Brandon Smith: Inflation Smokescreens the Economic Dumpster Fire
From Brandon Smith
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 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 assets to survive, let alone entitlement programs. Social Security, pensions, bank deposits? 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 economic crash materializes – once they realize how thoroughly they’ve been duped, they’ll be looking for heads to roll.
Brandon Smith has been an alternative economic and geopolitical analyst since 2006 and is the founder of Alt-Market.com.
The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Birch Gold Group.2023, Featured, inflation, joe biden, us economy