No, it isn't. What people don't get is that QE to Infinity is only a stopgap measure that artificially puts off reality and temporarily buoys an already troubled stock and bond market. In other words, at its best, QE and MMT can only delay the harsh economic inevitability. These are stock markets up only because of five stocks, on very low volumes. Institutional investors are long gone as are the Buffets of this world. In fact, Buffet hasn't bought a stock since 2019. So, essentially, it's a market of suckers -- buying the dips -- the same suckers who back in 2008 were left holding the bag. They're called retail investors and for the most part are no more savvy about markets than your dog or cat. Like the old story goes: Joseph P. Kennedy Sr. got out of the markets right after the shoe-shine guy got in in 29.
QE, at least initially is a deflationary mechanism as money is continually counterfeited by The Fed to address issues other than record debt and deficit spending. That leads to eventual tax increases on individuals to address budgetary issues and thus personal spending power is reduced over time. And since money printing can't go on forever, the predictable end result is an economy and market scenario where both finally tank.
Where QE puts us on a transition to inflation occurs when the economy is contracting, businesses are slowing down, profits are reduced and sales are decreasing. That leads to rises in business input costs and increases in prices of goods being produced by industry. THAT'S when we start to see the transition to an inflationary environment. Just look at your grocery bill, especially the prices of meats and other items imported from afar. No question, that's exactly where we are now in 2020.
The next logical phase is, of course, hyperinflation where monthly inflation is at least over 50% percent per month. In that environment, the purchasing power of the currency reduces exponentially and economic contraction soars. First, PMI falls off a cliff, then the GDP but other areas also plummet: most notably, consumer spending, housing, retail sales, opening of new businesses and building permits.
Right now, we're seeing people turning into savers and trying to pay off some of their debt. The consumer is scared -- many of them either laid off or already out of a job. Small businesses, the heart of the economy who employ 97% are on life-support or going out of business. Meanwhile, real unemployment, depending on which number you believe is actually 20-40%, if you include those who have stopped looking for work or for who unemployment benefits have already run out. No wonder someone monkeyed with the American unemployment rate for May. As a result, eventual hyperinflation will likely transform into stagflation with unemployed ultimately passing Great Depression level numbers.
Now, why is the stock market going up in extraordinarily bad economic times? Sure, QE is playing a role but it's all about a contracting economy and a currency on the downslope. The more the economy shrinks and the dollar goes down, the more the stock market will go up. Ditto for the bond market, more specifically the 10 Year Treasury. That's precisely what hyperinflation does to markets. It's normal. Individuals make the fatal mistake of trying to use stock markets as an inflation hedge and eventual ATM, so money goes pouring into markets.
Just look at Venezuela where the stock market took off in 2017 and went up 476,000% in September of 2018, then crashed and went up again in late 2018, right through 2020, while the economy battled persistent hyperinflation. HI was pegged at 4,000% in 2017, 66,000 % in 2018 and 20,000% last year and is roughly at 15,000% in 2020. The value of the domestic currency basically went to zero and the ten-year bond yield rose almost to 14% in 2015-16, immediately prior to that crisis. Predictably, bonds then fell off a cliff when the stock market dived in 2018, with the 10 Year Bond flooring at 10% to this day. But risk averse yield seekers simply aren't there, as government bonds are not seen as even remotely secure.
Remember crash and burn because that's our only possible economic future. Again, capitalists can't possibly repudiate the conditions of the business cycle. And retail investors are what they have always been, the most prone to turning into sacrificial lemmings.
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