This report was originally published by Brandon Smith at Alt-Market.com
It is at times frustrating, but also interesting, to witness the progression of the mainstream’s awareness of economic crisis within the U.S. over the years. As an alternative economist, I have had the “privilege” of perching outside the financial narrative and observing our economy from a less biased position, and I have discovered a few things.
First, the mainstream economic media is approximately two to three years behind average alternative economists. At least, they don’t seem to acknowledge reality within our time frame. This may be deliberate (my suspicion) because the general public is not meant to know the truth until it is too late for them to react in a practical way to solve the problem. For example, it is a rather strange experience for me to see the term “stagflation” suddenly becoming a major buzzword in the MSM. It is almost everywhere in the past week ever since the last Federal Reserve meeting in which the central bank mentioned higher inflation pressures and removed references in its monthly statement to a “growing economy.”
For those unfamiliar with what stagflation is, it is essentially the loss of economic growth in numerous sectors coupled with a marked spike in consumer and manufacturing costs. In other words, prices keep going up while employment growth, wages, production, etc. decline.
I have been warning about a stagflationary crisis as the ultimate result of central bank bailouts and QE for many years. In 2011, I published an article titled ‘The Debt Deal Con: Is It Fooling Anyone?’ in which I predicted that the Fed would resort to a third round of quantitative easing (they did). This prediction was based on the fact that the previous two QE events had not resulted in the kind of results the central bankers were obviously looking for. At that time, the stock market remained a dubious mess on the verge of a renewed crash, the U.S. debt rating was about to be downgraded by S&P, true employment growth was dismal, etc. The Fed needed something spectacular to keep the system propped up, at least until they were ready to trigger the next stage of the collapse.
In that same article I also discussed the inevitable end result of this stimulus bonanza: Stagflation.
QE3 was a dramatic con, along with Operation Twist. The Fed got exactly what it wanted — an unprecedented bull market rally in stocks and temporary stability in bond markets. As stocks jumped higher and higher despite all negative fundamental data, the mainstream simply regurgitated the fool’s narrative that a “recovery” was upon us. But now things are changing and no illusion lasts forever.
The second observation I have made is that central banking elites and their cronies tend to give warnings on great economic shifts, but only about a year before they occur. They do this for a few reasons. One, because they are the people that engineer these crisis events in the first place and it’s not very hard to predict a calamity you helped create. Two, because it makes them appear prophetic when they are not, while at the same time giving the public as little time as possible to prepare. And three, because it gives them plausible deniability when the crisis actually happens, because they can claim they “tried to warn us”, though unfortunately it was too late.
The Bank For International Settlements warned of the derivatives and credit crash in 2007, about a year before the disaster struck. In 2017, former Fed chairman Alan Greenspan warned of inevitable “stagflation not seen since the 1970s.” In later comments, he and others attributed this potential crisis to the policies of Donald Trump.
It is important to note that stagflation is entirely the fault of central bankers and not the presidency, though the White House has indeed aided the Fed in its efforts regardless of who sits in the Oval Office.
Years ago there was a rather idiotic battle between financial analysts over what the end result of the Fed’s massive stimulus measures would be. One side argued that deflation would be the outcome and that no amount of Fed printing would overtake the vast black hole of debt conjured by the derivatives implosion. The other side argued that the Fed would continue to print perpetually, resorting to QE4 or possibly “QE infinity” and negative interest rates as a means to stave off a market crash for decades (like Japan) while at the same time initiating a Weimar-style inflationary bonanza.
Both sides were wrong because they refused to acknowledge the third option — stagflation.
The Fed clearly found a way to direct inflationary pressures into certain parts of the economy while allowing deflationary pressures to weigh down other parts of the economy. They also are NOT sticking to their previous strategy of holding interest rates down while pumping up markets with talk of further QE.
Deflationary proponents used to sarcastically argue that if people really believed that inflation would be the consequence of Fed activities then they should jump into the housing market because they would make a mint on price increases. Well, this is exactly what has happened. Home prices have continued to surge despite all fundamentals, including dismal home buyer stats which hit an all time low in 2016 and have barely recovered since.
I use home prices as a prime example of stagflation because the housing market constitutes around 15 percent to 18 percent of total GDP in the U.S. Since items like food and fuel are not counted in the calculation of the CPI index, housing should be the next consideration. Signs of stagflation in housing are a sure indicator of stagflation in the rest of the economy.
The manner in which housing is calculated in the CPI and GDP is a bit odd, of course. Housing is not included in these stats in terms of home purchases annually. In fact, home purchases and improvements are treated by the Bureau of Labor Statistics as an “investment” and not as a consumer purchase, which means they are not considered a measure of inflation. However, home values in terms of their “rental cost and change in cost” are counted in CPI.
As we all know, rent prices across the country have been skyrocketing in the past few years along with home prices, while at the same time home buyers have dwindled and the millennial generation is staying at home with mom and dad rather than paying out monthly for homes and apartments. That is to say, in a normal economic environment fewer buyers should result in lower prices, but this is not what has happened. The question is, how has the Federal Reserve and QE contributed to this example of stagflation?
First, the Fed’s artificial support for Fannie Mae and Freddie Mac after the derivatives debacle allowed for the continued propping up of the housing market when bad debt should have been allowed to cycle out of the system and house prices should have been allowed to fall.
Second, the Fed’s bailout funding of Fannie Mae directly benefited companies like Blackstone, which has become a partner with Fannie Mae and one of the largest buyers of homes in the country. Blackstone has not purchased tens of thousands of homes for resale, but for conversion into rentals. Blackstone’s vast purchases of single family homes has artificially boosted home values across the nation and given the false impression of a housing recovery that does not really exist.
Third, a very interesting discovery; while the central bank under Jerome Powell has become more and more aggressive in its balance sheet reductions, a move which has directly contributed to the recent decline in stock markets, there is one asset class that the Fed has been ADDING to its balance sheet — Mortgage Backed Securities (MBS). These purchases tend to take place directly after older MBS have been allowed to roll over, meaning, the Fed is maintaining a relatively steady number of MBS while it is dumping other assets.
MBS represent around 40 percent of the Fed’s total balance sheet, and the Fed’s continued fiat support of the MBS market helps explain why home prices refuse to fall despite negative fundamentals. It is also interesting to me that the Fed has chosen to dump certain assets that appear to be causing a downward reaction in stock markets and other sectors while maintaining assets that keep housing prices high. It’s almost as if the Fed wants stagflation…
Finally, while the Fed’s interest rate hikes do not traditionally have a direct correlation to home mortgage rates, there is an indirect correlation. Fears of inflation sometimes ironically create inflation, and as the fed raises interest rates, mortgage rates tend to track. In 2018 mortgage rates have spiked, climbing 48 basis points since the beginning of the year.
This contributes to higher home prices as well a perceived rental values according to the CPI.
The source of almost every instability within our economy can be tracked straight back to the Federal Reserve and the “too-big-to-fail” corporations they bailed out after the credit crash. The current stagflationary development is no different. Stagflation will ultimately result in extreme price increases on necessary goods and services far beyond what we have already seen while the public’s ability to keep up with those prices will falter.
The fact that this issue is FINALLY hitting the mainstream should be concerning to everyone. For when a crisis development is discussed in the mainstream, it means we are on the verge of that crisis reaching its nexus. In June the Fed will raise interest rates yet again despite failing fundamentals. The Fed will continue to cite inflationary pressures, and the Fed will continue to cut its balance sheet. There is no room for delusion on this anymore. The Fed will not stop on its current path. In the meantime, central banks will continue to blame external forces such as trade wars and Trump era policies for stagflation while ignoring the trillions in fiat they have expertly poisoned our financial system with.
All bubbles collapse, but not all bubbles collapse in the exact same way. I believe the Fed has created a perfect storm of combined deflationary and inflationary factors; an economic bomb to surpass all economic bombs.
If you would like to support the publishing of articles like the one you have just read, visit our donations page here. We greatly appreciate your patronage.
You can contact Brandon Smith at: [email protected]
After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.
Brandon, in my trade, MBS is an ancronym for ‘main bang suppression’. In radar systems, it is what causes a radar’s receiver not to be overloaded by its own high-energy output. In your field, MBS being ‘mortgage backed securities’ they in essence are doing the same thing to the markets. For if the truth was known about the power of what they could reflect as to the entirety of the system’s output the whole schmeer would blow out. Interesting.
What is “an alternative economist” ??? Never heard that term, ever. Not in 50 years of Finance. And what, pray tell are the qualifications for this moniker ???
Inquiring minds want to know. 🙂
Durangokidd pretending to be an expert in “finance” again? Do you dress up in a suit and tie and carry a briefcase over to the computer in your parent’s guest room/junk closet where you play office? Come on guy, you haven’t been right about a single prediction you’ve made in the years you’ve been babbling on the boards here. Give-it-up.
LMFAO !!! 🙂
BTW, the CAUSE of America’s “ongoing economic collapse” was the systematic dismantling of the American Means of Production and the transfer of 70,000 factories and tens of millions of American jobs to China facilitated by the NWO on both sides of the political spectrum.
It’s that simple. It’s that basic. TREASON. Everything else is a symptom. 🙁
100% agree. Wealth creation, a product of manufacturing has been exported and hence wealth has been exported. Its replacement is money backed by nothing. Its as believable as a movie set fooling only those that want to be fooled. The alternative, questioning and deductive reasoning are too difficult, too time consuming and the answers far too frightening.
Well said K2. Speaking of money backed by nothing, BITCOIN doesn’t even have the “full faith and credit” of the USA behind it.
It is a ponzi scheme relying on the “bigger fool theory” to enrich it’s owners who are mostly TRADERS speculating in its volatility. 🙂
Stagflationary Crisis: Understanding The Cause Of America’s Ongoing Collapse
Waiting for the MSM to push the blame – that this is because of a Russia, Syria, Iran, China, and North Korea collusion. As per usual, our fictional enemies are responsible for Americas downfall and other notable atrocities.
It is not how “. . . the mainstream economic media is approximately two to three years behind average alternative economists . . . .” What is absolutely stunning is how mainstream economic media has been able to keep the fully-rigged, manipulated and controlled narrative alive for as long as it has. Alternative economic media knows this. How else have they kept their Patreon cash cows alive for as long as they have?
This was a good analysis, in my opinion.
I believe the satanic rulers do know in advance of wars and economic trends because both are planned and instigated, usually intertwined in numerous ways.
I don’t know what to do. I personally have little effect upon much at all. But, like the pebble thrown into a stream, every person creates a ripple effect.
Once, while wine tasting in California wine country, I sipped a few drops of Ripple Wine. The makers of Ripple Wine make just a small profit from the sale of one bottle. But they make a fortune off the total sales.
As consumers we have a combined power that ripples back to the center.
A very interesting read.
@ Mr. Smith: What are your thoughts on the role of Rental Backed Securities (RBS)? As I recall, they made few waves in the news despite debuting not long after the financial crisis. They were heralded as the next best thing in a document I once read titled “The Rentership Society” in which it was predicted that fewer and fewer Americans would become homeowners.
In recent years, however, I haven’t heard any news on RBS investments. What amount of growth has occurred and what role might this play in the affordable housing shortage, be it rentals or single family homes? And lastly, what would be the impact if it were no longer legal to produce MBS or RBS? Would this have a favorable impact on affordable housing, potentially allowing consumers to spend or invest their money or would it have no real impact at the consumer level?
The rich man’s big business “economy” (Communist) made (“in China”) to be totally dependent on dwindling supplies of big oil (that’s now monopolized by Putin and the Kingdom of Saudi Arabia) is what’s permanently driving prices of everything up. All the other “explanations” of it are carrots dangled in front of us to get us all to run in the direction they want us to run. Getting off of the rich man’s economy is what frees people from it.
No matter what is done politically or economicly. Until the situation of too many takers and too few makers is reversed the decline will continue.