Sorry, Fed, Inflation is Already Embedded by Charles Hugh Smith for Of Two Minds
The Fed and its minions are about to get what they so richly deserve: the full blame for the coming catastrophe.
The key justification for the Federal Reserve’s zero-interest rate policy is that inflation is transitory. Sorry, Fed, inflation is already embedded, i.e. inflation is now a self-reinforcing feedback loop: price leaps trigger wage increase demands, supply constraint expectations are now built into wholesale cost increases, and all these increases in wholesale, retail and wage costs drive each other higher as participants now understand that higher wholesale costs drive higher retail prices which feed higher wages which feed higher costs.
The conventional consensus holds that globalization and technology are deflationary. But globalization is no longer deflationary as fragile supply chains logjam and break and prices on the margin soar as demand skyrockets due to hoarding and attempts to restock depleted inventories.
Now is your chance to support Gospel News Network.
We love helping others and believe that’s one of the reasons we are chosen as Ambassadors of the Kingdom, to serve God’s children. We look to the Greatest Commandment as our Powering force.
As for technology, the move to remote work is only selectively deflationary, for example, demand for commercial office space has cratered, driving lease rates off a cliff. But in the larger scheme of things, the major “advances” in tech have been concentrated in social media, which is arguably reducing productivity rather than increasing productivity.
Digitizing everything under the sun has made everything dependent on components which are now scarce, scarcities driven by multiple factors: planned obsolescence (so profitable when supply chains are functioning smoothly, not so profitable when supply chains are constrained), agonizingly long lead times to build out semiconductor fabs and exploit new sources of minerals, energy, etc., trillions of dollars in stimulus driving demand higher, which then feeds hoarding and inventory building, further pressuring supplies, and disruptions triggered by everything from the pandemic to shortages of energy.
American workers have been stripmined and abused for 40 years in classic boiling-the-frog fashion, and now they’ve finally had enough. The Great Resignation, like other drivers of inflation, is complex and cannot be reduced to a single cause. Like the other systemic drivers of inflation, labor refusing to work for low pay and being treated like pack animals has been a long time coming, and there are no quick fixes of the sort pundits promote.
Now that inflation expectations are embedded, there’s no going back. Touting bogus inflation statistics (“we took out everything that went up in cost and look, inflation is low!”) is not going to reverse the understanding that inflation is here to stay.
