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Raising the Tattered Crash Flag



Take off your shoes. Walk on tiptoe. Be quiet.

In front of us lies inflation. It hasn't moved for years – rising only about 1.5%-2% – despite all the prodding from the feds.

The Fed tried to shock it awake with $3.6 trillion in stimulus money. And Congress hit it with more than $10 trillion in deficit spending stimulus over the last 10 years.

But… nothing. Not a whimper. Not a twitch.

Greasing the Wheels

And the authorities are deeply concerned. Here's Peter Coy, at Bloomberg, explaining why:

While five-digit, Venezuelan-grade inflation is destructive, a little bit greases the wheels of commerce. It makes it easier for companies to give stealth pay cuts to underperformers, because keeping their pay flat is tantamount to a reduction in real wages. Some inflation is also useful to central banks because it helps them fight recessions. To spur borrowing, they like to cut their policy rates to well below the rate of inflation. But they have no room to do so if the rate is barely above zero. A surprise decline in inflation also punishes borrowers by making their debts more burdensome.

Yes, the feds, the professors, the politicians (including Donald Trump), and the business elite all think the same thing – that a little inflation is a good thing. They worry now that there may not be enough of it.

That fear was ably expressed in Bloomberg's Businessweek (BW) with what might become another landmark cover story, the kind you remember for many years, and laugh at each time it's mentioned.

"Is Inflation Dead?" is the headline. It immediately reminded us of the famous Businessweek cover from 1979 – "The Death of Equities."

That cover turned out to be excellent timing – for contrarians.

Equities had been in a bear market for the previous 14 years. And inflation had been going up. The geniuses at BW could only imagine that the two trends would last forever.

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