conspiracy to keep people poor and stupid. That’s a great line by economist Donald Luskin. He’s one of the few ones that I actually listen to. And he’s made sense over the years. He has got a case out right now. And again, differs with me in some respects. It does. But he’s making a pretty good point. The fact that we could be really heading for some deflation.
However, again, I don’t think we’re gonna see it in the everyday items that we have to purchase. We’ll get into that in a bit. He had a piece today, and he cited one that he wrote 10 months ago about why inflation is on the way down. And at the time, what was it? The CPI was up 9.1, it’s now 4.9. Okay, he’s talking about the Fed.
Talking about the Fed and his is a classic Milton Friedman case about inflation and the increase in the money supply. We had zero rates, he says we’ve had zero rates before and held the rate of inflation for three and a half times as long with basically nothing. 2008 to 2015. And my argument with that is that, again,
I never bought that. Obviously with technology, certain durable goods. Sure, sure. But the everyday items and the things that we have to spend money on, we talked about the Chapwood index that we got into it, or I call it my Bear Grillis index based upon, Bear Grillis, the survival guy, the stuff that he needs to get when they drop him off in the middle of the jungle so he can live, the stuff that we have to live on. Those things have consistently gone.
He also talks about the, in essence, the record increase in money supply, $6 trillion in pandemic relief payments 2020 and 2021. And that’s the cause of inflation. And he’s saying the Federal Reserve hikes, all these hikes out there are not doing a darn thing to curb inflation. And he cites Milton Friedman. He says Milton Friedman famously said monetary actions affect economic conditions.
Only after a lag that is both long and variable. Yeah, money supply growth driven by stimulus payments peaked at 27% year over year in February 2021. It’s the highest since 1959. The payments wound down substantially the third quarter of 2021 and ended entirely in the fourth. The one and a half year lag between the peak and money growth
and the June 2022 peak in inflation is in line with historical experience. Again, it talks about Fed Reserve and their fourth quarter 2021 saying that inflation was transitory. Okay, the Fed didn’t really get into an inflation fighting mode. What they said it was transitory, but when was it? It was March? No, no, actually, no. In March of 2022, it was what, a quarter basis point? It was
The four back-to-back 75 hikes that started in June. Again, he’s not thinking that the Fed has been able to do any of this. He says it’s all about the end of stimulus payments. The money supply growth has fallen to normal levels. So his point is that right now, deflation is on.
And one might make the argument that after so much inflation, a little deflation wouldn’t be so bad. But many people view deflation as a bad, a worse cycle than inflation, because people start thinking, hey, you know what, it’s deflationary. I’m going to hold off and not buy things because they’re going to keep getting cheaper.
It’s an issue. It is. But again, I see these pieces on inflation. And again, I’m always been more about the supply. I really am. I wanna stimulate the economy. And I’ve said this again and again and again. I don’t believe putting people out of work and it’s a constant theme out there. Are we gonna have unemployment go off? Gotta put people out of work. Why? Why? How is that good?
more transfer payments, more unemployment. Is that really gonna help? Well, labor costs are so up, it’s a very tight labor market. Okay, that’s all right. That’s okay, companies can adjust to that. And again, with the type of technology advances, come on, please. You know, I think about even just my business and you know, what we are now and what we’re able to do with technology.
Back in the 90s, just to manage, just to manage the books you needed an assistant or two to handle all the nonsense, the tickets that need to be written, all of the filing that went on. I mean, you keep thinking of those office pools from the television show Mad Men. That wasn’t just the thing in the 60s. I mean, that was the case on Wall Street. No longer.
just as much as you don’t have in the trading floors filled with massive amounts of traders. A lot of these companies just use algorithmic trading. So no, I never bought into the idea that that’s what you need to do to curb inflation. However, I do think, and I think that Donald Luskin, in all due respect, kind of misses some of this. When you make money as cheaply as
More bonds are written, credit is extended, and money flows to all sorts of places where it really doesn’t belong. And then you get what you’re doing. You can deal with asset inflation in garbage companies and what that leads to. Yeah, I understand the monetary concept and he makes a hell of a lot of sense in this. But again, to me, we’re not gonna see prices drop in the things that are most important.
unless we deal with the regulatory issues. Again, I’ve made this point very, very clear. I mean, it’s great. It’s great, it’s fantastic. I can go to Best Buy today and pick up a television for 200 bucks, flat screen. Price is way down from what they used to be. I get it, but I can’t eat a TV. I can’t eat a TV and the television here in my office is over 10 years old and it works just fine.
Anyway, we’re gonna be hearing from the Fed and what they have to say. Got competing, it’s like dueling pianos right now with various different members to pause or not to pause. Again, they should just go away. Just go away and they should stay away for a long period of time. Take a very long vacation, you 4,000 economists at the Federal Reserve. Just a nice long vacation. Even if you decide not to come back, we’ll be thrilled with that as well. Watchdog on Wall Street.dot com.