Will massive deficit / debt spending lead to inflation?

 

 

Let us assume (I hate that word) that the democratic Congress passes something close to Biden's Administration stimulus proposal of staggering $1.9 trillion. If that happens it will boost the so-called cumulative amount of US fiscal stimulus in the past 12 months to ~$5 trillion in deficit/debt spending [three massive tranches $2.2 trillion, $900 billion, and $1.9 trillion]; in the past year, nominal GDP totaled ~$21 trillion, so the cumulative injection of fiscal stimulus amounts to almost a whopping 25% (one reason why GDP numbers have soared as the GDP equation used GDP = C + I + G + (X – M)  equals private consumption + gross investment + government investment + government spending + (exports – imports).  No other such massive deficit spending in modern times comes close to what we are seeing (and to top it off there is another $2.0 - $2.2 trillion in infrastructure spending expected as well,) especially during peace times.

The CBO published a report back in 2010 on the military costs of significant wars.

• The military war costs of World War I...it amounted to 13.6% of GDP.
• 
  
• World War II ...it amounted to 35.8% of GDP.

So, the current massive deficit/debt spending/stimulus falls somewhere in the middle of the two World Wars.

During the previous World Wars, activity in the private sector was significantly depressed. That is not the case today. The housing sector thanks to the FED’s massive rate drop is booming, with housing starts at the highest levels in over 15 years (since the last housing bubble became inflated), and prices are rising double-digit to new record levels. At the same time, the manufacturing sector is experiencing a proverbial mini-boom in orders and production. Given the massive scale of fiscal stimulus deficit/debt spending, one would expect the FED to be contemplating raising interest rates. But not this manipulative interventionist FED, this FED is using the same playbook from the TBTF-banker led Great Financial Recession, providing unneeded stimulus to the red-hot housing market, and inflating other assets to Hindenburg proportions! So, what is their economic and financial endgame? It is hard to see anything but another contrived mega “boom-bust” situation playing out with fast manipulative (deficit/debt) spending growth and rising market interest rates this year and into early 2022, followed by a mega bubble bursting (like the dot-com bubble) in late 2022 into 2023 when the fiscal shit storms hits, and the free-flowing stimulus/support dries up. The proverbial FED and government sugar-high today is unprecedented, raising the odds of a very-nasty hard landing.

 

Wise Owl SELL / SHORT levels

 

The war against the WORKING CLASS, and vanishing Middle-Class

 

The FED in reality, is a non-independent governmental agency, that does the bidding of the powerful politicians, the TBTF-bankers, the elite/most wealthy “Top 5%” and influential corporations have been waging WAR on the American middle class and working-class for decades and both groups are getting poorer (and they have almost wiped out the middle-class). Real wages of the working-class have been at best stagnant for decades (many Americans have seen a massive deterioration in their real-wages when adjusted for real-inflation) decent-paying jobs are extremely scared if they can be found at all...for Americans to seek a decent single wage-job to sustain the pursuit of the elusive American Dream...[ The American Dream used to be the belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society where upward mobility is possible for everyone. The American Dream in the past was achieved through sacrifice, risk-taking, and hard work, rather than by chance] Now it is commonplace for a corporation in the greedy pursuit of profits to export once decent American jobs overseas (they even get perks from out politicians to do so). While domestic small and medium businesses get burdened with taxes and government red tape. There are bailouts provided to corporations, other TBTF-bankers, and politically connected business and let us not forget to other central bankers to the tune of trillions while small-business owners of main street businesses go bankrupt. The massive almost endless flow of Q/Es have propped up the stock market, largely owned by the top 1% to 3% of the elite. So in reality the rich are getting significantly richer while a the so-called the greatest nation on earth has a record number of its people on food stamps; growing food insecurity has exploded, a record number of Americans have no health insurance, homelessness is on the rise (near-record levels)

A massive amount of the blame 85% or better rests with the lecherous Federal Reserve controlled by the TBTF-bankers etc. as they “a private group of elites” who at will get to print money out of thin air for themselves and their cronies while their mainstream media tells everyone the FED has their backs and is a financial demigod and should never be questioned. They get richer and more powerful while the vanishing-middle-class and the working class inherits massive debt loads (economic enslavement) currently the middle class has one foot in the grave and the other foot on the proverbial banana peel, thanks to our corrupt and dysfunctional system of monetary policies and money creation. It is time to end crony capitalism, which is leading us deeper into the financial totalitarianism cesspool!

US Poverty rate continues to rise (like the stock market)

 

 A terrible trend, no one wants to address in the main-stream financial media!  A new poverty survey/estimate seeking to analyze the nationwide impact of government shut-downs, relief measures which expired just at the end of last month has found that past months of 2020 marked the sharpest rise in the US poverty rate since the 1960’s. The study recently released found that the poverty rate increased by 2.4% during the second half of 2020, this data follows the rise seen last spring and early summer due to the Covid-19 rolling lockdowns in various parts of the country. Sadly, this data point suggests that an additional 8+ million Americans being dropped into a newly poor zone/level, nearly double the largest annual rise in poverty in over 50+/- years and the financial media wants us to believe their hype that all is well? The authors of the study further found that Black Americans were among the hardest hit, and more than twice as likely to fall below the poverty line as White Americans (no color disparity, here right?) The researchers found that the stimulus checks the government issued in the spring helped forestall the poverty rate from rising even faster and further!

If you remember that in late December, $900 billion in additional federal relief aid was passed, and Uncle Joe Biden our new Commander in Chief is asking Congress for an additional $1.9 trillion in bailout stimulus.

The US trend over the past (6) months is also echoed in global data showing high and rising Covid19 fueled poverty across much of the world. In a recent Oxfam study which also sought to assess the financial impact of the pandemic up to 500 million people globally have been dropped into poverty level/zone, while at the same time the world's 10 richest men made a combined $540 billion over the same time frame (no wealth inequality here now is here  ☹ ?) Oxfam is calling it evidence of the “greatest rise in inequality since records began.? 

New Home Sales up slightly in December, but median prices rose significantly (forcing more and more potential buyers out of the market!)

 

 New Home Sales up slightly in December, but median prices rose significantly (forcing more and more potential buyers out of the market!)  According to data released this week, New home sales increased 1.6% month/month to a seasonally adjusted (I love the fuzzy math) annual rate of 842,000 in December (consensus came in 860,000) from a downwardly revised 829,000 in November. On a year/year basis, new home sales rose a whopping 15.2%. The key takeaway from the report is that new home sales, which are counted when contracts are signed (not closed) moderated for the 2^nd straight month from the torrid recovery pace experienced in July to October (due to property chasers, and historic low rates “thank-you-FED) period that ran at an average sales pace of 968,000. I believe that the rapid rise in prices has contributed to the moderating rate of sales.

Ø  The median sales price increased 8.0% year/year to $355,900 (more than 4x the rate of the bogus inflation numbers) while the average sales price jumped 4.6% to $394,900.

Ø  For the full year, sales climbed to 811,000, the best level in more than a decade. However, it does not take rocket science to comprehend the driver of the recent slowing in sales... record median home prices rose 8.0% year/year to $355,900.

Ø  15% of new homes sold in December cost more than $500,000, down a tad from 17% prior month.

o   Fed-head Powell on Wednesday cited real estate as a bright spot in the economy even as other sectors have cooled. “The housing sector has more than fully recovered from the downturn, supported in part by low mortgage interest rates,”  he said  after the latest FED “BS” policy statement was released.

Well played another housing bubble in the making!

---

Powell and FED killing off the vanishing middle class and now they are squeezing the working class

 

The Once Great American Middle Class has stood meekly by (like drones) while the New Nobility strip them of $50 trillion from the middle and working classes. As the RAND report documents, that over $50 trillion has been siphoned from labor and the lower 90% of the workforce to the New Elite-Nobility and their technocrat lackeys who own the vast majority of the capital (see the report) So the $64,000 question that begs to be answered is “Why has the Once Great American Middle Class pathetically and submissively accepted their new role as debt-slaves and powerless peasants in this new Nonfeudal Economy ruled by the elite, most wealthy and corporations and Wall-Street thugs/financiers all of who have been assisted significantly by the FED’s free flowing massive money printing that get mostly directed to them; this has led to a massive wave of soaring wealth inequality! These new-age robber barons share with today's high-tech monopolists a huge strategy of encouraging folks to see immense inequality as a tragic but unavoidable consequence of the new age of present-day capitalism and technological change. Today, far too many Americans accept grotesque accumulations of wealth and power as normal. The bottom 90% of the U.S. economy has been decapitalized: and massive debt has been substituted for capital. Capital flows into the centralized top tier 10% (mostly the top 1%) which owns and profits from the rising Tsunami wave of debt that has been keeping the bottom 90% afloat for the past 20-30 years. Ninety to ninety five percent of Americans have been reduced to debt-slaves and needy peasants who now rely on casinos and pure speculative luck to get ahead: (playing the stock market has also been a mainstay for speculation as well) hoping their over-valued mortgaged home doubles in value, even as the entire value.

Lately there has been incessant hype and rhetoric about rebuilding America’s infrastructure and the Green New Deal, but the first several question must always be: who will pay for it and to whose benefit? How much of the spending will actually be devoted to changing the rising imbalances between the haves and the have-nots {will be little if any], the rich who profit from rising debt and the ever more decapitalized debt-slave who are further impoverished by escalating debt! Unfortunately, the vanishing middle class has timidly and meekly accepted the claims of the New Nobility that the $50 trillion transfer of wealth was inevitable and beyond anyone’s likely intervention. But once the stock market and housing casinos collapse again, the last bridge to getting ahead [the high-risk gambling in stocks and real estate] will fall into the cesspool abyss, and the middle class will have to face their servitude and powerlessness and accept that they are prisoner of debt a fate hey helped to purpurate.

Central Banker and government responses to the Covid-19 pandemic have done little for the poor and working class or vanishing middle class Americans and continue to disproportionately enrich the elite and most wealthy wealthy. Further evidence of how the FED's wealth transference flawed policies have worked, the Institute for Policy studies and Americans For Tax Fairness, who this past week issued a press release noting that 10 months into the Covid-19 crisis, America's billionaires have seen their wealth rise over 40%, or $1.14 trillion; they used March 18^th as a starting point for the Covid-19 pandemic, their release offered up similar stunning numbers to those that I have been writing about for over 5-months now. Not much has changed for America’s billionaires in the midst of the great crisis except the incessant inflation of their wealth. What was astounding was they the combined fortune of the nation’s 660 billionaires as of January 18^th, 2021 topped $4.1 trillion, up a staggering ~40% from their collective net worth of just under $3 trillion on March 18^th, 2020 wow, what a huge amount of gains upon which they will pay little to no taxes on. This a staggering number as at $4.1 trillion, the total wealth of America’s 660 billionaires is 66% higher than the $2.4 trillion in total wealth held by the bottom 50% of the population over 165,000,000 Americans, the report cited (no wealth disparity there right 😊). 

Trying to argue for tax changes, the report stated that that the $1.1+ trillion wealth gain by 660 U.S. billionaires since March 2020 could pay for all of the nee4ded relief for working families contained in Biden’s proposed $1.9 trillion pandemic rescue package, which includes $1,400 in direct payments to individuals, $400-a-week supplement enhancement to unemployment benefits, and an expanded child tax credit (will the top 660 billionaires donate their new found wind-fall to the most neediest Americana “HELL-NO” they demand and desire even more wealth!!) This it is a stunning visualization of exactly how much wealth has been funneled to the top 1% under the guise of Pandemic bailouts and debt-enslavement of main street as many ordinary Americans have not fared as well as these billionaires during the pandemic, the report notes:

Ø  Over 25 million have fallen ill with the virus and more than 421,000 have died from it. [Johns Hopkins Coronavirus Resource Center]

Ø  Collective work income of rank-and-file private-sector employees (all hours worked times the hourly wages of the entire bottom 82% of the workforce) declined by 1% in real terms from mid-March to mid-December, according to Bureau of Labor Statistics data.

• Ø  Over 73 million lost work between March 21^st and December 26^th, 2020.
• Ø  A staggering 16.4 million were collecting unemployment on January 2^nd, 2021.
• Ø  Nearly 100,000 businesses have permanently closed their doors.
• Ø  Over 12 million workers have likely lost their employer-sponsored health insurance during the pandemic as of August 26^th, 2020 according to the Economic Policy Institute
• Ø  Over 29 million adults reported between December 9^th and 21^st that their household had not had enough food in the past week.
• Ø  Over 14 million adults: over 20% of renters reported in December being behind in their rent. [CBPP]

You get the picture right, the rich get richer while the poor, working class and vanishing middle class get scraps at best and have to go deeper in debt! The Billionaires are reaping massive wealth gains during the pandemic; as a majority benefit from having their competitors shut down and or they have been controlling technologies and services we are all dependent on now (stay at home service and telecommunication service) during this crisis and this unprecedented time; and these same greedy folks believed that they should be taxed less?

Watch the free-flowing-easy money from FED and central-bankers

After the 1^st month of the new year has concluded and as we head deeper into 2021, there is a massive and incessantly hyped consensus that the massive monetary interventions seen in 2020 will lead to an explosion of economic growth, (let us not talk about higher inflation, and higher interest rates). I suspect that the outcome of more and more deficit-debt-driven spending will lead to a massive disappointment in growth and disinflation instead. Please reflect upon the infamous words of Milton Friedman: “Inflation is always and everywhere a monetary phenomenon, in the sense that it cannot occur without a more rapid increase in the quantity of money than in output.” And in my opinion, there is little disputing that the FED is “printing cyber money” without any hesitation or reservation.

 

That massive spike in M2 is basically from the Government’s massive, gigantic monetary fiscal response to combat the pandemic-related economic shutdowns that they created. In mu analysis, the end game for the FED’s twin asset bubbles in stocks and bonds will led toward unwarranted real-life inflation. Of course, if the massive monetary infusions create an economic boom, then a surge in inflation and interest rates will not be an issue they incessantly state? There are several reasons why so-called great expectations of significant growth may fall significantly short of reality. For the past 12-years, the new-year refrain from hyping economists has been “this year is the year of economic growth and inflation.” Each year the manipulative data has been a serious disappointment. While in theory, “printing cyber money” should logically lead to a significant increase in economic activity and inflation, but this has not been the case. A better way to look at this premise is through the “veil of money” theory. If money is a commodity, more of it should lead to less purchasing power, resulting in inflation (seems logical right). This is where monetary velocity becomes essential, “Monetary Velocity” is a premise that the Federal Reserve has failed to grasp that their lame monetary policies are “deflationary” when the creation of more and more “debt” is required to fund it. The velocity of money is important for measuring the rate at which money in circulation is used for purchasing goods and services. Velocity is useful in gauging the health and vitality of the economy. Please reflet back on your econ-101 days, as high money velocity is usually associated with a healthy, expanding economy; and conversely low money velocity is usually associated with recessions and contractions. With each monetary policy intervention (FED) Q/E’s the velocity of money has slowed along with the breadth and strength of real economic activity. However, it is not just the expansion of the FED’s manipulative balance sheet, which undermines the real strength of the economy. It is also the massive continuing suppression of real interest rates in their lame attempt to stimulate economic activity. We saw in 2000, the FED found “unfortunately” that lowering interest rates did not stimulate economic activity. Instead, the “debt burden” detracted from it.  Despite persistent hopes and prayers that economic growth and inflation would arise from historic lower interest rates, more and more government spending, and increased so called “very accommodative policies,” each reiteration has led to weaker outcomes (wow a definition of insanity). This not and should not be a surprise, as real monetary velocity increases when deficits revert back to a surplus. Financial surpluses allow said revenues to move into productive investments rather than debt service. Since I left the active Army way back in 1979, there has been a shift in the economy’s fiscal makeup from productive to non-productive investments. Currently government spending has shifted away from productive investments. Instead of things like the Hoover Dam, which created decent jobs (infrastructure and positive real development), spending shifted to social welfare, defense, and debt service, which have a negative rate of return (simple economics). According to the Center On Budget & Policy Priorities, nearly 75% of every tax dollar goes to non-productive spending, and awful trend and one that could derail our society!  In 2020 debt “deficits” increased by over $6.2 trillion a staggering number.  This is why “monetary velocity” began to decline as total debt passed the point of being “productive” to becoming “destructive.” The FED’s main massive contagion now is that due to the massive levels of debt, interest rates MUST remain at/near historic lows. Any uptick in rates promptly slows economic activity, forcing the FED to lower rates and support it (how much lower can rates go?) the current deficit path’s deflationary pressure will continue to erode economic activity even if the FED manages to see a spark of “BS” inflation, which should push interest rates higher, the debt burden will lead to an economic recession and deflationary pressures.

The deficit/debt problem remains a massive risk of monetary to fiscal policies. If rates rise, the negative impact on a massively indebted economy quickly dampens real activity the decline in monetary velocity clearly shows that deflation is also a real and persistent threat. It is hard to overstate the degree to which psychology drives an economy’s shift to deflation. When the prevailing economic mood in a nation changes from significant undying optimism to pessimism, participants change. Creditors, debtors, investors, producers, and consumers all change their primary orientation from expansion to conservation. Such behaviors reduce the velocity of money, which puts downward pressure on prices. Money velocity has already been slowing for years, a classic warning sign that deflation is looming. 

There are no serious real-life decent options for the FED unless they are willing to allow the system to painfully reset. The FED and the Biden Administration will have to face hard choices to extricate the economy from the massive current “liquidity trap” and history has repeatedly demonstrated that political leadership never makes hard choices until those choices get forced upon them. Most telling is the current inability, of those who job it is to maintain our monetary and fiscal policies, to realize the problem of trying to “cure a debt problem with more debt” is insanity at its core!