"Pit-Bull Inflation"
by Bill Bonner
YOUGHAL, IRELAND – "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.
But let’s come back to that in a moment. First, we have some big news for our long-suffering dear readers…
Our New Venture: We’ve been writing every day for more than 22 years. Heck, we practically invented the modern newsletter genre when we began writing one of the first internet-based blogs in the 1990s… before the word “blog” was even invented. And despite many supplications from our dear readers, mainstream economists, kibbitzers, nitpickers, and world improvers… we’ve been writing ever since.
Our goal, then as now, is not to change the world… but only to understand it, to “connect the dots” so we have a better picture of what is going on. We leave it to others to figure out what to do about it. We are sometimes right… sometimes wrong… always in doubt. But now, it’s time to try something new… a new adventure.
Beginning on Monday, we’re leaving Legacy Research Group to try a different way of staying in touch with you. Before we go, however, we’d like to thank the good folks at Legacy Research Group for hosting us these past few years, and especially Emma Walsh and Maria Bonaventura, who have worked so diligently to catch our many errors, challenge our slipshod reasoning, and correct our numbers. If we have stayed more or less in line with the facts, it is thanks to them.
But wait… Why leave Legacy? Our goal is to deliver a message that is simpler, less distracting, and less ambiguous. At this stage in our late, degenerate bubble economy, we think dear readers don’t really need more ideas, more information, or more advice. Instead, they need fewer voices… and a clear, unrelenting focus on the major threats and opportunities they face. Yes, Dear Reader, like it or not, we are all unwitting or unwilling soldiers, following our golden-haired general out to the Little Big Horn. It’s going to take all of our skill and concentration not to get scalped.
Here at the Diary, we are not vain or foolish enough to think we know exactly what pin will pop this bubble. Rising interest rates?… A stock market crash?… Another COVID variant?… A new war? But at today’s level of nuttiness, Mother Nature must surely be looking for it.
And we are confident she will find something sharp enough to do the trick. When things get out of whack… they must get back in whack one way or another. Our guess is that it is going to be a long, hard, nasty slog back to the fort. And that is likely to mean huge losses for many people; we don’t want to be among them.
So, if you want to stick with us… click here to sign up for information on our new service… and let’s see what we can do together.
Inflation on the Loose: Back to the dots… The Fed’s epic-low interest rates over the last 12 years encouraged everyone to borrow. Now, everyone – households, businesses, and especially the U.S. 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 neighbor. 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? Stay tuned."
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