The Inflation Decade — Bitcoin Briefing Podcast

The official US inflation narrative was finally allowed to adjust closer to reality at the start of December 2021 when Jerome Powell and Janet Yellen both conceded, ‘inflation is not transitory’. The admission was likely prompted in advance of the US Bureau of Labor Statistics’ CPI summary for November 2021, which states:

“The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.8 percent
in November on a seasonally adjusted basis after rising 0.9 percent in October,
the U.S. Bureau of Labor Statistics reported today. Over the last 12 months,
the all items index increased 6.8 percent before seasonal adjustment.”

CPI in the USA is now 6.8% which is 340% higher than the Fed’s target of 2% and increasing nearly 1% every month.

What’s causing rising inflation?

Inflation has been charting an upwards course for decades, however it’s impact has largely been in the asset markets, particularly property and equities.

Consumer prices have remained isolated from the asset bubble with deflationary forces such as advancing production techniques, digitization, low energy costs and automation acting as a counterbalance.

The equilibrium was broken last summer as wholesale energy prices began to surge and took consumer prices with it.

Why are wholesale energy prices rising?

The energy supply squeeze has been attributed to a range of factors by the corporate media including:

• Seasonal demand exhausting reserves.
• Weather patterns, particularly a windless summer in Europe preventing reserves being replenished.
• Pandemic related supply chain problems.
• China’s increasing natural gas demand.
• Geo-political instability, especially regarding Russia and key pipelines.

We can also add some more factors which officials often prefer not to focus on too deeply.

Tax & Green Subsidy — Environmental taxes on fuel are directly contributing to the problem. In the UK, out of an annual fuel bill of £1,277, nearly 12.5% (£159) goes towards the Government’s green social schemes and a further 7.8% is paid as VAT.

OPEC — The cartel is not inclined to increase output especially since the oil price crashed mid-pandemic and crude prices fell to negative levels leaving them anxious to ramp up supply and the continued worries about emerging variants is not helping to restore confidence.

Decreasing investment in new oil wells — The top down push to a green future has caused a massive decline in investment for new sources of fossil fuel based energy making it far more difficult for suppliers to respond to rapidly changing market forces.

Massive money printing — As with almost all the factors above, money printing was already out of control before the pandemic. The decision to lockdown the world and replace the economy temporarily with ‘stimulus’ effectively poured barrels of gasoline on the problem. The M1 money supply (Currency and liquid deposits) increased 464% from 4019.2 billion in January 2020 to 18,669.2 billion today in January 2022.

Importantly however, the Fed has recently incorporated ‘savings’ into the M1 money figure, which accounts for the giant spike in the chart above. Nevertheless, the discontinued original M1 expansion over the same 24 month period saw a 70% increase in the money supply from 4019.2 billion to 6844.5 billion.

The inflation trap

The levers available to central bankers, governments and their treasury officials are broken. As national debt towers ever higher over GDP, interest rates are tethered to near zero which is intensifying the asset bubble. Fiscal intervention is the flavor of the month among world leaders in what seems to be a ‘print and tax back’ strategy to avoid rampant inflation while ignoring the role taxes, subsidies, green tariffs and duties directly contribute to high prices.

Government policy and mismanagement are squarely to blame for what is likely to be a decade of inflation and discontent and it is in large part self inflicted.

The decision to lockdown the world and replace the economy with stimulus and printing was taken knowingly that it would be at the cost of the entire FIAT money system. It is very difficult to conceptualize how politicians take us off the monetary hamster wheel that’s accelerating far too fast already.

Supply issues during the last 2 years are the direct result of policy decisions made by states restricting global movement, closing ports and crossings and hindering the training of new logistics workers. With the refusal of most governments to actually pursue a ‘living with the virus’ agenda and allow the world to heal there is no end in sight for supply problems.

The decision to force the world to a green economy rather than allow it happen by osmosis through natural market forces has made the global economy brittle and unresponsive. The hurried transition to net zero will be marked with a long period of price and supply instability which will as always be borne by ordinary people.

The pandemic has brought in a new era of big government and it’s at the expense of private individuals’ well-being and liberty.

Originally published at https://bitcoin-briefing.com on January 10, 2022.