Appearing on Face the Nation (FtN) Goldman Sachs CEO Lloyd Blankfein discussed his views and perspectives on the economy overall and U.S. inflation specifically. Undoubtedly Blankfein has access to resources and analysis far beyond CTH scope; however, despite a statistically factual contracting GDP, Blankfein is claiming to see overall demand side inflation remaining in the macro economy.
Perhaps that view might still be true domestically on the service side (it certainly isn’t on the trade side), but demand driven inflation does not appear visible on the goods side of the economic ledger. What is clearly present as the price driver is “production side inflation,” the costs to create goods and bring them to market. If you look at economic activity in units instead of dollars, the units are contracting.
The demand for goods is now focused almost entirely on priority or essential purchases like housing, energy, fuel and food. The price for those essential products is driven by production costs, which are a direct outcome of the energy policy, environmental policy, regulatory policy, and to a lesser extent trade policy, of the Biden administration. Blankfein is pretending not to know things… WATCH:
Putting housing aside due to investment purchasing of real estate, if Blankfein was correct, and demand was still driving inflation, then a massive deflationary cycle would be coming as a result of lowered consumer purchasing of goods. There isn’t any chance we are going to see “deflation” in the next several years. [We will likely see housing prices collapse, but not consumer goods.]
Inflation is being driven by production costs, and there is no end in sight to the production cost increases as long as the crew behind Joe Biden keeps strangling the U.S. energy sector…. and then compounding the domestic price issue by creating incentives for energy exports (vis-a-vis EU sanctions). The production inflation is a purposefully inflicted wound on our economy. Production inflation is avoidable.
That interview is Wall Street gaslighting to a Main Street audience. I don’t like it one bit.
Price of wheat tripled in the past 20month… not because people are now rich and are buying 3 time as much bread as before.
Its geo political, and a supply chain issue yet to be resolved (on top of some added production cost)
Raising interest rates will not grow more wheat or make more wheat available, to the contrary.
The same is true with corn, crude oil, you name it.
That why today wheat jumped by 6%. Inflation will go up until we restore production and the supply chain.
Higher interest rates on everything now is boosting inflation.
For other items, the ongoing China lockdown are exacerbating the 2 years of global covid supply chain disruption.
High Interest rate does not open factories, to the contrary.
What raising interest rate does is increase true inflation for anything that require a loan. (house, car/trucks/tractors, appliances, ..)
True home ownership cost have risen 30% this year alone (mortgages at 13year high, and Fed are just starting to raise rates)
Sure, blame demand for deliberate shortages! How dare we need things like auto and truck fuels, energy, food, and housing?
Here is a link to an article by Zoltan Pozsar. He is doing his usual Fed Watching.
https://plus2.credit-suisse.com/shorturlpdf.html?v=54t3-WTBd-V
Zoltan’s comments about the ability of the Fed to navigate the inlets and channels of coastal waters of the global economy is naive. He wants the Fed to keep everyone guessing about what they plan to do. That is nuts…
I am in the Jeff Snider camp when it comes to “Zoltan”…
Watch the Russian Ruble, which is now pegged to gold. The Ruble is rising against the dollar. Russia is requiring Europe to pay for oil and natural gas in Rubles, which is to say in gold. That goes in the direction of putting Europe on the gold standard.
No major country has tried this in a long, long time.