Just read a report from the White House that made me think about today vs. post WWII.
Producer Price Index (PPI) was up 1% in June... Final Goods up 1.2%. This is an annualized rate of 12% and 14.4% respectively. The White House is now admitting inflation may be around for years, paralleling the inflation post WWII after Debt/GDP had also soared (121% post WWII, currently 128% and growing)....
When debt rises to these levels, the Fed can't hike rates to control inflation - to do so be immediate wealth destruction for 2 generations, and bankrupt the gov't (interest cost alone would be greater than total tax revenues). The only other option (seems to be the preferred one) is to kick the can down the road and try to inflate our way out of the debt - as they did after WWII - with double digit negative real rates.... FYI, the UST10 - Core CPI is normally 2-3%. 10y should be 7-8% now. The real rate is -3.8%. Negative 3.8%.
But will it work this time? After WWII we had a demographic boom/productivity boom. Now we have an aging population with debt and little savings. We also have an entitlement issue among the poor and young.... Can't cut gov't spending, can't increase taxes without further damage to the economy, investment and savings....
The likely result: Stagflation, continued high taxes. The young and poor are screwed - and they voted for the idiocy. Stupid should hurt but.... Interested in how others see this working out, what's the general sentiment on the bunk?
Producer Price Index (PPI) was up 1% in June... Final Goods up 1.2%. This is an annualized rate of 12% and 14.4% respectively. The White House is now admitting inflation may be around for years, paralleling the inflation post WWII after Debt/GDP had also soared (121% post WWII, currently 128% and growing)....
When debt rises to these levels, the Fed can't hike rates to control inflation - to do so be immediate wealth destruction for 2 generations, and bankrupt the gov't (interest cost alone would be greater than total tax revenues). The only other option (seems to be the preferred one) is to kick the can down the road and try to inflate our way out of the debt - as they did after WWII - with double digit negative real rates.... FYI, the UST10 - Core CPI is normally 2-3%. 10y should be 7-8% now. The real rate is -3.8%. Negative 3.8%.
But will it work this time? After WWII we had a demographic boom/productivity boom. Now we have an aging population with debt and little savings. We also have an entitlement issue among the poor and young.... Can't cut gov't spending, can't increase taxes without further damage to the economy, investment and savings....
The likely result: Stagflation, continued high taxes. The young and poor are screwed - and they voted for the idiocy. Stupid should hurt but.... Interested in how others see this working out, what's the general sentiment on the bunk?
