By Nick Sorrentino
The alarm has sounded. The world largest retailer Wal-Mart is warning that inflation is about to get “serious.”
Bill Simon the Wal-Mart CEO said in the USA Today today that a real rise in prices was on the way and that no retailer, even mighty Wal-Mart will be able to keep these pressures at bay. This just a few days after Treasury Secretary Giethner went down to Bentonville Arkansas, Wal-Mart’s headquarters, for a meeting.
So now it’s damn near official. Things are about to get even more expensive. It’s not just gas folks, it sounds like this will be a real body blow. Let’s hope not. But in the Fed’s effort to re-inflate the housing market, not to mention the stock market, they have inflated everything else in the process.
What’s absolutely nuts, is that despite these efforts housing looks to be entering another significant leg down. Robert Schiller, the Yale economist who developed the Case-Schiller index recently said that "there's a substantial risk of home prices falling another 15%, 20% or 25%."
So grocery prices are about to go up. Wages are trending down. Real unemployment is likely in the 15% range. And your house, depending on where you live might go down another 20%. This after a likely loss of 20-40% already.
I am a small business owner and despite this nastiness I remain positive believe it or not, because another leg down may be what it takes to get back to some semblance of a real economy. The past 2 years have been a horrible experiment in Federal Reserve central planning.
Think of all of the economic intervention that has happened since the fall of 2008. The Fed has sought to invent it’s way out of a crisis that it itself created. It looks now that it has clearly failed.
I personally felt it failed long ago, but now people who are not inclined toward Austrian Business Cycle Theory are starting to get it. Perhaps the Fed and its “experts” don’t really know what is best for the economy. Perhaps an economy as vast as the one we have now should not be manipulated by a small group of very fallible men.
Indeed it looks like they have really screwed up and the question is; “How long are we going to let these guys do this?”
I wrote a couple of months ago that the middle class was about to be hit with a double whammy, declining house prices, with rising prices else ware. Now this scenario is not conjecture but reality. Add in declining “real” wages and continued unemployment and underemployment and this is a recipe for significant societal dislocation. I think this summer may be unlike any I have seen in my lifetime.
But again I remain positive in the face of these colossal challenges. If we can get back to a freer economy where price discovery in energy, household goods, housing, wages, cars, even money itself, the economic pain we have gone through, and continue to go through will be worth it.
Frankly we have no other choice anyway. Either we free up markets at all levels and let the economy breathe, or we will continue to descend.
We must make the United States a good place to do business again. We must lower corporate tax rates and simplify the code. We must eliminate the special brakes for some companies and industries and institute a simple (low) corporate flat tax. The CPAs wont be happy about it but take away this immense administrative burden from companies and watch the economy turn around. While we are at it why don’t we do the same thing for individuals. Let’s make the business of business more simple.
There will have to be real cuts to “services” to be sure, but those cuts are coming anyway. Why not do it while we still have SOME choice in where to cut?
This is no longer some pie in the sky free marketeer dream. This is what has to be done if we are to pull ourselves out of this colossal mess.
We can fight it, or we can get real and get on with getting our economy off of the inflationary fiat currency sauce. Yeah there’s going to be a horrible hangover, but better to stop drinking now before we find ourselves in the emergency room, or worse.
Talking to Mark Krikorian
4 hours ago