May 19, 2026 | Recession Watch: Inflation Spikes, Bonds Rebel

The latest Middle East war is approaching its three-month anniversary, and the price of everything related to energy and fertilizer is way up:

As go energy and fertilizer, so goes food. Beef, for instance, was already rising. But now it’s spiking. See Wolf Street’s Food Inflation in America by Product: It Boils Down to a Sharp Acceleration on Top of Already Very High Prices:

As go energy and food, so go interest rates:

Fiat’s Dilemma

Speaking of Japan…Despite Washington’s catastrophic financial mismanagement, the yen is plunging versus the dollar…

… presenting the Bank of Japan with the choice that eventually confronts all fiat currency systems: Keep borrowing and allow the currency to fall into an abyss, or raise interest rates to protect the currency, at the cost of a collapsing economy.

In the 1970s, the US faced a similar dilemma and chose to defend the dollar by sharply raising interest rates. It worked, but only because government, corporate, and consumer balance sheets were strong enough to survive a tripling of the cost of credit. That’s emphatically not the case today in Japan, the US, or Europe. So stay tuned for some very interesting policy decisions.

John Rubino May 19th, 2026

Posted In: John Rubino Substack

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