This was from Deutsche Bank & Zerohedge: Interesting how it shows statistical evidence for what we suspect has to happen. In Europe, Germany and Italy are both reporting annual inflation rates over 10%, and France is almost 8%. USA and Canada are over 8% annual inflation, and all these numbers are very *conservative* estimates of what the actual, true inflation rates really are (given the tricks, like hedonic adjustments that the Government folks make...). What this chart shows, is the typical evolutionary path (in months, on the X-axis) of the rate of inflation, once the inflation rate hits 8%. It's a neat piece of visual analysis, and shows that once you hit 8%, in the past, even after 60 months, you are still up around 6% to 7% (and maybe even 10%) rate of inflation.

And this jives with my personal experience, and the results of my studies of Nixon's Wage and Price control program and my summer-student job at Trudeau 1.0's "Anti-Inflation Board" - an interesting failed attempt to "wage and price control" inflation away in Canada, in 1976. Inflation was mostly what we talked about in Economics school, since it was ugly, serious, and we had both inflation, AND economic contraction, which the stupid models that we were being taught, suggested was not supposed to be able to happen, since inflation was (wrongly!) viewed to be driven by excess demand.

What is so bizarre, is to see the same curious policy errors (complete with really crazy-wrong forecasts, which this chart shows as the dotted lines, in most excellent detail), happening again, as if the 1970's experience did not even happen.

But then I realized: I am an outlier. And I am a rusticated farmer now, living in the country. There is *no one* left, in any of the Wonker-Bunkers in Ottawa or Washington or Europe, who actually *remembers* what a crap-storm of comical stupidity, we all had to endure under Nixon's and Trudeau's "wage and price control programs". All sorts of stupid talk, and bad policy went on. No one who is still working remembers. Everyone who was there, is gone! But it really happened, and in both cases, it really did not work at all, and also - like now - the inflation was almost ENTIRELY driven by two factors: 1) An initial *supply-shock*, which jacked up the price of oil and gasoline - and diesel, and nat-gas, also, by a *LOT*. Gasoline more than doubled in price, and then kept climbing. This fed into everything, and the boomtime low unemployment of 1969, gave way to high (more than 10%) rates of unemployment, by 1975 (and a drift down in the stock markets, from Dow 1000 to Dow 600 => a 40% drop in stock prices. And 2): The inflation was MADE WORSE by the interest-rate increase that raced thru the economy like a firestorm in a dry grassland. The cost of capital is a *critical* business input, and when it rises, businesses raise their prices, and then employees demand higher wages and salaries, and professionals raise their fees. This is exactly what happened. One of my Economics Profs called it, IIRC, the "Backward Bending IS-LM Curve", in a paper called "Stagflation and the Bastard Keynsians", a title that I always liked.

The out-of-control inflation idiocy did not get fixed, until Volker jacked up rates to over 20%. This caused a brutal recession. Business loan rates went to 25% and more, and business failed left and right. Laws on usery had to be re-written to allow the high nominal interest rates of the 1980-81 period. I bought retail "Canada Savings Bonds" that paid 18.75%. It was a crazy time. I gave up on doing a graduate degree, and I moved to Toronto, and got a real job, and then after 6 months, went out on my own, as a consultant. I recall going for lunch in a restaurant at the top of a big office building/hotel complex, and there was only me, and another table on the otherside of the room, and a whole bunch of bored "waiters" standing around. The economy had almost stopped. It was wierd. But so had the inflation. Ron Reagan was a global hero, along with Margaret Thatcher of the UK, and the Polish Pope. The 1980's began, and the world was finally being rightfully repaired.

So, excuse me, if I have seen (and lived!) this movie before. I can say with some assurance, that the chance of the World tracking those dotted lines in this chart, is asymptotic to zero. It is not zero, because anything can happen, as we all well know now. But it is a very small probability.

And, here is the rub: In a big inflation, stocks and shares offer some real protection (like they did in Austria and Germany in the 1920 to 1924 period). But in the 1970 to 1977 period, stocks went down, and then went nowhere. You had to be getting dividends, or you maybe did not survive.

We could see share prices track along with the inflation. This tends to happen in the early stages of an inflation. Everything inflates, and the whole system bubbles like a roiling, boiling kettle of water. But if the Central Bankers really want to end inflation, they will have to raise interest rates *above* the inflation rate. We cannot honestly figure out why the fuck anyone thinks that 5% central-bank administered interest-rates, will end an 8% to 12% inflation. Maybe because there is WAY TOO MUCH DEBT? Is that the reason? Mass bankruptcy action? Perhaps.

But we suspect interest rates will have to track up to the 7% to 8% and probably 9 to 10% - IF this inflation is to be ameliorated. And real work will need to be done, to re-factor and re-design supply chains. And, most important, the costs of moving away from a petrol-based economy, to a lithium-battery and nuclear-energy economy, will be high, and ongoing. And this will feed directly into the price level EVERYWHERE and for EVERYTHING. There is just no way around this obvious fact. Cheap oil is a lovely and fine benefit for this planet, regardless of what it does to the climate. But it probably can't last forever. Right?

So, be damn careful. Stock prices can go either way, and they will probably go BOTH ways, and with rapid vigour. We are concerned that stock market seems to now be less of a discounting machine for savings-to-investmet action, and more of a capital-destruction machine lately, and this may go on for a while. There is a lot of debt and puff-money, and the market, in it's wisdom, may make a lot of it just disappear.

If we can be sure of inflation, we can all borrow a lot of money, and pay back the loans with puff-money that is fluff because it's value has been inflated away. But the Central Bankers might do a hard-core money-supply contraction, to save the remaining local domestic national economies, and they may jack rates to 20% or even higher. World trade may collapse, and money might become tight and real, and your debt might become *BIGGER* and turn and kill you, once it becomes clear it cannot be paid back, without liquidation of all your assets (and more, of course).

So, there is no easy path forward here. We suggest, expect a *big* inflation, and then a *much bigger rate runup*, to address the looming disaster (rather like what happened in Germany in 1924, and North America, in 1981. An economic crash becomes not just unavoidable, but is actually the prescription for fixing the toxic mess that has resulted from 40 years of kicking the cans down the road, creating debt burdens for the future generations. The kids might just say: "No way. I'm not paying.", and we will get a traditional *reset* event, rather like Japan had, when it surrendered at the end of World War Two. This will not quite be the reset that the World Economic Forum guys and gals had envisioned.

But if you read history, it is the one that tends to happen, about once every 80 or 100 years or so. It might be a reset event like happened in the USA to the Confederate States at the end of the US Civil War, or in Eastern Europe, at the end of the WorldWar-2. These kinds of *reset* events - which are common - are not good, and only a few assets typically survive intact. Most "financial" assets are just vapourized.

Know this. After you learn to code, make sure to buy some real-estate, and ensure you can pull some kind of income from it. It might be the only thing you have left, once the coming *reset* happens. :)

The USA Total Federal Government Debt Load - The American "Trudeau".

In Canada, we call a "mountain of debt", a "trudeau", because it is like an upside-down mountain, that grows bigger, the further "into the hole" you go. To be in debt, is to be "under water", so a "water-hole" (in French, a "trudeau"), is what we call a "mountain of debt" - you are "in the hole" as well as being "under water." The big "trudeau" in Canada was created by the father of our current Prime Minister, whose name was Pierre Trudeau. The name for our "National Debt" was developed back at a time when a mountain in Canada was suggested being named "Mount Trudeau". Lots of folks came forward, and suggested we name our "mountain of government debt" after Mr. Trudeau instead, and the name stuck.

We can see from the above chart, that America has built up a pretty serious "trudeau", and that this red mountain keeps growing, regardless of which kind of President is elected. (Don't be offended. We have exactly the same problem here in Canada.)

What is of special concern, is that higher interest-rates, are going to make servicing these ugly "trudeaus" much (much!) more expensive, and that this huge increase in costs, will hammer government finances, and encourage government to raise taxes, which will further add to inflationary costs for citizens of both countries. This year's cost for this American "trudeau" is expected to be 399 billion USA dollars. Even with attractive, heroic assumptions, the USA CBO (Congressional Budget Office) projects this cost to be 1.2 *TRILLION* USA dollars by 2032. That is an *annual* cost estimate, just to pay the interest on the every-growing "trudeau" Federal debt-mountain.

We need to realize - a big "trudeau" means much bigger debt-service costs on national-debt, and these have to be paid somehow.

Historically, governments have inflated their economies,so they can pay down their "trudeaus" with highly-inflated dollars (or reich-marks, or lira, or pesos, or pestas or francs or whatever thingys you are using for money)

But some sort of pay-off or pay-down has to happen. And just to maintain the "trudeau", you need to tax your citizens to make the interest payments. Or, you can default (like Greece and Argentina regularly do), and just not pay. Or, you can print money, and pay with newly created money-units. This is, of course, very inflationary, and will cause various kinds of grief to various persons.

But the upside-down debt-moutain remains, if we are to be honest, and try to maintain economic sanity. And we have to pay the interest costs on it, and these will rise (sharply) if we make bond-yields rise on government bonds.

Will we? Let's find out... :)

(This chart from website: https://www.patriotledger.com/story/opinion/columns/2022/08/27/interest-national-debt-enhances-risk-fiscal-crisis-congressional-budget-office-medicaid-medicare/7891645001/ )

This chart is from "zerohedge.com", and shows the USA National Average 30-year Mortgage Rate - which has spiked from 3 percent last year, to over 7 percent as of September 27, 2022. This means financing costs for existing home owners will more than double. And data suggest that housing costs are typically close to 50% of household income in USA. (As goes USA, so goes Canada. No way to avoid this.)

This is the fastest rate-rise for home-owners in the US, in history. You can also check out the 30 "Gilts" (the UK long government bonds) and also the 10 year Treasury Bonds, in the USA - 5% and 4% respectively, which shows basically a crashing bond market. These markets will bounce (today, Sept. 28, 2022, the USA stock market is up over 500 points on the Dow Jones Industrial Average, as I key this), but what we see, is an unwise, too-rapid transitional change, brought about by a series of unwise, reactive-responses, from USA and UK authorities.

"With what little wisdom, the World is managed..." (as we all know now...)

This rate-shock will cause a recession, most likely, in the USA, next year. Combined with the very strong USA dollar, which will cause USA products to become very expensive (and will hurt USA exports), we expect a serious economic downturn next year in North America.

We believe this kind of manufactured downturn is unwise, and most likely will *not* reduce USA inflation rates. Our experience from the Trudeau (Version 1.0) Anti-Inflation Board, in 1976, suggests this kind of rapid, unwise "rate-shock", may in fact *ADD* to inflationary pressures, as businesses pass on their rising financing costs, as product price increases. (This was called, in economics literature: "the backward-bending supply curve").

Idiots.

--- The above image, is a screen-capture, of the Fed. Reserve Article, which documents Ben Bernanke, saying that, yes, the Federal Reserve *did* cause the "Great Depression". Below is my note, from Sept. 17th, where I provide a bit more detail. - Mark Langdon, Director & Owner, GEMESYS Ltd.

September 17, 2022 ----- Federal Failures to Learn From History

The current crop of buffoons that dominate the global political stage, are perhaps unique in the historical context, as being the most serially unwise and profoundly stupid that folks alive today have had to endure. As Earth citizens, we have to go back to the early 20th century post-World-War-One world, to see leaders as unwise and just plain bad as the crop we have now. It's curious and rather sad, that we are back to having "Idiots in Power", like we did in the "bad old days."

It's different in the business & financial world. The business and finance people of the early 20th century were almost all focused, honest, and very clever, despite what the Leftist media and profoundly Leftist academics in the University economics and political-science (fiction) departments like to assert. They had to be, or they got crushed. It was evolution in action, like it always is in business. It is only in politics, where lies and deception can sustain a man (or woman!) for an entire lifetime career, while they do such great damage (like in Argentina, for example.)

Things are often not as they seem. The best "Red Pill" of all time, is honest, focused historical research, which makes use of original documents (and ***not*** the secondary opinions written by most academics in Economics and History departments and "reporters" who work at news-generator organs, such as what used to be called "newspapers". ) It is hard work to find the truth. It is often buried deep, and obscured by fabricated opinion, and mountains of worthless drivel.

The "Great Depression" that the USA endured, during the 1930's, was *directly* caused by the harsh and extreme interest-rate increases that the Federal Reserve Bank of New York (the USA central bank), began in April of 1928, when they raised interest rates (the Reserve "discount" rate) to 4%. (In the fall and winter of 1924-1925, the rate had been 3%) The New York Fed then continued in an aggressive campaign of rate rises, which reached their peak in September and October of 1929, with the rate at 6%. This was an aggressive attempt to bring down the *inflation* in asset-prices that was of concern to USA Government economic managers. They felt the New York Stock Market was "too highly priced", and wanted to bring down asset prices.

They succeeded. Oh my, did they succeed.

Problem was, they (the USA Federal Reserve - the Central Bank of the USA), crashed the US Stock Market. The high-rates, the loans being called and the resulting implosion of financial *wealth* caused an economic implosion which smashed the USA economy, and caused extreme economic dislocation, mass-poverty, more than 25% unemployment, and a "banking crisis", in which over 3000 USA small banks became insolvent, and went out of business, causing hundreds of thousands of USA citizen investors to lose most of their life savings.

This is not just our opinion. This is what happened.

Ben Bernanke, the Chairman of the Federal Reserve, and a clever Economist with a PhD who was the Chairman of the Federal Reserve from 2006 to 2014, has said the same thing, in a speech he gave, back in 2002, to the Hoover Institute, on the ocassion of Milton Freidman's 90th birthday.

https://www.federalreservehistory.org/essays/great-depression

Our research indicates that the USA Federal Reserve did not just "make mistakes", we are also of the opinion that the actions of the Federal Reserve Bank of New York actually *caused* the stock-market crash of 1929, which triggered a recession, and then went further (in 1931) to exacerbate the downturn, and cause the Great Depression.

The clowns at the USA Federal Reserve did the same damn thing, again, in 1931, as things were become slightly more stable. In August 1931, the New York Fed "discount rate" was 1.50%, which was reasonable, given the economic storm which had been unleashed. But the Fed jacked up rates to 3.50%, by November of 1931. Clear? From September 1931 to November of 1931, the "discount rate" was jacked up from 1.50% to 3.50%. This was a MASSIVE increase in the cost of money, at a time when *EVERYONE* was hurting, loans either had been or were being called in, and financial wealth was being vapourized by falling asset prices on the Stock Market.

The Federal Reserve Bank of New York basically blew up the USA economy.

Their action was a prime cause of the Stock Market asset-value collapse, in which the Dow Jones Industrial Average fell from over 335 in 1929, to just over 42, in early 1932. That is more than an 85% fall in the price of USA high-quality industrial stocks. Many smaller companies simply went out of business, and failed.

People have long forgotten just how awful this collapse was. This economic collapse, which was DRIVEN DELIBERATELY BY THE ACTIONS OF THE USA FEDERAL RESERVE economically destroyed an entire generation of people, created global mass-poverty, and set the stage for the Second World War, which was only ended by the use of nuclear weapons that were used to destroy two Japanese cities.

So, when retired Larry Summers asserted in his Bloomberg interview, that he knows of no example in History, where a rapid rate-rise by the USA central bank, had any "large costs", I have to admit that my head exploded, and the top of it blew a hole in the roof of my "Atomic Ranch"-style farmhouse. (At least, that is what it felt like...)

A paper written about Federal Reserve history, documents Bernanke's comments:

Larry Summers either has brain problems, or is profoundly ignorant of history. Maybe both.

Go look at the data-series. Here it is:

https://fred.stlouisfed.org/series/M13009USM156NNBR

The above series, is probably the most imporant historical time-series the St. Louis Fed has.

(Let me say a special "thank-you" to the St. Louis Federal Reserve, for maintaining and publishing it's most excellent time-series data. The St. Louis Fed Data-Series have been very helpful. This data has educated us, and this education has enriched us with valuable knowledge. We have translated this knowledge in to action plans, and it has help make our lives better. Thank-you for providing it. )

The Great Depression was an awful time, in both Canada and the USA. It was not so bad in Canada, but it was harsh. My grandfather had just purchased the family farm, from his siblings, and had taken out a large mortgage, in 1929, to make the purchase (the family farm had been left to him, and a bunch of his brothers and sisters.) When the Depression happened, and the economy blew up, and prices started falling (and falling, and falling...), he was unable to meet the mortgage payments from the (much smaller) revenues the farm produce could be sold for.

It was only because of sensible "forbearance rules" that were enacted, that he was able to keep the farm. (The "Forbearance Rules" required that if a mortgage-holder could make *any* monthly payment at all, then that would be sufficient to allow the mortgage (and mortgagee!) to remain in place, and the unpaid amortization amount would be added to the principal.) The 1929 mortgage did not get paid off, until the 1960's, when my father had become a practicing Dentist, and had sufficient funds to pay down the mortgage.

And what is most amusing, is that the farm and farmhouse still exist, but my father sold them for $10,000 back in the 1960's, to a neighbour. The farm (50 acres) and the farmhouse is probably worth $500,000 or more today. Cheap real-estate, that can yield a revenue-stream, is a reasonable and effective hedge against the inflation that always seems to happen.

We bloody well need to learn from history.

The current inflation is mostly structural, and due to stupid actions by very bad political leaders. Interest rate increase will not fix this problem, and will *not* lower costs. The solution that should be applied, along with *moderate* interest rate increases, is probably targeted removal of the psychotic mass-murdering crazy "Strong Leader" idiots like Vladimir Putin.

That man should be target for removal, by any means possible. And he should be removed.

Seriously, the UN should pass a resolution requiring Moscow forces to exit ALL Ukraine territory within 12 days. If they fail to do so, then the UK, USA and NATO should begin a bombing campaign in Russia, starting with military instalations, and progressing rapidly to the power generation and water supplies of major Russian cities.

But maybe, if we just act now, really quickly, and with real vigour, we might stand a damn good chance of catching the bastards with their pants down.

Maybe we should just pepper these bad guys with all the good technology we have. Absolutely use every single item we have - even the secret stuff we cannot talk about. It's gonna have to happen at some point. So maybe now, is the right time to get this dirty job done.
:)

Natural Gas, Oil and Money Prices, for the last 22 years. Are we running out of Oil & Gas? No. Are we running out of Money? Heck, no. Are we running out of stability (and maybe even economic sanity?) Oh yes. During the Covid pandemic, we saw oil run from $20/bbl to $120/bll. Oil is the basic input to all our industrial processes & economic activity. During the pandemic, oil ran up in price over 500%, so of course, an inflationary shock plus a re-opening of the global economy, implies a price level runaway. Combine this with the "Climate Change" driven "Green Energy" foolishness (which means either less or no energy for many), and you have yet another not-so-perfect storm.

What we are short of includes good ideas, wise leadership, common sense, and good behaviour on the part of our counter-parties, Russia and China.

We believe the World is on the cusp of a major series of significant transitional events, equivalent to what happened in 1939. Russia is behaving very badly, and China is threatening to. Japan, USA and Europe are run by lightweights leaders, and the good people who can see what is needed, are being removed - Boris Johnson of the UK and Shinzo Abe of Japan. Biden's administration cut and ran from Afghanistan, and threw away the World's best chance for stability management in the Middle East. Merkel of Germany has retired. Macron and Orban are Putin supporters, Kishida of Japan will not stand up to China, and USA is being run by an old man with evident cognitive decline. The economic powerhouse nations of Northern Europe are dependent on Russian energy supplies, and Germany under Scholz still has plans to shut down it's nuclear power stations, a decision that seems simply insane. Without enough gas and electricity, Germans are being told to burn wood to keep warm this winter.

The women who run the Nordic countries have wisely decided to join NATO, but that organization is renowed for it's slow-moving bureacracy, and it's inability to take any real action. The "United Nations" has been shown to be a worthless, toothless and ineffective "House of Talk", by the awful Russian invasion of Ukraine. The UN was not able to take any action at all, to prevent a sovereign nation from being partly overrun by a brutal, savage and illegal military assault. The UN is a failure, as the League Of Nations was before it.

The social and cultural policies of the Western World are being set by Green-crazy "climate-change" fraudsters, and in the USA by gender-bender woke-folk who want to deny their own bio-reality, gang-banger violent criminal leftists of the Antifa movement, and angry, bitter women who insist they have the right to kill their own unborn children.

This is a pure cocktail-of-crazy. Combine this social anger with the economic stability failures evident in all nations now, and we can see a trend. History suggests that when social madness reaches such high levels, and weak leaders dominate the political landscape, major conflict can be expected. War becomes not just acceptable, but in fact offers a way back from social decay and civil strife.

Warfare requires focus, social co-ordination and the creation of elevated levels of human discipline. It is an action that appears to be prescriptive, in these times.

We are concerned that a major global war is now a much more likely future outcome. And this means that all four curves in the above chart, can be expected to move up, and continue to move up over the next several years. A war-economy implies scarity and massive increases in military-related production activity. The long-bond moves back to the 5% to 7% range (think War-Bonds), and the price of basic energy inputs breaks out (upwards) from the price-range evident for the last 22 years. We could be looking at $200/bbl oil, 3 to 4 years from now. And probably 5 to 7 percent long bond rates. It's pretty difficult to see how this does not happen.

It's August, 2022. 77 years ago, Hiroshima was bombed with a U235 fission device, on the morning of August 6th, 1945. After Germany was defeated, Japan had been instructed to stand-down it's military. They refused, and the atomic bombing of Japanese cities began, starting with Hiroshima. Even after Hiroshima was destroyed, Japan refused to listen to the dictates of sanity and reason, and continued in it's illegal and absurd aggression.

So, on August 9th, Nagasaki, another coastal Japanese city was bombed, this time with a plutonium device. There is evidence that the "ground zero" point for the second bombing was shifted away from the city centre, to spare the city, and that the "miss" was a deliberate action. We don't know. But after the Hiroshima attack, Japan had refused to surrender, and Japan Government dis-information was circulated suggesting that American astronomers had detected an incoming meteor, and that this natural event was the source of the Hiroshima blast.

Lies are weapons of illegal warfare.

But after the Nagasaki bombing, it was clear to all, that USA had developed an atomic weapon, and had used it. Even so, there is explicit evidence that the *militarists*, or the "Military Faction" in the Japanese government, attempted to intercept the car carrying the Emperor's Surrender Address, to prevent the recording from being broadcast.

The Hiroshima and Nagasaki bombings were tragic and awful. But they were absolutely necessary, and these actions ended the cruel, brutal, stupid and horrific war of conquest that Germany, Russia and Japan had begun.

Remember, at the war's beginning, Hitler and Stalin were allies, who between them invaded and destroyed the independent Nation of Poland. Only when Hitler's forces attacked the Russians in Poland, did Stalin realize he had been betrayed *first* (as he had been planning to attack Germany.) They say there is no honour among criminals & thieves, and this old adage was proven true once again.

War is destructive and tragic - but if it is *necessary*, then it should be fought well, and with vigour, courage, and tenacity. And the only valid outcome, is complete victory.

Invading armies, that seek to crush and destroy the innocent who only seek to live in peace, raise their families, operate their farms, and seek the gentle rewards of hard work and prosperity - these invading forces must be completely destroyed, and the militaristic production systems that supported the criminal invaders, must be rendered inoperative. And of course, regime-change must come to the criminal goverments that marshalled and sent forth the invading armies.

History has taught us these lessons - over and over, so many times.

Curiously, it seems we are required to learn these lessons yet again. The perfect excellence of nuclear weapons is their fine destructive power. If this power is wielded by the righteous, in legal defence of their homelands, then it is a very good thing indeed. This fact must be understood, by all who desire to live secure, and in peaceful times. Si vis pacem, para bellum. (If you want peace, be prepared for war.)

On this Hiroshima Day, we now see a brutal and sadistic Russian aggression against the people of Ukraine. We must stop this stupid blather and nonsense-talk about "ending nuclear weapons" and other insane sophistry, and instead, begin to plan for the deployment and the use of these most excellent devices, so as to rid ourselves of the Russian Terrorist Army, the murder-squads, and the abusive criminality of the Putin militarists.


Economics is everything, right? So, we might want to start with Putin's personal palace, built with money he stole from the Russian people. This would have interesting economic consequences, would not harm the Russian people or the Russian State, and would likely be more effective (vastly) than the economic sanctions currently being deployed. These are simply harming everyone.

Economics needs to take a page from the Doctor's book, and try to: "First, do no harm". Radical idea, yes?

A Time of Sunshine and Storm. This was last year, July 2021. This year, July 2022, the economic picture is very much like this - Labour market says "All ist clar.", but the inflation, the supply-chain problems, the inventory build and the equity markets, say "Ce n'est pas bon. C'est mauvais." We need to focus on energy security and supply issues now, and allow Nature to produce the joyful green of summer. Much of the current economic strategy the "experts" are trying, will harm us all, we worry. Raising money prices (interest rates) to address the current pricing problems, will only add to them. This was the experience we all had, in the late 1970's. I know of what I write on this topic. Raising household mortgage costs, in this environment, will simply add to the inflation pressures. The key action to take, is to enhance energy security, increase supply, and get production up, and prices down. This is critical. Messing around with interest rates now, will just impair our ability to correct our problems.

I've tried to get actual price data - average home selling price - for GTA (Greater Toronto Area) and Greater Vancouver. Here is what I could find for Toronto. Prices for houses are not collapsing. The lame-stream media is telling "Lavrovs".

But the concern is real. Been having discussions with several folks. There is change, fear, concern and expanding opportunity all happening on several fronts. We probably all need to accept that Europe and North America are effectively at war with Russia. For now the proxy is Ukraine. We currently have weak, incompetant and ineffective leaders, who are drifting and muttering but taking little action to address the growing problem-sets we are all facing. This is how history works. The current crop of poltroons will need to be swept away, and the processes of hammering plowshares into swords (and yellowcake into good-stuff) will have to begin.

The economics of everything everywhere is beginning to change. House prices may take a downturn, but this happens regularly, everywhere. Financial stocks are seriously discounted, and *ALL* the best financial analysts *COMPLETELY MISSED* this turn. We saw it begin, but did not expect it to be so extreme, given the gains the banks will make, as administered rates are raised. Our view is that financial stocks offer some protection against inflation. Their business models - like energy producers - tend to benefit from rising prices.

We seriously believe - based on real research I personally did during the 1970's, when I was in economics school, and when I worked for a Canadian Wage & Price control program in Ottawa in 1976 - that raising interest rates by small amounts, **CONTRIBUTES** to price-level inflation, because it DIRECTLY raises business and debt-service costs for both commerical enterprises and for families and consumers. The "Inflation Models" the Central Bankers use are simply wrong - much as the German-Mark/British Pound relative valuation model to determine numeric level of the circulating German Currency, the German Central Bank used from 1918 to 1922-23 period, under Reichsbank President Havenstein. As prices rose, and massive, unbelieveable notional amounts of currency were flooded into the German Economy in 1920 to 1923 period, creating "hyperinflation", Reichsbank President Havenstein denied that it was creating price inflation. This was extreme sophistry and German stubborness taken to an insane level. It is fascinating to study. The Reichsbank simply had a VERY WRONG MODEL, and they pushed it to extremes which seem unbelievable. As the German Mark to British Exchange rate got worse and worse, the German Central Bank believed it had to maintain a "real" level of circulating cash value, based on either gold prices and/or the foreign exchange value of the Mark. They believe it was *external forces* that were requiring them to create more circulating cash.
Haverstein flat-out denied he was causing inflation. (See the link on the June 26th, 2022 log entry below, for some background info, if curious.)

They were just using a stupid, wrong model, which ignored human reactive responses to economic phenomenon.

We have concern that a similar "Wrong Model" problem exists today, in that Central Bankers still view **increases** in administered interest rates, as **deflationary**. This, we believe, is madness. In a highly leveraged economy, where everyone has floating-rate debt-service costs, raising interest-rates simply raises costs to both consumers and producers, inducing them to respond by raising their prices. The only way interest rate increases can **lower** inflation, is by destroying businesses and collapsing consumer demand by impoverishing them both.

We have RUN THIS EXPERIMENT - both on the upside and the downside. The long period of VERY LOW INTEREST RATES has been characterized by VERY LOW INFLATION. The rising interest rates are CERTAIN to **INCREASE** inflationary pressures for everyone.

As Volker's Harsh Medicine taught us all, back in 1980, you need VERY HIGH INTEREST RATES to break inflation thinking and planning. You also must have a HARSH RECESSION, which destroys business viability, and punishes consumers, forcing them both to lower-levels of production and consumption.

This may be needed, and might have to occur, to bring an imbalanced system back into balance. But "balance" is an accounting illusion. It never really happens. It is a fiction, used by economists and model-builders, as an end-point that resembles nirvana - an unreachable, heavenly goal that is held out to induce behaviour change - like a carrot in front of a stubborn ass.

We suspect that this problem is understood. The danger began when the Fed and other banks executed massive money-supply increases, to stimulate things. Fine. But that was sure to induce inflation - just not right away.

And now, just letting the massive portfolio of bonds run down, and not "re-investing" the created money - that will likely be enough to bring monetary-expansion driven inflation down. Raising interest rates quickly might just be a profoundly unwise exercise, akin to throwing gasoline on a fire that you want to damp down.

What is so curious, is the degree to which the knowledge-base on the awful (and deeply recessionary) 1970's inflation mess - and it's cleanup and repair - seem to have been lost to history. And I realize - all the adults I worked for and with, back in 1976 to 1980 - they are all either in graveyards, or nursing homes, babbling, pooping in their diapers, muttering and spilling their food down the fronts of their bib-covered shirts.

We have just realized that the interest-rate increases - in our modern over-leveraged economies - are CERTAIN to be inflationary. Rate increases will do NOTHING AT ALL to fix the high energy prices, and NOTHING AT ALL to fix the broken supply-chains, and NOTHING AT ALL to bring peace to Ukraine, and restore sanity to Russia. The only result will be UGLY COST INCREASES for many indebted businesses, and over-extended consumers, who are CERTAIN to respond by raising prices, and demanding higher wages and salaries.

And given Canadian immigration planning, we are unlikely to see too much of a downturn in local house prices. But we will see inflation continue. Typical working-man's starting wage is $25/hr. Expect it to move towards $40 to $45/hr. Expect bank-loans to move towards 7% and 8% and higher (up from 4 to 5%), and expect house prices to back off maybe 10 to 12%. And expect bank stocks to be able to maintain their earnings, and even show (nominal, inflation-driven) growth. The *real* (inflation-discounted value) of the gains will be basically zero, but we pay bills with nominal cash, not inflation-discounted *real* cash.

And inflation will make the investment process itself, even more critical. We expect raw land to continue rising in price, and most physical assets to show price appreciation. And the more the silly dumb bunnies at the Central Banks "act", the more price inflation we will have - unless they jack up the administered "bank rates" by 5% or 7% or maybe 10% or more, and cause a harsh recession.

The Central Bankers should just leave interest rates alone, and run down their bond portfolio, and let the money supply drift down. Check out M2, and see if they are wise enough to do this.

Really, the key action that needs to be taken, is an all-out NATO-supported move into Ukraine, to destroy the Russian military gangsters. And yes, probably an all-out war with the Russian Federation. We can do it now, or we can be stupid, and lazy, and fearful, and wait until Russia is stronger, more angry and even more insane. But waiting, will cost us - maybe the biggest economic loss in history. The process-path we are all on now, is beginning to become something that runs on automatic. Each day that goes by, the available choices to get to an outcome of good results, grow smaller. :/

And this is all I could find for Average House Prices in Greater Vancouver - which shows average MLS HPI Price from 2005 to April 2022, we believe. There is significant volatility in prices - but I could not find any hard numbers indicating a "price collapse" in either Toronto or Vancouver. The 20% haircut Canadian Bank Stocks have taken seems wildly overdone. In fact, I am calling: **-- Bullshit. --**. Houses in Vancouver and Toronto are expensive because those are cities in which an honest, hard-working person can get a good job, and pay the bills. And not be bombed by Russian gangster-military or "locked-down" by crazy Communists (and have your dog killed by stupid, ugly, violent thugs who have broken into your house by government order, to "disinfect" it.)

Price for houses are also high in Canada, because it is quite complex, expensive and difficult to get one built. Everything around all cities is regulated and restricted up the yin-yang. It's pretty comical. Go check it out, if you doubt this assertion. And Canada is on track - this year - to import roughly 500,000 new immigrants. We think that is great. Tell them to bring cash, and/or a willingness to work hard, live long, and prosper. Works for us. :) (Every single human in Canada is related to folks who were immigrants. That is a proven scientific fact.) :D

The point is, the high-cost house prices here, are being driven by restricted supply, and honest demand. Folks don't want to live in tiny, shoe-box apartments. I certainly didn't, once I made some money. Why should the newcomers? Houses are expensive, because they are scarce and valuable and nice to have if you want to raise a family.

Recent rate increases will probably moderate prices a bit, but we doubt there will be a wholesale price collapse in house-prices in Canada. There is just too much demand, and not enough supply.

Apple Blossoms of May, Give way to Economic Hurricanes in June. 2022 is looking harsh. Hang on to your hat, your health, your wealth, and your weapons. Our research suggests: "Yur gonna need'em..."

Federal Reserve in USA, raises administered interests rates 3/4 of 1 percent, on June 15, 2022, which is actually quite a lot, given that Federal Reserve rates were effectively less than 1 pecent. Bank of Canada will do something similar, quite soon. Rising rates and shrinking money supply, will not do anything to bring forth more oil, gasoline, European gas, American baby-formula or low-priced electric cars. It will lower the price of housing, by whacking the equity existing home-owners have in their homes, and it will raise borrowing costs for all governments - which will translate into higher taxes, and poorer consumers. This will push up wage demands and increase costs to households (mortgages will be up-priced), and this will be (surprise, surprise) inflationary, so the algorithm to FIX the INFLATION will actually CAUSE MORE INFLATION. (I actually know a fair bit about this, as it turns out...)

Yes, rates needed to move back into a range of sanity - but we should also end the Big Stupid Russian War in Ukraine, by any means possible. The UN and it's idiotic "Security Council" have dropped the ball, because the invasion of a sovreign nation has been carried out by Russia, a "Security Council" member. We are back to the "League of Nations" foolishness, where the whole process to prevent abusive actions by powerful nations, cannot and does not work. We seemed to have learned nothing from the 20th century violence and crazy-bad behaviour of nation-state entities. We - all humans on Earth - will have to re-design the nation-state system, since it does not really work in a sane and rational manner. The idiocy and absurd cruelty of Russia's actions, will poison our economics - and our future - until we correct this terrible, wrong situation.

This will hammer all our economics, in every nation, until we get this insane and ugly problem fixed. Mark my word on this.

This idiotic and cruel Terror War, is the Blackest of the "Black Swans" - even worse than September 11, 2001.

Quick-Economics - The Tale of Two Pontiacs: This is the 1972 Pontiac LeMans that I had, back in the late 1970's. This car was a real metal magic-carpet. This was a black-and-white image which I printed from an Ilford-film negative, shot using a Nikon F2 35mm camera, and printed using a surplus Czech enlarger on Ilford paper. I made a digital image of my old photograph last week, using a Huawei-Android cellphone.

This Pontiac really was a fine car, and quite fun to drive.

Analog photography, using 35mm Leica and Nikon cameras, prints made with image enlargement, then developed in trays of chemical liquid, was a wonderful thing to learn. It took a bit of work, but you ended up with real artwork. I still have this 8x10 inch paper image, and because it was made properly, back in the 1970's, the framed image remains clear, and I can hang it on a wall and still admire the artful lines of this old silver Pontiac. The car itself doubtless is long gone, but this image, which I made on a warm summer day, 45 years ago, remains. And now it lives in digital form, and I own this image, and assert my copyright of it.

(If you have never done real photography, developing your own negatives, and printing the image blow-ups yourself, you are missing something quite magical.)

If you examine the next picture, which is the last year of Pontiac production, for the "Firebird", you can see the artistic & stylistic lineage of this iconic automobile. From a economic & technical viewpoint, this was a high-point of the North American automobile industry. From 1973 onward, the cars got worse and worse, as engines were substantially and seriously de-tuned, to meet increasingly stringent emissions restrictions. From this point on, the cars were basically designed by lawyers and government regulators. Performance, styling and quality went rapidly down hill, for roughly a decade, until computer-controlled engine management technology became practically available, and engines could be dynamically tuned, and expensive catalytic converters could be used to meet emissions restrictions.

The purchase price of this original 1972 Pontiac was roughly $3680 and change (I still have the original sales brochure).

Here is an example of the best Pontiac Firebird ever made. It has an LS1 V8 aluminum block engine, which puts out over 300 horsepower (roughly 320 hp). This real-wheel drive car came equiped with "traction control", to reduce the chances of losing control, if too much power was applied. One can see the stylistic similarity to the earlier Pontiacs, especially to the late 1960's and early 1970's Tempest, LeMans and Firebird models. The Pontiac division was terminated by General Motors, and this 2002 Formula Firebird, is the last year of Firebird production.

The Pontiac performance cars were some of the most attractive cars that were ever built in North American, in my humble opinion.

Good technology, good design, good ideas - these are born, created, developed, implemented, enjoyed - and then they end, often with tragedy and collapse. This is how history, economics, business, ecology, and evolution all work. The automobile industry seems to be beginning to collapse. But maybe not. Do you want to ride on a train or a bus, while everyone is exhaling toxic virus droplets? Of course not. Cars will live as long as people remain.

Purchase price of this 2002 model year vehicle was 39,379.80, minus a 1000 manufacturers rebate, for a total cost (after tax) of 38,379.80 (I have copy of original Bill of Sale). This car was purchased new, by the orginal owner, in September, 2001.

So, with the LeMans at $3680, in 1971 (it was bought at roughly same seasonal time, the Fall), we have 2001 - 1971 = 30 years. The cars are roughly equivalent, and in fact, engines are both V8 design, and displacement is the same (350 cubic inches) and both vehicles have automatic transmissions. The implied rate of inflation is given by the formula for compound growth: P1 = P0(1 + i)**n where n is number of periods, and i is the in period rate of growth. 10.7 = (1 + i)**n, which implies i = .08224 (1.08224 ** 30 = 10.7079). So, we get an estimate of annual inflation of 8.2%, for the 30 year period, from 1971 to 2001, which feels about right.

You note that we are *not* using "hedonic adjustments", because these adjustments are complete bullshit - and every honest analyst knows this is the truth. It is only the folks who are being paid to write lies for their employers, who would argue otherwise. :)

This trivial analysis makes a key point: You need to be generating at least 8% annually, in returns on your investments, just to maintain the value of your invested savings. And this is not easy, especially when many supposedly "quality" investments end up either in the graveyard (eg. Nortel, Air Canada, General Motors, Stelco, Royal Trust - all traded thru essentially ZERO dollars per share at some point) or yield far less than the needed 8.2%. (Government bonds have traded less than 8 percent, over most of the period, and now trade around 1.5 to 2% yield.)

So, you have no choice, but to be a speculator, which of course, means taking on risk - and lots of it, typically.

Enjoy the ride! (But try not to crash out!) And please understand that the true rate of inflation, is being wildly underestimated, by our Government authorities. They do this for many obvious reasons.

Theme for the 20's: - Inflation - And The Destruction of Money:

This 1000 Kronen note was once a *lot* of money, then not quite too much money at all, then of course, it became just a historical item, with no cash value. In 1902, when created, it was 1000 Austrian "Crowns", quite a lot of cash wealth. By the end of the First World War, after the collapse of the Austrio-Hungarian Empire, it was just paper-stock, to be over-printed with that vertical orange image in the centre, which gave it a vastly deflated value in the new (bankrupt) Austrian state.

I had thought the woman was some royal princess or something like that, but she was just a pretty model. Except she has a special look on her face, doesn't she? It's almost as though she somewhat reflects in her expression, the abuse that the currency - and the curious "Empire" suffered - at the hands of the profoundly unwise politicians. History has much to teach us. Look at her face. She was trying to tell them something. Their world was in the process of ending, but they did not know it. She is not smiling. I think she looks positively "pissed-off", as we say (rudely) in the Anglo-Saxon English world. A female friend of mine, says she looks like a prostitute.

This note is perfect paper money. Her face, and that orange overprint, tells the story that the economic historians and the political scientists never want to tell us truthfully.

Everything ends, eventually. But the end of money and nation states, that is particularly disruptive. But it is the way of things. Economics is the science of scarcity, not a prescription for "plenty". And give enough time, it is a certain to occur. Attempts to overwrite or overrule the requirements of economic reality - such as "communism" or it's ugly little brother, "socialism" - have produced some of the worst national horrorshows the world has ever seen. Examples include fascist Germany and Stalin's Russia. Stalin arranged for the murder of over 1 million landowners and farmers in the Ukraine, in a horrific and misguided attempt to "improve" Soviet grain production. What it was, was simply an exercise in land-theft on a grand scale. Nazi Germany and the Soviet Empire were very similar entities - each trying to re-write the rules of economics. To do that, they had to commit crimes on the scale that only nation states can engineer.

But if we look back in history - we see this is the norm.

When a nation's money dies, it is because a corrupt government took explicit action to kill it. This is something we should all understand. When money dies, soon after, the people will begin to suffer the same fate.

This is why economics matters, and why there are so many clever lies created - almost all by nation states - to cheat and mislead people about their money.

This is $226 TRILLION in US Dollars - real money. Honestly and truly, there is absolutely ZERO chance that this debt will be paid back with currency that has any sort of real value. We have jumped almost 30% in one year - and for a minor pandemic that has killed 6 or 7 million people - by historical standards relative to global population, a very small number. What if we have a real emergency? (Eg. 50 to 500 million dead - like the 1918 Spanish Flu death rates?)

Interest rates - short term - in USA and Europe should be raised *immediately* to 3% or more, right *now*. The alternative is to tee-up all the pre-conditions for an out-of-control runaway inflation, and to further seriously destabilize the global economy.

The USA just effectively removed any *debt-limit* to their fiscal spending at the Federal level, and the Federal Reserve (the USA Central Bank), is still buying bonds with "computer-fabricated" cash (faster and better than Germany could do it in the 1920 to 1923 period), and they have no plans to lift interest rates off of zero, until sometime around the second quarter of next year, and then, only 25 basis points.

This is just nuts. But you can see the problem - the IMF folks quietly point out that you risk blowing up the world if you lift interest rates any amount at all.

This entire planet is running it's financial systems on funny-money and absurd levels of debt. And with nothing more than 30% in-year changes to these already-insane levels (which we are already now seeing), we have a very simple (yet very robust) economic growth-equation model, that suggests we are right at the "tipping-point" of a full-on chaotic collapse-event.

I can say with a probablity that approaches unity, that this economic madness cannot go on much longer, without a big breakdown occuring somewhere in the deeply interconnected global financial system.

The longer this nonsense continues, the worse will be the eventual reckoning. The governments of the world cannot and will not raise interest rates, because they know if they do, they will not be able to pay the interest on any new bonds sold, without there are massive tax increases. And the tax increases, combined with the increased interest-rates (increase costs to service debt), will just suffocate economic activity, and force economic growth negative.

We must raise interest rates to sane levels (so that savers and investors can earn money without taking insane risks), and reduce the out-of-control government spending that is fueling this madness.

We suspect we are already past the point of any sort of "soft-landing". But before we can fix anything, we need to first stop the out-of-control spending insanity, and act to limit the already accelerating inflation. But we see absolutely *no* sign of this happening anywhere. Governments are still in *expansion* mode, financing their actions with what are basically the junkiest junk bonds ever minted, and telling the Central Banks to ignore their traditional prevent-inflation mandates. This is just absolutely nuts. The Central Banks and their governments are explicitly programming-in high-risk of a non-linear system-collapse event.

Good-night, Vienna.

The Rise of the Middle Ground: This is an interesting trend we have noticed. Years ago, we bought a bunch of shares in a Middle-Province Telephone Company, that was eventually acquired by a big national telecom. It was a silly-good trade, with the smaller telecom paying roughly 5% in dividends, while we waited for it to be acquired at a big premium - which happened, because it was an attractive, "Middle Ground" property. Note that how the successful, low-unemployment regions are *NOT* the "bi-coastal" Democrat-voting, high-Covid death-rate regions. The worst-hit areas are of course, Californistan and New York - with it's very curious history of awful Democrat Governors.

But the Middle Ground is doing very well. It is not "Fly-Over" country any more. More like the "Run-To Lands."

The California-NewYork Axis still controls most of the wealth and political power in the USA - but this little map shows how things are changing at the margins. Both New York and California are wildly-expensive places to live, and we expect to see declining rates of economic opportunity in both of these historically economically dominate regions. Their power and wealth will continue to dominate for quite a while yet - but we suspect the Middle Ground will show more interesting opportunites, as we move into this not-so-brave new world.

Inflation is not some "future fear" thing. It is a "here-right-now" reality, and for actual business and consumers in the self-financing real economy, it is certainly higher than the official rate of 5.4%. The Central Banks will have to raise rates *sharply*, and do so soon, before this gets out of control. We wonder if they will be able to do so, given the toxic and dishonest political environment that prevails in the USA.