The Inflation is Real

Karl Denninger observes that the government’s CPI numbers simply do not reflect the reality at the grocery store:

When I go to the grocery store the register tape — and my Quicken — says I’m spending a lot more money there. Not a couple of percent over the last 12 months, an obscene increase. Shelf prices are one thing, but actual paid prices are truth — and those involve discounts, coupons, BOGOs and similar. I, like most people, buy pretty much the same things to eat. Spending over the last 12 months is in fact up more than 30%, not 2%.

Car insurance is claimed to be up about 20% — and it is. That’s real, and everyone with a car has had to pay it. But the government also claims that health insurance has been down in price by roughly 30%. That’s nonsense, and we all know it, but there it is.

There are some who think the answer is “higher wages!” But its not; you can’t keep up any more than you can with a “roaring” stock market.

The simple reality is that you cannot have Congress emit eight percent, more or less, of the economy in newly emitted credit and not have prices go up by about 8% unless there is somewhere that absorbs it which you do not have to cover. For roughly two decades there was — the increase in global trade, most of which is settled in dollars, buffers that by temporarily capturing the money while goods are in transit.

Note however that a permanent change in trade doesn’t result in this remaining captured; it is the change in level of global trade that does that, and only while the change is taking place. We’ve offshored basically everything we can offshore at this point and thus the available increase has dwindled to essentially zero.

The problem is that during that 20 year period of time we “trained” Congress (and both political parties) that they can run 30% deficits and not have it show up as 8% inflation on a permanent basis. That’s flat-out false.

This in turn means that either we’re going to absorb about 8% inflation (no matter what the government claims), spending must come down by about 30% at the federal level and that is only to stabilize prices, not return them lower, or taxes must go up by about 40% which of course is another expense in the household and reduces disposable income. The latter is politically impossible.

How does this resolve?

Revolution and civil war cometh, if Peter Turchin’s cliodynamics are to be believed. A perfect storm is approaching for the United States, as all four structural drivers of societal instability are not only present, but appear to be at, or at least near, record historical levels.

Focus on what is important, focus on what is going to last. It’s not an accident that Castalia has shifted from ephemeral ebooks to leather books that are capable of lasting for centuries and have been assembling machinery for everything from sewing machines to leather bindings.

It’s going to be difficult. But our community is not only going to survive, it is going to thrive. Because unlike most, we have been repeatedly tested by adversity, and we are hard enough for the hard times.