Opinion Nearly Unanimous: Inflation Has Arrived

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Posted: Apr 12, 2018 9:51 AM
Opinion Nearly Unanimous: Inflation Has Arrived

Opinion is nearly unanimous. Inflation is coming and it won't be short-lived.

Inflation proponents are coming out of the woodwork. Here are some examples.

Inflation is Building

DiMartino: Inflation Is Building And The Fed Will React. "Former Fed insider Danielle DiMartino knows the Fed will be out of bullets at the next recession. Even so, its Chairman Jay Powell is now desperately trying to create as much runway as possible."

Inflation is Back, Say a Prayer

50-50 Odds Core Inflation Hits Three Percent

Put the Stag in Inflation

Inflation Rising Daily

Sober Outlook

This is Happening

Bloomberg Take

Epsilon awaits a Match

In his post, on Epsilon Theory, Ben Hunt offered this chart.

I’ve color-coded the article nodes by date (bluer = older, redder = more recent) to show this time-lapse effect in a single snapshot of the network. Because this is a “gravity model”, it’s meaningful that the more centrally located articles within the superstructure tend to be redder or more recent articles. Also meaningfully, the clusters themselves show this effect. Look at the blow-up of the network below, and you can see how the more recent (redder) articles in the “markets” cluster are more centrally positioned than the older (bluer) articles in the same cluster. What all this means is that the inflation narrative is becoming not only stronger (more articles, new clusters) but also — and I really can’t emphasize this point enough — the inflation narrative is becoming more coherent and “gravitationally stable” over time. The growing strength and coherence of these Narrative Machine visualizations show the creation of powerful common knowledge around inflation, where everyone knows that everyone knows that inflation is rearing its very ugly head.

What Everyone Knows

For starters, if it is that complex, it's likely too complex.

More importantly, I am quite amused by the irony of the above paragraph, specifically the "powerful common knowledge around inflation, where everyone knows that everyone knows that inflation is rearing its very ugly head."

Wow.

I propose, what everyone "knows" is useless, most often because it is wrong!

I do not rule out an inflation scare, just as we had in 2008 when crude spiked to $140.

In fact, the above Tweets and articles show it's clear we are in the midst of such a scare right now.

One Question

I have a simple question.

When is the last time such overwhelming consensus on a fundamental economic issue ever been right?

One Person Gets It!

I have to repeat this bit of well-stated philosophy.

"#Stagdeflation Defined: The Fed inflates the living sh$t out of assets and investors/speculators delude themselves into thinking that it’s organic inflation."

I do not know, nor care, how high the price of crude gets. But I do know this: Asset bubble and credit bubble busts are not inflationary.

Rear-View Mirror Thinking

Inflation is mostly in the Rear-View Mirror.

Those looking for a huge inflation boost fail to understand credit dynamics.

Austrians who only look at money supply keep expecting pent-up inflation. The Monetarists at the Fed (central banks in general), are clueless about the situation they fueled.

Deflationary Debt Trap Setup

When credit expands there is inflation. When credit contracts (think defaults, bankruptcies, mortgage walk-away events), debt deflation occurs.

My Definitions

Inflation: An increase in money supply and credit, with credit marked to market.

Deflation: A decrease in money supply and credit, with credit marked to market.

You can nitpick with those definitions all you want, but that is how the real world operates.

If banks become capital impaired or defaults rise enough, the banks stop lending. All it takes to kick things off is a significant decline in asset prices.

Perhaps we get consumer inflation for another quarter or two, but inflation is mostly in the rear view mirror, primarily having impacted asset prices, not consumer prices.

Rising interest rates are already starting to impact the housing market. The auto market, home supply markets, and consumer credit in general got a temporary housing boost.

What's next won't be pretty, and almost no one sees it coming. They can't. Inflation is in the rear-view mirror.

What most economists and economic writers expect to happen, already has happened. They don't see it because they do not understand what inflation really is.