The Great Deflation Of 2022

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It is not very surprising to me that nearly every talking head on Wall Street is convinced inflation has now become a permanent feature in the U.S. economy. This is because most mainstream economists have no clue what is the progenitor of inflation. They have been inculcated to believe inflation is the result of a wage-price spiral caused by a low rate of unemployment. 

In truth, inflation is all about the destruction of confidence in a fiat currency’s purchasing power. And there is no better way to do that than for the government to massively increase the supply of money and place it directly into the hands of its citizenry. That is exactly what occurred in the wake of the global COVID-19 pandemic. The U.S. government handed out the equivalent of $50,000 to every American family in various forms of loans, grants, stimulus checks, enhanced unemployment, tax rebates, and debt forbearance measures. In other words, helicopter money and Modern Monetary Theory (MMT) were deployed—and in a big way. The result was the largest increase of inflation in 40 years. 

We’ve had some of the highest GDP growth rates in U.S. history over the past few months and the greatest increase in monetary largess since the creation of the Fed. But this is mostly all in the rearview mirror now. Consumer Price Inflation is all about the handing of money directly to consumers that has been monetized by the Fed. It is not so much about low-interest rates and Quantitative Easings—that is more of an inflation phenomenon for Wall Street and the very wealthy. 

The idea that rising Consumer Price Inflation has become a permanent issue is not grounded in science. As already mentioned, inflation comes from a rapid and sustained increase in the broad money supply, which causes falling confidence in the purchasing power of a currency. At least for now, that function is attenuating. 

After all, what exactly is there about a global pandemic that would cause inflation to become a more permanent issue in the U.S. economy? In the 11 years leading up to the pandemic, inflation was not a daunting issue—it was contained within the canyons of Wall Street. In fact, the Fed was extremely concerned the rate of Consumer Price Inflation was too low. And, that the economy was in peril of falling into some kind of deflationary death spiral. This is despite ultra-low borrowing costs and money printing from the Fed. 

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Michael Pento is the President and Founder of Pento Portfolio Strategies, produces the weekly podcast called,  more

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