According Michael Brush of Market Watch: Inflation is going to fall just as fast as it rose! Sure, inflation might OVERSHOOT, but Price controls won’t allow PRICE deflation, only ECONOMIC DEFLATION – October 7, 2022,
When I read certain articles, I feel sorry for the people who trust the information coming from mainstream media because a lot of traders as example, base their trades on information websites that appear to be focused on the stock markets. Market Watch found at Marketwatch.com I’d assume, would have the best of the best EXPERTS working for them, but the article I point to below doesn’t even appear to comprehend the differences between PRICE DEFLATION and Economic DEFLATION.
In the article, the writer appears incapable of comprehending why the markets are selling off; if he’s unaware of why the markets are selling off it’s not because of PRICE DEFLATION; it’s because of ECONOMIC Deflation. Economic deflation is a clear sign of a RECESSION. Joe Biden and other progressive politicians can redefine recession all they want, but if the numbers show the economy is in recession, and the regulations, or better I say the WAR ON FOSSIL FUELS, remains enforced, this will ACCELERATE consumer price inflation.
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If you’re in a business that is known for GOVERNMENT PRICE CONTROLs or you’re in a business in which some Politician will claim you’re price gouging consumers, instead of raising prices, what most businesses will do is LAW OFF WORKERS, change their business model potentially becoming more reliant on cheaper foreign labor or close operations which usually lead to SHORTAGES of things.
This is ECONOMIC DEFLATION, but it’s also price INFLATION because consumers will be getting a lower-quality product and/or service to hide price inflation. What I’m explaining in this post is nothing new; it’s been happening since FDR created the New Deal.
Now, I can imagine a scenario in which inflation overshoots and has to come down, but what Michael Brush appears to be arguing for is the elimination of WAGE CONTROLS. Sorry, Michael Brush, but government wage and other price controls aren’t coming down or disappearing anytime soon, and once wages rise, to date, I’ve seen no instance in which these price controls have retreated.
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Wages are nothing more than a fancy word for PRICES, and once an employer has to pay his/her employees a higher PRICE for their labor, then prices can’t come down unless some new innovation allows them to. We’ve seen instances in which machines replace humans, but this actually isn’t as common as people think because machines also require MAINTAINANCE, and one of the problems with a lot of modern machines is that they’re made in CHINA, making it difficult to service them.
I was in Walmart the other day, and more than half of those self-checkout machines stopped working. I noticed there were about 5 Walmart associates helping customers at the self-checkout machine. One could argue that if wasn’t for government wage controls, self-checkout wouldn’t EXIST! Meaning that self-checkout could actually be MALINVESTMENT in the economy and entirely the result of the government sticking its nose where it doesn’t belong.
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But if you imagine the market sell-off is occurring because inflation IS TRANSITORY, I hope you understand that transitory never anticipated spikes in wages. If any business concludes that PROFIT margins are to thin to take the risk of investing or borrowing to start a business, that’s when the MARKET has a problem of SHORTAGES, and that’s why people like me when we invest; we invest for the long haul because SHORTAGES lead to prices INFLATING for certain asset classes.
If this war on fossil fuels is indeed real, why would I sell my oil stocks? The government couldn’t even phase out lead or tobacco? What makes anyone think the government can phase out oil or other fossil fuels? So traders are, ofcourse, waiting for prices of certain commodities to drop in value so they can scope they up AT fire sale deals, I’m one of those people also, but none of us imagine inflation is going to fall based on the reasoning presented by Michael Brush.
People like myself believe prices will fall because there are market participants who view the world in the same or similar fashion as Michael Brush, in that they trust politicians and central banks are in control of the economy. As I like to point out, the central banks and governments are merely Dog and Pony shows. The central banks are providing free MONEY(vi higher interest rates) for people who are exiting the markets, waiting for the FIRE SALES.
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Just the other day, I put some money in a credit union, and the rates were so high I made $334 in a single month; during the ZIRP period, that money would have been $50 if that. Now, I’m not playing with the same type of cash these major players are playing with, so I can only imagine the money some of these companies are making.
In closing, we’re no longer on a GOLD STANDARD, meaning that economic and financial deflation is no longer even similar. Rule by fiat money makes the currency a confidence-based medium of exchange, and the confidence leads towards the U.S dollar being the King, meaning that if I’m a U.S producer, I’m looking to find places in the world in which my U.S dollars are being treated the best, I’m also hoping for changes in the U.S economy so that I can flip my U.S dollars in the United States.
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If I can have something made in China, India, or Vietnam and then sell it to the U.S consumer, I’m making out like a bandit. But this is not necessarily improving the U.S economy. Because the more reliant the U.S becomes on foreign-made goods and services, the more DISTORTED the U.S economy will be. These economic distortions are the DIRECT result of Federal Government policies that regulate, tax, and borrow their way out of facing the reality that the American government is WAY TOO LARGE.
By raising interest rates, people like me see it as a sign that the Federal Reserve is telling the government it’s doing something WRONG. But you also have to remember that the Federal Reserve is supposed to be APOLITICAL, meaning that the central banks are NOT supposed to dictate policy, so if Biden wants to declare war on fossil fuels, and that’s the will of the U.S voter, it’s not Jerome Powell’s job to make a political announcement telling Biden to reverse course. Instead the Federal Reserve’s job is to prevent ECONOMIC DEFLATION!
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Economic Deflation under the fiat monetary system differs from PRICE deflation that would occur if the government did NOT have control over the money supply. The government as example, can not print Bitcoin, so the government could not MANIPULATE the price of Bitcoin; the government also can’t print GOLD, so imagine the U.S was under a gold standard and Joe Biden wanted to declare war on fossil fuels, well instead of money expanding, the money would contract and do so RAPIDLY causing Price and economic deflation simultaneously
With fiat money and central banking, economic deflation can be HIDDEN by the government printing money in various forms. But PRIVATE banks are usually the ones responsible for the DISTRIBUTION of money, which is something most people do not understand. Private banks are PROFIT DRIVEN, and if a private bank doesn’t see a borrower as a person capable of repaying a loan, the private banks won’t lend; making matters worse, some private businesses might not want to borrow money and instead might want to become lenders themselves, leaving their money in the banks to collect interest.
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All of this is happening because there is too much government intervention in the economy, and if this continues, it will lead to more CONSUMER PRICE INFLATION. But if you read the article below, it appears that the writer doesn’t know the difference between ASSET price inflation and Consumer price inflation.
Nor does the writer appear to know the difference between consumer price deflation and Economic DEFLATION. Consumer price inflation leads to ECONOMIC DEFLATION, and economic deflation is the root cause of SHORTAGES! When fiat money hyperinflates, stuff to buy doesn’t magically appear, the opposite happens. When fiat money loses value, PRODUCERS have to be careful of their PROFIT margins; therefore, if a currency is viewed as UNSTABLE, producers will value their products or service in a STABLE currency.
The EURODOLLAR market exists because, CURRENTLY, the U.S dollar has the infrastructure and the reputation of being a stable currency. The best part for U.S consumers is that people living outside of the U.S do not care what the President of the U.S or Federal Reserve do because they’re NOT under their jurisdiction.
Obviously, I could go on and on about this stuff, but you should get the point by now. Do not confuse price deflation with economic deflation; they’re two very different things in this modern monetary system.
This consensus view is wrong, to me, because behind the scenes — in what I call upstream inflation numbers — we see a lot of evidence that prices are falling fast and hard. As that bleeds through to the headline Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index that get all the attention, investors will ease up on Fed-induced recession fears. Stocks will rally.
Interesting times ahead!
