Dear Friends,
It seems to me, fighting supply driven inflation with demand destruction, is like burning a forest so a campfire can’t spread… because fire can’t spread into ash. It is a race to the bottom. Can the fed destroy demand faster than the government can destroy supply? They are at full speed and neck and neck. We all know the government can obliterate supply by edict if it comes to that. The Federal reserve can also liquidate demand by increasing interest to the sky. Together they can do wondrous things. Like, create want from plenty, shortages from surplus and emaciation from obesity. All of which will certainly lower inflation and inflation expectations, because no one will be able to buy anything anyway, but with the added advantage of putting the herding masses in our place.
The Federal Reserve is embarking on a scorched Earth battle plan to defeat inflation. So far they have shown little care their actions have crushed the Japanese Yen, British Pound and then there is the Chinese Renminbi (Yuan). Not to mention the disastrous recession they are visiting on US citizens. They see Paul Volker as the archetype of the ideal fed chairman. He strong armed inflation single handedly and wrested the fiat dollar back under control. Never mind the long lines of people looking for a job back then. If not for Reagan’s deregulation the economy would have collapsed. What’s his face today seems to be of the opinion that welfare can take up the slack, so he can push interest rates to the Moon, if he must. His only regret is the damage to the CCP. The rest can burn.
The supply shortages initiated during the covid shutdowns are still winding their way through the economy. Moreover, the continuing lock downs in China, the world’s manufacturer, are exacerbating those scarcities with random supply deficits. Things the experts had no idea were critical were shut down and drove inflation through the roof. The car companies still cannot fill their dealerships due to supply deficits. Ford can’t get “Ford” emblems! The dearth of integrated circuits has contributed to the new car shortage. Fortunately, the collapse in car demand is solving it. Until those shortages, and the continuing arbitrary shortfalls from the CCP flow through the economy, anything the fed does is almost certainly going to be counter productive. But, hey, at least they are doing something.
Even as our food processing plants burn flat, at a blistering rate, floods and droughts wipe out whole harvests and bird flu ravaging our Chicken flocks, the experts worry cow farts will kill us all. I have worked on a farm and been around cows, and I can say with genuine authority on the subject, there is not a cow on Earth that can produce the phosgene farts that some people do. If hydrogen sulfide gas was deadly, they would be dead. Meanwhile, eggs are upwards of eight bucks a dozen in some places. Tainted eggs are cheaper and as a bonus might yield a live chick. Pork has doubled, and beef has been at record highs for two years. I was shocked at the price of oatmeal and spinach! Thankfully, oatmeal has come down a bit, so people can afford to make mystery meat loaf.
To combat the inflation caused by the shut downs, and lock downs, the Federal reserve feels the need to lower demand to meet the diminished supply. Their staunch position on inflation, no matter how it is induced or if they indeed even can address such an imbalance at all, illustrates their commitment to do something… even if it is wrong. Because as the various shortages pass through the system the inflation produced by them will also pass. Since the fed can only look at the past and infer the future based on that, they cannot possibly keep up with the vicissitudes of each shortage, never mind how it will affect the whole. Crushing a car to break an almond leads to a sub optimal outcome. That is the fundamental problem with experts. They assume they are smart enough… to outsmart reality.
Sincerely,
John Pepin
