EC Is “Temporary Inflation” A Real Thing?

A quick digression: Notice the neat bit of misdirection here? “Infrastructure,” like “covid relief,” can in practice mean pretty much anything a political party wants to give its favorite voting blocs. So childcare, education, you name it, it’s either relief or infrastructure.

It’s simpler to just view this year’s spending as a back-door bailout for badly run cities and states. After all, part of being “badly-run” is skimping on roads, bridges, etc., in order to fund wildly overgenerous public sector pensions. Because most of these places have been ruined by politicians from the same party that now controls Washington, a direct bailout would be politically dangerous. But give a bill a popular name and Congress can lard it with everything on the wish list.

Now back to an analysis of the numbers, the point of which is that in this late, decadent stage of rampant financialization, governments will always find a way to borrow and spend more, because there’s really no other option if they want to avoid presiding over Great Depression 2.0. More debt won’t delay the Big D forever of course, but it might move it beyond the retirement date of most of the current political class, and for them, that seems to be enough.

As for temporary inflation, one could make the case that it’s already raging. Lumber, for instance …

Lumber temporary inflation

… and copper…

Copper temporary inflation

… and of course interest rates. The 10-year Treasury Note responded to Powell’s speech by jumping back up to 1.5%.

10 year Treasury temporary inflation

These are all signs of an overheating economy – BEFORE several trillion more dollars inundate construction, housing, and finance. So how exactly can the Fed know that the even more broad-based inflation likely to result from tossing new gasoline onto this fire will burn itself out in a few months? The answer is they can’t possibly know that. And history says that this particular genie, once out of the bottle, likes to stick around for a good long while.

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