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The Junuary Economy

It is Junuary. For readers who have not had the pleasure of living in the Land of Giants, Junuary is the time of year when one looks at their calendar to find it clearly indicates the month of June, yet a look outside at the rain and colder temperatures seems to confirm one's instinct that it is indeed January.

Fortunately, one way or another, Junuary yields to July, and the summer inevitably arrives in full force in the Pacific Northwest.

The US economy appears to be enjoying a Junuary of its own. In terms of monetary policy, it is January. On one hand, as GDP clocked in at a negative 1% for the first quarter of 2014, which in hindsight is quite natural when an economy that runs on a credit based currency created by fiat absorbs a loss of $40 Billion of anticipated new money flows with more reductions to come.

Yet at the same time, it is June. A look at indicators such as Unemployment, which now sits at 6.3%, average hourly earnings, up 1.9% year over year, and headline CPI is up 1.6% with core CPI up 1.4%. Similarly, housing prices continue their meteoric rise and consumer confidence continues to improve.

So what is it? January or June? If you are a financial commentator, it looks like January, with financial disaster just around the corner despite the improved data.

However, if you look beyond the numbers to what is actually occurring, it is June, with a substantial risk of a financial forest fire. The tinder on the ground has been there for nearly 5 years now; the Federal Reserve's relentless money creation has left fuel in every corner of the forest. The only reason the landscape has not gone up in flames as a result is that consumer have not dared start a fire of their own.

Now, consumers are beginning to start their fires, and the trifecta of lower unemployment, wage inflation, and CPI is about to catch the FED completely off guard. Their monetary medicine has a serious side effect, it creates what we refer to as a scorched earth economy, and the dose required to keep the failed system afloat during this last round may take the forest down altogether.

Junuary is here, and July is just around the corner. Inflation is about to become an important part of the economic landscape for the foreseeable future. At first, we may enjoy the pleasant kind, where housing prices and stock rise abnormally with pay bump. However, it will be followed by the unpleasant kind, where coffee and groceries take an outsized bite out of one's paycheck. The summer will be very interesting indeed.