Will Rising Inflation Lead to More Unrest?

It’s not just crazy gold bugs now that are worried about inflation. Real concerns of inflation are starting to rise among the establishment now, including a Democrat named Larry Summers. He isn’t buying the story that supply chain issues causing a few items like used car price spikes is a culprit for the “unexpected” 0.8% rise the headline CPI number this week. He points to the fact that the core inflation number of 0.9% suggests this is not a temporary problem and he noted that that amounts to an increase of over 11% on an annualized basis.

 

And as Peter Boockvar pointed out this week, this rise in the CPI has not even started to factor in wage inflation, which is most certainly starting to rev up. With trillions of helicopter-delivered dollars to incentivize people not to work, small businesses are having to offer higher and higher wages to get Americans to leave their couches and start to add to the supply side. Now if we had

a monetary system that was stable and could not be increased infinitely with computer keystrokes, there would not be enough fuel to drive wages higher. But just like the 1970s when Fed chairmen Miller and Burns printed massive amounts of money, rising oil prices and massive increases in wages didn’t slow the economy down because everyone could count on endless amounts of fuel being poured onto the inflationary fires. In so many ways, the first few months of the Biden Administration feels like the Carter years. I’m not just talking about inflation, but the revolutionary attitude that was occurring during the radical left’s movement against all things establishment. The trillions of dollars of transfer payments made even after the economy was clearly recovering does not take place in a vacuum. The Black Lives Mater and Antifa violence last summer is part of an angry mob that is screaming for equity and revenge, especially against those who have done well in a more free-market environment. We can only hope and pray that an inflationary problem doesn’t get so far out of hand that we face a French-style revolution. There are certainly people who appear on my radio show like Alasdair Macleod and John Williams who are not so sure we won’t end up with hyperinflation.

 

What I found curious this week was the behavior of T-Bonds in light of a declining stock market. Normally you would expect U.S. Treasuries to strengthen when equities weaken. But apparently the knock-out inflation number now has bondholders increasingly worried, opting out for other assets like gold and silver. This relationship between stocks and bonds this week runs counter to Michael Oliver’s view that for now we should see T-Bonds share a safe haven status along with gold. I realize you can’t make too much of a single week and I believe there may have been some sort of intervention on Thursday when both stocks and T-Bonds rose. But I think it bears some watching, given a sudden concern of mainstream investors who have always had more faith in the omniscience of the Fed than in any gold standard. But alas that may be about to change, as my Texas cotton farmer friend Tommy Thiltgen, who has been a long-term deflationist, suggested in a recent email to me.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.