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Currency Crisis! Inflation! Sovereign Defaults! Bahhhh… Who Are ‘Ya Gonna Believe, The Government Or Your Lyin’ Eyes?

Reggie Middleton's picture





 
 

There has been much discussion on the topic of inflation, deflation
and hyperinflation. I, personally, am in the stagflation camp –
basically the worst of both worlds. The evidence is plain to see to my
virgin eyes: real asset prices are dropping through the floor (for four
years now) while input prices (fuel, energy, supplies, commodities),
food and the general cost to live (I have to phrase it differently since
our government doesn’t believe that this is true of the cost of living) is going up.

It truly amazes me that the everyday guy and gal can be convinced
that inflation is tamed as the things that they need to survive – food,
warmth, clothing – cost them more month by month. I remember when I made
the opposite argument in residential and commercial real estate three
years ago. Ben Bernanke said “green shoots”, yet real assets sat
stagnant and empty. Reference Who are ya gonna believe, the pundits or your lying eyes?

Jim Roger, besides being a rather colorful figure,  has been correct
on his commodities call over the last couple of years and he has been
sounding the currency crisis and inflation call as of late. If anything,
I give credit where it is due. I can’t disagree with him on the
currency front. This is what he had to say on CNBC regarding Social Unrest and Currencies:

More social and political turmoil is
likely in the future so commodities prices will continue rising,
renowned investor Jim Rogers, CEO of Rogers Holdings, told CNBC
Thursday….  “I don’t own very many equities,” Rogers, who co-founded
the Quantum Fund with billionaire George Soros in the 1970s, said in an
interview. “I don’t know what’s going to happen but I expect more
currencies turmoil, more social unrest, more governments collapsing so I
invest more in currencies and commodes than stock,” he added.
Rogers said he has had long positions in commodities for 12 years and
has warned repeatedly that food prices will “go through the roof.”
Shortages of food products are likely to last for a long time and
create more upheaval and the ranks of farmers around the world have
diminished, he said, adding that for some soft commodities it will take
years to increase the stock.
“You don’t just snap your fingers and have palm oil, all this takes time,” Rogers said.

In June of 2009, he had a very similar stance, and he was correct (of
course he had this stance for a while as well). These guys below put
together a cogent argument.

The National Inflation Association guys have put together a
relatively well produced video channel that appears to have an agenda,
but also has many, many valid points on the topic. The phrase du jour…
“The Keynsian solution to economic slowdown is to keep the bubble
going”. Ain’t that the truth?

What is not mentioned in the interesting video below is that food
inflation in US supermarkets is concealed by deceptive packaging. One
way to surreptitiously raise the price on a box of serial is to put less
cereal in the box and sell the box for the same price. This happens
more than many suspect, particularly since most consumers don’t bother
to even glance past the pretty colors that illustrate the brand.

I have made an FX trend model available for all to download. Its 10
mb, containing a lot of data, but you’ll definitely get your money’s
worth. The model is available here: BoomBustBlog Complimentary FX Index model. Below is a video of a quick presentation  made by one of the BoomBustBlog regulars.

Related inflationary reading:

Inflation Cartoons From The BoomBustBog Constituency

The Spectre of Stagflation is STILL Raising Its Ugly Head!

Continuing the Deflation/Inflation/Stagflation/Depression/Recession Rant…

All
Throughout Last Year and During the Inflation/Deflation Camp Debates, I
Warned of the Risks of Stagflation. Did I Have a Point? Let’s Look at
the Numbers Behind the Numbers…

BoomBustBlog China Focus: Inflation?

BoomBustBlog China Focus: Interest Rates

Chubble
(The Unmistakeable, Yet Thoroughly Argued Chinese Bubble),
Unemployed/Deleveraging Shopaholics Pushing Retail Stocks & Other
News

 


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Fri, 02/04/2011 - 09:17 | Link to Comment moneymutt
moneymutt's picture

Think about how different it was in US in 2001, housing was expensive but nothing compared to 20005/2006, our Fed budget was in surplus, the price of oil was around $25 barrel, the FAO food price index was around 90, now over 200.

The important thing to look at is how much, percentage-wise of your wages is going to each thing. So if you were paying half your income in housing and 10 percent in food, which price rise or decline makes the bigger difference? However, its not that simply, as a homeowner, you costs don't go down as price of housing goes down, your equity. As a renter, you do save money as rents have come down and a new homebuyer, you save much money compared to someone buying 5 years ago.

The other things that make a big part of a middle class families budget are health care and education. Those have gone in price for 2 decades with health insurance really spiking in last 5-10. Even when your employer pays for it, is proven it makes your wages that much smaller.

Elizabeth Warren did a good comparison of family of four from 1970 to a family of four in mid 2000s to see what was costing them. Modern family was 2 adults working while  70s family was one adult working and despite the extra income, mid2000s family got killed by cost of housing mostly and then also health care and education (and families buy some of their kids education via their housing location/costs too). In mid 2000s, food, cars, clothes, appliances,taxes etc were no more expensive or less expensive as a percentage of a middle class family budget. If course there were some extra costs to sending a second person to work, another car, taxes on their wages, daycare when kids young etc...but overall day to day shopping purchases...the discretionary things, were less a part of budget but the fixed things that every family tries to make non-negotiable, in particular housing, we a much much bigger part of budget. Hence the reason that, even before 2008 recession, middle class families had way less savings and way more bankruptcy than 1970s families.

These numbers are why since 2006 Warren was predicting the coming collapse of the middle class, again before GFC and recession, just as Reggie does, a dispassionate look at the numbers makes predicting easy.

http://www.uctv.tv/search-details.aspx?showID=12620

 

Now we have this sticky house prices via mortgages, still high cost of health care and education and high gas prices, high food costs...ouch...does not bode well for domestic economy other ag and oil/mineral producing areas.

And in other countries, for their poor people, food is much higher than 10 percent of budget it is in US, food inflation felt even more. What does this say for emerging markets?

The thing that is really frustrating to me is the increase in food costs seem largely unhinged to fundamentals. Sure, this year there will be supply shocks, but even in years of great supply, bumper crops and demand going down, like wheat in 2008, the price went thru the roof and then dropped like a rock.Huh? We eat this stuff, it's not gold, its not diamonds, its not even stocks in our retirement portfolio, its something we need each day to continue breathing...and yet money sloshing around world can widely fluctuated its price even when fundamentals of supply and demand are steady.

Thu, 02/03/2011 - 16:12 | Link to Comment statist shill
statist shill's picture

To call that a model is the loosest use of the word I have seen in years. Bravo.

Thu, 02/03/2011 - 15:13 | Link to Comment Lord Koos
Lord Koos's picture

"It truly amazes me that the everyday guy and gal can be convinced that inflation is tamed "

 

I don't think the average person is convinced at all, anyone who does their own shopping knows what time it is.  As for those who are convinced, it seems to mostly be a media & ruling class echo chamber.

Thu, 02/03/2011 - 15:12 | Link to Comment Lord Koos
Lord Koos's picture

"It truly amazes me that the everyday guy and gal can be convinced that inflation is tamed "

 

I don't think the average person is convinced at all, anyone who does their own shopping knows what time it is.  As for those who are convinced, it's mostl

Thu, 02/03/2011 - 14:23 | Link to Comment bernackihackie
bernackihackie's picture

 Are you saying that Keynesian theory encourages bubbles?

Thu, 02/03/2011 - 14:31 | Link to Comment DaddyO
DaddyO's picture

 

<!/sarcasm_on>

Nothing could be further from the truth, just ask my apologist Paul Krugman. He has been explaining it to the unwashed masses for quite some time. If only they would listen...

the ben bernank

<!/sarcasm_off>

DaddyO

Thu, 02/03/2011 - 13:51 | Link to Comment Basia
Basia's picture

Reggie

 

The financial calamity is just one piece of the puzzle.  One World Government with forced 

vaccinations (I am in the medical field and am being monitored because I did not get the

flu shot) , weather control through HAARP,  incitement of violence through the CIA, 

agenda propaganda through t.v. and movies (I get more accurate info through the internet)

and taking God out of our lives will bring us to the abyss of One World Government soon.

Reggie, you and your readers are smart.  Put all the pieces together.

Thu, 02/03/2011 - 13:24 | Link to Comment aerojet
aerojet's picture

"I invest more in currencies and commodes"

He buys toilets?  WTF?

Thu, 02/03/2011 - 13:19 | Link to Comment Zeus Gekko
Zeus Gekko's picture

Until Fox News tells them that inflation exist they won't believe it. The sheeple are intellectual midgets and only know what comes out of the TV.

Thu, 02/03/2011 - 13:13 | Link to Comment williambanzai7
williambanzai7's picture

You mean you're stupid!

Thu, 02/03/2011 - 12:57 | Link to Comment stormsailor
stormsailor's picture

absolutely right reggie.   hopefully i will be able to read your insights here when the bubble truly bust in the usa.

Thu, 02/03/2011 - 12:51 | Link to Comment lunaticfringe
lunaticfringe's picture

They are able to continue this BS because housing costs are weighted 42% of the CPI. So while housing prices tanked, everything else has shot up. Finally, I get it.

Thu, 02/03/2011 - 12:33 | Link to Comment Fred Hayek
Fred Hayek's picture

Reg!

Watch out for the homonyms.  I do it all the time, too.  You have "their" in the home page intro when it should be "there".

Thu, 02/03/2011 - 13:11 | Link to Comment williambanzai7
williambanzai7's picture

Yah, and those damn Sinonyms too!

Thu, 02/03/2011 - 13:05 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

box of serial

Serial, mmmm, yummy!

Thu, 02/03/2011 - 14:15 | Link to Comment hidingfromhelis
hidingfromhelis's picture

Inflation is a serial killer.

Thu, 02/03/2011 - 14:29 | Link to Comment Iam Rich
Iam Rich's picture

Could easily be inflation is a cereal killer.

Thu, 02/03/2011 - 12:33 | Link to Comment Pladizow
Pladizow's picture

Really!

Thu, 02/03/2011 - 12:45 | Link to Comment Pladizow
Pladizow's picture

The way to crush the middle class is to grind them between the millstones of taxation and inflation. - Lenin

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