The Great Deflation Of 2022

The proof is in the data. The Effective Fed Funds Rate was below one percent from October of 2008 thru June of 2017. The Fed was also engaged in QE’s 1,2, & 3 from December 2008 thru October 2014. And yet, here are the average 12-month changes in CPI for each of the given years:

2009 = -0.3%

2010 = 1.6%

2011 = 3.2%

2012 = 2.1%

2013 = 1.5%

2014 = 1.6%

2015 = 0.1%

2016 = 1.3%

2017 = 2.1%

2018 = 2.4%

2019 = 1.8%

This means, in the 11 years following the start of the Great Recession, all the way through the start of the Global Pandemic, consumer price inflation was quiescent despite the prevailing conditions of zero interest rates and quantitative easings. However, consumer price inflation began to skyrocket by the second quarter of 2021. In fact, it has averaged nearly 5% over the past four months on a year-over-year basis. What caused this trenchant change? It was The 6 trillion dollars’ worth of helicopter money that was dumped on top of consumers’ heads. Regular QE just creates asset price inflation for the primary benefit of big banks and Wall Street. 

But, the helicopters have now been grounded for consumers and soon will be hitting the tarmac for Wall Street as well; that is, once the Fed’s tapering commences this winter. Hence, CPI is about to come crashing down, just as is the growth in the money supply. M2 money supply surged by 27% in February 2021 from the year-ago period. But, by June of this year, that growth was just 0.8% month over month, or down to just 12% year-on-year. 

The Government Lifeline is Being Cut

The highly-followed and well-regarded University of Michigan Consumer Sentiment Index tumbled to 70.2 in its preliminary August reading. That is down more than 13% from July’s number of 81.2. And below the April 2020 mark of 71.8, which was the lowest data point in the pandemic era. According to Richard Curtin, Chief economist for the University of Michigan’s survey, “Over the past half-century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy.” 

View single page >> |

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

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.