Hey this is tom, and since this is 2022, it means you probably heard at least 15 000 people argue about inflation, in fact we're having an inflation in the amount of times we talk about inflation, and you probably saw or heard an argument where people argue whether This is supply chain driven or monetary policy. I guess printing too much money, which one is the root cause of this and how to stop it. The weight of the evidence is finally going pal's way. Team transitory is going to win.

You know how every single fireman has a red head now. Can we conclude that anybody that has a red hat is also a fireman? No, the same thing has to do with the cpi: the core price index. Basically the main tool in which we measure inflation. It has about 69 love that number categories of products and services which we measure to see if we actually have inflation or not you for surely 100, will have higher cpi when you have inflation for sure, but here's the kicker not every time the cpi is elevated.

That means we have massive inflation, oh catch! You there right so check this out. You have to understand in this whole process. What's the role of the fed in this, the federal reserve has one job it has to maintain stable pricing. It also should not intervene.

If you have supply chain shocks because having the fed intervene and change its monetary policy, when you have supply chain shocks, it's literally like prescribing prescribing prescribing antibiotics to somebody who has the common flu or the cold, i mean it's pointless and it's gon na do more Harm than good - and you don't want to do that and that's why you see the fed reserve always reacts slower than necessary to inflation, because you know they have to make sure before they give you antibiotics that is absolutely necessary and the fed taken a lot of Heat for this topic, including for myself, but you know it is how the fed runs. They have to be extra cautious before they do anything, and this is the way it is now. The thing is: do we have actual real inflation right now or is just some virtual supply chain issue that creates these elevated prices? Because the answer to this question basically depends whether the fed has to raise interest rates and apply monetary policy changes or not. So here's the thing right now we're talking about the 7 cpi, one of the highest we've ever seen the highest in the last 40 years.

For sure, however, a lot of people will tell you rightfully so that certain aspects of the cpi have actually declined. For example, petroleum is down 2.2 percent. We have energy down. Almost one percent uh produced goods are pretty much zero, no raise so there's a lot of individual factors out of the 69 different categories that are either down or completely neutral, which may point to the fact that what we have here is not real inflation.

But the problem is that you can't actually see the whole picture without looking on the supply side, because every inflation is just a pricing issue. Whenever you have the price, let's say you want to buy these airpods right, so the price of these airports will be determined by how much people are willing to pay and that is driven by supply and demand. Elevated demand, lower supply prices go out of control, so the real question here is what the hell is supply here and what the hell is demand in the case of inflation supply is basically our gdp. The gross domestic product of the us.

This is the supply of goods and services we have in the market, so demand is actually how much money we have in the system and that's the tricky part how much money we have in the system is the thing that most people don't understand. There's a lot of way to measure how much money we have in the system, but you know it's m0 and one m2, but the customary way is looking at m2 because it includes savings, checking, accounts monetary markets, pretty much everything everything you can imagine is an m2 And m2 actually, we've never seen year-over-year growth every single month. Over 15 now granted we've been measuring this since 1981, so it's only 40 years, but we've never seen before the pandemic over a 15 increase year over year in the single month. However, throughout the entire pandemic we've seen months with 27 31 22, since then, things have calmed down we're back to 13 for a whole six months, right now, from june 2021.

Until now, we're 13, which means things, are getting better, not as much money is being pumped into the system, but the problem is we already pumped in 5.5 trillion dollars into the system through the pandemic, which means we increase the money supply for the u.s market by 35 percent in just 18 months, that kind of thing cannot be ignored and that kind of thing is just proof that you just elevated the amount of demand you put so much money to the system with zero rate interest, meaning nobody has any incentives to put the Money in the savings account because you're literally getting zero, so all of this 5.5 trillion is getting sped to the dollar and what is it getting spent on goods and services, meaning you create a pressure of demand of a lot of goods and services. Now, of course, a hundred percent supply chain issues have not helped, i mean in fact they were the fuse that lit the fire. They were the spark that lit the fire for sure without supply chain shortages. None of this happens for sure, however, supply chain issues on their own would have never caused this.

If the underlying conditions were not there to create the explosion, the spark is meaningless. So we already had a flawed system that the supply chain issues just exposed. So that's not the reason, but it is the cause. I know that's a little difficult for certain people to understand, but it is what it is and i could just stop here and tell you well the numbers point out to the fact that this is monetary policy.

There's too much money into the system, 5.5 trillion that needs to be fed through the system is causing this, but that would be a bad answer, because the thing is, even though this was not the reason for this supply chain. Issues are now in the system and without removing supply chain shortages, you could never ever fix inflation, because you're only solving like half of the equation. When you want to solve inflation, you have to solve demand and supply. So it means you have to lower demand by basically increasing rates on the interest, and you have to reduce the supply of money.

On the other hand, you have to increase supply, which means you have to increase supply, chain shortages, removal and create more gdp. So that sort of thing needs to happen simultaneously, if you just do one or the other you're, literally only solving half of the problem, you're still going to need a really bad situation, so how the hell do you solve this? Well, unfortunately, there's not a lot of good solutions here, but the first step of admitting that you have a problem is admitting that you have a problem right now. We need to understand that this is not a global supply chain shortage like they're telling you on tv. This is a u.s situation.

This is a u.s problem. That's specifically a u.s thing that needs to be worked out. You have to acknowledge this before you move anything forward, because there's not a lot of issues in the global supply chain. The one supply chain - that's in the toilet, is the supply chain between the us and china.

Most of our stuff are coming from china. It's quite simple, and now because of the money supply that caused this massive spike in demand. In fact, the cpe, the consumer price expenditures, went up by 25 since the pandemic, so now we're spending even more buying even more from china, and these supply chains from china to u.s are now in the state of complete collapse because of two simple reasons: every single Piece of good that has to come from china to us goes through one of two ports, los angeles and long beach. There's no more entry points for goods from china to the us.

Those ports have literally increased capacity of a hundred percent in the past 20 years. They're already collapsing under pressure they're buckling as it is, and now you add, 25 percent more consumption, essentially increasing load on an over strain system. Plus you have covered employee shortages plus the trucking industry that serves these ports. Isn't employee shortages? Everything is buckling under depression.

Our own distribution system in the us, our logistics system, is causing a domestic supply chain crisis, there's no other way to say it, and this crisis is basically driving prices up on everything. So just solving the monetary issue is not going to help. You have to solve everything. So how do you solve this well number? One? The first part of the solution is basically reduce the money supply.

You have to do this and they've started doing this through their fed's credit, they've reduced the money supply we're way way down. Lower than where we were just six months ago, that's a good step in the right direction. The other thing is, you have to increase interest rates, but to do that, and in order to do that, there's a really difficult track. You have to go through because increasing rates will basically incentivize people to save more money, spend less and then we'll have less demand, but the problem is that the u.s currently owes a lot of money.

In fact, the current u.s debt is about 100 of our gdp. So that means we have to grow our gdp really really quick in order to get out of this, because otherwise we're pretty much screwed. Now, every one percent increase in interest rates will cost the u.s 270 billion dollars. However, the us can actually restructure debt from the cheap, short-term debt, that's sensitive to interest rate hikes to a 30-year long-term debt.

That is much more expensive, but it's fixed it's two percent. It's fixed and you're not sensitive to interest rate hikes. However, that play will cost. You about 340 billion dollars and unless you can pay for it, you'll have to print more money, essentially going back to square one.

So you have to increase gdp, because, if you're trying to create a situation where you're not dependent on interest rates to service your debt, you have to grow your gdp as part of the process. It's not enough to actually increase the rates and go fixed. Something has to go, somebody has to give and, of course you have to fix domestic supply chain issues. You have to actually reform the way the trucking industry works.

You have to upgrade the u.s port system, they have to be overhauled. More entry points should be added. These ports have to get an upgrade, otherwise we're going to be stuck in this cluster freak forever. So, as you can see, we don't have a wham-bam.

Thank you grandpa solution here, but we do have a road map in which we can actually solve this. As long as the politicians know what they're doing, which you know, we have to trust on, i guess at this point: let's see if it happens, as always a huge shout out to channel members and patrons. Thank you so much we'll see you tomorrow.