The Inflation Crisis Is Worse Than Admitted – Will Interest Rates Go to Record Highs?

The Inflation Crisis Is Worse Than Admitted – Will Interest Rates Go to Record Highs?

 

BY TYLER DURDEN

 

Inflation is not a new problem in the US; there has been a steady expansion of price inflation and a devaluation of the dollar ever since the Federal Reserve was officially made operational in 1916.  This inflation is easily observed by comparing the prices of commodities and necessities from a few decades ago to today.

 

The median cost of a home in 1960 was around $11,900, which is the equivalent of $98,000 today. 

In the year 2000, the median home price rose to $170,000. 

Today, the average sale price for a home is over $400,000 dollars

Inflation apologists will argue that wages are keeping up with prices; this is simply not true and has not been true for decades.

 

In today's terms, a certain measure of home price increases is due to artificial demand created by massive conglomerates like Blackstone buying up distressed properties.  We can also place some blame on the huge migration of Americans out of blue states like New York and California during the COVID pandemic lockdowns. 

 

However, prices were rising exponentially in many markets, such as real estate, well before COVID.

Americans have been dealing with higher prices and stagnant wages for some time now. 

This is often hidden or obscured by creative government accounting and the way inflation is communicated to the public through consumer price index, CPI

This is especially true, after the inflationary crisis of the late 1970s and early 1980s under the Carter Administration and Fed Chairman Paul Volcker.

 

The CPI Understates Prices On Purpose

It's important to understand that the CPI today is NOT an accurate reflection of true inflation overall, and this is because the methods used by the Fed and other institutions to calculate inflation changed after the 1970s event.  Not surprisingly, the CPI was adjusted to show a diminished inflation threat.  If you can't hide the price increases, you can at least lie about the gravity of those increases.

 

Today, the official CPI from the Fed came in much hotter, than expected, at 8.6%.  For market investors hoping for a lower CPI  and more Fed stimulus, the dream is dead, or it should be treated as such.  There is very little chance that the central bankers will reverse course in the midst of the largest inflationary crisis since the 1970s.  What they aren't telling you, is that REAL inflation is much worse than the CPI.

 

Screwing Retired People 

By the 1990s the Fed and the government had effectively upended the traditional calculation methods for inflation and, ever since, the CPI has been subdued.

The main purpose was to "save" the Social Security System, SS System 

Retirees were screwed two ways to "save" the SS System, courtesy of Greenspan and Senator Dole, etc.

1) 80% of Social Security benefits, tax-free since 1935, became taxed as ordinary federal income; many states shamelessly tax Social Security benefits as well

2) The CPI was manipulated on a lesser upward trend to limit future increases in Social Security benefits.

BTW, the federal minimum wage is not tied to the CPI. It gets increased by Congress, when the pressure to do so starts to become uncomfortable regarding re-election prospects

 

If we look at numbers from Shadowstats, which uses the no-manipulation-calculation methods used in the 1980s, we can see the 8.6% CPI is actually closer to 17%, which is what people see when shopping!!!

MAKE SURE TO OPEN THE SHADOWSTATS URL FOR AN EYEOPENER

 

This makes much more sense given the dramatic increases in food and energy prices, as well as home and rent costs just in the past two years.  The CPI during the 1970's crisis peaked at around 14.5%, which is prior to the era of obfuscating “adjustments”.

 

It's also important to note, the crisis of the 1970s was the product of a decades-long decline in the US economy, as exemplified by the infamous Rust Belt.

The real trigger event happened in 1971 when Richard Nixon fully removed the US dollar from the gold standard.  It was not long after, in 1973, the CPI rose to around 8%.  By 1980, CPI inflation was officially at 14%. 

Volcker and the Fed responded by dramatically increasing interest rates to a record high of 15.8% by 1981.

  

Recession hit hard and unemployment grew to 10%.  High inflation followed by high interest rates also made manufacturing in the US difficult and likely helped to precipitate the exodus of factories from America to Asia, and the takeover by foreign companies of US Companies, with help of Wall Street, aka “creative destruction”

 

The difference between the 1970's crisis and today's crisis is we are facing far worse conditions

 

Our very own crisis started around 2008, after the credit bubble collapse, which facilitated an endless stream of bailouts and stimulus packages, paid for with printing press money.

The Federal Reserve has printed tens of trillions of dollars OUT OF THIN AIR (aka Quantitative Easing) over the past 14 years. Dick Cheney, White House guru, claimed “DEFICITS DON’T MATTER”

 

The official US national debt has tripled to about $30-plus TRILLION.  In 2020 alone, the Fed created over $5.9 trillion from thin air and injected/helicoptered it directly into the economy through COVID relief checks and PPP loans. 

NOTE: 20% Of Pandemic Unemployment Payments Were Improper: GAO

https://www.zerohedge.com/political/20-pandemic-unemployment-paymen...

Unemployment is low, for now, but this is a fleeting condition created by COVID stimulus.  Joblessness will likely skyrocket over the next year after COVID checks are spent and the average consumer has maxed out their credit cards.

 

If the Fed takes the same actions as it did in the 1970s, then it is likely interest rates will be aggressively hiked within the next couple of years to levels even beyond those seen in 1981. 

 

The current planned pace of rate increases by the Fed will do nothing to stall rising inflation, and they know this for a fact, though they will not admit it to the public until it's too late. 

 

Inflation will continue to climb well beyond current CPI percentages.  They will have to hike to the point of extreme economic pain, and this may still not stop rising prices: a stagflation/recession with high interest rates

 

Obviously, interest rates anywhere beyond 2% - 3% will lead to a stock market crash, because stocks are highly dependent on corporate buybacks fueled by cheap loans.  The central bank has yet to even begin serious rate hikes, and already, we are seeing stocks decline in response to the mere prospect the “easy-money-train” is gone.

 

Recession is a commonly used word in the media for what we are facing, but this is a softball term that misrepresents reality.  It's more accurate to say that the party is over.

 

The deflationary crisis we should have dealt with in 2008 will return with a vengeance, but this time we have the added inflationary pressures caused by years of gratuitous money printing. 

 

In other words, it's a stag-flation disaster that needs to be taken far more seriously in the mainstream. than currently is the case.  

 

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Comment by Willem Post on June 17, 2022 at 7:27am

If an entity is “cash rich”, it still is obligated to shareholders to show a return on any investments

”Cash rich” merely means less borrowing is required.

Usually, utilities are allowed to earn 9% on assets, such as a battery system. If they want to, they could borrow about 50% of the turnkey capital cost of a wind, solar or battery project, at, say 5%/y.

Both percent items are fixed annual costs

The variable part of the total project operating cost is O&M and Misc

Federal and state income taxes are annual cost items, if the project is profitable for any year

Federal and state financial grants and subsidies reduce the total project operating cost by about 45%, which enables a wind/solar owner to sell his production at a lesser cost than if no grants and subsidies 

Comment by Robert Powers on June 16, 2022 at 6:00pm

Usually, most investments work that way.  However, CASH from individuals and some "corporations" will derive investment income from part of the price of the electricity contract per kilowatt...there are alot of cash rich international sources.  Regardless of interest rates...the higher price of electrical energy...the more the negotiated return on investment.

Been there and done that!

Comment by Willem Post on June 16, 2022 at 4:33pm

Robert,

High interest rates will deter investors from investing in anything, unless it is still profitable to do so, i.e., have a proper return on investment 

At the same time, the turnkey capital cost of wind and solar systems, and of battery systems  has increased about 25% from the start of 2020, which coincides with the start of the Biden regime.

Those cost increases are due to increased prices of energy and materials, and supply chain disruptions, which caused the PPI to increase at over 10%.

BTW, Tesla just increased the prices of all its vehicles by up to $6000; the third increase this year.

This is on top of three increases last year.
This will reduce the EV appetite of US drivers

Comment by Robert Powers on June 16, 2022 at 12:59pm

There is another issue about interest rates that cause troubling concerns!  The rise in interest rates gives the investors in industrial wind and solar projects a higher rate pf return on their investments...making the financing of these projects easier for developers.  Many of the investors in major wind projects come from foreign investment individuals and groups!  Couple this with rising electricity costs (also designed to make investments in wind and solar more attractive)...we will see more projects funded!

Comment by Willem Post on June 15, 2022 at 6:42am

The deranged EU bureaucrats in Brussels had been drinking the UN KOOL-AID, and were eagerly dancing to the UN climate tunes, and telling member countries not to sign long-term gas supply contracts with Russia, because it looked bad regarding fighting global warming.
https://www.windtaskforce.org/profiles/blogs/the-plot-is-thickening...

I AM NOT MAKING THIS UP; JUST GOOGLE.

As a result, EU members had to buy gas on the SPOT market, which went through the roof, because Russia supplies gas only to customers with long term contracts, AS DO ALL OTHER GAS SELLERS.

Normally, the SPOT market is just a very small fraction of the total gas market, but now, IN EUROPE, it had become the 800-lb gorilla in the room.

The EU bureaucrats were PISSED at Russia, because they had thought Russia would supply gas to the SPOT market, which it did not.

The EU bureaucrat scheme fell apart, much scrambling to shift the blame, egg-on-faces every where.

IDEOLOGY-DRIVEN EU bureaucrats had shot themselves in the foot, AGAIN

All that happened in 2021, well before Ukraine, with EU gas storage levels at record lows, and WIND AND SOLAR HAVING UNDERPERFORMED FOR MONTHS.
https://www.windtaskforce.org/profiles/blogs/battery-system-capital...

THE LEVEL OF EU STUPIDITY AND LACK OF REAL-WORLD INSIGHT, AND WIND/SOLAR HUBRIS, ETC., WAS ASTOUNDING TO RATIONAL OBSERVERs

The UN nutcases, and EU bureaucrats, and other Climate Posses are holding hands and dancing in a circle of deranged, positive-feedback madness.

Comment by Willem Post on June 14, 2022 at 6:36am

Bill Barr and others should be forced to watch 2000 Mules until they get it, instead of repeating statements, based on information of late 2020

A ton of information has come to light in all swing states, in addition to 2000 MULES, during the past

Comment by Thinklike A. Mountain on June 14, 2022 at 12:32am

Bill Barr Belly Laughs at 2000 Mules Documentary and Dinesh D'Souza Fires Back
https://www.independentsentinel.com/bill-barr-belly-laughs-at-2000-...

Comment by Thinklike A. Mountain on June 13, 2022 at 2:07pm

Jan. 6 Hearing Liz Cheney Says “2000 Mules” Was Debunked — Bill Barr Laughs at Movie During Questioning — Wireless Services CEO Sets Barr Straight (Video)
https://www.thegatewaypundit.com/2022/06/jan-6-hearing-liz-cheney-s...

Comment by Thinklike A. Mountain on June 13, 2022 at 2:06pm

Lynn Oleum - one of yesterday's debts being paid off with less valuable money is Social Security. The annual COLA's basically never keep up with real inflation, so the result is that over time, what beneficiaries get is substantially less in terms of real dollars. I believe the buying power of Social Security benefits have probably been halved.

Comment by Lynn Oleum on June 13, 2022 at 1:50pm

It's intentional. Big debt holders -- governments and big corporations -- love inflation.

They get to pay off yesterday's debts with today's less-valuable money.

 

Maine as Third World Country:

CMP Transmission Rate Skyrockets 19.6% Due to Wind Power

 

Click here to read how the Maine ratepayer has been sold down the river by the Angus King cabal.

Maine Center For Public Interest Reporting – Three Part Series: A CRITICAL LOOK AT MAINE’S WIND ACT

******** IF LINKS BELOW DON'T WORK, GOOGLE THEM*********

(excerpts) From Part 1 – On Maine’s Wind Law “Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine if the law’s goals were met." . – Maine Center for Public Interest Reporting, August 2010 https://www.pinetreewatchdog.org/wind-power-bandwagon-hits-bumps-in-the-road-3/From Part 2 – On Wind and Oil Yet using wind energy doesn’t lower dependence on imported foreign oil. That’s because the majority of imported oil in Maine is used for heating and transportation. And switching our dependence from foreign oil to Maine-produced electricity isn’t likely to happen very soon, says Bartlett. “Right now, people can’t switch to electric cars and heating – if they did, we’d be in trouble.” So was one of the fundamental premises of the task force false, or at least misleading?" https://www.pinetreewatchdog.org/wind-swept-task-force-set-the-rules/From Part 3 – On Wind-Required New Transmission Lines Finally, the building of enormous, high-voltage transmission lines that the regional electricity system operator says are required to move substantial amounts of wind power to markets south of Maine was never even discussed by the task force – an omission that Mills said will come to haunt the state.“If you try to put 2,500 or 3,000 megawatts in northern or eastern Maine – oh, my god, try to build the transmission!” said Mills. “It’s not just the towers, it’s the lines – that’s when I begin to think that the goal is a little farfetched.” https://www.pinetreewatchdog.org/flaws-in-bill-like-skating-with-dull-skates/

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Hannah Pingree on the Maine expedited wind law

Hannah Pingree - Director of Maine's Office of Innovation and the Future

"Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine."

https://pinetreewatch.org/wind-power-bandwagon-hits-bumps-in-the-road-3/

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