How The U.S. Made Inflation Worse

Not a bad primer video from CNBC on the Fed’s policy mistakes, which all are now, literally, paying for.

I would add that monetary policy is a black box, mainly because we can’t define the money supply, much less measure it.  Using your brokerage account to write checks to pay for gas and groceries, for example, shouldn’t it be counted as part of the money supply?  Ditto for crypto, among others

Exogenous vs. Endogenous Money Supply 

No distinction either between exogenous money (created by the Fed) and endogenous money created by the private sector.  The Fed tries, and we stress, tries to control the endogenous money supply by interest rates and the exogenous money supply by its balance sheet.

Endogenous money is primarily created by leverage and is most likely easier to bring inflation down as assets deflate and credit slows.

The current inflation we are experiencing was mainly driven by exogenous money – Fed printing- and is much harder to break until quantitative tightening really begins to bite.  Think middle of 2023.

So, realize, folks, if asset prices are increasing, such as stocks, with a 10 percent inflation rate, it is inflationary.

The Fed has a tiger by the tail, mainly of its own doing, by allowing monetary policy to be, in the words of my good friend Professor Constantin Gurdgiev, “hijacked by Goldman Sachs and Black Rock.”  Let’s throw in Jim Cramer just for fun.

The body politic gets it is unfair, and we see the political angst played out in today’s society.

Even a monkey will revolt against unfairness and inequality.

Money Quotes:

The two following money quotes from the vid could have been lifted straight from the Global Macro Monitor.

• “If we were actually measuring inflation in a consistent manner, the peaks in the seventies and eighties are actually much more similar to the peak today than we would have initially thought.” 

  See our post,  Today’s Inflation Rate And Nolan Ryan’s Fastball

• “So I think at this point the Fed has to stick to its guns, even if that means taking speculators down.  And that really is what has scared the Fed in the past.  The Federal Reserve is supposed to make monetary policy in the whole of the public interest, not just that of investors. And this going to be a test of which they have not really had to take since 1981.” We have written many posts on this issue, but see this one, in particarlur,  The New “Supply-Side Economics” Fueling Asset Bubbles