text: That said, this is a distinctly possible scenario. One way to view this is a 35% drop in your purchasing power. A $40,000 a year pre-tax income, for example, would have the purchasing power of just $26,000, and that’s before taxes. A $60,000 a year pre-tax income would have the purchasing power of $39,000, before taxes. Wages are unlikely to rise commensurate with the “official” rate of inflation, which will likely be lower than real inflation. This will be catastrophic for the middle and working classes and those on fixed incomes. Of all things to prepare for, double digit inflation is one of them.We started covering the risk of runaway inflation in late 2020, pointing out that mainstream consensus had strong doubts. “There’s some debate over how muted next year’s inflation might be. Virtually no one expects runaway inflation, but there are numerous indicators that inflation will exceed the upper limit of the Fed’s 2-3% target next year.” (08 DEC 20 Early Warning) By early 2021, there were a few investors and economists who warned of substantially higher inflation, while the Fed maintained that inflation would remain in their 2-3% boundary. From tracking economic expectations since the beginning of the pandemic, a few things are clear to me. First, the Fed’s projections can’t be trusted. Second, the projections of major financial firms can’t be trusted, as everyone from Goldman Sachs to JP Morgan and Citibank all first underestimated the impact of COVID shutdowns, then overestimated the strength of the recovery, and are now further downgrading GDP growth estimates for 2022. And third, the contrarian view is the one to watch. Economists like Mohamad El-Erian had the most accurate (publicly available) expectations, even as he bucked mainstream consensus. He recently pointed out accelerating inflows into Treasury Inflation Protected Securities (TIPS), which signals that investors are betting on inflation in the future.He’s continually warned that the Fed has acted too late to contain inflation and that aggressive monetary policy to accelerate tapering and hiking interest rates risks sending the economy into recession. In 2020, I warned (via El-Erian) of a W-shaped recovery – a double-dip recession. Another period that had two recessions within four years was the Great Inflation, a period of high inflation lasting from the late 1960s to the early 1980s. Earlier this year, a double-dip recession and a repeat of the Great Inflation was impossible. They’re both now distinct possibilities. We’ll have more in tomorrow’s Economic Early Warning. – M.S.LOW INTENSITY CONFLICT INTSUMFar Left Activity Rollup & Outlook