Here’s an alternate explanation from a good friend of mine, a hedge fund manager and astute Fed watcher…
I would add a few thoughts. I think another overall problem is that capital is trapped in the debt system. The Fed can go buy corporate bonds and treasuries to provide liquidity in broken markets, but all that is really happening is that the seller is getting bailed out and the debt is moving from the seller’s balance sheet to the Fed’s balance sheet.
If the seller thinks the world is screwed or is in poor financial shape, which they would have to if they were selling the debt, then will they take their cash and activate it to create velocity (the Keynes multiplier)? I think the answer is most likely no, they will probably hoard the cash (they think the world is screwed) or pay off other bills with it (poor financial shape). So, all that bluster from the Fed’s bully pulpit and all that huge increase in money supply probably won’t create any velocity. No velocity, no demand-based inflation.
Inflation reporting is a whole other can of worms. Higher education, medical services, housing, and now food are skyrocketing – some estimating 5-6% annual inflation or more (Shadow Stats). The government hides a lot of this with “hedonics”, which basically means that when under pressure, consumers trade down to lesser goods (hamburger instead of steak, Chico State instead of Berkeley). The current inflation theory isn’t a wage-price spiral (demand-based), but rather a supply-driven price spiral. The worst of all worlds. 30
million out of work and prices skyrocketing.
I think coastal techno-love doesn’t necessarily equate to American techno-love. When push comes to shove, i.e. a supply-driven inflation spiral, we will see how many people continue to buy techno gadgets with illusive productivity gains. Let’s see, mortgage? Car payment? Grocery store run? Private high school bill? Gaming/Entertainment bill? Or, new Nest system and a new iPhone? I can only hit the top 3… I think housing and the car business are screwed BTW.
What I have been pondering is the next phase of downward pressure on entertainment services. Gaming, streaming, etc. are big budget items for half the country. Think back to our early adulthood. No cable bills, no cell phone bills, no Netflix, Hulu, Xbox, etc. bills. Those are all deemed top priority items to pay – will that continue?