Posted on 06/05/2018 8:33:33 AM PDT by Liberty7732
From 2008-2018, U.S. debt virtually doubled while the M2 money supply compounded at 6%. This should have caused rapid inflation. It didn’t. In fact, inflation decreased to 56-year lows during the period from 2009 to 2017.
The Federal Reserve and leading economists say they don’t know why. Here’s the explanation.
To have inflation, commodity prices must perform better. Commodities are non-correlated to stocks and bonds while they are highly correlated to inflation, volatile interest rates, and high or rising GDP growth rates. All of these were at historic U.S. 240-year lows over the last nine years. Using the CPI to represent inflation, inflation made continuous new lows ending in 2017 at a compounded rate of 1.61% on a 10-year rolling annual basis. The five-year rolling annual rate also made new lows but has since recovered by 7 basis points. Since 1961 the five-year low was 1.36% (2012-2016), but now from 2013-2017 is 1.43%.
The reasons for the decline in these economic barometers were the policies of President Obama.
The “change” brought to the nation included increased regulations (Todd-Frank), higher taxes for everyone (the end of the Bush tax cuts in 2012), and the creation of Obamacare. The ACA was effectively a huge tax on the middle class disguised as an insurance policy, which was then redistributed to the lower class, who got healthcare insurance policies at way below the market prices, by subsidizing the insurance companies. As a consequence, Obama transformed America into a virtual Corporatist/quasi-Socialist State.
Today the U.S. is essentially an oligarchy of party leaders and federal judges, who are controlled and heavily influenced by multinational corporations and outside special interests. They operate much like cartels. In short, we now have government similar to that of a banana republic.
Therefore, with 0% nominal Fed Funds rates for seven years and three large Quantitative Easing (QE) programs, combined with an increase in the Federal Reserve Balance sheet from $800 billion to $4.5 trillion, why isn’t inflation at least approaching historic compounded levels of 3.10% that were seen between 1913 and 2017?
The primary reason is: when you execute extraordinary amounts of printing of paper money via QE, i.e. buying government debt, and other assets, such as mortgages, the cash created “out of thin air” goes only to the very few investors who own those assets in large quantities. No inflation occurs, as those investors don’t spend that money, but rather invest it in assets such as equities, real estate, other debt and art. Prices for these assets rose to historic levels as a consequence.
This is called “wealth creation” instead of inflation. This Fed monetary and tax policy is also encouraging corporate stock buyback programs, which caused the velocity (or turnover) of money (via M2) to decline to the lowest level in 60 years, or 1.4 times. This, coupled with a lack of investment in new plant and equipment — causing capital expenditures to decline — resulted in a major decline in productivity to 0.7. That in turn led to stagnant medium incomes over the last 20 years. (This doesn’t take into account the Free Trade thinking that caused the 19.8 million manufacturing jobs to decline to 11 million since NAFTA was enacted.)
If the bulk of people don’t get the money, they can’t spend beyond their revolving credit card limits. Household non-revolving credit debt (house equity and auto loans) is at record highs as of January 2018. Total household debt is $13.2 trillion, also a new record. Credit card interest rates average 19.9% and range from 9.9% (often only as a promotional rate) to 29%.
Contrast this to corporate debt which despite being at record levels costs around 3% to 3.25% on seven-year term debt. This is the rate corporations are paying to borrow money to buy back stock. Inequality exponentially increases while the middle-class standard of living steadily declines; meanwhile low but steady inflation still takes its toll (for which nobody blames the Federal Reserve?).
Since 2008, “financial repression” has been in effect with interest rates below inflation. This is why stocks go up but no major actual inflation occurs. In effect, it is a method of government theft of individual savings; inflation is a stealth tax. So, people hoard more as they earn less and their savings decline. For example, the 90-day Treasury Bill yield at the end of March was 1.71%, while the CPI was 2.36% year over year.
This makes government and corporate borrowing virtually free. Historically (since 1926) T-Bills have traded at a compounded rate of 70 bps above CPI, not 75 to 50 bps below CPI. This is what is meant by “Government is created to serve the rich, while enslaving the poor.”
Moreover, these increases in government debt are not sustainable.
This is an existential threat to our Constitutional Republic’s political structure. Normally a nation with a printing press never defaults by bankruptcy, but rather by hyperinflation. This in turn historically has led to authoritarian dictatorships (see Napoleon and Nazi Germany). I should also mention schemes of “Universal Basic Income” such as Facebook CEO Mark Zuckerberg is proposing would most likely cause hyperinflation, as people would get free money estimated at $36,000 a year per family, and certainly they would spend it.
In June 2017 the CBO projected that total stated debt would grow to $30.7 trillion in 2028 (up from the current $21 trillion). However, in March 2018 that estimate was increased to $33.2 trillion, or an additional $254 billion per year. Interestingly, they also raised their revenue estimate over the same period by over $1 trillion (even after the latest tax cuts). So, these higher debt projections already take into account increasing revenue! This assumes no recession during the period, which I estimate would increase debt by additional $12 trillion (making U.S. debt $45 trillion). Not to mention our unfunded liabilities which could be anywhere from $100 trillion to $220 trillion in 10 years going forward.
It should be noted that the longest recovery since 1854 — when the NBER began to keep track of such statistics — was 120 months. We would reach 121 months in our current recovery in July 2019. To think (via the CBO projections) the U.S. can go 10 more years in recovery (for a total of 227 consecutive months) is like assuming the U.S. will win the lottery; it may not be impossible, but it is highly unlikely. That is, unless you’re a politician (or the CBO) who lies for a living.
Certainly, the borrowed times we live in will not be the future we assume we know.
At the bottom line are two fallacies. The first is the idea that paper money wealth will protect you, and what you see in asset prices around the world is accurate. Interest rates are manipulated by governments to the extremes in the history of civilization. Therefore, we come to the second fallacy: the belief that prices are real — based on a real foundations.
How is this mindset allowed to persist, and why is this growing danger consistently ignored? This kind of thinking is based on “perception policy” to keep the sham going. The situation was best described by Ayn Rand in her novel The Fountainhead: “The hardest thing to explain is the glaringly evident, which everybody has decided not to see.
I do too, but the Milk, eggs, bread and canned soup I bought between 2008 to the Present have all gone up quite a lot. Milk has effectively doubled in price. Some of that is the consequence of the big drought that occurred four or five years ago, and Ranchers ended up culling their herds greatly.
Gas prices doubled reaching around $4.00 per gallon, and then came back down to under $2.00 per gallon for awhile, and then crept up to around $2.60 now.
I know how you feel. I think anyone paying bills for a family noticed this.
Yup. Purchasing power was badly damaged by inflation during the Idiot-Obama years.
All to keep from having to increase social security checks, which are tied to inflation.
You give stupid Obama too much credit for having any sense. No, this was about the Ego Maniac not looking bad, and nothing else. A Sh*t he did not give about how much the US government spent. This was all about him and how he looked.
I went to order take out Pizza Hut the other night and they now charge an extra dollar for "pan pizza". Are you kidding me? LOL.
Inflation is only one factor of many.
Ask yourself WHY does everything cost more today ?
Obama and the leftists Socialized medicine and Socialized energy drove prices up hugely (labor and energy being significant expense for everything else being produced/services)
So set the blame where it really belongs.
And now a “proper” tip is 15%. What happened to 10%?
Yes. My ATT/DirecTv bill is over $300 a month, for a “smart phone”, a tablet, both with unlimited data, and a flip phone for my dad; we have the lowest tier of DirecTv, no sports/NFL ticket/movie package. We have no other internet service, as I live in the boonies with no cable, no DSL, no uVerse, so it’s either tether to the tablet, or satellite (which is 10 Gb a month, $100, and rate limited after the 10 Gb).
My mortgage, started in 2003, has been around $1300 a month (+ escrow). My soon-to-be-ex-wife didn’t bother to pay it for 6 months or so, and I have no idea what she did with the money that was deposited into her account (don’t get me started on why we had to have separate accounts, but I’m THANKFUL now that we did).
I still don’t understand why my mobile/TV bill is so damn high, but AT&T (as well as Trim, and some of the other bill reduction services) says it’s as low as it can be. I’m thinking of moving to Dish/Verizon, because I just can’t keep paying the $330+ a month for this crap.
Ummmm…….QE, the Fed buying assets with new money, is why the Balance Sheet increased. Not 2 separate events.
No inflation occurs, as those investors don’t spend that money, but rather invest it in assets such as equities, real estate, other debt and art.
And there is no way the sellers of equities, real estate, art and other assets would ever spend their profits in the economy because, DERP!
Total household debt is $13.2 trillion, also a new record.
Total household net worth is $100.768 trillion, also a new record. Total household personal income is also a new record. Total household disposable income is also a new record.
Oh God the globalist sycophant is back!
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