Personal income in the US grew over 20% from February to March. March of 2021, the last month for which full data are available, was the most lucrative month in American history in terms of personal income–by a long shot!
Not at all unrelatedly, March also set a new all time record trade deficit. The US imported $2.5 billion more in goods and services per day than it exported.
To ‘finance’ this, the Federal Reserve’s balance sheet approaches $8 trillion. That ‘financing’ is the only thing keeping interest rates from exploding upwards and burying the country under an unserviceable avalanche of debt, the only way of extracting the buried being the breaking of the dollar. If rates are permitted to rise, the bond and equity markets will crash, something made clear in late 2018 when the Fed attempted very tepid tightening.
The labor force participation rate, after rebounding from its Covid nadir, appears to have settled at a low level not seen since the late 1970s. Proto-UBI in the forms of extended unemployment, eviction moratoriums, and the like are politically unrescindable. There is thus no reason to expect employment to return to pre-Covid levels. The low-end labor shortages apparent throughout the economy aren’t ending, either.
Not without big increases in wages, anyway. Labor is a cost. It costs businesses significantly more to operate today than it did 18 months ago. Those costs are in the process of manifesting in higher prices for everything from haircuts to a hamburgers.
These effective labor shortages are accompanied by increasing goods shortages at every point in the supply chain. Nearly all commodity prices are trending upwards.
One notable exception has been gold. The conventional explanation for why is the assumption central banks will respond to all these price inflation indicators by raising rates, something that inversely correlates with the price of gold and other traditional inflation hedges. With the Fed and Treasury joined at the hip, the pretense of any American institution being politically independent a thing of the past, that is highly unlikely. The bankers aren’t going to do the Biden administration dirty like that, not in a million years. Central banks won’t fight inflation, they’ll surrender to it without a fight.
Why not gold, then? Cryptocurrencies are the 20-pound puppy in the room. A year ago, crypto’s global market capitalization was less than 1% that of gold. Today, it’s more than 20% of gold’s and gaining fast. Had the money that went into crypto over the last six months instead gone into gold, gold would be trading at over $2,500 an ounce.
All of these things point to substantial price inflation on the horizon. Unlike the financial crisis of 2007-2008, the Fed has no tools in its toolkit to respond to this. On the eve of that crisis, regular people were earning a 5% return on commercial money market accounts. Plunging the return from 5.0% to 0.5% provided a lot of cushion for the financial crash.
But that cushion is long gone. It’s all concrete now. Brace for impact.