Is rising inflation at hand? Possibly
Since the Phds in Economics have been in supposed total control of the Federal Reserve Bank in the past decade or more, they have been adamant that without U.S. inflation of at least 2 percent per year, life cannot progress as it should. But try as they might, they have been unable to produce it. Until now.
With the supply of money dreamed into existence in 2008 and following, the Fed stabilized banks by increasing their capital requirements. But very little of this money found its way into the hands of the businesses (mostly smaller) who actually needed it.
Instead, the billionaires who did not need it were able to borrow at almost zero and buy up assets on the cheap and create many more billions of dollars for themselves. Meanwhile you read and heard so much about the increasing terrible income gap being the fault of capitalism, not the government.
If you were a regular saver with money in the bank, you have been punished for saving your money in the bank or credit union. Those disincentives are still in place. The Fed has done everything it can to cause you to risk your money in the stock market, in housing – anywhere but in the bank.
That program failed to achieve its objectives until the Trump era, when regular business loans became more common again. The saying is proverbial: Be careful about what you wish for! To the mixture of those factors listed above, now we are likely developing a perfect storm and the rearing of first levels of serious inflation. How do I mean that?
Inflation is a decrease in the purchasing power of money. The Milton Friedman school of economics declares that the cause is always an issue of money. Simply put, it is too many dollars chasing too few goods.
In our shutdown of the world economy in the past 14 months, we have created trillions more in the money supply and ruined what had been a really efficient production and supply chain of goods and services. Now you can read about how the recent lack of typhoons has led to inadequate Asian water supplies, which is limiting the production of semiconductor chips which is shutting down automobile manufacturing plants all over the world, including here in Kansas City.
If you need or want a new F-150 and the supply is decreased, you will pay more or go without. But not just in vehicles. The cost of lumber and other construction products has more than doubled. You (or your neighbor) have sold your house for a seemingly ridiculous price and been forced to pay up for your next one, if you have found one.
In the past six months, the producer price index (wholesale prices) has risen at a rate of more than 7 percent. According to First Trust Advisors L.P., cash inflation increased by .7 percent in March and is higher by 4.9 percent since last June.
Since you my reader may have been born prior to 1960, you probably remember how quickly an inflation mentality took hold in the 1970s. You hurried to buy things such as cars and durables so that you would not have to pay more the next month or year. The economics Phds apparently do not remember. They think they are in control.
This will likely favor your spending the government’s handout money for things you want and for putting money at risk in bitcoin, dogecoin and even the stock market. It will likely ruin the value of your supposedly safe bonds and punish you even more for having a large bank account balance.
Stay tuned! We shall see what we shall see.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)
Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at firstname.lastname@example.org.