[New post] Drop in Consumer Sentiment Exposes Fatal Flaw in Fed’s Plan
User ID posted: " https://www.youtube.com/watch?v=-jhuVhBf9F4 Drop in Consumer Sentiment Exposes Fatal Flaw in Fed's Plan by Joseph Brown The Fed can never taper. Coming off the back of some of the largest economic stimulus in history, US Consumer Sentiment just had i"
The Fed can never taper. Coming off the back of some of the largest economic stimulus in history, US Consumer Sentiment just had its 3rd largest drop on record. With sentiment plummeting, fears of the specter of deflation are front and center in policy makers' minds. Things like this are what will force the economy into either a deflationary death spiral or a hyperinflationary collapse.
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What's up everybody my name is Joe Brown and this is Heresy Financial this month we just got the new consumer sentiment numbers for august and we saw the sharpest drop to the lowest level in a decade this shows why pulling back on economic stimulus might be like trying to thread a needle that doesn't have an eye ready let's dive in. All right so august saw the sharpest drop in us consumer sentiment in over a decade in fact since this has been being tracked there's only two other times in which it has dropped more than this one of those was at the depths of the recession from the great financial crisis and the other one it was in April of 2020 following the eruption of the Covid lockdowns now why is this important this consumer sentiment this drop in consumer sentiment comes on comes right in time basically for when all the economic stimulus is starting to run to an end we're starting to see unemployment benefits roll off all across the nation we're starting to get nearer even though it just got extended again we're starting to get near to the eviction moratorium we're starting to get to the end of the mortgage forbearance timelines for many people who have opted into mortgage forbearance we're starting to see the end of a lot of money that has been being poured into the economy and yes we do have a stimulus bill coming up that is designed to target infrastructure and yes it's a stimulus bill because they're trying to cause spending to happen that wouldn't be spent otherwise by definition right because if it was being spent otherwise then they wouldn't have to you know put government money into it basically force those economic transactions by law by force instead of just letting the economy individual actors buy their own free choice dictate where money and resources flow and so as we're seeing a pullback on a lot of economic stimulus especially at the individual level we're now seeing a sharp drop in sentiment and very sharp historically speaking policy makers pay attention to this because they view consumer sentiment as sort of a leading economic indicator meaning that if everybody starts getting scared about the future they're going to pull back on spending and if people pull back on spending that is looked at as a huge negative because saving is anathema to Keynesian MMT modern economics versus spending and debt is what is you know it's the holy grail of economic growth completely backwards to reality but that's the way it's viewed and so consumer sentiment going down is watched very heavily by policy makers because if people pull back on spending that means less things get bought if less things get bought that's a drop in demand if demand drops then prices could drop and if prices start dropping that is going to mean that anybody who is selling those things and relying on those prices to produce their income they'll have their incomes go down if incomes for corporations go down you could start seeing layoffs you could start seeing prices drop in order to stimulate demand and if then those prices drop revenues drop earnings drop you could see asset prices start to drop or potentially even the ability to service debt could drop and cause defaults to start happening and this is the classic deflationary death spiral that policymakers are absolutely terrified of and so as sentiment is dropping right in time for the federal reserve to start thinking about tapering this could give them all the reason they need to say whoa, whoa, whoa, whoa, we don't want to come anywhere near a deflationary even approaching deflation even disinflation is scary to the fed remember disinflation is like if you're driving a car and you go from 60 miles an hour to 50 miles an hour you're still moving forward so prices are still going up you're just moving forward at a slower pace than you were before so disinflation is going from eight percent inflation to six percent inflation you've still got inflation but even that is scary to the fed scary to the government scary to economic policy makers because there's the slight chance that if the disinflation continues eventually price and prices might come to a halt where prices stop moving and then you're just on the border of deflation where prices might start dropping after that and this is why economic stimulus is basically like a drug where you can't just continue the same amount of stimulus you have to increase it over time because the deflationary forces that are built into nature are far stronger and they're persistent and they build over time and don't go away said another way if technology didn't make people wealthier by causing deflation by making scarce things more abundant we'd all still be hunters and gatherers there would be no wealth accumulation wealth wouldn't be a non-zero-sum game because wealth is not a zero-sum game money can be a zero-sum game but wealth is not there is progress wealth grows over time because technological progress makes wealth more abundant by causing abundance in things that are scarce by giving humanity leverage in order to take over parts that required a lot of human labor before so we can divert our attention and time and labor to other areas that have better returns and so deflation is something that is built into the DNA of humanity it happens over time and it compounds on itself and it is the overwhelming force of history which means that if you're a policy maker and you want to stop deflation from happening you need to expand the money supply enough to devalue the money that each individual the purchasing power of the money enough to counteract the effects of that natural deflation so that prices are stable but then after that if that's all you do you just do a one-time devaluation of the currency by doing a you know a one-time expansion of the money supply eventually that deflation comes back in again because people and companies get better at making things cheaper there's advances in technology there's innovations there's economies of scale there's all sorts of things and so basically you have that deflation come back and so then in order to stop that new deflation which is kind of like pent up like imagine a river I've used this example before that you want to damn because there's you know too much water so you build a dam well the water keeps on coming and it's pretty soon it's going to rain again so eventually you're going to have to build that dam higher to not only stop all that water that you stopped before but ever all the new water that came in on top of that and so the new expansion of the money supply has to be more than it was before and I'm using expansion of the money supply and economic stimulus pretty much interchangeably because the money supply is expanded in order to try and stimulate the economy and so I'm using them interchangeably in this video this is pointed out very elegantly by Jeff Booth in the price of tomorrow fantastic book I'll link it below and I actually interviewed him on this channel a couple months back if you haven't seen that interview I highly recommend it was a fantastic conversation but basically over time you have deflation taking place primarily due to technology and that is a net benefit for all of humanity it is a good thing but as a policy maker if you're trying to just neutralize the effects of deflationary technology you're gonna have to print some money and that is going to have to increase over time and then because of that if you keep on inching closer and closer to deflation and you want to avoid any chances of that you have to exponentially increase the amount of money supply just in order to keep inflation because the pent-up forces of deflation grow and grow and grow and compound over time so your money supply growth has to compound over time grow exponentially in order to keep inflation happening because you've built an entire economy on growing debt lowering debt service costs and rising prices when in reality real wealth grows by falling prices by life and stuff and wealth getting cheaper and more accessible for more people over time that's real wealth the opposite of the system that we have right now and so right now with consumer sentiment hitting a decade low and having the sharpest drop the third sharpest drop we've ever had in history we might be looking at the perfect excuse for the federal reserve to put off tapering to delay it even though it's likely it'll never happen but this is a perfect excuse for them to say hey consumer sentiment just dropped we don't want to get close to that triggering deflation triggering the the giant dam that we've built starting to crumble and letting out all of those pent-up deflationary forces just wipe out the economy kind of like a forest fire you have to have small fires over time to burn up the dead wood because if you don't and then a fire happens it burns so hot and so wide you burn off the topsoil and then the land is dead you burn off any ability for the forest to regrow after that and so increasingly it's looking like the federal reserve is going to have to try and thread this needle of if we go too far this way of providing too much stimulus eventually people lose faith in the currency we've seen that time after time after time after time all throughout history when you expand the money supply too quickly in order to pay for things any economic stimulus type of programs or really anything else where that money just makes its way through the economy money printing eventually leads to the collapse of the currency said another way too much money printing prices just skyrocket sky high to the point where people no longer want to hold on to that currency so anytime they have to take it they dump it as fast as possible but if they go the other way and start to taper not only are you risking to undo some of the inflation that we've seen over the past year but you're also risking that things like consumer sentiment drop you risk debt started to default you risk asset prices starting to fall you risk all sorts of things that could be a trigger could be that first domino falling that could spark a deflationary death spiral where everything collapses and that is probably more feared by central bankers today than hyperinflation and we're slowly getting to that point where monetary policy is going to have to choose one way or the other hyperinflation or deflationary death spiral and this month's drop in consumer sentiment on the back of some of the largest economic stimulus in history is proof of that as always I really appreciate you guys thank you so much for watching have a great day
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