I am writing this today, in response to some of my weekly comments and emails. Universally, they are well versed in economics and finance. And I enjoy reading your thoughts.
So, before I go any further, let me thank you for taking the time to read and engage with me.
We are currently discussing all of the ramifications of this Inflation. And I'd like to include you in our conversation.
Some of my readers have pointed out that with Inflation like we're experiencing now, we need to raise interest rates. And do it as quickly as possible. After all, isn't that what Paul Volcker did back in the 1980s? And isn't that what Milton Friedman of the University of Chicago suggested when he said: (I think I'm quoting correctly) Inflation is always and everywhere a monetary phenomenon?
So here we have a monetary phenomenon, namely Inflation, and a time-tested method to mitigate Inflation, so why not use it?
I think the answer to today's puzzle is that we don't have traditional monetary Inflation. I believe we have a carefully crafted, cleverly executed attack on our free market system. An attack disguised to look like something that it is not.
We're all familiar with the names of this attack. It's called: the great "transition," the "Green New Deal," and also known as the "Build Back Better." Their methods are extremely straightforward. Incidentally, they are the same method used by Barack Obama when he tried to institute the same Climate Agenda.
Their tactic is to raise the price of fossil fuels to the point where they are no longer affordable for the average citizen—forcing people to move to the more "environmentally correct" renewable energy sources, such as wind-powered electricity. It's what Obama did to the coal companies. When he said that if you were mining coal, he would bankrupt you. And he did. Most of the major publicly traded Coal companies did go into bankruptcy by the time his term was up.
Today we see the President marching through our fossil fuels as if he were Sherman on his way to Atlanta. From the Keystone Pipeline to the Alaska North Shore to the Gulf of Mexico. Biden has suspended, shut down, or withdrawn every major new drilling lease he could. Under Trump, Exxon Mobile committed billions to expanded exploration and production in the Permian basin. Under Biden, they are quietly reversing that.
It's a strategy that is all as calculated as can be. It is the precise execution of a well-thought-out, carefully developed plan. One that Biden often repeats on the campaign trail. He intends to halt the use of fossil fuels in this country.
And it is that core plan driving the price increases in this country. The executive decree is mandated every time Biden sits at the Resolute Desk to cancel energy supplies.
It is, in short, economic warfare. The Nation's Chief Executive executes it and aims it at you and me.
So, if I'm even partially correct, what we are currently experiencing is not traditional monetary Inflation.
Instead, we are dealing with an Administration that dramatically harms the average American. As I noted in another report, personal income had been negative for at least the last couple of years. The price of gasoline alone is an unconscionable burden for the average family. To consider raising interest rates right now, I don't think, is wise. It would make the average family's cash flow even tighter as most Americans have current loans outstanding.
To put it bluntly, anything that helps to make Americans cash poor plays into the Obama/Biden great "Transition."
While we may think that we live in a free market system, the reality is, at least for now, we are in a command economy. A command economy directed by a President whose aim is to do away with fossil fuels.
It is difficult for most of us to fully understand the damage already done to this economy in 18 months. Currently, we see most of the destruction under the rubric of Inflation. But the magnitude and scope of this economic storm will last for many months, if not years.
As we've noted, today's Inflation has a monetary component. It is the result of Biden's wildly pumping of the money supply. As the chart below demonstrates, under President M1, Money has increased by 500%. From roughly $4 Trillion to $20 Trillion. That is incredibly inflationary.
M1 Money, www.stlouisfred.org. (The Research Arm of the Federal Reserve)
Unfortunately, that Genie is out of the bottle. There is nothing we can do today to take back that extra $16 Trillion that the Fed and Administration pumped into the economy. Yes, as has been suggested, we can raise interest rates. But to what level do interest rates need to e to offset a 500% increase in money?
So, yes, we do need to tighten monetary conditions. And yes, interest rates will need to go higher. But I recommend a measured approach as this is a most fragile economy currently.
However, there is an economic fire burning currently. An ongoing battle that we need to engage our leaders in Washington. It's not enough that our currency is under attack. This Presidency has also launched another full-scale foray against traditional energy. As noted, Biden is on record as he wants to do away with fossil fuels, our most abundant energy source. Oil, coal, and natural gas come under his "Transition." Or, more correctly, they are all due to be phased out.
And the cost of this misguided project is directly identifiable. In its latest report on the Consumer Price Index, the Bureau of Labor Statistics notes that energy: "contributed nearly half of all items increase." Of the over 9% annual increase in Inflation, almost half is from energy.
Here is where the economic battle rages. In energy, this Administration is still pushing forward to bring down the economy. Here is where the fighting rages.
Number 1 Unless stopped, the President will have emptied the "Strategic Petroleum Reserve" (SPR) by the end of this year. Our principal oil and gas storage is only to be used in wartime.
Number 2 If successful, this President will have created an off-shore supply chain for oil. The so-called Saudi Strategy. This strategy would make our petroleum supplies as precarious as baby formula, semiconductors, and all the other supply chain debacles.
Number 3 His policy of shutting down all oil and gas leases today guarantees that it will be months or years after he leaves office before actual production can begin on those properties.
To fully understand where our economy is today. We must realize that this is a President and an Administration actively pursuing goals that are antithetical to our American way of life. We've all heard their titles: Build Back Better, the Green New Deal, the Great Transition. But many of us have not realized that their ultimate objective is to supplant our current Free Market System.
In short, we are in an Economic War.
It's the first day of a new month, and it will take a while for most economic reports to start coming in. But one group has already begun reporting: The Purchasing Managers. These people buy the raw materials, supplies, and components that are the first step in production. And that's consistent with their role as the first step in the manufacturing process.
So far, we've had 11 countries report on their Purchasing Managers, and while the trend isn't dramatic, it is universal. And that is something we rarely see. With one exception, all of the PMIs reported so far are down. Not a lot, as I say, but all down.
And it represents an extensive section of the world's major economies. We began last night with the Pacific countries: Australia, Japan, and China. Let's move to Europe: Russia, Germany, Italy, France, Germany, Great Britain, again, all down.
The sole exception so far to this downward trend is Purchasing Managers in India. India seems to thrive in this environment now that they have secured Russian oil and gas to power its industrial facilities.
In a couple of hours, the US will report on its Purchasing Managers, which I expect to decline. However, the index will likely remain in the expansion range.
In earnings so far, a couple of financial companies have already reported. London Based HSBC Bank has reported excellent results, as has Global Payments. Also, I see that On Semiconductors is trading up after its report.
After the markets close today, we will get a slate of companies reporting, including SBC Communications, Devon Energy, Activision Blizzard, and insurance company AFLAC.