Most Americans Do Not Understand the Horror of the Coming Inflation Wave

Inflation and Related Terms: Explained

If you are 55 years old or younger you do not have living memory of what it means when inflation takes hold of our economy. It is not merely that you the price of everything goes up. It is a recipe for killing the economy and will feed a black market and reduce the revenue that governments–local, state and federal–rely on to provide services.

I graduated high school in 1973. The United States was on the cusp of a major inflation crisis (I encourage you to read the article that is linked here):

This is the gruesome story of the great inflation of the 1970s, which began in late 1972 and didn’t end until the early 1980s.8 In his book, “Stocks for the Long Run: A Guide for Long-Term Growth” (1994), Wharton professor Jeremy Siegel, called it “the greatest failure of American macroeconomic policy in the postwar period.”9

The great inflation was blamed on oil prices, currency speculators, greedy businessmen, and avaricious union leaders. However, it is clear that monetary policies, which financed massive budget deficits and were supported by political leaders, were the cause. This mess was proof of what Milton Friedman said in his book, Money Mischief: Episodes in Monetary History: Inflation is always “a monetary phenomenon.”10

The great inflation and the recession that followed wrecked many businesses and hurt countless individuals.11 5 Interestingly, John Connally, the Nixon-installed Treasury Secretary who did not have formal economics training, later declared personal bankruptcy.12

We were not just paying higher prices for food and gas. If you wanted to buy a house you were saddled with a double digit mortgage interest payment. If you are now buying a $300,000 house with a $60,000 down payment, your monthly payment with a 3.8% is $1,401.63. What happens when the interest rate is 16%? You will pay $3,510.75. What do you think that does to the sale of houses? It kills the real estate market.

I had the misfortune of living in Argentina in 1984 during an incredible hyperinflation period. The inflation raged at 1,000% annually. Prices of food and fuel and everything else changed during the day. If you bought an apple in the morning for 50 cents, you would pay 75 cents in the afternoon. Imagine you are a small business owner having to constantly (I mean every couple of hours) re-price your merchandise. It is a nightmare.

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35 Responses to Most Americans Do Not Understand the Horror of the Coming Inflation Wave

  1. Babeltuap says:

    My father told me during the great depression, the Fed came around conducting surveys if people were starving in towns. Nobody was starving in his town of farmers, dairy farmers, hunters, fishers. They mostly trades good and services. Financially poor but needy they were not.

    The crazy part of this inflation is they can’t move the interests rates. Doing so and it will get worse. TNX should be pushing to 4 by now. It barely moves. The Fed is not even trying to fix policy. Only tool they have in their toolbox is a printer. Unfortunately it’s not gonna work this time.

    For the Amish though no worries. Business as usual.

  2. Deap says:

    Quite honestly, I looking forward to 15% ten year CD’s again.

    • TV says:

      15% CD rates don’t mean much when inflation is 16% and CD rates always lag the CPI.
      In intense inflation, you should borrow, not save.
      Pay back in cheaper dollars.

      • Deap says:

        Depends on lifestyle choices and age group. 15% CD’s would be mostly net money in the bank.

        Can’t travel, house paid for, austere lifestyle due to ongoing repressive covid-mania includes using far less gasoline, less entertainment, less dining out, limited need for utilities due to temperate location. Old people eat a lot less so smaller grocery bills with fewer fussier ingredient demands, and still read books for free. Medicare will quickly gobble up any SS COLA increases, so the will be net zero.

        Plus California real estate equity increases far outstrip any inflation rates. Memory care will simply eat up that equity later which is why one does need money in the bank more than anything right now. Memory care costs will be grossly inflated – but still a crap shoot whether it will be needed or not -blessed “covid” notwithstanding may still remain the demented Old Man’s Friend.

        At least that is the current prespective. Which is absolutely no endorsement of Biden’s ruinous policy decisions. He is and shall remain a total, mean-spirited punitive jerk. But I do recall enjoying the former real estate bubble inflation pressures that also led to very nice 10 year, inflated CD investments -while everyone else was screaming inflation, I was practicing deep frugality.

        • TTG says:

          Deap,

          We’re very often at odd in our thinking, not always, but often. But I am very close to your view on 15% CD rates. I’ve often lamented the low rates on savings and CDs. Both I and SWMBO borrowed for our college educations and took years to pay those loans back. Luckily I had a 3 year ROTC scholarship that greatly lessened that debt. Our sons’ educations at CMU and RIT set us way back. On top of that we finally bought a house in 1995. SWMBO was an accounting and financial wizard in getting us out of all that debt. We never plan on being in debt again and are encouraging our sons to do the same. They’re both in their 40s, own their own places and nice cars and have no debt.

          We, like you, practice deep frugality. We don’t travel since we got our fill of that in my Army and DIA career. I enjoy building and fixing everything and plan on doing that until can no longer physically do it. Far more than SWMBO, I just don’t enjoy buying stuff. In other words, I’m a cheap ass SOB. But this character flaw should stand me well in bad economic times.

          • Deap says:

            I believe those were also the shared characteristics found in a book a few years ago “The Millionaire Next Door”. A deep frugality. And also no deep unhappiness as a result.

            Nest eggs are comfortable long term; where as spending freely offers only short-term joy. But then I was raised in a Danish heritage-post depression era household, which takes frugality to high art, while still lauded for its “hygge” ambiance.

  3. blue peacock says:

    Larry,

    You know what happens when interest rates rise even a couple hundred basis points? The entire asset inflation will get deflated as it is all built on leverage. Multiples on earnings get a haircut as the discounted cashflows to get present value gets mauled. The Fed is trapped. There’s no way in hell they’ll raise rates as it will kill Wall St. Guess who was writing Yellen, Bernanke, Powell, Geithner, Kashkari, etc their big personal checks. How many millions in speaking fees from Citadel & Blackrock did Yellen get between her Fed and Treasury gigs?

    In any case we’ll get plenty of warning if & when the bond market runs away. Second, banks ain’t lending and creating new credit. In fact they’re stocking up on the most “pristine” collateral – Treasuries.

    What we’re seeing is the aftermath of some of the most asinine policies due to the covid fear-porn hysteria. One of the most destructive has been lockdown. Supply chains have become completely warped relative to our pre-covid just-in-time import everything from China and elsewhere. Notice how many container ships are waiting to unload off the coast at the Port of Los Angeles? That’s all the “stuff” we get from China & Asia in general. Huge issues with containers as there’s no backhaul.

    Another is the massive labor “shortage”. Many stopped working or were forced to as their employer was shut down. Many of those businesses ain’t re-opening like ever. Small businesses got fucked over big time by both Trump & Biden. It is reported that hundreds of billions of dollars of fraud was committed in the multi-trillion dollar covid “relief”. Of course the Top 1% gained so much that their wealth now exceeds the entire middle & working classes.

    • JohninMK says:

      There is a view that many of those full containers could well be intentionally there as demand for the products has slowed down and its a good place to act as storage. If prices are increasing then the retailers etc could regard it as an appreciating asset.

  4. Sam says:

    A decline in consumer expectations suggests the U.S. economy is in recession even though employment and wage growth indicate otherwise, according a new study co-authored by a former Bank of England policy maker.

    In the research dated Thursday, David Blanchflower of Dartmouth College — who set interest rates at the BOE during the 2008 financial crisis — and Alex Bryson of University College London say that consumer expectations indexes from the Conference Board and University of Michigan tend to predict American downturns 18 months in advance.

    https://www.bloomberg.com/news/articles/2021-10-08/u-s-is-in-recession-if-history-of-consumer-sentiment-repeats

    Not consensus. What happens if we head into recession and prices for everyday consumer goods and services keep rising as it has for over a decade? Stagflation!

  5. walrus says:

    The great inflation was a response to the huge cost of the Vietnam war that had to be financed somehow. The answer was to print money that destroyed the value of US Government bonds – in effect stealing the savings of every American who had been prudent enough to put money away for a rainy day as well as the money foreigners had invested in US dollar debt, which was a huge chunk of the world.

    The losers:

    – everybody who had saved cash and bought U.S. denominated bonds.

    – Every business that was forced to fund constantly increasing working capital requirements and also tax bills that went up faster than sales through such devices as asset revaluation.

    – anyone on a fixed income. Anyone with a variable mortgage rate loan.

    The winners:

    – everybody who was borrowed up to the hilt (like the Government) to buy hard assets like real estate on a fixed interest loan. The debt lost value daily as the prices of land went up. This was especially true if you were in a trade union or Government that could maintain wage parity. Even better if you could write off interests costs against tax.

    I lived through the Australian equivalent of this and at one point was paying 17.5% interest on a home loan – and that had to be paid with after tax income.

    Consumer behavior was to max out your debt and buy everything today because it was only going to be more expensive tomorrow.

    The good bit: I feel vindicated by still maintaining a workshop full of tools to fix things. The disposable economy is finished. Once inflation grows you stop replacing things and try to fix them instead.

    • Fred says:

      Walrus,

      You must not have heard of LBJ’s “Great Society” and “urban renewal”, which combined to destroy the black American family structure, tens of thousands of black owned businesses, and led to multi-generational welfare servitude. The democrats in congress also helped black America by pushing the 1965 immigration act, ushering in tens of millions of immigrants ready and will to compete against black Americans for a job.

      • akaPatience says:

        PLUS, from what I understand and recall, Nixon mostly caved to Democrats on economic policy (e.g., carrying through on the Great Society plan of expanding welfare) in order to be able to focus more on foreign policy, i.e., CHINA. It’s telling that this is what the Establishment considered his $aving Grace.

        • Fred says:

          akaPatience,

          What did you expect, the democrats had 50 seat majority in ’68 and a bigger on in ’70. The Republican’s didn’t control the House until Gingrich in ’95.

    • zmajcek says:

      It is getting increasingly more difficult to fix things as well, so pretty soon we might not have much choice than to replace rather than repair.

      Right to repair movement is gaining momentum, though. A popular youtuber, Louis Rossmann that owns an Apple repair shop in NY is very vocal about this.
      https://www.youtube.com/watch?v=Npd_xDuNi9k

      This is just one example of the things to come (and are already here), and concerns a Tesla 3 vehicle.
      https://www.youtube.com/watch?v=vVSw3KSevEc&

      • Deap says:

        Took a small appliance repair course once and the first thing they taught us was to solder joints – claimed to be the biggest fail in modern manufacturing – the solder joints. True?

        • zmajcek says:

          Probably not. The size of modern electronics is so small that boards are usually not manually soldiered.

          I would say that planned obsolescence, and intentional efforts to make devices difficult to repair, are more of an issue in modern manufacturing

          For instance, look at this example how cooling was deigned for one particular macbook model:
          https://www.youtube.com/watch?v=iiCBYAP_Sgg

  6. BillWade says:

    Home prices and rentals in Florida are at all time highs. We had a large influx of people escaping the lock downs and I understand we’re about to get a second wave of people who are not going to get the covid vax and are about to lose their jobs. I wish them luck, there’s plenty of jobs but little in the way of housing. It’s also going to be a hectic “season” this Winter as many snow birds didn’t come down last Winter but are coming this Winter, Canadians I hear as well. It’s going to be tough to get a table at a restaurant for the next 6-7 months. We should also be getting more of the cargo traffic in the coming months, Florida has no vax requirements for doing business here. Then, there’s the cruise ship traffic. One Tampa bartender I know is licking her chops, a lot of her business are “cruisers” staying at her bar’s hotel before and after ship arrivals/departures.

    I just paid $20 for a pork roast that would have cost me half that a month ago. Gas was about $1.80 10 months ago and now it’s $3.15. People who voted for Biden or got the vax are having “buyer’s remorse”.

    AT&T is now paying 8% dividend, unfortunately the PPS is in a downward trend.

    • Artemesia says:

      Sources in The Villages, FL, that I consulted trying to recover rent + deposit that I paid to a NY=based absentee landlord inform me that FL has become happy hunting grounds for scam artists; more money to be made than ’48 gold rush.

      Elderly, especially single women on Social Security, are the preferred target. The geographic differences make discovery and recovery very difficult: Landlord/owner in a state in NE; potential tenant in Midwest; property in S. Difficult to know in what state to file suit!
      Surprising, The Villages does not seem to have a central clearinghouse for “suspect landlords” or “resolving problem tenants” situations: matters are referred to the County Sheriff (and The Villages covers three counties, so a would-be tenant has to divine the geography in order to discern the proper legal authority.)

      Coming from DC area where legalities involving property — either as rental or purchase — are absurdly complicated, with a Contract of Sale often running near 70 pages of legalese, Florida is equally absurdly relaxed: Contract of Sale runs two or three pages; one form of standard contract permits abnegation for almost any reason or no reason. As well, in DC suburbs (Maryland) absentee landlords must: be licensed to rent property; post a bond; name a local contact; submit to inspection annually. Not so in FL: a landlord who rents out fewer than five properties has no controls whatsoever on his activities (greater than four triggers requirement to maintain Florida bank account).

      Signed
      Older, Wiser, Gonna stay home next year, maybe buy a hot tub

      • Deap says:

        Be sure to install secure hand rails for getting in and out of the hot tub. Make all. the difference in the world …when reaching a “certain age”.

  7. Aletheia in Athens says:

    Take a look at the big picture…on where the money of your savings is going through the whole “pandemic”…It has all the face of the biggest scam ever…Look at the graphic..

    BlackRock is eating the world, world´s biggest asset manager saw net inflows of $75,31bn in volatile Q3, but assets stall shy of $10tn…

    https://twitter.com/Schuldensuehner/status/1448262369042382850/photo/1

    Fed balance sheet $8.4 trillion.
    BlackRock assets $9.4 trillion.

    BlackRock also buys $40B a month in MBS on behalf of the Fed
    Powell also has millions in a BlackRock managed $SPY ETF.

    One happy family.

    Expressed in another way: The combined assets of the Fed and BlackRock alone equate 82% the size of the entire US economy. Add Vanguard with another $7trillion and you´re looking at 115% of GDP.
    Fidelity adds another $4trillion + for a 134% of GDP total…

    https://twitter.com/NorthmanTrader/status/1448264841416818692

    • Fred says:

      Aletheia,

      How dare Vanguard and Blackrock manage mutual funds and 401k savings plans. How dare Americans invest in such things for decades. Why don’t you learn something about those before you quote some puffery from twitter.

      • Aletheia in Athens says:

        Yeah…you invest there, but you invest in dollars, don´t you?

        What happens to your dollars when inflation escalates? Some analysts out there state real inflation in the US gets as high as 20%…At that point, your pension funds are losing value, and so they are your wages, homes and other assets…

        Do you think that after, say, a CyberPoligon, BackRock will be sharing dividends with you? Or it just simply will say your pension funds were wiped out, as happened to many in 2008?

        The Twitter accounts´info I link are far from being puffy, you think what you want…

        After past days sudden unabling of e-services by Bank of America, a lot of clients got without access to their bank services apps and, thus, accounts…

        Now it starts going viral…

        https://www.eluniversal.com.mx/cartera/hsbc-registra-fallas-en-tarjetas-de-debito-y-en-quincena?amp

        You just can continue trusting Fink, who, for sure, goes to bed every night just thinking of you, your happy prosperous retirement, and your dividends…

  8. Aletheia in Athens says:

    “Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power”
    ― Benito Mussolini

    Now, wonder why the shots….

  9. Aletheia in Athens says:

    “The Great Robbery”
    In front of the University Hospital of Grenoble, France
    2021

    https://twitter.com/goinart/status/1419653059764969475

    It is better always get prepared…..

    https://www.youtube.com/watch?v=uSDC5L7qYUc&ab_channel=NowThisNews

    https://www.youtube.com/watch?v=pBVAnaHxHbM&ab_channel=NowThisNews

  10. John+Merryman says:

    I think the elephant in the room is that there is so little understanding of what money is and how it functions.
    People think of it as a commodity, like gold, or bitcoin, where the value is inherent to the token. Thus a not gold backed currency is accused of being “fiat.”
    The reality is that it’s a contract, where the asset is backed by a debt. Even gold backed currencies are just a receipt, presumably exchangeable for the gold. Thus a contract.
    What it serves as is an economic medium. Does anyone understand what a medium is? Roads are a medium. We don’t own the roads, so much as they are public utilities. We only “own” the section we are using, the functionality of which is that it is constantly changing. Like the air and water flowing through our bodies.
    Yet in treating them as a commodity, to save and store, we try to accumulate as much as possible. Econ 101 says money is both medium of exchange and store of value. Blood is a medium, fat is a store. Roads are a medium, parking lots are a store. The hallway is a medium, the hall closet is a store. The average five year old gets the difference, so what have the economists been smoking?
    So when everyone is trying to pull as much as possible out of circulation, then ever more has to be added and ever more metastatic methods have to be devised to store what has been extracted.
    Which means we have to keep adding more and generate sufficient debt to back what is “saved.” Given the more money is created and stored, the more frenetic this process becomes and so our financial sector has gone from about five percent of the economy, essentially as a system of accounting the various debts and obligations of the larger economy, to about 40% of the economy. Effectively a large tumor.
    This is the difference between a market economy and capitalism. The medium has become the message.
    The simple fact is there isn’t the investment potential to individually save what is necessary, but we save for many of the same reasons, so the commons will have to eventually be resurrected. The problem is that for a functional commons, rights have to be within shouting distance of responsibilities, but we have a culture where everyone has rights and no one is actually responsible.
    People say life has no meaning, or purpose, but that’s what responsibility gives us.
    We are linear, goal oriented creatures, who like to obsess over shiny objects, but the larger reality is cyclical, circular and feedback generated. It’s like we haven’t quite internalized that the earth is round.

  11. Claudius says:

    TTG and Walrus: I too fix my own gear, and have been since I was 15. This habit served me well in the Navy (Spruance destroyer Chief Engineer, OH Perry XO) and later in the Merchant Marine. My university degrees (Southern Ivy history, State U MBA) haven’t been as useful long term as the ability to analyze a mechanical problems, or do major plumbing work. I regret never learning to weld.
    As is the U.S. economy is miserable for the blue collar crowd; inflation and other factors will combine to make this far worse. Check out YouTube “Watch Wes Work”; he is a very skilled mechanic in a farming village. He fixes equipment that sometimes should be condemned; I suspect his customers live close to the bone and cannot afford a new car or tractor. Add to that the effort by some manufacturers to make software so proprietary that no one but a factory tech can touch it. John Deere is famous for this; Wes can’t touch their newest machines. For small operators fixed the old and less efficient but functional John Deere combine or tractor makes sense.
    Parts will become a problem. Many are imported; the failed $20 sensor that killed a poor man’s engine today may well not be available at the auto parts store. This poor guy doesn’t need to be hustled into a running car with an endless payment stream. He needs a part.
    The complexity of the newest cars works against the backyard mechanics like me. Too much gadgetry which requires specialized tools to troubleshoot. So I drive older vehicles, and would buy a clapped out 1970’s Ford pickup before I’d touch a new one. I’m sorry for the working man who needs a work truck; the new ones are overloaded with stuff and too expensive. The used ones are expensive as well.
    Fortunately plumbing is easier. Technology has brought us easy to install flexible pipe; no more soldering copper! I replumbed a family member’s small house recently, however I have limits and seriously value the skills of a good plumber.
    I spent many a midwatch encouraging young guys to consider trades over a college degree. No air conditioning tech will go hungery! Neither will a skilled welder.
    Full disclosure: I fix and use routinely a 1963 John Deere 1010 tractor. My lawn mowers are John Deere. I don’t pick on them lightly.

    • Barbara Ann says:

      I hear you Claudius.

      Zen and the Art of Motorcycle Maintenance is good for you in so many ways, not the least being the very real feeling of self reliance. But synchronizing the carbs with a set of vacuum gauges has given way to a soulless process involving EFI, an EMC and a laptop (using proprietary software). There is joy in fixing a two-stoke outboard motor that has had a dunking in the ocean by washing out the float chamber with a bit of fuel. You can’t buy the things any more and the I’ve heard the replacements are often a write off in similar circumstances.

      The golden age of human-friendly technology is in the past. The future is magic black boxes and reliance on authorized dealers & long and complex supply chains. One day this will bite us in the ass and when it does your tractor may be in high demand.

      • Claudius says:

        It already as bitten the poor in the US! I don’t see the engine control or anti pollution systems as a particular problem; it is the other stuff. Entertainment system, climate control, cameras etc all wired into a host of black boxes. Some spy on the owner; none are repairable or removeable. All this drives up cost on people who don’t have much to start with.

        • Barbara Ann says:

          Claudius, on being spied on:-

          If you buy technology that spies on you, you should not pretend it is the technology’s fault that you are spied on. Smart phones with their “app store” gilded cage ecosystem are the worst. I have never owned one, as I prefer to remain the smart one in the relationship with my technology. If enough people felt the same, dumb technology would remain popular.

          As it is, most folk seem perfectly happy to be surveilled in almost every aspect of their lives and accept zero privacy in the online world – when the alternatives just take a little effort. It is very easy to hide your browsing history and encrypt your emails, for example, but how many people can be bothered to make that small effort?

          Poverty it no excuse for forgetting one’s fundamental rights. The problem is not money, or technology, it is the decay of values. It is merely inconvenient to deny oneself the latest gadgets and so, with apologies to Ben Franklin: Those who would give up essential Liberty, to purchase a little temporary Convenience, deserve neither Liberty nor Convenience.

  12. jim ticehurst says:

    I wonder who has Pushed The Big Green..$$$ Button ..That started this Radical Transfer from Typical Democrat Politics..Campaign Talk..and even some Quasi Moderate Policy Statements…To An All Out Transistion to Anti American Hostility…while Forming a Rigid ..and Very Far Leftist Top to Bottom Group of Partisan Operators..Zealots..Loyalist..Who Know every Policy..every Act…Every Executive Order..Eveery Negligence of Duty..is Destroying American Society..American Culture..American Security..Every Institution…Economic..Political..and Military..Down to every State..Every County..Every Commonwealth..Every City…?? WHY…No Checks..Or Balances..?? Is this a Complete Coup..? By Whom..For What End..An “Open Society’ In The manner Imagined by the Fellow from Budapest…??.Has HE Leveraged This…Too…Created His Own Network of “Politic ..Economic and Industrial Terrorist..” A EGO War..bought and Paid for..To Show The EU..Putin ..and The writers of the Ameerican Constitution..That There Is a Better Way..When a Society Allows Malleability and Money..Tos.. Be Able to Buy Politicians.. andm Tarnish Souls..

  13. walrus says:

    Claudius, I hear you! I have two Toyota Landcruisers. The “old” one is the last “all mechanical’ Landcruiser model produced, the only electronics are the radio and ABS. I have a full set of shop manuals for it and I worked on it myself from new. 420,000km – a new clutch and turbo and its still fine and increasing in value every year.

    The “New Cruiser” is all electronic and when I asked what spares I needed to carry for a long desert trip, I was told “a satellite phone and a service contract” there is nothing fixable outside a full shop – even the fan belt is fourteen feet long with multiple idlers!

    Experts tell me the old one will outlast the new.

    • Claudius says:

      It will last mechanically; I am sure you change oil regularly etc. The body will last as well in OZ. The northern US not so much because of winter road salts.
      The miles of electrical wiring and the connectors is another matter. The plastic deteriorates over the years; I’m very careful with plugs and connectors in my 2002 pickup. A short or ground in a hidden wire can cause a troubleshooting nightmare; computer driven analysis can’t deal easily with oddball problems.
      The “call the dealer” scheme doesn’t work for many people. They simply don’t have the cash to pay for expensive repairs. Hence leasing and very long term loans. Add to that the loss of use costs.
      I recently paid a Ford dealer abt $3200 to replace the dodgy timing chain arrangement in my small pickup. Cheaper to fix it, and that size truck is no longer available. Those living on the margin, like my self employed landscaper neighbor, can’t afford to do this.
      Inflation, aggravated by out of control environmental regulation, will make this far worse!

  14. Sam says:

    As it turns out, you can’t “shut down” the economy and then turn it back on. Everything going on now reflects the disastrous presumption that doing that would be possible and not cause dramatic and lasting damage.

    https://twitter.com/jeffreyatucker/status/1448849455009181719?s=21

    The gift that keeps giving. Lockdowns!

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