It's not the supply chain, stupid is an article by Jack Tazman which was just too good not to feature here on KGL. This article is an unedited version. Please visit the original article here in the Upside Chronicles and give it some love.
The Fed knows what they're doing – siphoning wealth from the American people. Don't play dumb, J.Pow.
Public service announcement: Inflation is not transitory.
More importantly, inflation has been the mechanism of the massive wealth transfer from America’s middle and working class to the wealthy since the onset of the pandemic.
While politicians and talking heads do what they always do – distract from what’s really happening – the Federal Reserve has been implementing kleptocratic policies with dubious motives.
The Federal Reserve and their politician mercenaries have leveraged a hefty tax on the American people in a roundabout, deceptive way.
By the end of this 10-minute read, you’ll understand exactly why rising inflation levels are the direct result of the Federal Reserve’s monetary policy – and why it was 100% foreseeable, preventable, and mathematically speaking, probably intentional.
The net effect is that a small number of wealthy elite just plundered trillions of dollars from the American people.
The conditions for inflation
Expanding the monetary supply makes sense during periods of real economic growth. But America’s economy is not growing. On the contrary: It’s shrinking. It has been for years.
There are 35% fewer companies listed on the stock market today than there were in 2004. More than a third of American’s small businesses shut their doors for good in 2020, never to reopen.
Yet, the total monetary supply in circulation has increased by 22% since January 2020.
The math isn’t hard: Expanding the monetary supply without the corresponding economic output (in the form of goods and services) causes inflation. There are more dollars, but not more goods. More dollars chasing the same number of goods means prices go up.
We can assume that Jerome Powell and other members of the Federal Reserve’s board banks know this. If they don’t, they should resign due to lack of qualifications.
If they do, they also know that generally speaking, inflation is good for the wealthy and bad for everyone else. Perhaps that’s why the Federal Reserve has changed the formula it uses to calculate inflation several times. Not-so coincidently, every revision of the formula has generated lower inflation numbers than it did before.
“we chose consciously, and carefully chose, not to have a formula for the average inflation rate,” john williams, the president of the federal bank of new york told the midsize bank coalition of america.
Must be nice Mr. Williams. How about We the Taxpayers ‘consciously and carefully chose, not to have a formula’ when we do our taxes? Oh, right. Rules for thee, but not for me.
That members of the Federal Reserve graph the numbers they’ve calculated using revised formulas alongside figures calculated with earlier formulas is at best, scientifically irresponsible, at worst, willful misinformation.
With no plans to remove dollars from circulation and a 22% growth in real national economic output a pipe dream, there is no reason to think that the recent incline in inflation is transitory – or has even reached its peak.
The Federal Reserve has the purse strings. Without them, America’s government would run out of money quickly. Any government expenditure requires the Federal Reserve’s approval behind closed doors. Congress and the president are more analog to middle management than they are true leaders. The Federal Reserve and the DTCC are the C-Suite.
In other words, the Federal Reserve and the financial industry is America’s de facto ruling class.
The real way to look at inflation
We often think of personal finance in terms of income (salaries, asset appreciation, investments) and expenses (taxes, bills, cost of living). This way of thinking is fundamentally flawed when it comes to assessing macroeconomic trends such as inflation.
The problem is it fails to account for the changing value of the dollar.
the value of a dollar is not constant.
The dollar’s value has been on an accelerating decline for decades.
Despite economic contraction, the total number of printed dollars in circulation went from just under $1.8T to almost $2.2T since January 2020 (Source: FRED Saint Louis.)
the value of a dollar is not constant.
Consider this: The Federal Reserve’s erosion of the dollar is a form of taxation without representation. Unlike taxes, inflation doesn’t take your dollars away. Instead, it takes the value of your dollars away. It is a decline in the dollar’s purchasing power.
The net effect effect of either approach is the same. You are now poorer.
Here’s why.
Inflation is taxation
Your income – whether it’s $30,000 or $200,000 – buys fewer goods than it did just two years ago.
Let’s say after taxes and other deductions, a median income earning American takes home $4,000 a month. In January 2020, their rent was $1,400, their average monthly food budget cost $600, and their auto related expenses netted about $500. After all their bills, they have $1,500 to live on.
But the Federal Reserve expanded the monetary supply while the availability of goods contracted. Some of the net effects include:
- Median rent price has increased by 7.5% since the beginning of the pandemic nationwide. (Source: 2021 data by Realtor.com)
- Food prices rose by 3.4% in 2020 and are on track to increase by an additional 4% by 2021’s end. (Source: USDA.)
- National average gas prices are up almost 30% over the last year according to the U.S. Energy Information Administration.
Considering these changes, let’s review the median income earner’s budget again. Let’s even assume they have been doing well at work and were given a 5% raise. All that hard work has been paying off. Or has it?
With the raise, our median income American now takes home $4,200 a month after taxes and deductions.
But now, rent costs $1,600. Monthly food expenditure rose to $650 a month. Auto related expenses are $650. They are left with $1300.
even after a 5% raise and no change in living standard, our median income earning american has less money than before. thank goodness for that 5% raise – they have only lost $200/month compared to a $400/month loss if they had received no raise.
We’ve only calculated for 3 primary expenses. However, the cost of absolutely everything is going up. That means there’s more pinch on the budget than what’s calculated here.
Here’s the truth: A salaried/hourly employee who hasn’t received a 22% increase in pay since early 2020 is about 20% poorer than they were less than two years ago if their living standards stayed the same.
You see, rather than taxing the American people an additional $400 by taking that money out of their paycheck, the Federal Reserve’s has instead opted to reduce Americans’ purchasing power, decreasing the number of goods their salaries can afford them.
Meanwhile, politicians keep Americans distracted and one-dimensional in their assessments by focusing their attention on income and taxes.
Critical inflation metrics: Multiples
when i was your age, i only made $50,000 and i still bought a house. you make more than i did at your age. – boomers to millennials/generation z
To be fair, this is objectively true.
But it also highlights why we cannot look at monetary policy in terms of income and taxes. The fallacy is that it assumes the dollar’s purchasing power has remained unchanged. The more comprehensive way to look at the impact of fiscal policy is in terms of multiples.
multiples are a critical concept in understanding macroeconomics.
In fact, multiples are the lens through which banks view and manage their own money – and yours.
A bank will decide how much they will lend you based on multiples your income.
For example, high-income, no-debt borrowers with high credit scores will be able to borrow higher multiples of their income. The upper end of these lending multiples for mortgages is generally around four. (I.e., a high-quality borrower will be able to borrow four times their income.)
However, a borrower with other debt obligations such as student loans or a history of late payments, will only be approved for lower multiples – two or three times their income.
Now we have the framework to understand how the Federal Reserve’s monetary policies really work. Onward.
Inflation, multiples, and macroeconomics
Consider this: In the year 2000, the real median income in the United States was $63,292.
In 2020, the real median income in the United States is $67,521. (Source: FRED Saint Louis)
At face value, it appears that median income has gone up.
In reality, the 2020 median income earner is significantly financially behind where the 2020 median income earner was.
In Q4 of 2000, for example, the average American home sale price was $212,000. For someone making the national median income of the day, that amounts to just shy of 3.5x their annual salary. With good credit and low debt obligation, they were likely to be approved for this amount on a mortgage.
On the other hand, the fourth quarter of 2020 saw an average home sales price of almost $404,000. At 2020’s median income, that amounts to almost 6x their salary.
Little problem for the 2020 median household income earner: Most banks will only lend up to 4x your salary. In fact, banks have actually lowered the multiples they use for mortgage lending to 2.5x in recent years. At that multiple, you would need to make over $160,000 a year to qualify for a mortgage on an average priced home.
that means that the median household income earner of 2020 is unlikely to be approved on a mortgage for an average sales price home. they have been effectively priced out of the housing market.
In order for the 2020 median income earner to be on equal economic footing as a median income earner in 2000, the average home sales price would need to be just shy of $237,000 today. As most Americans know – that’s just not happening.
In 2000, a median income-earning American could afford to buy a house. Their 2020 contemporary is 40% short.
The REAMED Index
The Real Estate Attrition Median Economic Differential (REAMED) index, is an Upside exclusive economic indicator. It compares the average real estate price as a multiple of national median income by year.
In other words, it reflects the degree that the American people are getting REAMED by the Federal Reserve’s monetary policies in the form of inflation.
By looking at the REAMED index, it’s clear why fewer and fewer people can afford to buy houses, even if they are staying at or above the midpoint of America’s wealth distribution (median income).
The last time someone earning the national median income (the midpoint of all income levels) could afford an average priced home was in 2004 – almost 18 years ago. Since then, the REAMED index has climbed higher and higher, well above the mortgage lending multipliers banks will approve.
Housing is only one dimension by which the American people are getting pinched. Education, health care, and that sweet, sweet avocado toast have also been getting more expensive.
A ubiquitous rise in costs across the charts is a hallmark of inflation – not supply chain issues.
As Americans can afford less and less, more and more resources and assets become exclusively available to the wealthy.
You might be thinking: But banks and the wealthy hold their wealth in dollars too. Doesn’t the Federal Reserve have vested interest in keeping the dollar strong?
While the answer has some nuance to it, the crux of the equation is…not necessarily.
Here’s why.
It’s all about the ratios
Banks, the Federal Reserve, and America’s wealthiest people also look at monetary policy in terms of multiples. After all, it doesn’t matter if the average person has $1 while the banker has $1000, or if the average person has $100 while the banker has $100,000. The proportions of power are the same.
Like banks, the Federal Reserve – which is comprised of board members of the nation’s largest banks – also create monetary policy around multiples.
That is, they make sure that for every dollar worth of rebate American’s get from their own tax bill, the wealthy and powerful afford themselves a multiple that maintains or increases their ratio. The higher their multiple, the wider the wealth gap.
Stimulus didn’t cause inflation. The Federal Reserve caused inflation.
Let’s consider some of the stimulus measures put in place in response to the pandemic and subsequent shutdowns.
Americans were eligible to receive three direct payment stimulus checks. Had they collected the full amount all three times, they would have netted a total of $3,200 in direct payment stimulus checks.
Of course, not everyone was eligible for the full amount of all three payments. Many Americans weren’t eligible for any of this money.
According to Tax Foundation, the total bill for the direct payment stimulus checks was $867 billion.
Income support measures such as supplemental unemployment and nutrition programs cost a total of $908 billion. (Source: Committee for a Responsible Federal Budget)
More or less, of all the stimulus relief measures, the total amount of money that went directly back to Main Street was around $2 trillion. Of course, this amount was divided amongst millions of people.
What’s left unsaid
And boy, did we hear a lot about that $2 trillion from the media. For months, stimulus payments and unemployment relief measures dominated the news cycles 24 hours a day. “Economists” weighed in on the effectiveness of these measures; politicians “debated” if the unemployment supplements were hurting the economic recovery.
“The massive amount of stimulus money being sent to Americans — combined with pent-up demand for goods and services as COVID-19 restrictions eased — created the perfect storm for inflation, experts say,” writes Vance Cariaga of Yahoo Finance!
Yet, the article – and hundreds of others like it – fail to mention that almost double the stimulus money sent to Americans was funneled directly into Wall Street.
That’s because the Federal Reserve can’t just give money to Main Street. That would distort the power dynamics they are in place to preserve. If Main Street was going to get a direct payment, then Wall Street was going to get at least double that, divided among far fewer people. In the eyes of the Federal Reserve, power ratios must be baked in like peaches in a cobbler.
There was a deafening silence on the matter from the financial press. No one seems to be hollering from rooftops that by giving Wall Street trillions of taxpayer dollars, they would obviously turn around and invest that capital into housing, equities, and bonds, driving up the cost of living. No “experts” weighed in on whether or not the Federal Reserve pumping $3.75 trillion into the stock market for asset purchases was productive for the real American economy.
Spoiler alert: It wasn’t.
But it wasn’t bad for everybody, of course.
The smoking gun
To maintain the power multiples of Main Street’s stimulus measures, which was needed because they still had mortgages and bills to pay while they temporarily were out of work, Wall Street got a nice $3.75 trillion dollar pump to offset what would have been a reduction in their multiple over Main Street.
The best part: 100% of the bill for both Main Street and Wall Street’s stimulus measures were thrown on the taxpayer’s tab.
No wonder Jerome Powell was so eager to fire up the Federal Reserve’s printers.
And who will the American taxpayer be making payments to on these tremendous stimulus packages for years to come…with interest?
Why, the Federal Reserve, of course.
How Wall Street’s stimulus pump is driving up prices
Thanks to their multi-trillion taxpayer handout, Wall Street’s big payday has been hard at work, driving up the cost of living.
Reports of investment firms buying houses at over 20% the asking price, beating out bids from buyers who sought to live in the homes as oppose to rent them out at top market rates, have circulated ever since.
Decades worth of our own future tax dollars are driving up the cost of living and eating the value of our household budgets.
Consider that the Wall Street’s bailout from the Great Financial Crisis was about $700 billion. They just heisted five times that behind smoke, mirrors, and distraction tactics.
It’s not ‘supply chain issues’ – it’s inflation
“i continue to believe as my baseline case that this will prove to be largely transitory,” jerome powell told yahoo! finance in may.
Of course, supply chain issues do happen. No Millennial will forget the Great Avocado Shortage of 2019, when labor strikes sent the price of Millennial’s housing annihilator to roughly $5 a fruit. That is a supply chain issue.
But it’s hard to blame ‘supply chain issues’ when the cost of absolutely everything is marching up at the same time. Supply chains effect industries or regions. They do not generally effect every product on the market at once.
An increase in costs across the charts is the textbook definition of inflation. In fact, Merriam Webster defines inflation as: ‘a continuing rise in the general price level, usually attributed to an increase in the volume of money and credit relative to available goods and services.’
That’s what’s happening here, the direct result of Wall Street’s Big Payday which was quickly put to work buying up the assets that had slipped out of Main Street’s reach as their budgets got pinched.
What they’re hiding
The Federal Reserve is making excuses for the massive increase in cost of living caused by its monetary policy. They couldn’t just give the money to Main Street without giving Wall Street a proportional liquidity pump. That liquidity was then invested into assets that is directly responsible for driving up the cost of living.
The ‘unintended consequences’ narrative will be coming down the pipeline shortly, in keeping with the “let’s just do it, lie, and play dumb after” playbook.
inflation is here, will get worse, and is not transitory. the cost of living will continue to rise.
Jerome Powell is a smart man. That the Fed has repeatedly changed their inflation calculation formulas to hide the extent of the damage (formula changes always minimize inflation numbers) demonstrates that the plundering of American wealth by the Federal Reserve can’t simply be chalked up to some variation of Bernanke’s “unintended consequences” narrative.
If they are lapses in judgement, they were easily foreseeable. If the Federal Reserve tries to play this card – again – it’s time they also admit are not qualified to handle the important task of managing the nation’s monetary supply. Historical patterns have repeatedly shown us ‘these unintended consequences’ very predictably take economic power away from average Americans and find their way onto Wall Street’s balance sheets.
The Federal Reserve merrily publishes graphs with upward trending lines on income and asset appreciation. This one-dimensional view hides an accelerating trend of wealth disparity in America. Believe it or not, even median income – a data point they like to keep us focused on while they manipulate the entire system around it, is on track to end lower in 2021 than it did in 2020.
Power is a relativity metric
It’s all about the ratios. It always has been.
In a capitalist society, money is power.
Jerome Powell and friends in the banking syndicate had other options that would have prevented inflation. They could have funded the stimulus by selling off assets or tapped into the ‘reserves’ they are presumably named after, both of which would have prevented or limited the effects of inflation.
It’s important to understand that the Federal Reserve’s board is comprised of the wealthiest Americans. What a shame then, that they once again failed to demonstrate the patriotic sacrifice they so readily ask of Americas when they demand they return to work amid a pandemic or send their sons and daughters into war.
But, of course, the Federal Reserve, and by extension, big Wall Street banks, will never opt for any measure that reduces their multiple over Main Street.
As much as Wall Street aims to villianize average Americans and frame the stimulus measures such as direct payments and unemployment as a ‘government handout,’ that is objectively false. These are our own tax dollars. We essentially temporarily received one of the tax breaks billionaire tax dodgers enjoy at all times. But the wealthy elite would never just let us get a holiday from paying taxes, no matter what national crisis we face.
After all, that tax revenue often goes straight into their pockets in the form of government contracts, interest free access to endless money to generate privatized profits, and risk transfer onto the American taxpayer. It’s capitalism for the American people, with the benefits of socialism for Wall Street.
America’s government and economic system has gone bona fide, textbook kleptocracy.
Because don’t forget: We won’t just be paying for the brief tax pause we had due to COVID. We will be paying for the tax dodgers’ Big Payday too. In effect:
the only people who got a ‘government handout’ from stimulus measures was wall street.
There are no ‘unintended’ consequences
Like stock brokerages buying, selling, and lending their account holder’s stocks, and Wall Street banks using their customers’ accounts like their own private piggy banks, the Federal Reserve has conflated the job they were entrusted with – managing the country’s monetary supply – with a free-for-all honey pot.
Jerome Powell is using Alan Greenspan and Ben Bernanke’s kelptocratic playbook, finding ever more ways to enable the voracious, decades-long growth of Wall Street’s Golden Age.
Until one of these ‘unintended,’ yet highly predictable consequences plays out in Main Street’s favor as probability would suggest it would from time to time, there is no benefit of the doubt to give. The best case scenario is that our nation’s monetary policy has been managed by grossly unqualified people who need to step down for incompetence. At worst, they need to be investigated for criminal corruption, as should anyone in close association with them.
Historical patterns of the same repeated outcome are not the product of chance. How can the consequences be unintended when they are so incredibly predictable and fresh in our memory?
There will be no bank error in your favor. When you pass go, you’ll get your $200, but you’ll owe $400. As we apprehensively move our pieces passed hotel after hotel on every property on the board of late stage capitalism, we come to understand the true lessons in the game of Monopoly.
It’s no coincidence the banker always wins.
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