In this episode of On the Margin, Brent Johnson of Santiago Capital discusses his views on whether or not CPI inflation is transitory or here to stay. We cover Brent’s view on the most recent CPI and PCE prints, why consumer prices are ticking up, and whether or not he thinks we are headed for inflation or deflation. We also did a review of Brent’s famous “dollar milkshake theory,” the impact of fiscal and monetary stimulus on the dollar, and why he believes a strong dollar is dangerous for global markets.
00:00 ・ Introductions
02:28 ・ Are we heading into deflation or inflation?
08:30 ・ How does QE play into the mix?
16:07 ・ How does supply/demand play into the mix?
25:20 ・ How do you predict inflation?
30:14 ・ Why is the strong dollar a problem for the world?
45:28 ・ What does a strong dollar do for stocks / US equities?
53:31 ・ The dollar’s international significance
58:52 ・ How to plan for a debt crisis
Economist John Williams, founder of ShadowStats.com, says the Federal Reserve has painted itself into such a tight corner with the economy it really has only two choices. Williams says it comes down to “Inflation or Implosion.”
What would happen to the financial system if the Fed stopped printing massive amounts of money for stimulus and debt service? Williams explains,
“You could see financial implosion by preventing liquidity being put into the system. The system needs liquidity (freshly created dollars) to function. Without that liquidity, you would see more of an economic implosion than you have already seen. In fact, I will contend that the headline pandemic numbers have actually been a lot worse than they have been reporting. It also means we are not recovering quite as quickly. The Fed needs to keep the banking system afloat. They want to keep the economy afloat. All that requires a tremendous influx of liquidity in these difficult times.”
So, is the choice inflation or implosion? Williams says, “That’s the choice, and I think we are going to have a combination of both of them…”
“ I think we are eventually headed into a hyperinflationary economic collapse. It’s not that we haven’t been in an economic collapse already, we are coming back some now. . . . The Fed has been creating money at a pace that has never been seen before. You are basically up 75% (in money creation) year over year. This is unprecedented. Normally, it might be up 1% or 2% year over year. The exploding money supply will lead to inflation. I am not saying we are going to get to 75% inflation—yet, but you are getting up to the 4% or 5% range, and you are soon going to be seeing 10% range year over year. . . . The Fed has lost control of inflation.”
And remember, when the Fed has to admit the official inflation rate is 10%, John Williams says, “When they have to admit the inflation rate is 10%, my number is going to be up to around 15% or higher. My number rides on top of their number.”
Right now, the Shadowstat.com inflation rate is above 11%. That’s if it were calculated the way it was before 1980 when the government started using accounting gimmicks to make inflation look less than it really is. The Shadowstats.com number cuts out all the accounting gimmicks and is the true inflation rate that most Americans are seeing right now, not the “official” 4.25% recently reported.
Williams says the best way to fight the inflation that is already here is to buy tangible assets. Williams says,
“Canned food is a tangible asset, and you can use it for barter if you have to. . . . Physical gold and silver is the best way to protect your buying power over time.”
Gold may be a bit expensive for most, but silver is still relatively cheap. Williams says, “Everything is going to go up in price.”
When will the worst inflation be hitting America? Williams predicts,
“I am looking down the road, and in early 2022, I am looking for something close to a hyperinflationary circumstance and effectively a collapsed economy.”
Join Greg Hunter of USAWatchdog.com as he goes One-on-One with John Williams, founder of ShadowStats.com.
Transcript00:00but it seems like they’re fighting00:01deflation but probably more like00:03deflation of assets right so they keep00:05saying they can’t get the inflation they00:07want they can’t get it well i think i00:08think they’ve got it now00:09i think it’s a little bit over their00:10target at this point but00:12um the d but then at the same time we’re00:14seeing prices of everything going00:16through the roof from00:17used cars to use bicycles all the way to00:20all types of financial assets and all00:21those types of things00:22um so the deflation that they’re afraid00:25of is that really in the markets that’s00:26what they’re worried about stocks00:27dropping you know real estate dropping00:29bonds00:30crashing things like that yeah they were00:32well they were pretty explicit uh youknow a decade ago00:35when they uh point out that they wantedto do the wealth effect so theypretty much said they wanted to causeasset price inflation uh you know they00:42just you know00:43described a little bit more plately uh00:45and so that was their goal was tobasicallyincrease you know housing costs againincrease uh the stock market again00:51uh and if you do a lot of monetary00:53policy without doing a lot of fiscal00:54policy that that’s00:55that’s what you tend to get now we there00:58were still disinflationary forces over00:59the course that decade because for01:01example01:02uh you know about a decade ago you had a01:03period of commodity over supply01:05uh you had the slowdown in china and so01:08we’ve been kind of working through this01:09period of commodity over supply for a01:11while we also of course have the rise of01:13shale oil which was largely unprofitable01:15but it still contributed01:16to uh you know a ton of extra supply and01:18therefore pretty low prices across the01:20board01:21and so we’ve been in that kind of01:22disinflationary commodity environment01:24but we had a target you know inflationin asset prices inflation in health careinflation and education inflationand child care things like that where01:32you had you know deflation in electronic01:34goods you had deflation in commodities01:36uh deflation due to technology and kind01:38of offshoring things like that01:40uh and so you know from their01:42perspective uh you know they01:44would prefer the say the inflation rateto be higher than the treasury yieldsright because that’s how you can you canstop uh you know debt as a percentage ofgdp uh from from continuing to grow tocontrol if they01:56have you know the potentially nominal01:58gdp growing faster02:00than the combination of debt issuance02:02and as a percentage of gdp and interest02:04rates02:04uh but of course i mean that’s a really02:06bad environment if you’re holding cash02:07or bonds02:08and so there’s no free lunch i mean02:10someone somewhere is getting uh screwed02:12over sometimes02:13there are certain policy regimes where02:15the debtors are getting screwed over02:16and there are other times where the the02:18you know the the02:20people that own the debt that the02:21creditors are getting screwed over and02:23so02:23in this environment of high leverage02:25they they’re they’re trying to err on02:27the side of essentially the the02:28creditors getting02:30uh you know screwed over uh but instead02:32of kind of abrupt kind of nominal losses02:34they’d prefer you know to basically just02:36fail to keep up with inflation and02:37that’s what you saw back in say the02:391970s and 1940s02:40these inflationary decades ironically02:42they tend to deleverage things because02:44the bonds fail to keep up with inflation02:46uh but you don’t want to be the ones02:48holding those assets and that’s a pretty02:50big pool of assets02:51yeah definitely i guess that you kind of02:54talked about that and that’s what i was02:55trying to02:55figure out is like what are they trying02:57to optimize for because02:59uh to your point you know electronics03:00coming down and deflationary source03:02things like that and03:03for i guess it depends on which side as03:04you said which side you’re on but it03:06seems like that would be good things for03:07most people if prices were coming down03:09um asset prices i guess if you’re03:11holding asset prices you want them to go03:13up if you’re03:13if you want to buy them you want them to03:15be down right so i guess it depends but03:17like overall it seems like if most03:19people had their cost of living going03:21down that would be a good thing and nasa03:22prices going up03:24uh at the same time that would be kind03:25of a good thing so um i guess kind of03:28the the question was uh are they really03:30trying you know03:31i guess they’re kind of targeting the03:32cpi basket which is like this consumer03:34price of goods03:35basket but it seems like the big risk of03:36deflation is in the markets like03:38stocks could crash 50 80 percent the03:41real estate could crash 5003:42and that’s like a massive deflation hit03:44so you think that’s what they’re trying03:45to optimize for03:46i mean even though they’re always03:47talking about cpi pretty much i mean03:50they’re trying to keep asset prices up03:51they’re also03:52you know they’re increasingly talking03:53about kind of nominal gdp targeting03:55uh you know again trying to have nominal03:57gdp higher than uh03:58some of those interest rates and some of04:00the debt accumulation levels04:01uh and of course you know the the04:03perspective will depend on if you’re the04:05the monetary04:06authority or the fiscal authority so as04:08consumers we generally would prefer04:10uh you know price deflation uh while04:12still having our jobs so we don’t want04:14some some sort of economic contraction04:16uh but we want technology and things04:18like that to lower prices over time04:20so that our money goes further and04:22that’s you know that’s normally the best04:24case scenario04:24the only time that’s bad is if you havea debt bubble right because then the the04:28real value of your debt04:29goes up relative to your incomes and04:31things like that so if you if you had04:33avoided that in the first place04:35uh then that that deflation is really04:37good but what policymakers are afraid of04:38is that because we’ve had this you knowthis kind of mix of lower interest ratesandand you know different types of policymixes we’ve kind of encouraged this bigdebt build upand now you know they basically have to04:49in their view inflate it away before04:51they can they can kind of stabilize04:53and so if you’re the federal reserve04:54you’re trying to hold yields04:56lower than the inflation rate you’re04:57trying to be accommodative04:59uh and kind of you know trying to05:02balance between05:03you know uh causing asset bubbles uh but05:06then also you know not wanting to crash05:08the market so that’s their perspective05:10and if you’re fiscal policy makers05:11mainly you want to get votes every two05:13years or05:14four years or whatever the case may be05:16and you want to avoid you know rising05:18populism you want to avoid05:19uh you know things like that from their05:21perspective and so you you know05:22depending on which side05:24you know where you work essentially if05:25you’re if you’re the fed or if you’re in05:27the05:27congress you have kind of two different05:29things you’re balancing yeah05:31so the tools as you’re kind of laying05:32them out the monetary or the fiscal05:34monetary being like05:35issuing more debt to the banks monetary05:37or fiscal actually like putting money05:39out of the streets into kind of people’s05:40hands05:41and um it seems like you know i mean i05:44guess as a central bank05:45uh what’s the quote if all you have is a05:47hammer the whole world looks like a nail05:48and they really only have a couple tools05:50um and really it’s you know monetary05:52tools and so that’s kind of like05:53interest rates and05:54and increasing the debt supply uh the05:56money supply but05:58with interest rates i mean they’re06:00already almost down to zero06:02uh nominally we can talk about real06:03rates et cetera which i do want to get06:05to06:05but it seems like a lot of those tools06:07they’re basically running out of right06:09interest rates are down to zero06:10debts at all time high economy is not06:13growing so the debt to gdp is is tough06:15to move06:15i mean do you see that they’re like06:17running out of tools i mean like how06:19much further can this can be kicked down06:21the road06:21uh so for the federal reserve i do view06:23them as as towards the end of their rope06:25in terms of tools and so they really06:26only have two tools that they mostly06:28it’s interest rate manipulation06:30and asset purchases or sales in some06:32cases06:34and they have some other tools around06:35the margin like lending facilities and06:36things like that but ultimately it comes06:38down to06:38controlling them controlling uh the06:40price of money uh06:41and uh buying assets now the fiscal06:44authorities they06:44they’re the ones that you know they can06:46say send cash to people06:48uh but then they you know they have to06:50issue debt to do it uh06:51and so you have kind of i’ve described06:53it as like uh you know if you have like06:55a movie where they’re gonna launch like06:56a06:56nuclear missile like two generals have06:58to put their keys in at the same time to07:00so i viewed i view policy tools and07:02fiscal tools uh kind of like the two07:04keys there07:04when it comes to generating inflation uh07:07and so if you just have the07:09monetary policy that’s not generally07:11very inflationary on its own because you07:13can’t directly get money to people07:15right so the federal reserve can’t send07:17money to people all they can do07:18is control interest rates uh and they07:20can increase the amount of bank reserves07:22in the system but then those get stock07:23banking system because banks aren’t07:24doing loans uh and so07:26you have reserves go up you07:27re-capitalize the banks but doesn’t07:28actually get out into the public07:30on the other hand the fiscal authority07:31can send money to whoever they want as07:32long as they have a consensus07:34but they have to issue bonds to do it07:37and then therefore someone has to buy07:38those bonds which sucks money out of the07:40system07:41but then if you combine the two and the07:43treasury sends money to people they07:44issue bonds07:45which the federal reserve creates new07:46base money and buys those bonds and07:48holds them forever07:49well then you’re just literally07:50essentially creating new base money and07:52directing it into the economy07:54and that’s how you get say that the you07:56know the 25 percent broad money supply07:58year of year change that we had you know08:00in 202008:01and so that tends to be a more08:02inflationary environment especially if08:05they were to sustain it for several08:06years08:07and so i think you know as we go forward08:09obviously right now we’re having some08:10base effects08:11right so we’re in in say march april08:14may june you’re comparing it to the 202008:16period which was like the08:17kind of disinflationary crunch they had08:19during the worst part of the lockdown08:21and so we’re going to get some pretty08:22high bass effects like we’re probably08:23going to see08:24uh you know even even official cpi we’re08:26probably going to see it over three08:27percent year-over-year08:28uh but then the big question is going08:30forward uh you know what are we going to08:31do with08:32are they going to do like an08:33infrastructure build that also gets08:34monetized08:35are they going to do another round of08:36aid things like that and some of those08:38if they were to continue could be pretty08:40uh inflationary to a certain extent08:42especially because08:44you know a lot of economists don’t08:45incorporate say the current situation of08:47commodity markets08:48uh and so of course you know that kind08:50of say 15-year cycle of commodity supply08:53and commodity demand08:54has a big impact on inflation and so08:56when you’re in a period of commodity08:58oversupply08:59as it were for the past decade you know09:01that tends to keep a lid on09:02on most types of inflation whereas when09:05you’re in a period of09:06you know you say you haven’t done a lot09:07of capex uh you know you haven’t kind of09:09brought new minds uh09:11to market you haven’t found like new new09:13big uh you know we haven’t done the09:14investment09:16if you were to get that increase in09:17commodity demand uh well then09:19uh you know you have higher commodity09:21prices and that’s what we’re seeing09:22we’re starting to see that kind of show09:23up in the market where09:25many commodities are still below where09:26they were 10 to 15 years ago with some09:28exceptions like beef lumber09:30gold touch new all-time highs most of09:32them are still below their all-time09:33highs but they’re starting to break out09:35from their their big declining trend09:36they had09:37and so it does look like the 2020s could09:39be a more inflationary decade with09:41tighter commodity markets uh big big09:44increases in the broad money supply09:45and that money getting to people rather09:48than just stuck in the banking system09:49which of course can benefit some people09:51but then you have that that that risk of09:53inflation09:54where you you increase the broad money09:55supply by a lot but you haven’t09:56increased the the goods and services by09:58an equal amount
the second thing and this is astonishing
is that the fed’s estimate of the cost
of living doesn’t
include tax while
government expenditures are over 40
percent of gdp
the idea that your cost of living
doesn’t include tax
i suspect daniella that would be okay
with you if you didn’t have to pay the
but given that you do a calculation of
cost of living that doesn’t include tax
seems very odd to me i reck i understand
that government probably shouldn’t be
considered to be a consumer good
unfortunately it’s a good which you are
forced to consume and fund
and people when they are thinking about
the impact of their savings
and their uh earned income relative to
their purchasing power
need to think about inflation very
than a slavish reliance on the cpi oh
that is so well said and i’m happy you
brought up the point about uh
tax a rick a real good one um so you
it seems like we’re living in this world
of you know fake earnings fake gdp
fake interest rates and super high
um the feds in a corner
i think the fed isn’t a corner uh i i
i think they’re there by popular demand
when i see what the fed does it reminds
me of an old
pogo cartoon from my youth where pogo is
in the swamp
and he says i have met the enemy and he
Former Sprott executive Rick Rule speaks candidly with our Daniela Cambone on everything from the Fed’s current moves to the best safe havens for money right now. Chiming in on the silver squeeze, he also offers insight on why $PSLV has become such a popular vehicle.
In this must-see interview, Rule reflects on his career, explaining the game-changing mindset that has cultivated his success. “The essence of wealth is enhancing your wellbeing— and that isn’t all material,” he says.
Central banks and governments around the world have injected stimulus money into the economy at a record pace in an attempt to fend off a global recession. While some prices have increased as supply chains are disrupted, economists and policymakers say inflation could still stay low for a long time.
July 21, 2020
LOL! This is called propaganda!
A little over 100 years ago, there was a bubble asset that rose and fell wildly over the course of a decade. People who held it would have lost 100 per cent of their money five different times. They would have, at various points, made huge fortunes, or seen the value of their asset destroyed by hyperinflation.
The asset I’m referring to is gold priced in Weimar marks. If this reminds you of bitcoin, you are not alone. In his newsletter Tree Rings, analyst Luke Gromen looked at the startling similarities in the volatility of gold in Weimar Germany and bitcoin today. His conclusion? Bitcoin isn’t so much a bubble as “the last functioning fire alarm” warning us of some very big geopolitical changes ahead.
I agree. Central bankers have over the past 10 years (or the last few decades, depending on where you put the marker) quashed price discovery in markets with low interest rates and quantitative easing. Whether you see this as a welcome smoothing of the business cycle or a dysfunctional enabling of debt-ridden businesses, the upshot is that it’s now very difficult to get a sense of the health of individual companies or certainly the real economy as a whole from asset prices.
The rise in popularity of highly volatile cryptocurrencies such as bitcoin could simply be seen as a speculative sign of this US Federal Reserve-enabled froth. But it might better be interpreted as an early signal of a new world order in which the US and the dollar will play a less important role.
The past four years of Donald Trump’s presidency and his toxic politics have taken a toll on the world’s trust in America. That has also diminished trust in some quarters about the dollar’s stability as the global reserve currency. This feeling reached an apex during the January 6 attack on the US Capitol building. As financial policy analyst Karen Petrou put it in a recent note to clients: “There are many casualties of this quasi-coup, but the US dollar may well be among them. It’s no more immortal than any other category-killer brand.”
Trump certainly devalued Brand USA. But he is also a symptom of longer-term economic problems in the US — problems which have in recent years been papered over by low rates and monetary policy, which kept asset prices high but also encouraged debt and leverage.
Bitcoin’s rise reflects the belief in some parts of the investor community that the US will eventually come in some ways to resemble Weimar Germany, as post-2008 financial crisis monetary policy designed to stabilise markets gives way to post-Covid monetisation of rising US debt loads. There are, after all, only three ways out of debt — growth, austerity, or money printing. If the US government sells so much debt that the dollar starts to lose its value, then bitcoin could conceivably be a safe haven.
McCullough (Trader/Millionaire) debates Saylor (Hodler/Billionaire) .
**This webcast originally aired live on Hedgeye.com on Oct. 20, 2020**