This is going to be easy, as I get ready to head out to the track, where the horses always run, and you have a fighting chance.
The players are screaming RECESSION as though that were the end of it. Yes the benchmark yield curve is nearly zero, off its previous inversion. Notice the recession doesn’t usually begin until the yield curve is solidly on the way back UP…
The price of everything is higher, but the government (at least the one in California) is going to send us freshly printed money. There is no doubt (in my mind) that printing money from aether is an inflationary gambit, and stimulus money which goes into spending, generates new tax revenue which is shared with big brother in Washington, who in turn kicks some back to us.
My state authorizes new money be issued, and other states do not? A friend living out of state now, said she was going to tear up her first stimulus check as a protest against the faux ugliness of this global pandemic theater. A million died, the ones with skin in the game. This asymmetric flow of funds remediates inflationary pressures at the core.
Could inflation actually go to zero, this way? This assumes some states are willing to accept inflation, like hurricanes, and the flow of illegal immigrants across their borders. The West is running out of water while people scream about lost ballots, that were never found, or children who were never conceived, only to be replaced by children who were, whom they refuse to acknowledge.
Paul Volcker could solve inflation by abolishing the lower end of the yield curve, raising overnight rates until they matched the yield on the 10 year bond, and he did it on the back of massive government deficits, which drove down bond yields, and cancelled the threat of persistent inflation before it could manifest itself. That world no longer exists, this Fed is shrinking the monetary base, they printed too much money, on the promise of more infrastructure spending, which never materialized.
If the GOP small government acolytes finally have their way the base will shrink. (and it was about time fiscal restraint took it’s turn in the box) Remember Bush (who rode their coattails to victory, by 500 votes) wanted one trillion to build a border wall, Trump wanted five billion. The Democrats offered him four and half, for a border fence and he refused, and then he tried to steal the money from DOD. What a piker.
Now the Fed has pulled out the old Volcker playbook, be sure they are out of ideas. Core inflation will be persistent, even in the midst of a likely, growth recession. Why people are worried about a recession, not sure? Recessions are when many businesses put money to work, even if the level of investment right now is robust. Bond yields will come down faster than inflation and probably stay down. The supply chain issues will not be solved, causing a generational pivot back towards Europe and away from Asia, while increasingly we try to solve our problems regionally. Japan is a museum of monetary feudalism, in a global community of central bank, city states. The realpolitik of Europe seems better positioned than the Colonists who are engaged in a Civil War reenactment, with no frontier to absorb the disenfranchised victims.
They have seen it all before… Europe knows they must make NATO their own. The social issues in America are a distraction, after jousting over states rights, the Johnny Rebs will try to defund the government. That’s how they lost the last war…..