The Real Cost of Inflation

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Richard Helppie

Well, the economy is on everybody's mind. And here we are on The Common Bridge with a return guest...

Kerry Killinger

Hey Rich, how are you, good to see you.

Richard Helppie

My good friend, Kerry Killinger, Episode 95 of The Common Bridge. This was in March of 2021. March 23 to be specific. Mr. Killinger and Linda Killinger previewed their very well researched book called "Nothing Is Too Big To Fail". I highly recommend their reading about economic history, what we're experiencing today and especially what the future might hold. Now Kerry Killinger is eminently qualified for this - his full bio will be on our website. Be sure to listen on Mission Control Radio, subscribe on Substack, and follow us on social media and at Richard Helppie.com. So Kerry, back in March of 2021 we talked about inflation, the price of things over their intrinsic value in six asset categories. And if memory serves me correctly, it was stocks and housing, commercial real estate, luxury goods, household net worth and Chinese real estate. And maybe could we add commodities and food today?

Kerry Killinger

We can add lots. And Rich, thanks for having me back, it's great. And by the way, congratulations on your podcast. It's my go to, (Rich Helppie: Thank you, it's been fun.) checking in every week to see what's going on in the world. And you've just got some great guests, and I appreciate it. I got my subscription into your new deal. (Rich Helppie: Great, thank you for that.) I'm getting broadened out beyond just the podcast to your update report and the different things you do and so good luck. I hope it goes well for you.

Richard Helppie

Well, thank you. And we do have some really terrific guest columnists coming up. And later this month, February, we will be publishing our first newsletter. What we're really hoping for is a lot of dialogue. There's a lot of rancor out there. We think that we can discuss issues of the day as adults that have an interest in making this a better country and a better world.

Kerry Killinger

I think you're doing a great job and I think the country needs it right now. Let's talk about inflation for a minute. It was pretty funny last March when we were talking with you - I was fortunate to have my wife, Linda, who co authored a book with me, on that [show]. And we said at the time, I remember saying, inflation has really taken off in this country. The Federal Reserve had a saying that they were doing everywhere at that time, don't worry about it. They said inflation is transitory, it's not for real and all that. And all of a sudden, the real experts at the Fed were just flat wrong. What's happened is, over the last couple of years in particular, we stimulated the economy so much to try to fight COVID, not only with the Government going into huge deficit spending and all the safety net programs they put up and the like, but the Federal Reserve kind of almost went berserk in terms of how fast they grew the money supply, how low they kept interest rates in relation to inflation. And in the purchases of assets they did, themselves - they bought $4 trillion of assets the last two years. And guess what? When the Fed's buying all those assets, that drives prices up.

Richard Helppie

They're not bargain shoppers.

Kerry Killinger

They are not bargain shoppers [laughter].

Richard Helppie

Who would have thought?!

Kerry Killinger

So that stuff is really cool in the short run. It's kind of like, you take a drink, that feels pretty good, and [then] you take two, three, four and five - well the Fed got just totally drunk. And now we're having the impact of it, which is runaway inflation, the greatest in 40 years in this country. So we have seven and a half percent inflation over the past 12 months on everyday items that are measured in the consumer price index. But beyond that the inflation that went on into common stocks, Bitcoin, NFTs (Non-fungible Token), SPACs (Special Purpose Acquisitions Company), all these kinds of new speculative instruments were multiples of that. So all the asset bubbles that I talked about last spring that we were worried about, have become even more inflated today. Now, I think the bloom is starting to come off that rose. I think that the expected - the peak - of all that activity may have been late summer for stocks and some of the more exotic instruments, and I think the peak of speculation may have been right at the end of the year for housing and some of the real estate things. I think that we are now seeing the other side of that - that speculative boom may be coming off and we may be headed for a fairly significant correction in some of those bubble prices.

Richard Helppie

Well, it's going to be a wild ride. When I think about this on fairly simple terms, we put all this liquidity, all this new money out there at the same time we had broken supply chains, we had construction down because of COVID. So isn't that kind of basic economics - a lot of dollars chasing fewer goods, that's inflation.

Kerry Killinger

It is and one of the things I take exception with the Government, is they have continually come back and said, all these issues we're facing on inflation are just supply chain and COVID related. And no, these things are all a reflection of those crazy policies that the Fed put out, as well as the expansive policies of the Federal Government. It put way too much money out, too few goods for people to buy. They went out and just kept bidding up the prices. And in some areas, like housing where the Fed kept interest rates artificially low, that made affordability very, very good for things. And people got panicked, just kind of kept going out and buying and buying and buying, and then we had new players come into housing - like private equity funds, pure investors - and they helped really drive the price of housing up in some markets.