"Annual income twenty pounds, annual expenditure nineteen and six,
result happiness. Annual income twenty pounds, annual
expenditure twenty pounds ought and six, result misery."
- Charles Dickens, "David Copperfield"
"Trillion Dollar Misery"
Each dollar must be financed. Interest must be paid. And each dollar increases the pressure for higher interest rates... increasing the total interest cost... and bringing closer the day of reckoning.
by Bill Bonner
Dublin, Ireland - "The latest inflation numbers came out yesterday. They tell us inflation is not going away any time soon. And they give us, we think, a preview of the future. LA Times: "Prices outside the volatile food and energy categories rose 0.4% from February to March, the same accelerated pace as in the previous month. Measured from a year earlier, these core prices were up 3.8%, unchanged from the year-over-year rise in February. The Fed closely tracks core prices because they tend to provide a good read of where inflation is headed."
Of course, investors got nervous. AP: "The S&P 500 was 1.2% lower in a wipeout where nine out of 10 stocks in the index fell. The Dow Jones Industrial Average was down 514 points, or 1.3%, as of 11:45 a.m. Eastern time, and the Nasdaq composite was 1.2% lower."
For the benefit of new readers, if there are any, we are a moralistic bunch, here at Bonner Private Research. We believe events follow patterns that have been observed many times in the past. Each generation is warned by the experiences of its ancestors, distilled into moral lessons and given to us in old wives’ tales, proverbs, history, novels, the Bible, etc. (See Dickens, above.) And so, inasmuch as the US government habitually spends far more than its tax revenue - with current deficits running about $3.5 million per minute, we suspect misery is afoot.
Ugly Footprints: The Fed aimed for inflation of 2% per year. That goal never made any real sense, but that’s the corner into which it backed when it painted the floor. And now, the actual inflation rate is 90% above the target. What can it do now? A step in any direction will leave ugly footprints. The real rate of consumer price increases is much higher than the CPI numbers suggest. Here’s Charlie Bilello:
"A WSJ analysis found that a commonly purchased basket of supermarket goods has increased in price by 36.5% over the past four years (+8.1% per year). This is much higher than the US Government CPI figures which show food price inflation of 25.2% over the last 4 years (+5.8%/year). Meanwhile, average hourly earnings in the US have increased 21% over the past 4 years (+4.9% per year). This is one reason why many Americans, particularly those with lower incomes, feel like they’re falling behind."
And here is Fox News, rubbing it in: "Gas prices have again doubled since Biden took office, despite White House claiming ‘costs have fallen.’" These higher numbers are reflected in another Fed metric, the ‘Supercore’ inflation measure. CNBC reports: "The supercore gauge... accelerated to a 4.8% pace year over year in March, the highest in eleven months."
Rate cut? How about a rate hike? Former Secretary of the Treasury, Larry Summers suggested it. Bloomberg: “You have to take seriously the possibility that the next rate move will be upwards rather than downwards,” Summers said...He even referred to “the errors the Fed was making in the summer of 2021,” reminding Fed governors how they failed to see inflation coming or do anything about it when they had the chance."
But where does it leave them now? Stuck in their corner, with persistent inflation... and mounting debt. If they raise rates, they risk a major debt crisis. Homeowners, businesses... or the government itself... may not be able to roll over their huge debts. If they lower rates, they invite more inflation... forcing them to raise rates even further…or suffer a dizzy spiral of higher and higher prices.
And yet, they can’t keep things as they are either. Because federal deficits add about $5 billion more each day to the nation’s debt. Day in…day out. More bombs; more patent medicines. Each dollar must be financed. Interest must be paid. And each dollar increases the pressure for higher interest rates... increasing the total interest cost... and bringing closer the day of reckoning. One way or another, sooner or later, something’s gotta give. Misery."
Market Note, by Dan Denning: "The United States government ran a $1 trillion deficit in the first half of the fiscal year, according figures released in the latest the Monthly Statement of the Treasury. Total Defense spending for the first half of the year was $433 billion. Net interest expense was just behind, at $429 billion. Social Security was first at $715 billion and Medicare/Medicaid second at $449 billion.
This is why that 130% Doomsday figure
Bill mentioned earlier this week is consistently a sign of coming crisis, historically. The government is chasing its own tail to fund out of control spending. The more it needs to borrow to pay interest costs, the higher rates go. The higher rates go, the more expensive interest is. Without spending cuts, the only solution is to print. Which drives rates and interest expense up. There's only one narrow golden path out of it..."
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