January 29, 2023

Pumpiing Is Going to Win the Battle

Economist Peter Schiff raises alarm over arriving recession.

The  CPI data for December   buoyed markets plus raised hopes that the Government Reserve is winning its war against inflation. But in his podcast, Peter described that the Fed isn’t successful the war. It is dropping and will ultimately surrender in order to inflation.

Markets rallied after the CPI data appeared to show further cooling in price inflation. A lot of people assume that means the main bank can be less intense and ease up on price hikes in the coming yr. And if there is enough improvement, many people think the Given will reverse course and start cutting interest rates later within 2023.

Peter said he agrees that there is a good chance the Given will cut rates this year. And he thinks there is an better yet chance the central bank returns to  quantitative easing , whether it cuts rates or not. But this pivot won’t be due to a victory in the war towards inflation.

“ No . They’re going to surrender. Inflation is going to win that will war. The Fed will run to fight another fight — at least it’s going to attempt to fight because it’s going to shed that battle too. That will battle is going to be recession, probably financial crisis, maybe a battle to attempt to prop up the US government whose insolvency is becoming a bigger problem with increasing interest rates. ”

The US government  continues to run massive budget deficits   even as its attention costs rise. Interest payments on the debt rose 41% in 2022. According to the Peterson Foundation, the jump within interest expense was bigger than the biggest increase in interest costs in any single fiscal yr, dating back to 1962.

If interest rates remain elevated or continue increasing, interest expenses could rise rapidly into the top 3 federal expenses. (You can read a more in-depth analysis of the national debt  RIGHT HERE . )

“ Because providing this debt is going to turn out to be so problematic in 2023, that’s another reason that the Federal Reserve is going to back off of its rate hikes, and, in fact , may have to go back to quantitative easing because they will need to buy Treasuries that private buyers do want at interest rates which the US government can’t afford. ”

Along with the massive federal debt, there is also a  developing level of consumer debt   that will create problems for the Fed’s inflation fight for exactly the same reason. The average credit card interest rate has ballooned to nineteen. 6%. Meanwhile, credit card debt alone grew by 15% within 2022. It was the biggest year-over-year gain in 20 years.

“ The truth that credit card debt is skyrocketing as savings rates are falling — this is very problematic for that economy. It shows that Americans are struggling to make ends meet. ”

Rising consumer debt also indicates overall credit is expanding. That is, by definition, pumpiing. Keep in mind, inflation isn’t just increasing prices.   Correctly defined , it is a good expansion of the money supply  and credit . People can use credit to purchase things and bid up prices.

“ Consumers are dealing with increasing prices not so much by reducing and buying less, although in some circumstances they are. But these kinds of are also taking advantage of credit so that they can just keep buying the same amount and just making up the by borrowing money. So , the Federal Reserve continues to be keeping interest rates too low and allowing credit to grow as well plentifully so that additional credit is available to consumers to carry on to bid up higher prices. And so they’re not really being priced out of the marketplaces because they’re staying in the market because of their access to credit. Therefore , in other words, the inflation can be continuing in the credit marketplaces. ”

The bottom line is that the increasing amount of debt is not a sign of the strong economy. It’s a sign of economic weakness. And it is exacerbating the inflationary stress. It’s indicative of the fact that the Fed is losing the particular inflation battle.

The Fed needs to dissuade spending and encourage preserving. But that’s not happening.

“ The particular Fed is raising interest rates but consumers don’t treatment. They’re just borrowing additional money and spending more money. So , the credit supply is certainly expanding and that is going to carry on and put upward pressure upon prices. The Fed can be making no real headway in its battle against pumpiing. ”

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