The Fed Has It EXACTLY Backwards

You’re Paying the Price [The Daily Reckoning] August 04, 2022 [WEBSITE]( | [UNSUBSCRIBE]( The Fed Has It EXACTLY Backwards - Demand, demand, demand… - Say’s law… - Then Jeffrey Tucker shows you how American prosperity is undergoing a “controlled demolition”… [[Trade Alert] This Explosive Sector Is Primed To Deliver Huge Gains… Fast!]( [Click here for more...]( Have a few hundred dollars and the desire to make huge gains? If so, this explosive stock market sector needs your attention right away. I’m talking about biotech. And as one headline from late July reads, “investors back [biotech]… as sector booms.” Point being, there’s a lot of money up for grabs right now. Best of all, we’ve identified what could be the No. 1 biotech stock pick in the world. It could deliver substantial gains over the coming weeks to those who act fast. And you can still buy shares for less than $5. [Click Here For The Urgent Details]( Annapolis, Maryland August 4, 2022 [Brian Maher] BRIAN MAHER Dear Reader , The Federal Reserve believes it hangs from the hooks of a horrendous dilemma. To cage the inflationary tiger presently amok, it would likely plunge the economy into severe recession… Yet if it navigates a wallowing economy away from recession, inflation will run and run and run. But is it a false choice? Must the Federal Reserve bludgeon the economy to cripple inflation? Consider: It believes it must strangle off excess “demand” in the economy. It is this excess demand that keeps inflation a going concern. The Keynesian prayer book from which most economists read says it. High priest Paul Krugman, drawing on the Book of Demand: The problem may be that the Biden economy boomed “too much,” feeding inflation, and that it now needs to cool off, which may involve a recession (but hasn’t yet). Archbishop Larry Summers intones: The right thing to do is to raise taxes right now to take some of the demand out of the economy. A lesser clergyman — Harvard professor Jason Furman — affirms that the “economic logic for demand reduction to curb inflation is clear.” Just so. But it is this ceaseless obsession with “demand” that afflicts and hagrides the economics profession as we see it. What about its twin — supply? The economics profession has forgotten its Say’s law — that supply creates its own demand. “Products are paid for with products,” argued Jean-Baptiste Say over two centuries ago. Consider this one example… One man produces bread. Another produces shoes. The cobbler who requires bread for his dinner appears before the baker. And the baker who must clad his feet appears before the cobbler. They may transact in money, it is true. Yet money merely throws an illusory veil across their transactions. Ultimately the baker purchases his shoes with the bread he has baked. And the cobbler purchases his bread with the shoes he has cobbled. Multiply this example by millions, extend it to the Atlantic and Pacific oceans, from the border with Mexico to the border with Canada, the calculus remains identical. Enlightenment-era thinker James Mill (father of the more famous John Stuart Mill): The demand of a nation is exactly its power of purchasing. But what is its power of purchasing? The extent undoubtedly of its annual produce. The extent of its demand therefore and the extent of its supply are always exactly commensurate. Again: Supply creates its own demand. To increase supply is to increase demand. When the government attempts to increase demand with no production to match it… it attempts to outlaw Say’s law. What happens when the happy marriage of supply and demand is driven to divorce, to artificial rupture? During the Great Depression the wiseacres of the economics profession consecrated themselves to raising “demand.” The farmers were in a bad way, they argued. These sad sacks could not fetch enough money for their produce or their livestock. They were wanting in the way of demand. And so they needed a hand up. A program was therefore required to raise prices, to increase their demand. The brain trust then in operation hatched a beautiful scheme. What was it? To set fire to the crops and murder the livestock. That is correct — to set fire to the crops and murder the livestock. The business would increase farmer demand (while decreasing consumer supply). For emphasis: They did not butcher animals to bring them to market — but precisely the opposite — to keep them off the market. Ponder for one moment the reality of it: Millions and millions starved. Yet the food to feed them was destroyed on hellish and industrial scales — to increase demand for one group. It is very nearly inconceivable. But there you are. Today’s monetary authority wishes to collar inflation by throttling demand. Yet the result is also a throttling of supply. What is the answer to today’s galloping inflation? Not reduced supply… but a stable dollar. John Tamny of RealClearMarkets: The rising consensus on the left and right [is] that “demand” is the source of our alleged “inflation” troubles today… Reduced economic growth via “higher taxes, lower government spending or a combination of the two” will tamp down rising price pressures. Except that these won’t… measures taken to reduce “demand” will by definition reduce supply… Actually, the inflation answer is a stable dollar. Nothing else… The dominant ideologies of today (and yesterday) are still captivated by a cart-before-the-horse, demand-side view of the world… Conservatives [also] think shrinking demand is the answer. In their case, their critique of government spending is that it fosters “excess demand” on the way to higher prices. Except that it doesn’t. While the arguments against government spending are too numerous to list, the latter doesn’t cause higher prices born of “excess demand.” We know this because government can only redistribute wealth and “demand” insofar as it reaches into the pockets of the productive. All demand is a consequence of supply, period. Will someone please notify the Federal Reserve? Below, Jeffrey Tucker shows you all about the “controlled demolition of American prosperity” that inflation is producing. Read on. Regards, [Brian Maher] Brian Maher Managing Editor, The Daily Reckoning Editor’s note: Jim Rickards held an [urgent Zoom call]( where he talked about everything from the recent debacle with Pelosi and Taiwan to the Fed’s most recent rate hike. Because of Zoom limitations and the fact that we had more than 10,000 people registered for the call, you may have been locked out. If so, don’t worry. Here’s a replay link: [CLICK HERE TO ACCESS THE ZOOM REPLAY]( But because of the time-sensitive nature of the content, this message will be removed from the internet by tonight at midnight. So don’t delay. [Click here now for immediate access to Jim’s urgent Zoom call.]( [Trump’s Final Gift To America]( [Click here for more...]( There’s a little-known way Trump could – one day – have his revenge. It involves a Federal Ruling he oversaw in the final year of his Presidency that could change America forever… unleash an estimated $15.1 trillion in new wealth… and create countless ways for everyday Americans to benefit. What is this little understood decision? And how will it impact you? All the important facts are here. [Click Here To Learn More]( The Daily Reckoning Presents: “No living person has ever been hit this hard”… ****************************** The Controlled Demolition of American Prosperity By Jeffrey Tucker [Jeffrey Tucker] JEFFREY TUCKER How pathetic that daily the Biden administration dares defend the current economic environment! It’s why these times more and more remind us all of some dystopian novel. They lie to us daily, like an unending exercise in gaslighting. And how degrading for the human beings who are paid to stand in front of microphones to utter such inanities! It’s truly below human dignity. Just as inflation rates seem to improve in one area (gasoline, for example), it pops up in other areas. Food prices are on the move again. So it may cost a few cents less to get to the grocery store; you will spend more this week than last in doing so. Substituting fancy products for cheaper ones only gets you so far. Meanwhile, one sector above all else now seems to be absorbing new inflationary energy: your utility bills. Have a look and compare them with last month and you will see what I mean. This is how inflation works. It is not one rate. There is no index in the real world. There are only price pressures that migrate from sector to sector, place to place and in ways that no one can predict. In Texas, over the weekend, I found a brisket for sale for $18 per pound that only last year cost $5 per pound. It’s from a local ranch, meaning that the rancher had to pay high fertilizer costs and more. This new price is not robbery: It’s cost-covering costs. Of course, inflation affects real income. Right now, income is falling faster and for longer than at any time on record. No living person has ever been hit this hard. That includes people who lived through the Great Depression. At least back then, the dollars you held were growing in value. Today they are declining in value. And to top it off, this crash in living standards happened just following the biggest financial head fake in history during which time we believed we were rich one day and suddenly we were poor the next. What a remarkable and speedy shift! But hey, at least we have credit cards! Credit card debt is up by 13% in the second quarter, which is the largest increase in 20 years. And people are paying for it too: Rates for floating balances month to month are running 16–17% thanks to the Fed’s new interest rate policies that will not tamp down inflation anytime soon but are absolutely killing the bond market and guaranteeing the recession that the government denies exists. If people look up recession on Wikipedia, they can confirm that no such thing exists for one simple reason: The government says it is not happening. Just like the famine in Ukraine in the 1930s. What is unreported is not existent. Take a careful look at this chart that compares the purchasing power of the dollar with increases in M2, which is the only money aggregate we have left that offers some modicum of credibility. [IMG 1] [“The Situation Is Getting Worse By The Day”]( That’s what the President of the US Chamber of Commerce just said about the supply chain. If you thought the supply chain issues were over, think again… Things are about to get much, much worse. And everything from your local grocery store to your gas station could be impacted. That’s why I’m urging everyone I can to prepare now… To see the #1 move to make before this problem gets any worse… [Click Here Now]( I’m not a betting man but there is every reason to expect that red line to fall and fall, at least to keep in line with the increase in producer prices, which are running at an incredible 20% per annum rate of increase right now. The first great mega-disaster could be in our old friend housing. Demand is falling dramatically. The house-flipping party has ended. You cannot sell even at a massively inflated price because you will be dumping a 2% three-year loan for a new loan of 6%. The housing roulette of 2020–21 worked so long as interest rates made the racket financially viable but that is no longer the case. The result snuck up slowly and then all at once. Forget renting too. Rental vacancy rates are down to the lowest levels in 40 years, even as the price of rents themselves are close to being on par with the CPI generally. The pace of change here is also worth a heads up. It’s going to get worse. After the grim realities of the housing market sink in, there will be more bad news in labor markets. We are just seeing the first signs. The only way to understand this sector is by decoupling professional and working-class jobs. There will be no shortages of opportunities to drive trucks, tend bars, fix cars and install solar panels. But high-end managerial positions, particularly in financial companies, are another matter. No longer will a college degree count for much in this labor crunch. Already the signs are there, with Robinhood cutting one in four positions as the day-trading craze of the lockdown years has evaporated. Google, Facebook and Amazon are already making noise about culling management-level positions. The overall market will show continuing labor shortages and people who expect six figures for doing next to nothing will find themselves sorely disappointed. One might suppose there would be panic at the highest levels. I’m not seeing the evidence. Instead, we have a U.S. Congress — probably the most criminally minded majority in at least a century — throwing wild amounts of money around to special interests without a care in the world. Looking back at it, the rigged election of 2020, in which Trump’s defeat also put control of the House and Senate in the Democrats’ hands, created a political calamity without precedent that is still ongoing. They figure that they have two more months of this nonsense and intend to pillage as much as they can while they can. Nor are the major news media making much of a fuss about the end of American prosperity. Yesterday’s New York Times featured a top article explaining how you can avoid COVID by limiting the number of people you have at your home barbecue and making sure that all guests are fully vaccinated and boosted and that everyone has recently tested negative. Sounds like a real party! And yes, this article was written just yesterday, not in 2020. That’s the ruling-class vision of our future: poor, foraging for food, out of gas, paying through the roof for electricity, unemployed and living off welfare, vaxxed up and testing constantly for the presence of the coronavirus. Or maybe monkeypox. Regards, Jeffrey Tucker for The Daily Reckoning Ed. note: Jim Rickards held an [urgent Zoom call]( where he talked about everything from the recent debacle with Pelosi and Taiwan to the Fed’s most recent rate hike. Because of Zoom limitations and the fact that we had more than 10,000 people registered for the call, you may have been locked out. If so, don’t worry. Here’s a replay link: [CLICK HERE TO ACCESS THE ZOOM REPLAY]( But because of the time-sensitive nature of the content, this message will be removed from the internet by tonight at midnight. So don’t delay. [Click here now for immediate access to Jim’s urgent Zoom call.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Jeffrey Tucker] [Jeffrey Tucker]( is an independent editorial consultant who served as Editorial Director for the American Institute for Economic Research. 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