QUESTION:  Dear Martin, am a loyal reader of your blog and many thanks to you for the education. Please, one brief but important question, which keeps me thinking hard these days. I remember your words, inflation should pick up in the next cycle. But, isn’t it the other way round? Isn’t deflation the next thing.

We see inflation everywhere, in all asset classes, home prices, and durable goods. But if the economy declines and the people have no longer so many funds to pay their debt interest rates hey go defensive. And if the stock market declines too, sentiment turns and people become even more defensive. Isn’t this the classic scenario of a deflation period?
Thanks from Europe
RS

ANSWER: I realize that on one hand, it may appear to be asset inflation in Europe, but you must look at the real numbers and then plot them in FOREX. We can see that when we look at the DAX in price, the bounce in US dollars has been less than in euros. In real terms, Europe has been in DEFLATIONbut capital has been shifting into the property market to escape the banking sector. It appears that the low in real terms for Europe may come in 2023. However, the type of inflation we see is cost-push, not demand. So you might call this STAGFLATION, as was the case during the 1970s following the OPEC crisis.

QUESTION: Socrates has been forecast that the free market rates are rising but the official central bank rates are still bearish overseas and neutral domestically. Is this the divergence you are forecast with respect to interest rates rising in the real world against the fake central bank rates?

Thank you

See you in Orlando

BF

ANSWER: Yes. I have also warned that the Fed is entertaining the prospect to PEGGING long-term government rates rather than engaging in Quantitative Easing. I have gone into this in detail in the new book about to be released soon. The Fed realizes that Quantitative Easing has failed. They are lobbying behind the curtain to try to get Congress on the side with sharing the burden to support the economy. However, that effort is not being received very well.

You must understand that there is a HUGE gap between real rates and fake rates unfolding. Call your bank and ask them what they will give you for a CD for say even 1 year. You will be lucky to get 2.5%. A car loan will be 4.71% to 5.26% on average. Banks are nearly doubling their money and this is the real-world compared to the fake rates offered by central banks. This is the HUGE gap between real-world and central banks which is expanding. So a forecast of lower rates ONLY applies to the fake rate – not the real-world rates.

Our forecast shows that real-world rates will rise, but the fake central bank rates will remain the same to lower ONLY because the central banks are becoming nearly exclusive buyers of government debt with the exception of pension funds which MUST buy government debt by law.

I am seeing an overseas crisis is brewing which many might rename the “Lehman Moment” to something more up to date. Clearly, the stakes are far higher to the world economy than anyone may truly appreciate. We are cascading toward a perfect financial storm. However, this particular storm is exacerbated by the politics of Europe stemming from the structural design of the Euro.  There is a major risk to both the European and world economy. All the Quantitative Easing by Draghi at the European Central Bank (ECB) has completely failed and in the process created a  systemic risk to the entire world economy – not just the EU. This is why the Federal Reserve (Fed) has lowered interest rates when there was no true justification for the interest rate reduction domestically. The Fed has confirmed that it is indeed the central bank to the world even if it does not like that role. It can no longer place domestic policy objectives over international.

I am rushing to put out a special report on the next “Lehman Moment” for this is going to be extremely critical.