On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.3 percent in January. Not bad, so long as you didn’t have to drive anywhere. If you did, you may have noticed your dollars didn’t get you as far. The gasoline index increased 7.4 percent in January.
What’s going on?
Over the last 10-months the price of oil has quietly recovered from an extreme negative in April of 2020 to over $58 for a barrel of West Texas Intermediate (WTI) crude. And the UN Food and Agriculture Organization’s food price index is at its highest level since July 2014. The main factors contributing to its rise are increases in grain prices.
Our hunch is that consumer prices will rise much further and faster in 2021 than the bean counters at the Bureau of Labor Statistics anticipate. In the interim, manufacturers of consumable products can mask price inflation by reducing product size, while keeping price the same. The ruse of shrinkflation is not new to the marketplace. However, when governments over issue their currency it becomes much more prevalent.
Just last week, for instance, Nutella confirmed that it will reduce its 400 gram jars to 350 grams due to rising production costs. But that’s not all. In 2020, packages of Nathan’s Pretzel Dogs were reduced from five hotdogs to four.
Other common products that shrunk in 2020 include: Downey Unstoppables (10 oz to 8.6 oz), Charmin Ultra Strong (286 sheets to 264), Dawn (small bottle, 8 oz to 7 oz), Lay’s Potato Chips (party bag, 15.25 oz to 13 oz), Keebler Club Crackers (13.7 oz to 12.5 oz), Charmin Mega roll (reduced by 20 sheets), Powerade (32-oz to 28 oz), Puffs (56 tissues to 48), and Hershey’s kisses (family size bags reduced from 18 oz to 16 oz).
Of course, manufacturers are just playing the hand they’ve been dealt. They know consumers are more likely to limit purchases due to a rise in price verses a reduction in weight. They’re merely reacting to the rising price of raw goods and materials. But what’s driving this?
Too Much Stimulus Is Never Enough
Has demand for goods and services suddenly spiked? Have grain crops suffered from a surge in mites and beetles? Is the rise in oil prices due to normal changes in seasonal demand?
Perhaps these variables – and others – have something to do with what appears to be moderate consumer price inflation, assuming you go by the government’s propaganda numbers. But we think there’s something much more going on.
One of the hottest questions currently being bantered about in Washington is: How much stimulus is enough?
Every politician and bureaucrat seems to have an answer. For example, Treasury Secretary Janet Yellen thinks passage of the proposed $1.9 trillion stimulus bill will return the U.S. economy to full employment by next year. Senator Mitt Romney wants to send $3,000 checks, per child, to American families.
Representative Alexandria Ocasio-Cortez and Senate Majority Leader Chuck Schumer are offering $2 billion in assistance to pay for funeral and burial expenses for those who died of COVID-19. Senator Bernie Sanders wants to pay out $2,000 checks, as promised. Several other Democrats, including Schumer and Senator Elizabeth Warren, are calling on Biden to cancel $50,000 in student loan debt, per student, by executive order.
What we have here, folks, is an epic smash and grab. But where’s this money coming from? Where did the $2.2 trillion CARES Act come from? Where did the $900 billion supplement come from?
Naturally, the tab was added to the back of the federal debt. But who financed the debt? Who bought the Treasury notes issued so that all this cash could flow into the economy?
You know the answer. The Treasury borrows the fake money from the Federal Reserve. The Fed gets the fake dollars to loan to the Treasury by creating new credit from thin air.
Not only does this scheme deliver stimulus money seemingly for free. It also artificially suppresses interest rates. Thus, once again, fake interest rates have puffed up another massive residential real estate bubble (a story we’re tracking for another day).
Yet, according to Washington, too much stimulus is never enough. Here’s why…
By Big Government For Big Government
Remember, consumer price inflation is merely the effect. Inflation, in its truest sense, is inflation of the money supply. That’s where inflation starts. That’s where the culprit resides.
You see, inflation is produced by big government for big government…and to the detriment of individual freedom and liberty. Austrian School economist, Ludwig von Mises, in his work, The Theory of Money and Credit, elaborated the relationship – and where it leads – many decades ago:
“Inflation is the fiscal complement of statism and arbitrary government. It is a cog in the complex of policies and institutions which gradually lead toward totalitarianism.”
Without policies of inflation big government would not be possible. This is nothing new. The debasement of money by governments has been going on for thousands of years.
The current corruption of your dollars has been going on since the passing of the Federal Reserve Act in 1913. And it has been going on in earnest since 1971, when Nixon terminated the convertibility of the dollar into gold by foreign governments.
The dollar has lost over 96 percent of its value since 1913. That means, today’s dollar would be worth less than 4 cents back in 1913. Here’s the point…
The U.S. national debt’s over $27.9 trillion. Yet real gross domestic product, as of Q4 2020, is only $18.8 trillion. The budget deficit for 2020 alone was $3.1 trillion. The forthcoming coronavirus bailout bill, on the heels of the $2.2 trillion CARES Act and $900 billion supplement, ensures that at least another $1.9 trillion more – on top of at least another trillion – will be added to the debt in 2021.
There’s no way the economy can grow its way out of this. The debt will never honestly be paid. But it will be dishonestly paid. And you’ll get to pay it. In fact, you already are. You’re paying it through inflationism.
The dollars you hold. The dollars you earn. The dollars you use to buy the things you want and need. They’ve been corrupted.
And as more and more fake dollars are doled out to somehow stimulate the economy, the existing stock of dollars is diluted. The dollar’s value becomes worth less and less. What’s more, in return, this inflation complements statism, arbitrary government, and the push towards totalitarianism.
So when consumer prices rise in earnest, and your political leaders place blame on evil capitalist price gougers, and propose price controls to solve the problem of their making, you’ll know the scoundrels are talking out of the sides of their necks.
Stimulus is a lie…directed by big government for big government.
for Economic Prism