By Jeffrey A. Tucker
The largest and fastest interest rate increase in Federal Reserve history was supposed to crush inflation. That hasn’t happened. The alarming feature of last week’s Consumer Price Index (CPI) report is that inflation is moving in the wrong direction.
It’s re-accelerating in surprising ways, with at least one category (transportation services) moving up by double digits on an annual basis.
Overall, prices are up by 3.7 percent year over year and the compounded annual rate of change is at 7.8 percent. The dollar has lost at least 16 to 20 cents of value since 2020. The downward momentum is now reversed, headed up for the second report in a row. The $6.5 trillion in new money created in the course of two years from 2020 to 2022 is still wreaking havoc through the price system.
We clearly aren’t done with this yet. Indeed, since April, the money stock has stopped declining and even crawled upward by at least $100 billion. This is happening at a time of increased velocity, which adds to the inflationary pressure.
Even with a flat money stock, a change in the pace at which the money changes hands (velocity) will drive prices higher and higher. The collapse in velocity after the lockdowns was certain to reverse in the future. That future is now. There’s still a long way to go to get to a pre-2020 stage of normalcy.
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Let there be no doubt about the relationship between the money stock and inflation. A greater quantity of money created by the banking system, enabled by the Fed, waters down the value of existing purchasing power. No matter how much the Fed denies it, the facts are there for the whole world to see.
The grim CPI news received quite the attention. As usual, however, the same outlets all neglected the following day’s producer price index (PPI). The PPI has also undergone a dramatic reversal, with the fastest increase since June 2022. This news from the Bureau of Labor Statistics didn’t even make the papers:
“The Producer Price Index for final demand increased 0.7 percent in August, seasonally adjusted, after rising 0.4 percent in July, the U.S. Bureau of Labor Statistics reported today. The August advance is the largest increase in final demand prices since moving up 0.9 percent in June 2022. On an unadjusted basis, the index for final demand rose 1.6 percent for the 12 months ended in August.”
The main culprit is energy costs. And this doesn’t include the results of the Biden administration’s fatwa against drilling in the Arctic, which is further reducing supply. You can feel it in the gas price, which is seriously on the move. With energy prices up by more than 10 percent year over year, the gas price itself has only one way to go: straight up.
In addition, the gas price over three years reveals the whole racket.
It goes like this. The first stage is normalcy followed by shock and awe, a phrase that was bandied about in the early stages of the Iraq War, except that this time, we’re the enemy. We’re bludgeoned, pillaged, disoriented, and in a state of disbelief. As soon as we’re about to come to terms with that, things start looking a bit better. This leads us to believe that it was a mistake or maybe even an illusion. We become hopeful that we’re going to get through this. So we let down our guard.
In this second stage, the same is repeated but more slowly as we gradually creep back to where we were. But this time, it isn’t shock and awe but rather a slow squeeze as a way of entrenching the new normal.
In the third stage, we come to realize that nothing is or will be what it was. We fight and get a few victories in the courts and in public opinion. But the bad guys see our victories as pyrrhic and forgettable as they plot the long-term destruction of liberty and property, while largely ignoring our protests and pain.
This has been the model all along, from lockdowns and vaccine mandates to inflation and the drive for financial surveillance.
Meanwhile, we’re not really having any kind of frank discussions of the cause. The Fed has stuck to its usual claim that inflation was a supply-chain issue that had nothing to do with the $6.5 trillion in fresh cash that it created to fund the lockdown economy. The Fed completely ignores its own responsibility for that. This money can’t be easily sucked out of society but instead, like a virus, becomes endemic.
The higher interest can slow the pace of increase and tamp down the demand for loans, but it can’t undo the damage of the past. It’s been something of a mystery to imagine how long we must suffer this inflation simply because all of this is new in monetary experience. But we’re learning now in real time. The inflationary dogs of war are still with us, eating away the substance of the public’s purchasing power.
This is having a profound effect on business confidence. “The National Federation of Independent Business’s Small Business Optimism Index for August dropped 0.6 percent to 91.3, the 20th consecutive month below the 49-year average of 98,” wrote Epoch Times reporter Bryan Jung.
Twenty months of low confidence!
The lockdown economy was the ultimate corporatist racket, shutting down small businesses while big businesses thrived. They even divided the workforce between essential and nonessential, while shutting down hospitals for non-COVID-related illnesses or appointments. The agency that did this is called the Cybersecurity and Infrastructure Security Agency of the Department of Homeland Security. It includes a number of advisory roles associated with Big Tech.
You’re surely getting the picture. It’s impossible to believe that this was all a mistake. There’s simply no possibility that the Fed didn’t know what its policies would cause. The inflation is deliberate, a crushing assault on middle-class living standards by people who believe strongly in the degrowth movement and financial surveillance by a central bank digital currency.
The Fed was never serious about ending inflation or even returning to its 2 percent target. What’s happening to the dollar was the intention all along. And it’s having a huge effect on our lifestyles and personal aspirations. Have you canceled travel plans and otherwise dialed back your hopes and dreams for a better life? Millions have. This is precisely the goal.
A few months back, there were plenty of trends in prices that seemed to indicate that our national hell was ending. Even I became rather optimistic about future price trends, not that we would return to the good old days of 2019, but at least we might not continue the plunge into continued rapid decline. That basis for optimism is now at an end.
Inflation is no small matter. It destabilizes societies, makes accounting difficult, hinders the ability to plan, wrecks free enterprise, punishes savings, and has led to the worst political revolutions in history, including the French Revolution, the Bolshevik Revolution, and the rise of the Nazis.
Nothing good can ever come from it. It should never be tolerated even at a low target. It’s always evil. That evil was unleashed 30 months ago and the people who did this to us are nowhere near fixing the problem.