Is hyper-inflation a real worry?

Starting with the administration of George W. Bush successive administrations of both parties (Bush, Obama, Trump) have incurred increasingly large federal deficits. Bush added $3.3 trillion to the federal deficit, Obama added another $6.8 trillion over his eight years, Trump added almost as much, $6.6 trillion, in just 4 years, and now the Biden administration has proposed adding another $6 trillion or so just in his first year. Meanwhile the Federal Reserve has been printing (or its electronic equivalent) new money at a great rate.  Should we be worried? Will this bring on hyperinflation?

Well, the Fed chairman says no. Yes, he says, there might be a slight “temporary” uptick in prices reflecting pent-up demand after the COVID lockdown, but not to worry. The Fed, he says, is sure that things will settle down shortly and inflation will surely stay around 2% or just a bit more. Should we believe him?

Warren Buffet, speaking at this year’s shareholder’s meeting, says inflation is already here. He sees it every day in the prices of his companies’ raw materials, and says we ought to worry about it.

Dr. Michael Burry, who so accurately predicted the 2008 meltdown (and made a fortune for his investors by betting against the “common wisdom”), is similarly pessimistic and has been saying so in his Twitter account, citing a great deal of historical data to support his contention. The feds were so worried that his twitter messages might affect the market that they asked him to get off of twitter, which he did.

Dr. Nouriel Roubin, who also famously predicted the 2008 crash (and was ridiculed at the time as “Dr. Doom’ for his pessimism), also says we are headed for a world of hurt.

A number of others, most with somewhat less impressive credentials, have also been warning about impending fiscal catastrophe from the massive and growing debt, and the Feds money-printing spree, but then there are always doomsayer around, so it is hard to know how to evaluate this.

So how about looking at hard data instead of just opinions (hard data? What a concept!). First, what about the claim that the Fed has been “printing’ enormous amounts of new money. Here is a current chart of the M1 money supply from the Federal Reserve itself, from Jan 2016 to the present. As you can see, about 35% of the money now in circulation has been created just since February of 2020. That’s a lot of new money to have “printed”.

Inflationary pressures typically move through the economy like a pig through a python, starting with basic commodities and moving through the supply chain to eventually raise the price of finished goods.

So how about commodity prices? Here is a chart of the price of lumber (per 1000 board feet). Framing (with wood) makes up about 20% of a new-house cost. Builders estimate that the recent rise in wood prices just to date will add about $35,000 to the price of an average new house.

Here is a chart of steel prices over the past year:

Here is the price of Lithium Carbonate over the past year, critical in making the electric car batteries of which Biden is so enamored:

Here is the price of cement, critical to most construction, over the past year:

Looks to me like the data support Buffet, Roubini, and Burry’s worries.