Getting Real About Inflation

Sovereign Confidential

Monthly Letter

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It’s time to get real about inflation.

Political leaders have been spinning some of the most outrageous tales about inflation. And frankly, every time the White House refers to inflation as “the Putin price hike,” it’s really just offensive.

They think that we’ve all forgotten how high inflation was getting, well before the invasion of Ukraine.

Yes, the war in Ukraine is certainly a factor. But it’s far from the only one.

This month I thought it was critical to really dive in and explore some of the root causes of inflation. A few of them, like the war, are (hopefully) short-term.

Others are chronic.

For example — the fact that young people in Generation Z (wasn’t that letter outlawed?) can make more money playing video games on Twitch, than they can driving a truck.... is a long-term inflationary force.

And it’s not going to change, no matter how high the Fed raises interest rates.

Inflation is critical to understand because, frankly, inflation this high almost inevitably leads to recession.

Just yesterday the Wall Street Journal published an article entitled “The Fed Has Never Successfully Fixed a Problem Like This.”

The meat of the article? “The Fed has never lowered inflation as much as it is setting out to do now — by 4 percentage points — without causing recession.”

So inflation and recession are inextricably linked. It’s imperative to understand one in order to prepare for the other.

You might have seen the other day that inflation in the United States has ‘officially’ reached a 40-year high of 8.5%. Inflation is sorely misunderstood. In fact, one of the reasons it keeps going up is that the people in charge don’t demonstrate any understanding of it at all. For example, the President of the…

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