Friday, April 17, 2015

Inflation is about to pick up. This time it's real.

We saw a small uptick in the CPI for March this morning, but the real issue here and the one not reported (you will only get it here), is that we are going to experience the first significant increase in government spending this year in six years.

My projections, based on all the data on Federal spending (from the DTS) so far this fiscal year, and the rate of spending, is that we will hit $4.38 trillion. That would be a $200 billion increase from the prior year.

Here is a graph with the projection for this year.



The only other increase in spending that we saw was in 2013 and that was only $20 billion over 2012. So this year's increase is serious.

Government spending is different from central bank monetary operations. The former adds to net financial  assets ("printing money"), while the latter is only an asset swap. That's why all the "inflationista's" got it wrong these past years. It was because they believed monetary operations were money printing. It's not.

Therefore, based on this development here is my outlook...


  • The top is in for the dollar. It's going down.
  • Bonds are headed lower. Rates will go up and YES, the Fed will raise rates this year, possibly even in June.
  • Stocks will continue to climb for a while until rates get high enough to siphon away investment (and we're still a long way from that).
  • Gold will rally.
  • Commodities and oil have bottomed.

P.S. Some may claim that they predicted, all along, that the euro would rally, but that would be false.

2 comments:

Anonymous said...

What kind of inflation? There already is inflation of housing prices where the rich live. Real inflation, driven by consumption exceeding the ability to produce and wage inflation won't be significant until some of that federal spending gets in the pockets of those who will spend it on consumer goods. Right now the big federal spending is for war financed by government bonds purchased by the wealthy with the money they have lying around waiting for the economy to come back.

Dan Lynch said...

Mike, is there any particular government program where spending is increasing? All I can imagine is the military .....