Peter Schiff: Stagflation is here, but they’re still clueless

According to this morning’s dismal publication from the US Bureau of Economic Analysis, US GDP growth crashed to just 1.6%, while inflation keeps rising at a 3.4% rate.

And ‘core’ inflation, which excludes food and energy, was up even higher at 3.7%!

All of these numbers are much worse than expected… and frankly Americans should be outraged.

Think about it: the United States is home to the world’s largest and most successful companies, many of which are on the bleeding edge of technology and productivity. America’s labor market is filled with talented workers. The country is teeming with abundant natural resources. Capital markets are the deepest and most attractive in the world.

And yet despite so much potential, this economy could only eke out a miserable 1.6% growth… with inflation continuing to persist.

This is not an accident.

It is a result of blatant mismanagement, naivety, and even incompetence, at the White House, Congress, and the Federal Reserve.

It also proves how they STILL don’t understand the basics of inflation.

Just think back to the pandemic. We all remember how they were paying people to stay home and not work. Gee what a surprise: with fewer people working and producing, ‘supply’, i.e. overall availability of goods and services, fell.

Meanwhile they shoveled money into the economy at an unprecedented rate with Paycheck Protection Program “loans”, stimulus checks, and bailouts galore.

And with absolutely nothing to do but sit at home and spend money, demand went through the roof.

The end result was not only the worst inflation in decades, but full-blown shortages ranging from microchips to baby formula.

We’re obviously long out of the pandemic. However, the fundamental supply and demand conditions have hardly changed.

Relative to supply, this White House never misses an opportunity to frustrate business in every way possible.

The FTC goes out of its way to block every value-creating, efficiency-inducing business mergers because they think all mergers are bad for unions (which is absurd). These mergers could ultimately save consumers money and provide more value in the economy, but the FTC tries to kill every deal they can.

Despite rising energy prices, the Biden White House prevents energy producers from drilling for more oil. They refuse to lease federal lands to energy companies, even though it’s required by law.

Cheaper energy makes the economy more productive and reduces inflation. But the White House goes in the opposite direction and drives prices higher.

Now Biden wants to raise the capital gains tax to nearly 45%— the highest level in history.

Higher taxes are clearly bad for productivity because they create penalties and disincentives to invest in new businesses— which create new products, new supply, and new jobs.

The Biden people also have a fanaticism about the environment, and nearly everything they do to address climate change further disrupts business productivity.

Their Byzantine rules create additional business costs, reduce productivity, and at the end of the day, have very little positive benefit for the environment. The cost/benefit is totally out of whack.

Similarly, the demand side is little different than what it was during the pandemic.

Interest rates are much higher, and though consumer and business demand has cooled, government demand hasn’t cooled at all. It keeps going up.

The budget deficit was nearly $2 trillion last year, which was all paid for by borrowing against future prosperity. And if they keep doing that, there’s not going to be any future prosperity left to borrow against.

All that excess deficit money is dumped into the economy, and it has a similar effect to when the Fed prints money… except that it’s worse in many respects, because government spending is allocated by politicians who have a unblemished track record of waste.

So even though they spent trillions in the economy, the economy is not getting trillions in benefit because so much of it is wasted.

You see the trend— reduced supply, increased demand, higher inflation, slower growth.

But even after seeing the same story repeat for years, they still don’t get it.

The “experts” are still talking about WHEN the Fed is going to cut rates. And even after releasing these horrible numbers today, people still think that the bad news is only going to delay the Fed cutting rates.

Hardly anybody is saying that the Fed shouldn’t cut at all, and almost no one is saying they should RAISE rates.

Inflation is never going away unless all three pieces are working in sync: the government has to stop the deficits. The White House has to stop its jihad against capitalism. And the Fed has to get real about interest rates.

But we don’t see any of these three things happening. Not one. So, most likely we’ll continue to see more of the same story.

In fact, we can’t even call this story inflation anymore. This is already becoming stagflation.

I’ve been very clear that gold is a great asset to own during inflation… and stagflation. It wasn’t long ago that some idiot Wall Street firm downgraded gold mining giant Newmont because they “didn’t see any upside in gold”.

(Boy were they wrong. Newmont stock has soared since then.)

It goes to show you how people still believe in these fairy tales— that inflation is going to end, that the government can keep deficit spending indefinitely without consequences, and that the dollar is going to be just fine.

These are utter fantasies.

The balance sheets of BOTH the US government AND the Federal Reserve are both catastrophes already, and that spells serious trouble for the dollar, and for inflation.

Gold is a fantastic antidote to these troubles. And it’s extraordinary how few people understand that.

Source

Simon Black is an international investor, entrepreneur and permanent traveler. His daily letter is both educational and entertaining, and we suggest that those who want unbiased, actionable information about global opportunities sign up for Sovereign Man’s free, actionable newsletter at http://www.SovereignMan.com.

From Simon Black of SovereignMan.com