Sep 15, 2023Liked by Peter Nayland Kust

Painful at the stores, waiting for the markets reflect the reality of inflation ?

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If by markets you mean the financial markets, I'm not sure that Wall Street has the same view of consumer price inflation that Main Street does.

The reason I generally use the clunky term "consumer price inflation" is because, contrary to MMT enthusiasts, we HAVE seen inflation following the Fed's QE efforts of the 2010s. However, it was asset price inflation rather than consumer price inflation. Specifically, in 2008 financial market trends shifted, where equity indices no longer rose and fell independent of money supply growth but rather moved in conjunction with money supply growth.


In other words, all the Wall Street "gains" of the past fifteen years arguably can be attributed to the Fed's magic money printing press. Wall Street is happy with this as it views asset price inflation as a good thing, and asset price deflation as a bad thing. Consumers generally have the exact opposite view of consumer price inflation.

Wall Street's concern over consumer price inflation is not so much the inflation itself as it is what the Fed is likely to do about it. Wall Street likes low interest rates and cheap money, and the Fed's rate hike strategy for fighting inflation deprives them of both.

Ironically, forex markets tend to take a positive view of the Fed's rate hike moves because it strengthens the dollar relative to other currencies.


None of this reflects the "reality" of consumer price inflation to the consumer--higher prices meaning people pay more but buy less.

In the wake of 2008, the dichotomy between Wall Street and Main Street became almost complete, with the only two real tenuous points of intersection are interest rates and the money supply--and both of those only became impactful during the dislocations that occurred during the Pandemic Panic lockdowns. Prior to 2020, the Fed's money supply expansions largely remained within Wall Street, producing asset price inflation but not consumer price inflation. During the lockdowns and especially because of the stimulus payments, that money bled out into the larger economy, moving from Wall Street to Main Street. Money velocity increased--especially among the lower economic strata, and thus we get runaway consumer price inflation and a Fed desperate to put the toothpaste back in the tube.


Will Wall Street ever reflect the reality of consumer price inflation? It might, but I suspect an epic market crash will have to come first.

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Sep 15, 2023Liked by Peter Nayland Kust

Wow, I did mean financial markets and your reply is incredibly in-depth and helpful. I will need to read it a few times to comprehend this dichotomy. I’m a simple housewife managing budget and the IRAs, thank you for helping me understand the cognitive dissonance between financial markets and my shopping.

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