Nobody Saw Inflation Coming? Really?

Here's a puzzler, a piece that asks "Why Did Almost Nobody See Inflation Coming?" Really?

According to Jason Furman, "a survey of 36 private-sector forecasters in May revealed a median inflation forecast for 2021 of 2.5 percent."

Maybe their fearless economic models didn't factor in a doubling of the Fed's holdings of federal debt. Or wave after wave of "stimulus" otherwise known as free handouts. I mean, the federal government doesn't usually go pedal-to-the-metal like that too often.

Furman starts his piece with Queen Elizabeth II asking back in 2008 why "Why did nobody see it coming" with respect to the Crash of 2008.

Well, the answer is that a stock market crash reveals a lot of hidden rocks as the tide goes out.

Plus, of course, there is no telling how the central banks will fail to act as lenders of last resort. In the case of 2008, it was little Ben Bernanke who flinched from bailing out Lehman Brothers in September 2008. Because, he whined, he didn't have the legal authority.

And, with respect to 2008, what are you going to do? You had the Fed pumping out money. You had Congress demanding that Fannie and Freddie hand out low-down real-estate loans to minorities. So, at some point your get this, from usgovernmentspending.com.

Yes. That first peak is in 2003, and nothing happened. Then there's another peak in 2006 when the Fed started fighting inflation and the the Treasury yield curve went inverted. Agency debt, by the way, is principally Fannie Mae and Freddie Mac debt, which is mostly repackaged real-estate mortgages.

The point is that, if you were sitting looking at the numbers of Agency Debt back in 2000, you would be saying to yourself: Hmm. I wonder when this little bubble is going to pop, as Agency debt was going north of 40 percent of GDP.

As Herb Stein said many moons ago, "if something cannot go on forever, it will stop." But the question is: when will it stop? 

The answer is: nobody knows.

And that is why fearless forecasters tend to get caught on the wrong foot. If you are a fearless forecaster you have to hedge your bets. You cannot say: the world will end in 47 days. Because the world might end in 37 days, or not for 20 million years.

Now, in the aftermath of the Crash of 2008 we learned about The Big Short by Michael Lewis. But that book was written after the crash. If the chaps shorting mortgage debt had been wrong, or had mistimed their shorting there wouldn't have been a book. They and their investors would have slunk off back to their holes and we would never have known about them.

Same thing about today's inflation. Anybody could have told you that the money printing of 2020 and the succession of stimulus packages would not end well. But when? And why? In a year? In two years? No doubt there are some fearless investors that have made the right call, and we will be hearing all about them in a couple of years. But, as yet, we do not know how it will all turn out.

The only sure thing, I would guess, is that the Biden boys will screw it up. It's the one thing that Barack Obama got right in his life. "Don't underestimate Joe's ability to (expletive) things up."