Inflation on the Loose and a New Venture

Inflation on the Loose and a New Venture

Two headline stories this morning point to the Winter Catastrophe we imagined two weeks ago.

First up, it’s Reuters: ‘New York City set to ban natural gas in new buildings’.

And here’s Stansberry’s NewsWire:

Producer Price Index (“PPI”) data for November came in at 9.6%, beating the expectation for a 9.2% rise and the prior month’s upwardly revised 8.8% bump. That marked a record high for PPI, which the U.S. Bureau of Labor Statistics has been tracking since 2009.

Our friend David Stockman has worked out that the PPI for FINISHED goods actually came in at 13.6%:

Today’s report happened to put us firmly in double-digit land at 13.6% year over year — a reading that beat all the monthly prints back through the 12.9% posting of October 1980.

What could go wrong?

Let’s see…restrict supplies…increase prices…what happens when you hit the brakes and the accelerator at the same time? We’ll soon find out!

Meanwhile, smart investors…like our dear readers…have figured out that the Federal Reserve is stuck in an ‘Inflate or Die’ trap.

They know it can’t seriously curb inflation — not without causing the very ‘hard landing’ it is trying so desperately to avoid.

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Inflation on the loose

The Fed’s epic-low interest rates over the last 12 years encouraged everyone to borrow. Now, everyone — households, businesses, and especially the US government — is loaded up with epic-high debt.

How could the Fed raise rates now? Everyone depends on its low rates…from here to eternity.

And what’s the problem with a little inflation? The federal debt goes down. The assets of the rich…the elite…go up. It’s only the ordinary voters who suffer; and who cares about them?

So what’s the problem?

The problem with inflation is that it won’t stay on the leash. It runs off…tears open the trash bags…and bites the neighbour.

Several times, we’ve recalled the example of Paul Volcker’s run-in with the pit-bull inflation of the late 1970s. Consumer prices were rising at a 13% annual rate in 1979. (Note that yesterday’s PPI reading for finished goods, year-over-year, was at 13.6%.)

But in order to bring inflation to heel, he couldn’t just chase it all over town…he had to lead.

He moved the Fed’s key lending rate up to 20% — far ahead of the consumer price inflation (CPI) rate.

Even the rich couldn’t escape. Bonds were almost wiped out. Stocks fell to their lowest level since the Great Depression. (An equivalent drop today would put the Dow under 2,000 — a 94% loss.)

So what will happen this time?


Dan Denning Signature

Bill Bonner,
For The Daily Reckoning Australia

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