Inflation

The answer is inflation.

Is there inflation?

Ther is.

How do I know that?

I can see it.

Where?

I am short JGBs.

I am long the dollar against the Yen and the Euro.

I am short Gilts.

I am short US 10 year Notes.

Sell your yen bonds. Buy dollars.

Sell your German Bunds. Buy dollars.

Sell your UK Gilts. Buy dollars.

All of these dynamics are in place.

Sell your gold, priced in dollars.

Sell your 10-year notes, which have, in the US, moved from 4.19 to 4.44 in a matter of weeks. 25 basis points in the 10-year in 2 weeks is like your floating rate mortgage rising 100 basis points in 3 months.

So, these occurrences mean what? That M2 grows. All those dollars end up somewhere. Even if they become Eurodollars, they become M2.

What is M2? Well, the size of it will give you a clue.

It is MOST of the U.S. economy.

The Monetary Base, M2 and the Inflation Rate

by Victor Canto, Ph.D. | Jun 5, 2023 | Commentary

Friedman taught us that inflation is, and always has been, a monetary phenomenon. Too much money chasing too few goods. He also argued that M2 is the appropriate measure of the quantity of money circulating in the economy while real GDP denotes the quantity of goods. If inflation is too much money chasing too few goods, an M2 growth rate in excess of real GDP growth leads to an excess money supply. To restore monetary equilibrium, the price of money in terms of goods, or what is commonly defined as the purchasing power of money, has to change to eliminate any excess demand or supply of money.

Yes. This is where the inflation is and where it is rising. This is where the inflation risk, beyond tariffs and prices, exists.

The many tentacled monstrosity growing with these market dynamics is inflationary. The cost of borrowing money is going up.

So, as the graph explains, the amount of household debt as part of GDP has fallen significantly since 2005.

The amount remains in the trillions.

1.14 trillion

As of 2024, U.S. credit card debt has reached a record $1.14 trillion, with an average balance of $6,730 among consumers. This represents an 8.6% increase from the previous year, driven by inflation and increased reliance on credit cards. Approximately 47% of credit cardholders carried a balance, with younger adults being particularly affected by the rising debt levels²³.

So, what is more important? The rising costs of goods and services because of tariffs, labor forces, and supply ad demand? Or the cost of borrowing the money to buy these things that are rising in costs?

There is a notable rise in U.S. consumers using credit to buy staples, particularly groceries.

• A recent survey indicates that 25% of shoppers are using buy now, pay later (BNPL) financing options for groceries, up from 14%².

• Approximately half of U.S. consumers reported using BNPL services, with 25% specifically using it for groceries³.

• Additionally, 40% of consumers use credit to pay for food from restaurants, highlighting the trend of using credit for essential purchases⁴.

• Economic uncertainty is driving this shift, as consumers seek financing for essential items like groceries⁵.

This trend reflects a broader shift in consumer behavior towards more flexible payment options.

So, as the cost of borrowing rises, what impact might this have on the U.S. economy?

Inflation. The answer is inflation. And everything that follows.