As a card-carrying member of the Husband Club, I have my fair share of issues with being right. Too often in my house, I’m both “right” and “wrong” at the same time. To this day I can’t square those two thoughts.
Typically, I’m correct about whatever is up for discussion, be it a date, an event, a point of history, or how a situation will work out.
So far, so good.
But then I’m clearly wrong about how I expressed myself, highlighted my opinion, or treated others while making my point.
So in being right, I end up as the bad guy anyway.
From time to time, when I know I am right, I cringe inwardly before opening my mouth. I’ve never figured out how to tell someone gently that they’re wrong. Luckily my family knows how to deal with this. They simply roll their eyes and say something close to, “Thanks for nothing,” and then use whatever information I gave them.
Such is life.
Luckily, when it comes to other prognosticators, I can happily scream from the rooftops, “We’re right! You’re wrong!”
And I’m here to tell you, it feels pretty good.
For years, we’ve been telling people the Fed can’t stop the economic wave of deflation.
We based our forecasts and opinions on the predictable consumer spending patterns that people have followed for decades. As Boomers passed their peak spending age, we forecast they would spend less, hunt for bargains more, and work on repairing their personal balance sheets by paying off debt. These trends would snuff out any spurts of growth in the economy and lead to falling interest rates and flat, if not falling, inflation.
The reason the Fed couldn’t, and can’t, change this is because its mechanism for changing the tide is to make debt cheaper. If no one wants the debt, then what does it matter?
Enter our detractors from stage left…
From Stansberry to Schiff to Weiss to Casey, many people have a different view of inflation in the U.S. They all come at the problem from the standpoint of how much money the Fed prints.
Is it an important matter? Of course.
Is it the ONLY important matter? Absolutely not.
The Fed creates money, which in a normally functioning economy can fan the flames of inflation. But we’re not in a normal economy. Today we have tens of millions of citizens pushing us the other way, into deflation.
In fact, the pressure from consumers not borrowing or spending is so great, it has rendered the Fed almost powerless. I say “almost,” because I have no doubt the only thing… the ONLY thing… keeping us from true deflation is the Fed printing so much money.
The pull of deflation is so great, it not only has us keeping close tabs on the situation, it also keeps the Fed preoccupied. Its latest statement included the following lines:
“The Committee recognizes that inflation persistently below its two percent objective could pose risks to economic performance, but it anticipates that inflation will move back toward its objective over the medium term.”
The committee recognizes that low inflation poses risks… Now that’s an understatement.
Most people think of deflation as falling prices, but that’s not the part that hurts. Prices are only one side of the equation. The other side is wages, and that’s where the Fed is concerned.
In deflationary times, wages fall as consumption and prices fall. This means that workers have less income with which to meet their obligations. This becomes particularly important when a worker carries debt, because even though general prices might drop, a car payment or a mortgage payment typically doesn’t.
Right now, we have a weird economy where the Fed has tried exceptionally hard to create inflation. It desperately wants prices to rise so consumers will be compelled to spend.
This has not happened.
Yes, prices have moved up in terms of commodities, but prices for services and goods are under pressure. Consumers are holding back. This has led to slack demand, which has worked its way through the system and shows up as a weak employment market, leading to flat and falling wages.
This is where the bulk of Americans find themselves today: Facing higher prices for commodities, flat or falling prices for services, and wages that don’t keep up with what little inflation we have.
This is a far cry from the hyperinflation so many people have been screaming about for the last five years.
We wish Bernanke and Company would take our advice on how to handle this situation: Don’t fight the trend with greater amounts of new dollars… instead, work to clear out old debt wherever possible. Don’t try to force-feed people money to borrow… instead, search through bank balance sheets and finance companies for non-performing debt that can be written off.
At some point we have to quit carrying the burden around and get on with the growth of the country. As long as we keep trying to do this with even more debt, we’re doomed to failure.
As a tiny bright spot, that failure doesn’t include hyperinflation anytime soon… no matter what these other people say.
P.S. For those who haven’t seen it yet, here’s a presentation on why we see deflation as the danger to watch out for and protect against.
Ahead of the Curve with Adam O’Dell
Gasoline prices have been climbing steadily since 2009. But it’s about the only commodity that’s sustained such a strong upward price trend these past four years.