Just Put It on Uncle Sam's Tab

States are 'helping' fight inflation – and making it worse... The 'alternate universe' has hit the mainstream... Debt hits new highs (again)... Inflation yin and yang... A simple way to fight inflation yourself... Just put it on Uncle Sam's tab...

Picking up where we left off yesterday...

Here's another glaring case of "shooting ourselves in the foot," a phrase used in yesterday's Digest during our discussion about the railroad industry's frustrating inefficiencies at a time when we need them most.

Today's example... is state governments handing out tax breaks to residents to "help" with inflation... We first wrote about this story two months ago in a mailbag reply to a subscriber from our friendly neighbor to the north...

Dave J. wrote in back then to say he felt he was living in an "alternate universe" given the Canadian province of Quebec, the equivalent of a large state in the U.S., was handing out $500 to every taxpayer who earns less than $100,000 to "help offset the effect of inflation."

I (Corey McLaughlin) wrote in response in the March 24 Digest...

Unfortunately, the government handouts – and the ideas about them as a way to fight inflation, the future be damned – aren't limited to Canada. The "alternate universe" is basically most of North America, it seems...

Last week, a few politicians "down here" in the U.S. House of Representatives proposed a similar idea... "stimulus checks" – $100 per month for those making less than $75,000 per year – every month that the nation's average gas price is above $4 a gallon. In another way to address high gas prices, Maryland, our state, last Friday also suspended our gas tax through at least April 16.

I don't know when all this ends. Obviously, the folks proposing the "gas checks" don't think the stimulus checks of the past two years have anything to do with our current inflation situation, or if they do, they're choosing to ignore the consequences in favor of another short-term "fix."

The 'alternate universe' has now hit the mainstream...

Earlier this week, as it delved into the topic of inflation now that the problem is obvious and has been hurting people for over a year, the New York Times even caught on to this backward thinking of state leaders. Reporter Alan Rappeport wrote...

In Kansas, the Democratic governor has been pushing to slash the state's grocery sales tax. Last month, New Mexico lawmakers provided $1,000 tax rebates to households hobbled by high gas prices. Legislatures in Iowa, Indiana and Idaho have all cut state income taxes this year.

A combination of flush state budget coffers and rapid inflation has lawmakers across the country looking for ways to ease the pain of rising prices, with nearly three dozen states enacting or considering some form of tax relief, according to the Tax Foundation, a right-leaning think tank.

And, the Times noted, these "great" (our quotes) inflation-fighting ideas know no party lines... Democrats, Republicans, they agree... Lower taxes and tax breaks for everyone right now. Then came the kicker in the report, the reason we're sharing it with you today. Rappeport wrote...

But while the policies are aimed at helping Americans weather the fastest pace of inflation in 40 years, economists warn that, paradoxically, cutting taxes could exacerbate the very problem lawmakers are trying to address. By putting more money in people's pockets, policymakers risk further stimulating already rampant consumer demand, pushing prices higher nationally.

Anyone who has followed our research for any length of time knows this has been a long time coming... Stories like these range anywhere from an "are you kidding me?" moment to an "of course"... because we feared this would arrive one day...

Our founder Porter Stansberry and our team have long warned of all of this...

Specifically, that policies like these would come to the forefront as our nation reckons with decades of skyrocketing debt... a devalued dollar... a widening gap between the haves and have-nots... social unrest... and louder calls to "fix" it all.

Federal aid in response to the pandemic is estimated to have cost about $5.3 trillion...

As just part of it, last year, the American Rescue Plan gave $350 billion to state and local governments. A lot of that money – put on Uncle Sam's tab – has gone untapped... In fact, many states and cities are trying to find something to do with the cash after a faster-than-expected pandemic recovery.

At the moment, tax breaks are the best thing most state governors, many facing election in November, can come up with. And we're not being political... I don't care who they are, really.

The point is, it's happening...

And as Jared Walczak of the Center for State Tax Policy at the Tax Foundation said, making a point we've made a lot at Stansberry Research, it's a problem for anyone with dollars in their bank account, whether they know it or not...

The challenge for policymakers is that simply cutting checks to taxpayers can feed the inflationary environment rather than offsetting it.

Yes. We're living that reality right now... The consequences of the grand monetary experiment of 2020 and 2021 – conjured in response to the pandemic – are clear... There are some other details involved, but one result is record-high inflation.

So, they say now, let's just keep making it worse...

I'm not surprised, just disappointed...

Our dear friend, the federal government – via the Federal Reserve – is raising interest rates at a pace not seen in decades to cool demand in the American economy... and take a bite out of inflation – maybe...

At the very same time, states giving tax breaks – even if they are well-intentioned outside of being a re-election talking point – are encouraging more spending from folks in those states like you and me, because it's not like most people are going to "save" their tax breaks for a rainy day.

Listen, I'm not saying I don't want to pay less in taxes. I don't find joy in paying taxes, mainly because I believe most of the money will be wasted. But I pay them anyway, though stories like this make me question why.

And I'm also not saying people couldn't use more cash in their pocket now – I'm for everyone being financially independent... We'd all be a lot better off... and that's a big reason why I do what I do for work.

But isn't there a better way? We are already seeing what simply creating money from nothing, and not tying it to anything productive or a proven need, can do to everyone in the long run... That's more inflation, to be clear.

To be fair, you could also look at tax breaks as a vehicle for encouraging more saving... If you actually think people will save the amount they would have paid in taxes on a gallon of gas or whatever...

I don't believe it.

If anything, Americans find it very difficult to stop spending – or taking out debt...

For example, if I have to break down one more cardboard box from Amazon (AMZN) that ended up at our door because of something my wife bought... (I'm being harsh. We like each other. We really do.)

Consumer spending data from the Bureau of Economic Analysis has shown increases in each of the first three months of the year, with spending growing 1.1% in March. That's a broad headline measure, but the point is, spending by Americans hasn't fallen off a cliff even with higher prices...

And today even if people don't have cash, they are still spending...

On Tuesday, we read an economic report that showed household borrowing – debt – has climbed to a new record through the start of 2022, even amid high inflation and rising interest rates.

The Fed reported that consumer debt and credit rose 1.7% in the first quarter, fueled mostly by a $250 billion increase in mortgage debt. That's 10% higher than the first quarter of 2021. Same story with credit-card balances, up 9% annually.

And student-loan debt also rose by $14 billion in the first quarter, up 6.5% year over year. We'll see if the trend continues in the second quarter, as rates for mortgages and other loans have risen substantially, to near 6% for a 30-year fixed-rate mortgage...

For now, signs point to higher prices in the months ahead...

Look no further than the latest piece of official inflation data reported today. Yesterday, we talked about the consumer price index ("CPI") and how it still hasn't shown a crystal-clear peak yet...

Today, we'll look at the producer price index ("PPI"). It's the yin to the CPI's yang... It measures the prices that producers of goods in various industries pay for raw materials commodities while the CPI measures prices consumers pay for goods.

If prices are going up or down to produce goods, it typically translates into the same for clients or buyers... if the producers care enough about making profits, which they most likely do.

As our Stansberry NewsWire editor C. Scott Garliss reported today, the April PPI number –published by the U.S. Bureau of Labor Statistics this morning – rose 11% annually, above Wall Street analyst expectations...

The data tells us the rate of increase for manufacturers' costs is going up. And despite difficult comparisons versus last year, the acceleration isn't letting up. Take a look at the chart below...

That means costs are likely to be passed on to consumers... one way or another. As Scott explained, aside from Main Street paying up for goods, it means that businesses and Wall Street should be preparing for tougher times ahead.

Scott, who worked on Wall Street for two decades before joining Stansberry Research, has incredible insight into how institutional investors – who move a lot of money around the markets – think... He's in constant touch with folks who work there today.

And the important point that Scott is making today is that, perhaps paradoxically to everyday investors, higher-inflation data means the Fed is more likely to make economic conditions even tougher for businesses... which makes Wall Street expect lower profits.

The central bank says it's focused on curbing near-record-high inflation and its main tool to do something about it is to raise interest rates, via mortgages or other loans, and slow growth. The concept has been showing up in the sell-off in U.S. stocks...

The fundamentals of this story haven't changed just yet – and any tax breaks, no matter how big or small, which certainly aren't going to help the situation. As Scott wrote today...

The question now is whether inflation data is peaking or will keep climbing. Wall Street has been calling for the metrics to peak in the first quarter of this year. April numbers mark a shift into the second quarter and the numbers are still high.

So, we'll want to keep an eye on the numbers to see if they back off. If they do, they could encourage institutional investors to get more constructive on investing in equity markets once more. Steadily declining inflation could give the central bank some room to back off on policy tightening.

But if the numbers don't ease up, pessimism may grow as interest rates may need to rise a lot more. And if the consumers and businesses start to pull back on spending because of rising costs, the change will hurt economic output.

That's the give-and-take we'll monitor the rest of the year.

Because one thing is for sure...

Inflation – either in the retail price of products we all buy, or how it plays out in costs and earnings expectations for businesses in the months ahead – will be a story for longer than most people probably want.

As we've said many times before, unwinding high inflation is likely to be a much longer, more painful process than most people envision... The only time we've ever seen it was in the 1970s... and that ended with interest rates at 20%... and a deep recession...

In other words, the odds are that this period coming up is likely going to be more troubling to navigate than the "easy money" era on the way up for stocks and everything else in 2020 and 2021...

To that end, we'll keep sharing our best ideas with you on how to protect and grow your hard-earned savings... and where our editors and analysts think the markets could head next and how best to prepare.

We trust that you have gotten some good tips in this space lately or from publications like our new Stansberry's Financial Survival Program... along with your regular subscriptions. Today, I want to end by sharing another...

A simple way to fight inflation yourself...

What I'm about to share is as close to a "risk free" return as you can get, and frankly, most people have never heard of it. It's not going to make you rich on its own... but it could give you peace of mind and free you up to take a bigger risk elsewhere in your portfolio.

Unlike a tax break decided on a whim or because of a re-election campaign, this action takes just a little bit of initiative to pull off, but it's worth it. Even better, it benefits from the record high official inflation numbers we're still seeing.

In short, I'm talking about I-bonds.

If you've never heard of them, you're not alone. Created in 1998 by the U.S. government, these bonds offer savers a way to stash their savings, earn a decent yield, and remain protected from inflation.

Stansberry Research partner and Income Intelligence editor Dr. David "Doc" Eifrig brought these bonds to people's attention earlier this year, as a free pick in one of our video presentations...

The yield on I-bonds tracks the official CPI number, which hit a record high last month, and is updated twice a year based on what the reading was the month before. The yield also takes into account a fixed rate that it blends with an inflation-adjusted rate.

All in all, starting this month, I-bonds are yielding a whopping 9.62%. That's hard to come by anywhere else, especially with little risk, and it's by far the highest I-bond yield on record. Check it out...

Now, a few important details... Because of the generous rate, the most you can buy of I-bonds is $10,000 per year... and you can't redeem these bonds for 12 months.

Still, that comes out to a roughly $1,000 return... Plus you can buy up to $5,000 more with your tax refund. They are also not subject to local taxes... So you don't have to worry about your money being used to offset someone else's state tax break.

You can buy these bonds directly through the Treasury Department's website. You'll just need to set up an account at treasurydirect.gov. It's a refreshingly simple process. And as Doc writes in a special report for Income Intelligence subscribers...

You're going to earn a healthy, inflation-adjusted return you really can't get anywhere else. If you've got some cash on hand, you can protect your purchasing power and earn a real return in the safest of securities.

I reread this report earlier today and suggest you do the same... Doc shares more details, plus three other ways to protect and grow your money in the face of rising prices.

As I read the report, in addition to being reminded how great the information is, another thought struck me... Everyone should know about how to access Doc's terrific research – to get immediate access to opportunities like these and the many more he shares.

So, if you don't already subscribe to Income Intelligence, or have access as an Alliance member, I have good news... We've arranged a special offer for Digest readers today.

Listen to what Doc has to say...

In short, I urge you to check out this presentation from Doc... In it, he talks more about I-bonds and you'll also hear a terrific offer to access his Income Intelligence research for life – for the price of what's normally a one-year subscription.

It's an incredible deal, and one Doc wanted to offer given how high inflation is running these days… and the fears in the market in general. In Income Intelligence, Doc provides a steady hand and actionable recommendations to guide folks seeking reliable income streams.

I might be a bit biased, since the publication is one of the first I worked on as an editor at Stansberry Research, but it's valuable reading for any kind of investor. Each month, Doc provides a comprehensive look at the markets you won't find anywhere else.

For example, it's the first place we saw inflation numbers setting off alarm bells in late 2020 and early 2021...

I did some quick math... If you put the maximum allowed amount into I-bonds this year, after you receive the interest payments, the investment will actually cover nearly the whole cost of a lifetime subscription to Doc's Income Intelligence...

That means you can essentially get started with Doc's research risk-free... and gain access to all of his Income Intelligence research, including five new special reports, back issues, and other bonuses without worrying if it's "worth it."

It already will be worth it as soon as you start reading... Plus, you can think of it as putting your fee on Uncle Sam's tab. And don't feel bad. You're at least doing something somewhat productive – lending the government money – to get the return.

Click here to hear more details from Doc and take advantage of this fantastic offer right now.

Tucker: The Fed 'Doesn't Care' About Inflation

"We are in a centrally planned economy" and no longer a capitalist system... because of the Federal Reserve's actions, asserts E.B. Tucker, bestselling author of Why Gold, Why Now?

In this interview with our editor-at-large Daniela Cambone, Tucker explains why... including how he thinks the central bank doesn't really care about inflation...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 5/11/22): None.

In today's mailbag, feedback on yesterday's Digest about more trouble on American railroads... and one subscriber has a problem with an acronym... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Yes, I have a comment... I can't believe my eyes as this country is just falling apart. Nothing works right anymore... sigh..." – Paid-up subscriber Michael D.

"Sounds a lot like Atlas Shrugged. Who is John Galt?" – Paid-up subscriber Ronald V.

"Where is Dagny Taggart when you need her? That trouble echoes similarly to the plot of Atlas Shrugged. Keep an eye open for a crash in a long train tunnel..." – Paid-up subscriber Kurt S.

"I live in Omaha, Nebraska, headquarters of Union Pacific. Their greatest problem is continued layoffs of their greatest asset... people... We have become expendable." – Paid-up subscriber Ron K.

"Very upset with you. 'MOM'??? Leave her out of it!!! m/m is better." – Paid-up subscriber D.C.

Corey McLaughlin comment: Agreed. Won't happen again. For anyone who doesn't "get it," we're talking about a "month over month" reference yesterday, to April's inflation numbers.

All the best,

Corey McLaughlin
Baltimore, Maryland
May 12, 2022