Terry McCrann: The inflation genie has been unleashed

The single biggest threat for Australian investors and homeowners has arrived.

Inflation is taking hold through the global economy

The single biggest issue for Australian investors and indeed just Australians generally is US inflation – albeit, with a very, very important kicker: what’s happening with our own inflation right now and I’m not just talking about petrol prices.

I’m also not meaning to downplay or ignore all the other very important dynamics that are shaping – and it seems more often, threatening – your future.

I doubt that anyone thinks there’s a ‘Golden Age’ of unbounded health, prosperity and just glorious happiness for everyone, hiding around the corner like guests at one of those ‘surprise’ parties that mostly never are.

All those ‘things’ like the virus, economic disruption, housing – availability and cost – and just at its most basic whether you will have a job when you wake up in the morning, and at its most cosmic whether we sleepwalk into WW3 with China.

I’m ‘amused’ at the increasingly populist elitist talk of a new ‘Cold War’ with China. Heck, what worries me is the old-fashioned ‘hot’ war variety, especially when our subs are still 30 years away. Give me a ‘Coldie’ in preference any time.

It’s just that right now, and for the immediate to medium-term future, everything sort of pivots on what happens to US inflation, and the Fed’s reaction to – or more likely, inaction in the face of – it.

Then in turn, there’s Wall St’s reaction to the Fed, mixed up with Wall St daring, threatening, the Fed not to try.

Inflation in the US has accelerated this year to levels not seen since the 1980s.

First off, the Fed didn’t see it coming. Heck, it didn’t see it when it had already arrived.

Back in March the Fed predicted it would be a mild 2.4 per cent this year. That was the average of a couple of dozen individual predictions – of which the highest, from all those ‘experts’ mind, was just 2.6 per cent.

Even as that prediction was made, in the real world – away from the pampered environment of the Washington-Manhattan corridor – inflation was bubbling up. For the March quarter it came in at an annualised 5 per cent.

Oh, it was only ‘temporary’, it was only ‘transitory’, all those ‘experts’ bloviated.

In June, they did lift their averaged forecast for 2021, but just to 3.4 per cent; they still maintained the inflation would then all go away, dropping straight back to just 2 per cent and staying there through 2022 and 2023.

Inflation in the US has accelerated this year: Picture: Spencer Platt/Getty Images

Further, it was going to drop without the Fed (or the Biden administration) actually doing anything about it – like, you know, raising interest rates or tightening the budget.

Further, the highest forecast in June from all those dozens of, you know, ‘experts’ was still only 3.9 per cent.

Everyone, repeat everyone, still maintained the inflation would, all just conveniently go away all on its own, without the Fed lifting its collective finger. Or, more pertinently, its interest rate from the totally, negligently, inappropriate zero.

In September, the latest forecasts had it still only 4.2 per cent for 2021; the highest individual one was 4.4 per cent.

And still, and still, all those dozens of ‘experts’ forecast it would all go away next year, dropping to just 2.2 per cent and staying there.

Well, as I have been writing for months, it was always going to be higher, much higher. The inflation for October locks in a figure for the year of at least 6 per cent and more probably closer to 7 per cent.

First off, if you are that inept, that if you can’t see the inflation as it is erupting all around you, you clearly won’t have responded at all. Secondly, how can you be trusted to respond at all?

Very simply, the Fed should have already abandoned its money-printing. It should have already lifted its interest rate to at least 2 per cent and promised higher.

If it had done that, where do you think the Dow would be? At its record high 36,000? And where would our market be? Try 20,000 over there; maybe 5000, if we were lucky, here.

Yet traders just keep pushing Wall St higher; both challenging the Fed to ‘try’, and contemptuously knowing it won’t. It’s that spineless; it’s that hostage to Wall St.

So, happy days just keep going?

Except as we’ve known from hundreds of years, bubbles always burst, and this is the biggest bubble ever in world history and getting bigger – built entirely on the Fed fantasy of never-ending ‘free money’.

With a ‘little bit of help’ from a China, which is now in the process of disintegrating – and which is a whole complicated additional part of the emerging ‘story’ for 2022.

And that kicker, our own inflation? I’ll come back to that.

Originally published as Terry McCrann: The inflation genie has been unleashed