Of Two Minds

If “markets” controlled by the rich are allowed to distribute essentials, the result will be civil disorder and the overthrow of regimes. What’s worse than inflation? Depression + Inflation. And that’s where we’re heading.

The Fed and other central banks have zero control of supply-driven inflation, period. America’s financial punditry is bewitched by four fatal fantasies: 1. Inflation is demand-driven. If the Federal Reserve (or other central banks) reduce demand with monetary tools like raising interest rates, inflation will cool.

Even currencies maintaining convertibility to gold are still subject to bond yields, interest rates, trade and capital flows. It’s widely held that all of our financial woes are the result of abandoning the discipline of the gold standard in 1971.

Price cutting is being replaced with price gouging, a substitution that consumers recognize as inflation.. Globalization was deflationary, Deglobalization is inflationary. The entire point of globalization is to 1) lower costs as a means of maximizing profits and 2) find markets for surplus domestic production.

Events may show that there are no winners, only survivors and those who failed to adapt. Some recessions are brief, necessary cleansings in which extremes of leverage and speculation are unwound via painful defaults, reductions of risk and bear markets.

So what are conventional pundits missing today? I would start with three dynamics. Only old people experienced real recessions–those in 1973-74 and 1980-82. Recessions since then have been shorter and less systemic.