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Inflation Smokescreens The Economic Dumpster Fire

Authored by Brandon Smith via Alt-Market.us,

The inevitable outcome was clear for a decade at least, but in the run
up to the Covid lockdowns there were many economists in the corporate
media that outright denied the reality of an inflationary or
stagflationary crisis. Joe Biden, Janet Yellen, Paul Krugman and a
host of journalists claimed that concerns about inflation were
“overblown” and that the Federal Reserve had everything under control.

Some might say they were ignorant.

Some might say they knew the danger and they were lying about it.

In any case, reality always wins in the long run and those who refuse
to take facts and evidence seriously will eventually be exposed. This
is exactly what happened from 2020 to 2023 as the stagflationary
spiral took hold. While some people might attribute this outcome to
the Covid pandemic, Covid stimulus or the war in Ukraine, though the
signs were evident well before either of those events.

During the build-up to this disaster, the Federal Reserve has been
tightening and hiking interest rates into economic weakness. It’s the
same thing they did in the early 1980s and the same thing they did at
the onset of the Great Depression (which made the crash a hundred
times worse).

In 2019 I outlined this conundrum in my article The Crash In U.S.
Economic Fundamentals Is Accelerating.

The U.S. economy was already on the verge of a major crash by 2020 on
top of an inflationary crisis. The $8 trillion Covid stimulus delayed
the economic depression for a couple of years.

However, as we can see from the explosion in prices, it was also the
straw that broke the camel’s back.

I noted in 2019 that there were a host of negative signals piling up
and predicted that the Fed would continue to hike interest rates
anyway:

    For the past ten years, the Fed has refused to acknowledge that
there is no recovery. For the past two years, the Fed has been
tightening liquidity despite the lack of recovery. And, even in the
past four months with all the talk of the Fed “retreating” on QE and
going “dovish”, Fed bankers still claim in their public statements
that the US economy is enjoying a “solid” recovery.

    The Fed will not be cutting interest rates anytime soon. In fact,
I continue to believe the Fed will hike rates again this year. Not
that it matters, because the Fed’s benchmark interest rate has been
climbing anyway, which may indicate the central bank is seeking to
tighten liquidity while pretending it is “remaining patient.”

In 2021, Joe Biden claimed that infrastructure spending would be a
solution to the inflation problem while ignoring the fact that
government spending was the primary cause of inflation in the first
place. In my article Infrastructure Bills Do Not Lead To Recovery,
Only Increased Federal Control, I noted that:

    Production of fiat money is not the same as real production within
the economy… Trillions of dollars in public works programs might
create more jobs, but it will also inflate prices as the dollar goes
into decline. So, unless wages are adjusted constantly according to
price increases, people will have jobs, but still won’t be able to
afford a comfortable standard of living. This leads to stagflation, in
which prices continue to rise while wages and consumption stagnate.

    Another Catch-22 to consider is that if inflation becomes rampant,
the Federal Reserve may be compelled (or claim they are compelled) to
raise interest rates significantly in a short span of time. This means
an immediate slowdown in the flow of overnight loans to major banks,
an immediate slowdown in loans to large and small businesses, an
immediate crash in credit options for consumers, and an overall crash
in consumer spending. You might recognize this as the recipe that
created the 1981-1982 recession, the third-worst in the 20th century.

    In other words, the choice is stagflation, or deflationary depression.

Right now, the U.S. is entering the “end of the honeymoon” stage of stagflation.

The initial months of a mass stimulus program always creates
indicators of economic health. But the truth is, these indicators are
fleeting and the appearance of health is an illusion. The irony (or
perhaps the agenda) when dealing with inflation induced growth is that
the central bank often uses these signals to justify fiscal tightening
and higher interest rates until the economy breaks.

For example, mainstream economists noted a sharp increase of 3% in
retail sales in January, after two consecutive months of steep
declines. They interpreted this as a sign of recovery, but also as a
sign of an overheating economy. So, more rate hikes are now expected.

But did retail sales really increase? Or, are most goods and services
just becoming too expensive and this is being translated as higher
sales?

If people are buying more, then why do business inventories continue
to rise each month? Maybe because Americans are spending more but
buying less due to inflation.

Consumers have also been leaning heavily on credit cards the past
year. Does this mean they are recovering and are more apt to spend
recreationally, or, does it mean they are using credit cards to cover
the price increases on their normal monthly expenditures?

In polls, 33% of Americans say it will take them at least 2 years to
pay off their credit card debts, and 50% of Americans say they need
their credit cards just to cover normal essential living expenses.
Furthermore, 45% of people said they had to take on more debt during
the pandemic – and 40% say they are worse off financially since Joe
Biden took office and only 16% said their situation has improved.

This is not a recovery for the average American, but inflation in some
areas of the economy can make it seem like things are improving on
paper, if you only look at it from a narrow perspective.

Employment stats are another indicator used to promote the concept of
recovery, and here we get into the real smoke and mirrors of
inflation.

Biden often brags about creating 12 million jobs in the U.S. since he
took office. What he doesn’t mention is that he destroyed over 25
million jobs with Covid lockdowns. And, the vast majority of jobs that
have returned are low wage part time work. These jobs were essentially
purchased with $8 trillion in fiat stimulus, as well as unemployment
checks and the moratorium on rent payments. Americans were flush with
a sudden influx of cash and so they went out and spent it, causing a
temporary retail rush.

However, the money has run out. The credit cards are maxed out, and
time is short. Many in the public are awake to the threat because it
is hitting them directly in their wallets. Yet, many others are
oblivious. In my view the talk of an economic “soft landing” is yet
another deliberate disinformation narrative being fed to the citizenry
to keep people docile and unprepared. But even if you think there is
no agenda and no malice intended within our government or within the
establishment media you still have to consider the reality that they
have been wrong over and over again when it comes to the economy.

Why should anyone listen to them anymore?

The gullible will assume, once again, that the mainstream analysis is
accurate and that the ship is righting itself. They will assume that
the worst of the storm has passed. I’m here to say the worst of the
storm has just begun. As the Fed continues its policy of tightening,
many people will find that stagflation is persisting and that QT is
making little difference. Prices will remain high on most necessities,
but other parts of the economy will be shrinking.

Jobs markets will begin to falter, probably in Spring, along with
stock markets, overseas trade, retail sales and wages. The initial
indictors of “strength” will fall away revealing the true health of
the system. Historically, this is usually when the populace gets very
angry, and people are already on edge as it is. A rather dramatic
distraction would be needed to keep the public busy and their minds
off the central bankers and politicians that created this mess.

Something even bigger than the pandemic scare.

Economic disinformation is a double-edged sword – it buys the
establishment time and keeps the public off balance, but by telling
people circumstances are not as bad as they appear the shock is even
greater when the crash occurs.

Because a crash is coming – make no mistake. I don’t expect most paper
assets to survive, let alone entitlement programs. Social Security,
pensions, annuities? Either gone completely, or shambling on like
zombies, sending out increasingly-worthless paper checks so
politicians can tell us they kept their promises. For those of us who
see the future clearly, there are very few “safe havens” for our
money: farmland, livestock and commodities (particularly physical gold
and silver). Resilient households will be prepared for much more than
a 72-hour emergency. Start preparing yourself and your family without
delay.

The mainstream media and the administration are lying to us. Most
Americans will be taken by surprise when the crash materializes – once
they realize how thoroughly they’ve been duped, they’ll be looking for
heads to roll.

*  *  *

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