To hear Federal Reserve officials, politicians and mainstream financial media pundits tell it – there is no inflation. In fact, the consumer price index remains “stubbornly low” according to those who view rising prices as an economic good. But inflation defined correctly is rampant. In fact, it is at all-time record levels.
Strictly speaking, inflation is an increasing money supply, and by that measure, it has set records for five straight months.
What is inflation?
When analysts, politicians and pundits talk about inflation, they usually mean rising consumer prices as measured by the consumer price index (CPI). Peter Schiff and Jim Rickards debated this on Kitko news. Rickards also used this definition, insisting there is no inflation right now. Peter said, “Of course there is. The Fed is inflating like crazy.”
The ensuing debate led Peter to address the issue of inflation on his podcast. Peter called the modern mainstream definition of inflation a “false” definition.
The money supply growth rate surged to an all-time high in April as the Federal Reserve created cash at an unprecedented rate through quantitative easing and other money-creating monetary policies.
According to Ryan McMaken at the Mises Institute, the only time the Fed has come close to this level of money creation was in the 1970s – the era of stagflation.
Years ago, markets used to pay a lot of attention to the money supply and trade deficits. Now, these numbers barely get a passing mention. In his latest podcast, Peter Schiff said he thinks what is old will become new again and trade deficits and money printing will once again come front and center.
The following is a market update as it related to precious metals prepared by SchiffGold intern commodities analyst Jason Mezhibovsky.
Silver/Gold Ratio Continues to Diverge
The silver/gold ratio continues to diverge, favoring silver as relatively cheap compared to gold at the moment. This presents an attractive opportunity for silver. The white metal could benefit, along with gold, as a “safe haven” asset in a weakening economy with plenty of uncertainty surrounding the trade war and Brexit.
A 1980s era Far Side cartoon featured a veterinary student named Doreen studying equine medicine in Chapter 9 of her textbook. On the left-hand side of the page was a list of horse ailments. They included things like a broken leg, infected eye, runny nose, and a fever to name just a few. On the right-hand side of the page, the treatment for each ailment was “Shoot.” The caption read, “Like most veterinarian students, Doreen breezed through Chapter 9.”
Ben Bernanke, Milton Friedman and the Ivy League economics departments that all regurgitate the same theory on the Great Depression pretty much treat the economy as simple-mindedly as Doreen’s textbook treated equine medicine.
Jerome Powell came out pretty hawkish in his public debut yesterday. The new Federal Reserve chairman said he sees little risk of recession and reaffirmed plans to continue tightening the money supply through interest rate increases and quantitative tightening.
My personal outlook for the economy has strengthened since December. I don’t see [the recession risks] as at all high at the moment.”
But there are signals that Powell’s optimism is unwarranted and that the monetary blanket knitted together with nearly a decade of easy money may be about to unravel. In fact, the deceleration in the growth of the money supply orchestrated by the Fed matches the trend just prior to the 2008 crash.
Mises Institute academic vice president, and Pace University professor of economics Joseph Salerno explains in an article originally published on the Mises Wire.