The numbers are out, and October’s Chicago PMI collapsed to 5-month lows. They reported 50.4, a miss of 3.6 points from the rosey estimate, because of production tumbling. Curiously, prices paid have surged to the highest level since November 2014.
So, essentially what we have looming is stagflation as inflationary pressures rise and economic growth outlook collapses.
This is telling of the economy in that it washes away the optimism that was being carried over from the previous quarter.
The combination of higher inflation in the face of a slowing economy is “stagflation,” which, by the way, would be virtually impossible under a sound money system. It is only because of fiat paper printing that the economy slows down and prices can actually still rise.
Logically, up until the 1970s, there was a belief that there was a stable, inverse relationship between inflation and unemployment.
Take a look at the CPI after 1971, despite slowdowns in the economy.
Think about it: if the economy is slowing down, that means less people are purchasing, and prices should come down. The reverse is also true: if the economy is thriving, people bid up the goods and services, and prices rise. Of course, what we’ve seen is an all-out war to prevent deflation in the economy, and the government has doubled down on the effort to inflate through money printing, QE, ultra-low interest rates, and artificially supported government programs to prop up housing prices, like the housing market’s FHA program, for instance.
The Answer Debt, Debt, and More Debt
Public debt has outpaced GDP, as most people know. But consider that private debt is actually a way larger issue when you look at the scope of it, and that it comes from the same source. It’s either through debasement of the currency or people working for every dime to pay back the interest on the debt, regardless of whether it is private or public.
Official private debt is 197.5% of GDP, a crushing number for our stagnating economy.
But if you’re a central banker and understand that every dollar circling the globe is loaned into existence, deficit spending and perpetual debt in the public and private sectors are an absolute must.
Consider that President George W. Bush doubled the national debt during his presidency of 8 years from $5 trillion to $10 trillion. Obama took that $10 trillion and turned it into $20 trillion. If we stay on this pace, we are looking at being $40 trillion in debt in 8 years, and quite frankly, the runaway snowball effect is already in motion.