1/ Inflation is becoming difficult to manage by central bankers.
Reason being is a trifecta of factors.
I'll cover these variables today.. and if you'd rather just read about it in long form, here's an essay that covers it in greater detail:
jarvislabs.substack.com
Reason being is a trifecta of factors.
I'll cover these variables today.. and if you'd rather just read about it in long form, here's an essay that covers it in greater detail:
jarvislabs.substack.com
2/ To help you take that afternoon nap, here's an equation that makes it easier to grasp intuitively what influencing inflation.
P is your inflation variable. As P rises, inflation is on the rise.
P is your inflation variable. As P rises, inflation is on the rise.
3/ If we re-arrange things, we can let inflation be a loner. .. Now we can see how M, V, Q all impact inflation.
M or V goes up, P goes up
Q goes up, P goes down
M or V goes up, P goes up
Q goes up, P goes down
4/ Inflation today is a product of all three of the factors. Starting at M or money supply... in March 2020 trillions of US dollars were printed and gave birth to the JPow Brr meme.
But inflation didn't hit right away...
But inflation didn't hit right away...
5/ That's in part because V dropped hard. Here's a chart showing how significant this drop was to offset that money printer.
6/ Pandemic lockdowns started to be lifted in summer of 2021, which led to V coming back to life. This created the blue bars / red rectangle in the chart below to push inflation higher.
M and V were now delivering a one-two punch.
M and V were now delivering a one-two punch.
7/ The trifecta... Q. Output became throttled due to supply chain. Manufacturing orders is one way to see this dropping over the last year.
In the previous chart, this was the yellow bars creeping higher.
In the previous chart, this was the yellow bars creeping higher.
8/ This trifecta was in full force starting in October 2021 and caused the FED to act in an untrustworthy manner.
Example: JPow in May, “A 75-basis-point increase is not something the Committee is actively considering.”
June: 75bps hike.
Example: JPow in May, “A 75-basis-point increase is not something the Committee is actively considering.”
June: 75bps hike.
9/ The FED says they will take 2 steps, but take 3. This uncertainty has acted as one reasoning for market players to be hesitant. Markets rise when rates rise, as long as there is trust. We don't have that yet. Reason is inflation... It's a pest.
10/ Problem is, the FED is now acting in such a way that threatens Q ever more. This is the stagflation fear you likely have read about.
So, what to do?
So, what to do?
11/ Expect longer duration treasuries to show up in the next 12-24 months.
40-year mortgages are coming. 8 and 9 yr auto loans (possible with EV cars) are coming. Why? This brings V down and makes inflation more affordable.
40-year mortgages are coming. 8 and 9 yr auto loans (possible with EV cars) are coming. Why? This brings V down and makes inflation more affordable.
12/ Layer in some mild and less noticeable forms of MMT - gas tax holidays, spending cards, tax breaks.
This helps keep 1) pitch forks at bay as inflation becomes unbearable and 2) keeps Q propped up.
This helps keep 1) pitch forks at bay as inflation becomes unbearable and 2) keeps Q propped up.
13/ The real solution needs to address this chart... Productivity of the labor force. It sucks right now. QE, rate cuts, MMT - these are all band-aids on a wound that won't heal.
14/ By boosting productivity, Q can offset the other two factors. And it means more tax revenue to governments, higher returns on each dollar added to the economy (1 unit of M creates > 1 unit of Q).
15/ How to boost productivity... This is where I'm an optimist for blockchain, crypto, digital assets. These protocols are more efficient, cut out middlemen, and foster new business growth.
This is the pitch to lawmakers, regulators, gov't officials. It starts here with CT.
This is the pitch to lawmakers, regulators, gov't officials. It starts here with CT.
16/ To learn more about inflation, the untrustworthy FED, and how token economies are part of a Bretton Woods III read more here and be sure to subscribe to be the first to see our new suite of tools being developed now.
Thanks for your time 🙏
Thanks for your time 🙏
Tweet sent w/o dropping this link.. thanks again everybody. Happy to be brewing Espresso again.
jarvislabs.substack.com
jarvislabs.substack.com
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