Americans will be receiving their $1400 stimulus checks as early as this weekend. This has led to a surge of consumers going out to make purchases for household items. Main stream and wall street has been blaming these $1400 checks for causing inflation. This is not true. The stimulus check is being sent out because inflation is actually hitting consumer goods across every category from grains to oil. The increasing input cost, shipping and stagnant wages is actually leading to a decrease in spending, not an increase.
Inflation is hitting consumers from all sides. It is not being caused by an increase in productivity but by Central Banks around the world engaging in currency wars. Everyone is trying to create more of their own currencies in order to devalue it leading to an increase in monetary supply. However much of this monetary supply actually stays within the financial sector especially in financial assets like bonds and stocks through lending margins, repurchase agreements or currency swaps.
Federal Reserve data above is proof of contracting credit within the system. What is happening is not that retail consumers (the general public) who are making the purchases but companies are increasing their purchase orders in anticipation of an increase in demand. It is surprising that main stream financial news are reporting strong consumer sentiment when all data on consumer lending are pointedly negative.
So what is causing this inflation?
This. In anticipation of countries reopening from the pandemic, central banks have been flooding not the economy, but their equity and credit markets with liquidity. Corporations are flush in cash and are making risky purchases while driving costs up. We however have proof that consumer demand is not up and leading indicators like metals are already being hit as their are unable to sell their excess inventories into the market due to demand drying up. Greensill Capital finances supply chain and raw material providers. It recently went bankrupt because its borrowers whom Greensill fronted the money for, was unable to make payments. A major borrower which was unable to meet its payments was GFG Alliance led by Sanjeev Gupta, one of the world’s largest steel producers. Greensill Capital is backed by Softbank and its prolific founder, Masayoshi Son including investment from Softbank related Vision Fund.
Consumers should be expecting further increases in inflation. Household goods and products are going to further increase in price as central banks are expected to continue on their current monetary policy. Michael J. Burry, a famed investor known for his warning on the US mortgage crisis in 2008, warned that continuing down the current path is going to lead into hyper inflation. In a now deleted tweet, he warned that MMT style policies are risking an event similar to Weimar Germany style hyperinflation.