on to smaller Asian city popular with tourists after some travelers get off (and others get on) in Tokyo.

United's network expansion includes new 'fifth freedom' flight

In the fall of 2023, United became the first U.S. airline to fly to the Philippines with a new Manila-San Francisco flight. It has expanded its service to Asia from different U.S. cities earlier last year. Cebu has been on its radar amid growing tourist interest in the region known for marine parks, rainforests and Spanish-style architecture.

With the summer coming up, United also announced that it plans to run its current flights to Hong Kong, Seoul, and Portugal's Porto more frequently at different points of the week and reach four weekly flights between Los Angeles and Shanghai by August 29.

"This is your normal, exciting network planning team back in action," Quayle told travel website The Points Guy of the airline's plans for the new routes.

Read More

Continue Reading

International

Walmart launches clever answer to Target’s new membership program

The retail superstore is adding a new feature to its Walmart+ plan — and customers will be happy.

Published

on

It's just been a few days since Target  (TGT)  launched its new Target Circle 360 paid membership plan. 

The plan offers free and fast shipping on many products to customers, initially for $49 a year and then $99 after the initial promotional signup period. It promises to be a success, since many Target customers are loyal to the brand and will go out of their way to shop at one instead of at its two larger peers, Walmart and Amazon.

Related: Walmart makes a major price cut that will delight customers

And stop us if this sounds familiar: Target will rely on its more than 2,000 stores to act as fulfillment hubs. 

This model is a proven winner; Walmart also uses its more than 4,600 stores as fulfillment and shipping locations to get orders to customers as soon as possible.

Sometimes, this means shipping goods from the nearest warehouse. But if a desired product is in-store and closer to a customer, it reduces miles on the road and delivery time. It's a kind of logistical magic that makes any efficiency lover's (or retail nerd's) heart go pitter patter. 

Walmart rolls out answer to Target's new membership tier

Walmart has certainly had more time than Target to develop and work out the kinks in Walmart+. It first launched the paid membership in 2020 during the height of the pandemic, when many shoppers sheltered at home but still required many staples they might ordinarily pick up at a Walmart, like cleaning supplies, personal-care products, pantry goods and, of course, toilet paper. 

It also undercut Amazon  (AMZN)  Prime, which costs customers $139 a year for free and fast shipping (plus several other benefits including access to its streaming service, Amazon Prime Video). 

Walmart+ costs $98 a year, which also gets you free and speedy delivery, plus access to a Paramount+ streaming subscription, fuel savings, and more. 

An employee at a Merida, Mexico, Walmart. (Photo by Jeffrey Greenberg/Universal Images Group via Getty Images)

Jeff Greenberg/Getty Images

If that's not enough to tempt you, however, Walmart+ just added a new benefit to its membership program, ostensibly to compete directly with something Target now has: ultrafast delivery. 

Target Circle 360 particularly attracts customers with free same-day delivery for select orders over $35 and as little as one-hour delivery on select items. Target executes this through its Shipt subsidiary.

We've seen this lightning-fast delivery speed only in snippets from Amazon, the king of delivery efficiency. Who better to take on Target, though, than Walmart, which is using a similar store-as-fulfillment-center model? 

"Walmart is stepping up to save our customers even more time with our latest delivery offering: Express On-Demand Early Morning Delivery," Walmart said in a statement, just a day after Target Circle 360 launched. "Starting at 6 a.m., earlier than ever before, customers can enjoy the convenience of On-Demand delivery."

Walmart  (WMT)  clearly sees consumers' desire for near-instant delivery, which obviously saves time and trips to the store. Rather than waiting a day for your order to show up, it might be on your doorstep when you wake up. 

Consumers also tend to spend more money when they shop online, and they remain stickier as paying annual members. So, to a growing number of retail giants, almost instant gratification like this seems like something worth striving for.

Related: Veteran fund manager picks favorite stocks for 2024

Read More

Continue Reading

Government

President Biden Delivers The “Darkest, Most Un-American Speech Given By A President”

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through…

Published

on

President Biden Delivers The "Darkest, Most Un-American Speech Given By A President"

Having successfully raged, ranted, lied, and yelled through the State of The Union, President Biden can go back to his crypt now.

Whatever 'they' gave Biden, every American man, woman, and the other should be allowed to take it - though it seems the cocktail brings out 'dark Brandon'?

Tl;dw: Biden's Speech tonight ...

  • Fund Ukraine.

  • Trump is threat to democracy and America itself.

  • Abortion is good.

  • American Economy is stronger than ever.

  • Inflation wasn't Biden's fault.

  • Illegals are Americans too.

  • Republicans are responsible for the border crisis.

  • Trump is bad.

  • Biden stands with trans-children.

  • J6 was the worst insurrection since the Civil War.

(h/t @TCDMS99)

Tucker Carlson's response sums it all up perfectly:

"that was possibly the darkest, most un-American speech given by an American president. It wasn't a speech, it was a rant..."

Carlson continued: "The true measure of a nation's greatness lies within its capacity to control borders, yet Bid refuses to do it."

"In a fair election, Joe Biden cannot win"

And concluded:

“There was not a meaningful word for the entire duration about the things that actually matter to people who live here.”

Victor Davis Hanson added some excellent color, but this was probably the best line on Biden:

"he doesn't care... he lives in an alternative reality."

*  *  *

Watch SOTU Live here...

*   *   *

Mises' Connor O'Keeffe, warns: "Be on the Lookout for These Lies in Biden's State of the Union Address." 

On Thursday evening, President Joe Biden is set to give his third State of the Union address. The political press has been buzzing with speculation over what the president will say. That speculation, however, is focused more on how Biden will perform, and which issues he will prioritize. Much of the speech is expected to be familiar.

The story Biden will tell about what he has done as president and where the country finds itself as a result will be the same dishonest story he's been telling since at least the summer.

He'll cite government statistics to say the economy is growing, unemployment is low, and inflation is down.

Something that has been frustrating Biden, his team, and his allies in the media is that the American people do not feel as economically well off as the official data says they are. Despite what the White House and establishment-friendly journalists say, the problem lies with the data, not the American people's ability to perceive their own well-being.

As I wrote back in January, the reason for the discrepancy is the lack of distinction made between private economic activity and government spending in the most frequently cited economic indicators. There is an important difference between the two:

  • Government, unlike any other entity in the economy, can simply take money and resources from others to spend on things and hire people. Whether or not the spending brings people value is irrelevant

  • It's the private sector that's responsible for producing goods and services that actually meet people's needs and wants. So, the private components of the economy have the most significant effect on people's economic well-being.

Recently, government spending and hiring has accounted for a larger than normal share of both economic activity and employment. This means the government is propping up these traditional measures, making the economy appear better than it actually is. Also, many of the jobs Biden and his allies take credit for creating will quickly go away once it becomes clear that consumers don't actually want whatever the government encouraged these companies to produce.

On top of all that, the administration is dealing with the consequences of their chosen inflation rhetoric.

Since its peak in the summer of 2022, the president's team has talked about inflation "coming back down," which can easily give the impression that it's prices that will eventually come back down.

But that's not what that phrase means. It would be more honest to say that price increases are slowing down.

Americans are finally waking up to the fact that the cost of living will not return to prepandemic levels, and they're not happy about it.

The president has made some clumsy attempts at damage control, such as a Super Bowl Sunday video attacking food companies for "shrinkflation"—selling smaller portions at the same price instead of simply raising prices.

In his speech Thursday, Biden is expected to play up his desire to crack down on the "corporate greed" he's blaming for high prices.

In the name of "bringing down costs for Americans," the administration wants to implement targeted price ceilings - something anyone who has taken even a single economics class could tell you does more harm than good. Biden would never place the blame for the dramatic price increases we've experienced during his term where it actually belongs—on all the government spending that he and President Donald Trump oversaw during the pandemic, funded by the creation of $6 trillion out of thin air - because that kind of spending is precisely what he hopes to kick back up in a second term.

If reelected, the president wants to "revive" parts of his so-called Build Back Better agenda, which he tried and failed to pass in his first year. That would bring a significant expansion of domestic spending. And Biden remains committed to the idea that Americans must be forced to continue funding the war in Ukraine. That's another topic Biden is expected to highlight in the State of the Union, likely accompanied by the lie that Ukraine spending is good for the American economy. It isn't.

It's not possible to predict all the ways President Biden will exaggerate, mislead, and outright lie in his speech on Thursday. But we can be sure of two things. The "state of the Union" is not as strong as Biden will say it is. And his policy ambitions risk making it much worse.

*  *  *

The American people will be tuning in on their smartphones, laptops, and televisions on Thursday evening to see if 'sloppy joe' 81-year-old President Joe Biden can coherently put together more than two sentences (even with a teleprompter) as he gives his third State of the Union in front of a divided Congress. 

President Biden will speak on various topics to convince voters why he shouldn't be sent to a retirement home.

According to CNN sources, here are some of the topics Biden will discuss tonight:

  • Economic issues: Biden and his team have been drafting a speech heavy on economic populism, aides said, with calls for higher taxes on corporations and the wealthy – an attempt to draw a sharp contrast with Republicans and their likely presidential nominee, Donald Trump.

  • Health care expenses: Biden will also push for lowering health care costs and discuss his efforts to go after drug manufacturers to lower the cost of prescription medications — all issues his advisers believe can help buoy what have been sagging economic approval ratings.

  • Israel's war with Hamas: Also looming large over Biden's primetime address is the ongoing Israel-Hamas war, which has consumed much of the president's time and attention over the past few months. The president's top national security advisers have been working around the clock to try to finalize a ceasefire-hostages release deal by Ramadan, the Muslim holy month that begins next week.

  • An argument for reelection: Aides view Thursday's speech as a critical opportunity for the president to tout his accomplishments in office and lay out his plans for another four years in the nation's top job. Even though viewership has declined over the years, the yearly speech reliably draws tens of millions of households.

Sources provided more color on Biden's SOTU address: 

The speech is expected to be heavy on economic populism. The president will talk about raising taxes on corporations and the wealthy. He'll highlight efforts to cut costs for the American people, including pushing Congress to help make prescription drugs more affordable.

Biden will talk about the need to preserve democracy and freedom, a cornerstone of his re-election bid. That includes protecting and bolstering reproductive rights, an issue Democrats believe will energize voters in November. Biden is also expected to promote his unity agenda, a key feature of each of his addresses to Congress while in office.

Biden is also expected to give remarks on border security while the invasion of illegals has become one of the most heated topics among American voters. A majority of voters are frustrated with radical progressives in the White House facilitating the illegal migrant invasion. 

It is probable that the president will attribute the failure of the Senate border bill to the Republicans, a claim many voters view as unfounded. This is because the White House has the option to issue an executive order to restore border security, yet opts not to do so

Maybe this is why? 

While Biden addresses the nation, the Biden administration will be armed with a social media team to pump propaganda to at least 100 million Americans. 

"The White House hosted about 70 creators, digital publishers, and influencers across three separate events" on Wednesday and Thursday, a White House official told CNN. 

Not a very capable social media team... 

The administration's move to ramp up social media operations comes as users on X are mostly free from government censorship with Elon Musk at the helm. This infuriates Democrats, who can no longer censor their political enemies on X. 

Meanwhile, Democratic lawmakers tell Axios that the president's SOTU performance will be critical as he tries to dispel voter concerns about his elderly age. The address reached as many as 27 million people in 2023. 

"We are all nervous," said one House Democrat, citing concerns about the president's "ability to speak without blowing things."

The SOTU address comes as Biden's polling data is in the dumps

BetOnline has created several money-making opportunities for gamblers tonight, such as betting on what word Biden mentions the most. 

As well as...

We will update you when Tucker Carlson's live feed of SOTU is published. 

Tyler Durden Fri, 03/08/2024 - 07:44

Read More

Continue Reading

Trending