Global Macro Monitor

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Money illusion is an economic theory positing that people have a tendency to view their wealth and income in nominal dollar terms, rather than in real terms. In other words, it is assumed that people do not take into account the level of inflation in an economy, wrongly believing that a dollar is worth the same as it was the prior year. – Investopedia 

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Try discussing these ideas with someone who thinks the earth is only 6,000 years old. 

Four in 10 Americans believe God created the Earth and anatomically modern humans, less than 10,000 years ago, according to a new Gallup poll.

About half of Americans believe humans evolved over millions of years, with most of those people saying that God guided the process. Religious, less educated, and older respondents were likelier to espouse a young Earth creationist view — that life was created some 6,000 to 10,000 years ago — according to the poll. – LiveScience

Whatever happened to the commandment,

Love the Lord your God with… all your all your mind 

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Britain’s statistics office rejigged the basket of goods that make up its consumer-price index. Out go men’s suits (because of remote working), single doughnuts (people now scoff them in packs, presumably because of remote working and probably why men cannot fit into suits) and coal (no one likes it). In come sports bras (covid’s effect on fashion) and antibacterial wipes (because of sticky fingers after all those doughnuts). – Economist

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Have Central Banks Reached The  Debasement Tipping Point? 

It’s almost impossible to see how the central banks will climb down from the extraordinary heights they have taken their balance sheets over the past 15 years.  The trillions of base money pumped into the global financial system from the central banks coupled with the money and faux wealth created by the private sector, has inflated the global money supply, wealth, liquidity, or however defined, to such extraordinary levels, and with combined with the forces of deglobalization that are fast at work will likely create a future of perpetual shortages in almost all things but fiat money.  

Sorry to drive the final stake into the myth that inflation is transitory or temporary.  No surprise there, however. 

Seriously, folks, how Kafkaesque is it to be talking about 2.0 percent plus 10-year year yields when inflation is heading north of 10 percent on it’s way to 20 percent; or debating what the yield curve is signaling when it is has been managed by the Fed for over a decade?  Strange days indeed.  

What kind of Kool-Aid is everyone drinking?  I want some. 

The Federal Reserve has shredded it’s credibility keeping the monetary spigot turned on for too long and repressing so-called market interest rates, especially given that there was no credit crisis.  My 19-year old daughter is being offered lines of credit greater than Ty Cobb’s top salary. 

Blame It On The Supply Chain?

Nah, maybe in part, we concede, but personal consumption expenditures on durables make up only 13 percent of total personal consumption, although durable consumption skyrocketed during the pandemic, swamping supply chains.  Morevever, the value-added of durable goods to U.S. GDP is only 6 percent of GDP.  

Got that, folks?  The U.S. only produces 6 percent of it’s GDP that hurts if you drop it on your foot.  If, perhaps, you dropped a stale cupcake on your foot it may sting a bit, but it would be classified as a manufactured nondurable good, which make up about 5 percent of GDP.  

Furthermore, can anyone explain the supply chain issues driving skyrocketing rents?  

Too Much Money Chasing Too Few Goods

Too much money chasing too few goods…and wait for it…the velocity of money, again, however defined, will increase with inflation.  And, yet, the Fed talks big but slow walks. 

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Excellent synopsis.

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Crude oil prices are back down to where they were on Valentine’s Day, more than a week before the invasion of Ukraine.  It’s still early in the crisis so beware of complacency.  

Futures traders/speculators, who drive short-term commodity prices often get the cash market equilibria wrong, which causes, in part, the excessive volatility.  If Russia sells their oil to China, doesn’t China’s demand for other sources of crude oil fall?  Commodities live in a fungible albeit, sometimes, fuzzy general equilibrium.

Wheat Prices

Wheat is the chart that worries us.  Rising wheat prices can spark global food riots.

The head of the United Nations warned Monday that Russia’s assault on Ukraine is pushing the global food system to the brink of disaster as wheat prices skyrocket and key supply chains are thrown into chaos, threatening a hunger crisis in Europe and well beyond.

“Russia and Ukraine represent more than half of the world’s supply of sunflower oil and about 30% of the world’s wheat,” U.N. Secretary-General António Guterres said in remarks to the press in New York City. “Ukraine alone provides more than half of the World Food Programme’s wheat supply… All of this is hitting the poorest the hardest and planting the seeds for political instability and unrest around the globe.” – Truthout

Wheat