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Inflation Continues To Ravage U.S. And Global Economy

September 14th, 2022 Comments off

The U.S. Bureau of Labor Statistics reported that the CPI for August exceeded the consensus expectation, registering a figure of 8.3 %. Though slightly lower than the June figure of 9.1%. a dive into the details reveals disturbing trends.

The modest reduction in the CPI for August was almost entirely driven by a pullback in oil and gas prices, a phenomenon driven by market forces. However, other core components of the CPI accelerated their inflationary trend. Food prices registered a sharp rise of 11.4 %, the largest level of inflation in this critical category in 43 years.

The continued high level of inflation in the United States is being replicated globally. In the UK the official rate of inflation exceeded double digits and has only slightly receded to above 9% due to fuel price retrenchment, as in the U.S. Virtually every other economy on the globe is experiencing levels of price inflation not previously witnessed in decades.

The most recent data in the U.S. will compel the Federal Reserve to continue to significantly increase interest rates. Other central banks will follow in lockstep. All these moves will instill a fiscal drag on the global economy, further increasing the likelihood of a global recession. All trends remain on track for global stagflation and the worst world economic crisis since the 1930s.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

Federal Reserve Raises Rates By 75 Basis Points; Is Fed Chairman Jerome Powell Powerless To Prevent A Stagflationary Depression?

July 27th, 2022 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

Jerome Powell, Federal Reserve chairman and Fed officials unanimously agreed to hike rates by three quarters  of one percent (75 basis points), bringing rates to between 2.25 and 2.5 %. This is still very low considering the last report from the U.S. Labor Department, which tabulated inflation in the United States at 9.1%. The Fed in effect admitted this by indicating further hikes are likely.

Having missed  the train repeatedly by claiming inflation was only transitory, Powell and his minions are compelled to bring up rates in desperation as inflation domestically and internationally spirals almost out of control. This is where America’s central bank faces a conundrum. As weak economic data points to a recession in the U.S. economy, there is a growing chorus urging restraint by the Fed,  as higher rates will further  enable recessionary forces. Bu they are too late.

Yes, higher Fed rates will create a fiscal drag on the domestic economy. But having been so wrong in its previously unjustified lack of concern about inflation, failure to bring rates much higher will not prevent a recession; it will merely guarantee stagflation-a recession with high inflation.

For the Fed rate hikes to have any effect, they will need to go much higher, at the very least  in excess of 5 %. Unfortunately, current global inflationary pressures are not only derived by  demand . There is a supply shock, independent from demand forces and unimpeded by rate hikes enacted by central banks. The supply shock was initially brought on by Covid lookdowns, which created supply bottlenecks. Now, added to this is the Russia-Ukraine war and the resulting sanctions and blockades. These forces are unpredictable but will likely be enduring. This ensures that the coming recession will be  both severe and sustained, concomitant with elevated inflation. In  essence, a stagflationary depression is threatening the global economy, and all central banks, including the Federal Reserve, can do no more than nibble at the edges.

U.S. Inflation Rate Surges To 9.1 %-Worst Level In Four Decades

July 13th, 2022 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

The U.S. Labor Department   released its latest CPI  data On July 13, indicating that in the previous month inflation in the United States had surged to 9.1 %. This is the highest rate for inflation in the U.S. in more than four decades and harkens back to the stagflation that ravaged the American and global economy during the presidency of Jimmy Carter.

The elevated rate of inflation defied the prediction of many economists who have largely engaged in wishful thinking rather than macroeconomic analysis. With inflation not only remaining high but continuing to accelerate, it is very likely that inflation the United States is about to enter double-digit territory, if it has not already done so.

It is very likely that organized labor will soon make demands during collective bargaining for wage increases  vastly higher than what has occurred in several decades. That in turn will unleash powerful new inflationary pressure, adding to what is already impacting price instability, including supply chain bottlenecks aggravated by Covid-induced lockdowns and geopolitical tensions.

There are some economists and investors who have been hoping  that the Federal Reserve would defy economic logic and greatly moderate its planned rate increases. However, with inflation surging at unprecedented rates, and the sovereign powerless to arrest its momentum with its feeble fiscal interventions, it is almost certain that the Fed will have no choice but to rapidly raise rates, abandoning once and for all it s near zero rate policy. The next rate increase may very well be 75 basis points.

The latest data and the likely policy response from the Federal Reserve further solidifies the likelihood of prolonged global economic stagflation, and more likely than not, a global economic depression.

Federal Reserve Spikes Rate By 75 Basis Points In Panic Move As Inflation Rages Out Of Control

June 17th, 2022 Comments off

The U.S. Federal Reserve  on June 15 upped its key interest rate by three quarters of a percent, its largest increase since 1994. When Fed chairman Jerome Powell  announced the policy decision, he had a look of panic  as he boasted that America’s central bank remained committed to its historical mission of price stability. Yet only a short time ago this same Powell boasted that the emergence of high inflation in the U.S. economy was merely transitory.

Powell’s misstep replicated an earlier misread of economic trends by a Fed chairman. In the early stages of the 2007-09 Global Financial Crisis that nearly took down the global economy, then Fed chairman Ben Bernanke boasted that there was no prospect of a recession. How wrong he was.

When inflationary trends began spiraling out of control, leading economist Mohamed El-Erian warned that inflation was not transitory, and unless the Federal Reserve and other major central banks rapidly phased out their Covid-induced loose monetary policies including essentially zero interest rates, inflation would spiral, meaning future efforts to control it would likely lead to a far worse economic recession.’

Despite Powell’s feeble attempts to reassure markets and consumers, the rate increase of 75 basis points came on the wake of Labor Department data indicating that inflation in the U.S. stood at 8.6 % and was accelerating. Only far higher rate increases will slow its momentum, and with supply chain bottlenecks  complicated by geopolitical tensions including a full-scale war in Eastern Europe, nothing short of a severe recession bordering on a depression will dampen economic activity to a level that arrests the powerful inflationary forces now ravaging the global economy. These forces have been nourished by the Fed’s  policies for years, yet now Powell is attempting  to convince the world that this same Federal Reserve will engineer and end to inflation with a soft landing, avoiding a long and severe recession. At this point, the Fed lacks any credibility  to sustain such reassurance.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

U.S. Inflation Rate Spiraling Out Of Control: Is Stagflation And A Depression On The Horizon?

April 15th, 2022 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

 

Earlier this week the Labor Department released statistics on the CPI (consumer price index) for the period March 2021 through March 2022. The news was dismal,; the CPI data revealed that inflation in the United States had reached 8.5 percent. This is the highest level of CPI growth in the U.S. over a one year period registered since December 1981.

As bad as the official figures are, the reality is probably much worse. Typically, American government statistics reflecting inflation are lagging indicators. What is clear is that inflation in the U.S., as in most of the world, is accelerating at a quickening pace. It probably has reached double digits in the U.S., with every indication that it will continue to increase, probably well into double digit territory.

As to be expected, the Biden administration is blaming the Russia-Ukraine war for spiraling inflation. No doubt, Russia’s invasion of Ukraine has had a major negative impact on price stability. However, contrary to the spin of President Biden and his officials, the primary driver of the worst inflation spiral in the U.S. in more than 40 years has been policy missteps  of both a fiscal and monetary nature.

On the fiscal side the U.S. government responded to the Covid pandemic with levels of deficit spending that, in real terms, exceeded the debt spending required to fight World War II. In addition, government mandated lockdowns and restrictions on economic activity, both in the United States and worldwide, disrupted  supply chains. Added to all this has been the non-stop money printing by the Federal Reserve. In defiance of economic logic, the Fed unleashed an unprecedented floodtide of liquidity, while publicly claiming that the resulting inflationary upsurge was merely “transitory.”

The accumulation of policy missteps by sovereigns and central banks, especially as had occurred in the United States, has created a vicious negative feedback cycle. On the one hand, inflations is at its worst in more than 40 years, and accelerating. On the other hand, labor will demand massive wage increases to match the CPI , which will in turn add further pressure on the inflationary trend. Only recently has the Federal Reserve begun to comprehend its massive policy errors, and is beginning to play catch-up. With interest rates set to rise sharply over the next several months, policymakers have crafted the perfect storm: high inflation and a severe recession, leading to a likely stagflationary depression.

Global Economy on the Precipice of a 1930s Style Depression: Inflation, War Threats and Covid

January 31st, 2022 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

Now that the U.S. Federal Reserve and other central banks have been finally forced by reality to abandon the fiction that inflation was a transitory phenomenon, they have hinted at upcoming interest rate rises  during the course of 2022. However, having been so wrong in policy measures thus far, it is highly likely that the Fed will be equally error-prone in the coming months. In the meantime, other factors are at play, beyond the grasp of any central bank’s efforts.

Instability is a toxic brew for economics, and the first weeks of 2022 already point to a year of geopolitical disarray. The Biden administration has gone public with warnings that Russia is about to invade Ukraine, stampeding its NATO allies into joining the anti-Putin hysteria. Even if the prediction of a Russian invasion should prove false, the loud manner that Washington has dealt with the issue assures greatly heightened tension in Europe, creating new strains on the world’s economic order. This is already reflected in the continuing rise in energy prices, including oil and natural gas, with the latter being a manifestation of European dependency on Russian energy exports. Added to this are the growing signs that the negotiations over Iran’s nuclear program are not going well. Should they  collapse, this will create the growing danger of war in the Persian Gulf region, and the possible closure of the Straits of Hormuz, through which 30 percent of oil exports worldwide traverse. That alone would conceivably double or triple oil prices, virtually overnight.

Ukraine and Iran are not the only flashpoints on the horizon. North Korea continues its belligerent weapons testing. It is not inconceivable that it will conduct another nuclear weapons test during the course of 2022. In the meantime, there are growing strains between China and the U.S. over Taiwan.

While the geopolitical stability of the world continues to erode, the Covid pandemic is entering its third year, with no signs that its debilitating impact on global supply chains and normative economic activity will be ameliorated in the near-term.

In the meantime, opaque crypto-currencies have become major factors in the world financial order, posing dangers similar to that of derivatives during the 2007-09 Global Financial Crisis, but to a much higher degree.

With all the warning signals indicated above, this is the time that the Federal Reserve will have to begin lifting its near zero interest rates and end its lavish quantitative easing. The odds are that these policy measures will prove insufficient in arresting high inflation increasingly being nourished by factors unrelated to sheer monetary policy. What is more likely is that the Fed will stumble and likely precipitate a collapse of the asset bubbles it has created in the equities and real estate markets. All these factors point to not only a severe global recession, but something much worse; depression 1930s style.

U.S. Inflation Rate Rises to 7 %;Federal Reserve Will Be Compelled To Raise Interest Rates

January 12th, 2022 Comments off

The U.S  Labor Department released its CPI data for December 2021. It shows that, compared with the CPI for December 2020, the past year has seen an annual inflation rate of 7 %. Compared with the prior month, the CPI advanced a full half of a percent.

The official inflation  numbers make it clear that the Federal Reserve’s often repeated claim that inflation was “transitory” was a myth. If anything, inflation in the United States is accelerating. Furthermore, many economists view the official CPI data as an undercount. Likely, true inflation in the U.S. has reached double digits.

The reasons for this wave of inflation , unprecedented in the U.S. economy since the 1970s, I have commented on before in previous blog pieces. The important question now is what will the Fed, as well as other leading central banks in major economies, do in response to a clearly sustained wave of major price inflation.

Recently, even the Fed has abandoned its moniker that inflation was a transitory phenomenon . The Federal Reserve is now openly mulling monetary tightening in 2022, with intimations of 4 interest rate increases during the course of the year. However, the Fed and other central banks have been so muddled in their policy responses to date, it is likely that the steps expected will be ineffective. Should inflation further accelerate, compelling a more severe monetary retraction, the whole edifice of major equities and real estate valuation expansion built on cheap money will collapse. This makes a severe recession , and even a depression, a more likely near-term economic outcome.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Is The Global Economy Sleepwalking Into Stagflation?

December 7th, 2021 Comments off

The economist  Mohamed El-Erian poses the provocative question on his twitter feed; are advanced economies sleepwalking into stagflation? He adds that while this is not his baseline projection (at present), the risks are growing. He points out that not only the latest variant of Covid, Omicron, but also rising geopolitical tensions heighten the probability of stagflation.

Stagflation is perhaps the most destructive economic phenomenon. It combines the worst of all intersecting economic trends: high Inflation and low or negative economic growth. All the current economic indicators point towards the increased risk of stagflation, a condition last witnessed by advanced economies in the 1970s  after the oil shock, right through the early 1980s.

At present, the primary economic shocks are largely self-inflicted, and centered around policy responses to Covid.  Repeated bouts of economic shutdowns and restrictions, leading to supply chain  disruptions and labor dislocation, combined with historically unprecedented borrowing by sovereigns abetted by central banks running their debt monetization programs on steroids, have brought to global economy into a perilous place. Now, as though there are not yet sufficient red flags, global tensions are growing: U.S. versus China on Taiwan, U.S. versus Russia on Ukraine, not to mention the Iran nuclear crisis. A perfect storm is brewing, and beckoning for the onset of stagflation.

Meanwhile, the U.S. Federal Reserve may be having seconds thoughts on its stealth policy of high inflation as a means of wiping out the radical and unsustainable rise in public debt. For the first time, the Fed is abandoning its position that high inflation is “transitory.” It may be too late. Economic forces will almost certainly compel the Fed to move much more quickly on monetary tapering. The end result will likely be a severe fiscal drag on the American economy, accelerating the onset of stagflation.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

U.S. Annual Inflation Rate Soars to 6.2% As Federal Reserve Engages In Deliberate Deception

November 10th, 2021 Comments off

 

The U.S. Labor Department has released its most recent official inflation report, which shows that the annual rate has now reached 6.2 %. This is the highest level of inflation in the United States in thirty years. It should be noted that official statistics on American inflation  are usually a lagging indicator. Likely, annual inflation in the U.S. is in the 8-9 percent range.

As noted on this blog previously, there are a number of converging forces feeding this inflationary spiral, which is afflicting not only the U.S. but the entire global economy. These include Covid restrictions that have reduced employment in key sectors, everything from shipping capacity to energy production and computer chip manufacturing. Then there has been the unprecedented flood of liquidity released by many central banks, in particular the Federal Reserve, which in this mix of lower productivity serves as a turbocharger of inflationary forces.

The policy of the Fed, up to the present moment, has been to claim that this inflationary spiral is merely “transitory.” No one believes this anymore; it is absurd to believe that the policymakers in the Federal Reserve believe their own lies.

Why is the Fed engaging in deliberate deception, while inflation is likely to hit double digits? It would appear that the Fed has concluded that the American economy is in such dire straits, it requires the life support of money printing (quantitative easing and monetization of public debt). Furthermore, the level of public debt is reaching the point of unsustainability, leaving  only two outcomes: the U.S Treasury defaults on the national debt or the real value of the debt is sharply diminished by high inflation. Of course , the Fed will never publically admit that it prefers inflation, even at a high level, than the alternative. This would involve sharply raising interest rates, leading to a sharp recession.

The danger of the Federal Reserve’s policy of deception and stealthily preferring high inflation is that it will lead to unforeseen consequences. Sustained economic growth along with political stability is incompatible with high inflation. Ultimately, the Fed policy will lead to stagflation, and eventually the Federal Reserve will be left with no alternative but to sharply raise interest rates, however in a more consequential manner.

Sheldon Filger-blogger for GlobalEconomicCrisis.com

Inflation On Steroids

October 15th, 2021 Comments off

Sheldon Filger-blogger for GlobalEconomicCrisis.com

 

 

 

For the past several months my blog has warned about the growing inflation threat to the global economy. That, and other economic distortions of a massive character, have made stagflation-inflation plus low or negative economic growth-an increasingly likely trend. Over that same period, central banks have nourished the flames of inflation, especially in the U.S.,  where theFederal Reserve has preached the erroneous gospel that inflation was only transitory, and therefore not a trend that should be of concern.

Reality has now caught up with the Fed.  At least some of the key players on the Federal Reserve have reluctantly agreed that inflationary pressures are real, and likely to be  a trend and not transitory. And then there is Larry Summers, former U.S. Treasury Secretary. He recently told Bloomberg News that the Federal Reserve’s policy errors are stoking inflation, making 1970s style stagflation inevitable. He told Bloomberg News, “we have a generation of central bankers who are defining themselves by their ‘wokeness.’…they’re defining themselves by how socially concerned they are.”

The causal factors for this surge of inflation are due to reactions by both sovereigns and their central banks to the Covid pandemic. Poorly conceived policy decisions have disrupted supply chains and labor markets. For example, in February of 2020 the percentage of eligible Americans in the active labor pool was 63.3%. By September of 2021 the labor participation rate had declined to 61.6%. With millions of workers absent from the labor pool and production and shipping of commodities and finished goods globally impeded, the resulting shortages have spiked prices of essential products, including food and energy.

As though government policy was not enough, central banks through profligate monetary policies have flooded a constricted global economy with unprecedented levels of liquidity. The result was fully predictable; turbocharged inflation. That is why housing prices in the U.S. have risen by more than 20% in the past year. They are projected to increase another 20% in the coming year, despite a weak economy. Simply put, the Federal Reserve, through artificially low interest rates and an out-of-control printing press, has encouraged speculators to buy up housing stock as investment properties, taking advantage of cheap money.

A stagflationary calamity looms just over the horizon. Unfortunately, policymakers and central bankers, especially in the United States, seem totally out of touch with reality, residing in a parallel universe while the global economy is on the edge of a cliff.