Zaijian Inflation, For Now

Higher energy is already crushing economic growth forecasts. The stock market looks to be rolling over and the Federal Reserve is ready to taper. Alhambra: Chip Shortages, Crude Boiling, Fed Explosion And…No Inflation

Inflation alarms were positively deafening in September:

The supply situation is even more critical for standard logic ICs and power-management discretes such as low-voltage MOSFETs and tantalum capacitors, which are now experiencing shortages and are effectively on allocation status, meaning suppliers are unable to respond to unforecasted demand. For standard logic ICs, allocation is continuing for the fourth month and is likely to persist until the end of the third quarter.

The situation so stretched, it spills over into other forms of indispensable tech like for LCD makers who “didn’t recognize the limited capacities of key material suppliers before fixing their LED TV panel shipment targets.” In other words, they got way ahead of themselves seeing huge profits from what they were told would be always rising demand apparently without stopping first to consider whether or not the commodity space would be able to provide the necessary materials inputs.

In particular, PMMA and PET materials are in significant shortage. PMMA and PET suppliers are slowly expanding capacity since they need time to add new plants and face financial limitations.

Put these alongside rapidly rebounding crude oil and the public understandably braces itself while conditioning its anger for only Great Inflation 2.0. What chance massive money printing and a serious supply shock goes any other way?

This year has been all sorts of trouble for chip shortages and tech problems, for sure, but those quotes above are not contained within some article written in September 2021, rather September 2010.

What took place back more than a decade ago really does sound weirdly familiar even though we’re being led to believe what’s going on this year has never happened before in human history. Suppliers then, too, were gutted by a huge global recession, so that when demand began to rebound from the lows it did so much faster than supply could. This quite naturally pushed up prices for producers and consumers alike, small “e” organic economics.

And the same point here: Tapering Or Calibrating, The Lady’s Not Inflating

QE in any form doesn’t actually work and never has (for more than twenty years). It has uniformly been unable to accomplish a single one of its goals through any of the three theorized channels: expectations, falling interest rates, and portfolio effects.

As to the latter of the trio, there’s absolutely no lending. Apart from panicked corporations desperate for liquidity during last year’s GFC2, loan activity to companies in Europe since has been more recessionary than inflationary.

Even overall lending (mostly to consumers) has been lackluster and clearly unaffected by QE’s, tapering QE’s, more QE’s, and now a promise to reduce QE without calling it a taper. Despite all of it, nada.

How long will a deflationary wave last? At least long enough for a 20 percent stock market correction.