“The past is never dead. It’s not even the past”
William Faulkner – “Requiem for a Nun”
No, the past isn’t dead, nor even the past. At least according to Faulkner. But then again, there is no nun in “Requiem for a Nun” and, for that matter, not much of a requiem either.
Moreover, “Requiem” while counting as one of Faulkner’s minor novels, it isn’t even a novel, really. It’s written in the form of a play. Which was turned into a full-on stage adaptation by none other than Albert friggin’ Camus.
And that, my friends, is the type of world in which we live in (no grammatical error there). So, I thought it would be appropriate to write a non-requiem for inflation. Which is not dead. And not even past.
But will get to all that. A word, first about Faulkner, whose works I’ve been obsessed with of late. I am not aware of a writer who converted the contemporaneous living experience of a story more elegantly into words than he. His characters, see, and feel, and hear, and think. And then think again. We are there with them, as they amend their first impressions, and then their second ones.
And so on and so on and shoobie doobie doo.
I would say, more broadly, that one of my life’s greatest irritations is the failure of the masses to understand our thematic reference. Especially when they assume that any concept, idea, or attitude upon which they stumble is somehow something new. That nobody ever thought of it before, or tried it, or endured the running of its course.
Something truly novel happens, authentically, maybe half a dozen times in a century, and when it does, oh boy. Look out. But in a bajillion other instances, it’s all just a rehash of what’s already been tried. This, I believe, is some (but not all) of what Faulkner is referring to.
The other, critical, part is that what happened before (i.e. in the past) has somehow played itself out. It hasn’t. We are, in this country for instance, still living in the reality of September 11th. And, for that matter, that of the Revolutionary War.
And of the Great Financial Crisis (remember that?). Which is when we first tried the experiment of drowning a passel of economic pain in the simple expedient of printing money. But even that wasn’t new. The Germans attempted this after WWI (to pay reparations among other objectives), and though memory fades, my recollection is that it didn’t work out so well. For them or for us.
Upon its heels came the Great Depression and then a larger, more resolving World War.
But God Oh Mighty, our neo-money printing cycle worked well — for quite a spell. For well-nigh fifteen years, we created money out of thin air. And not just in this country. The rest of the world has chimed in – enthusiastically:
A ReQuEim for QE — Around the World in 15 Years:
My cipherin’ skills diminish at these magnitudes, but I count >$30 Trillion in the tally of these two charts. Note that the Emerging Market graph on the right ends in 2020 (presumably due to a lack of recent data), but it’s a fair bet that while the rest of the country was being locked and hosed down with anti-virials, the People’s Bank of China was printing away. In addition, though not represented pictorially above, the Bank of Canada is known to have printed quite a few loonies, and the Bank of Mexico hat-danced its way to same. As did Egypt, Argentina, South Africa, South Korea and of course (though dubiously rendered through an ersatz prince) Nigeria.
So, let’s round the number up to $40 Tril. Which exceeds the combined GDP of the United States and the Peoples’ Republic of China.
That’s a lotta jack out there looking for a permanent home, Jack.
Now, feel me here. On balance, I think it was the right thing to do – both in the wake of the GFC and then as them covid buggers multiplied fruitfully over the last couple of years. Sure, there would be consequences, but compared to the counterfactual scenario of fatal financial insolvency, I think the tradeoff was understandable. And – trust me – had the Central Banks not stepped in – twice (’09 and ’20), we’d all be more busted up than Berlin in the Spring of ’45.
I feel extra pleased to invoke the spirit of Milton Friedman in support of my arguments. Last week, I called him out, but this time I need his help. His seminal 1963 book: “A Monetary History of the United States” – co-written by his colleague Anna Schwartz and widely viewed as the definitive document on the subject, lays the blame for the Great Depression at the feet of the Fed – specifically for not printing money, buying securities from beleaguered banks, and, instead, allowing thousands of them to fail.
So, I think that taking the opposite tack – as Bernanke, Yellen and Powell did, was probably the proper course.
Unfortunately, however, it is in our nature to take matters to the extreme, and, in this instance, the fleeting success of the policy fostered such whimsical notions as Modern Monetary Theory, which posits that a self-contained financial economy, blessed with its own Central Bank and currency, can spend all it wishes, and simply pay for it with manufactured money.
All of which sets up my own theory about the current inflation that plagues us. I believe that in the period leading up to and after the GFC, the U.S. economy featured a deficient money supply. If this weren’t the case, we would’ve experienced hyper-inflation well before it began to form on horizon.
But from 2009 through 2020, we absorbed this excess liquidity like a galactic financial sponge. The economy grew. We had full employment. We were innovating like Edison. And exporting energy products to the rest of the world. However, it was always on the cards that we might overshoot the monetary mark, and the early ’22 returns suggest that indeed we have.
There’s just too much money sloshing around the system right now, and this, my friends, is inflationary. Moreover, the discontinuance of QE doesn’t assuage the problem; it simply, at least in theory, keeps it from getting worse.
The markets didn’t get the memo this week about how worthless their cash holdings are. But then everyone saw the CPI print, which I won’t recount. I do feel duty-bound, however, to remind everyone that PPI drops on Tuesday, with consensus expectations placing it at 10.8%. CPI surprised to the upside (surprise!). If PPI follows suit (and I think it will), then it’s more of the same for the misbegotten investor class.
All of which has the smart money betting on an even more aggressive round of Fed tightening. In a slowing, impaired global economy. Not a great environment for incremental financial risk assumption. I reckon will find out more when Chair Pow steps up to the podium on Wednesday and lays his latest wisdom on us. Oh boy. I can’t wait.
And, from my vantage point, evaluating anecdotally what is transpiring at the pump and checkout counter, the early returns for June are less than encouraging. Of course, Food and Energy are somehow excluded from what is colloquially referred to as “core” inflation. But I tell you this – the problems appear to be more widespread. I tried to rent a car in Stamford CT this past week and there were no offers. I found this alarming because Stamford is certainly one of the most car rentingest places on the East Coast, and maybe in the whole country. I did source one in Bridgeport, but in addition to the indignities associated with slumming it in that skanky metropolis, the price they quoted was one that I am unwilling to share in what, after all, is a family publication.
Luckily, I was able to crank up the old jalopy. The one I bought long ago. In the past. 2010 to be exact. And she got me where I needed to be.
So, the past is not, indeed, the dead. Or even past.
And we should remember this – particularly as we approach the anniversary of the signing of the document that formed the government which, for better or worse, we all operate within. Or when we stand in an endless security line at the airport, to ensure that nobody is carrying a box-cutter with intent to slash the pilot’s throat, commandeer the plane, and ram it into a building.
Or when we find that there are insufficient goods and services with which to rid ourselves of our increasingly devalued fiat currency that I believe was recently characterized by scarcity, but now, due to over-aggressive creation, is now in excess supply.
Thus, in closing, I bid you a good yesterday. Because, like it or not, it will inform all your tomorrows.
TIMSHEL