Inflation Ahead? Or Is It Already Here?

Here is the M1 – the most liquid of all measures of the USD money stock.

Note the growth during the Obama years following the Great Financial Crisis. Slowed a bit under Trump. But relentlessly grew faster than the economy.

Until CoVid hit when the M1 exploded. Until November 2020 when the M1 went hypersonic.

Several things are happening here – none of which are good.

First, recall Corrupt Joe was talking about ending the special capital gains tax rate which is lower than tax on regular income. Assuming the rich see that prospect happening, you can make the case that the super-rich are cashing out of assets now which means the dough hits checking accounts while they rebalance their portfolios.

That might explain why we see some of the ~$3 trillion in the M1. Especially “post-coup” (I mean, the “election”).

But, recall we saw a lot of cash injections this year with few places to go. CARES pumped $1.8 trillion into the economy. The current stimulus package is worth $900 billion. That will begin hitting the M1 over the next month or so. And the deficit in Fiscal 2020 was another $3.1 trillion.

As the money supply increases, pretty safe to say the prices of a lot of things will go up.

Let’s see what’s gone up so far.

November monthly sales were up 21.4% year-over-year (YoY). Median price of existing home were up 14.6% YoY according to the National Association of Realtors.

Despite all that, over 2.7 million mortgages are in CoVid forebearance with delinquency rates over 17%(!).

We have not seen the money supply growth rate higher than what we’ve seen this year. Not even during the 1970s.  

Federal Reserve monetary policy has been buying up trillions of dollars in assets—including government debt. This has fueled new money creation.

If you consider the broader index, the story gets worse. Here is McMacken’s analysis:

Anyway you look at it, next year does not look good.

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