Rabobank: Inflation Is Being ‘Hidden’ Because Belief in Our Whole Fantasy System Is Collapsing

The comments below are an edited and abridged synopsis of an article by Michael Every

Is inflation being hidden? The US CPI has long had hedonic adjustments that presume goods get cheaper as their price rises, and since 1999 it has used a geometric mean to assume that when beef goes up, consumers buy chicken, so inflation stays lower overall. Would they want to actively hide inflation, though?

Rabobank: Inflation Is Being ‘Hidden’ Because Belief in Our Whole Fantasy System Is Collapsing | BullionBuzz | Nick's Top Six
Crisis in the stock market

There are only four logical options for the authorities if things go badly wrong in our fragile, asset-based, financialized economies (for example, if inflation rips higher): Do nothing, or try to normalize rates, and watch a crash happen; target bond yields, effectively making bond prices go up; target equities, effectively making stock prices go up; or target data, so market outcomes mean nothing blows up.

Everyone says that the global glide path is logically (and historically) going to be towards one, or more, of the above. But on a deeper level, even if inflation were made up, aren’t we making most things up anyway?

Up for discussion: GDP; productivity; and accounting standards.

Of course, philosophically, everything is made up. If you want people to go along with a particular version of reality it needs to be internally consistent, otherwise the whole thing rapidly collapses under its own contradictions.

The authorities have the power to make things up: they can target bond yields if they want; they can target equities; they can tweak inflation data—and what can you do about it? However, they also have to maintain the appearance of consistent internal rules to suspend our collective disbelief, and they can’t do both for long.

We can already see that belief in our whole fantasy system is collapsing for the young, who don’t want to be told things must be the way they are ‘because markets.’ Anyway, back to pricing in US fiscal stimulus for the nth time, and to listening to the ECB spin its own fantasies.

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