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Gonzalo Lira And The Boiling Frog: Effects Of QE2 On The Bottom 80% Of The U.S. Population
Submitted by Gonzalo Lira
The Boiling Frog: Effects of QE2 On The Bottom 80% of the U.S. Population
An old metaphor: If you take a frog and drop it into a roiling pot of boiling water, it’ll jump right out, unscathed. But if you put that same frog in a pot of cold water, and then slowly raise the heat, that frog won’t move. It’ll stay in that pot of water, calm as can be, right up until it is boiled to death.
I’ve been arguing that the unpayable Federal government debt, coupled with irresponsible Federal Reserve policies, will inevitably lead to a hyperinflationary event and currency collapse. In order to prepare for a web seminar on hyperinflation in America, I’ve been looking at the issue of how to safeguard assets before a currency collapse, and how to identify opportunities in the midst of a hyperinflationary crisis.
But along the way—inevitably—it’s led me to consider the issue of the effects of hyperinflation on the American people. Not even hyperinflation—just regular old rising consumer prices: How will they affect the average household.
It’s disturbing.
Even if you don’t buy my hyperinflation call in the least—and a lot of very smart people don’t—the recently announced Quantitative Easing 2 policy of the Federal Reserve has had and will have a profound effect on the dollar.
And a profound effect on the American people—especially the bottom 80%.
Bernanke’s stated purpose in QE2 is to spark consumer spending, and thereby reignite the economy. To do this, Bernanke and the Fed will pump $600 billion into the Treasury bond market, in monthly $75 billion increments—at minimum. According to the Fed’s statement, if more “liquidity” is needed, then by golly, more liquidity will be pumped into the economy.
QE2 is really the official start of a race-to-the-bottom debasement of the U.S. dollar.
No one doubts this—and no one would dispute that such a currency debasement will bring about upward pressures on consumer prices across the board. Indeed, this is the explicit purpose of QE2: The Fed is trying to induce inflation, as it believes that inflation will bring about a reignition of the stagnant American economy.
A lot of commentators have been discussing what QE2 will mean for equities and the various bond markets. People are talking about the Treauries’ yield curve—but not much about what QE2 will mean for the rest of the American population: The middle class, the working poor, the poor, and even the upper-middle class.
So let’s give it a go:
Taking Bureau of Labor Statistics data for 2009, which can be found here, we can put together this simple chart of household incomes and expenditures for last year, divided by quintiles:
Data, from Bureau of Labor Statistics, can be found here.
Data in unadjusted U.S. dollars.
(A note on the data: Housing expenditures include mortgage payments or rents, utilities, and heating, including heating oil. Transportation data includes use of public transportation. Food includes “Food Away From Home”—a remarkably high proportion of expenditures, at 41% for the entire population, skewering to almost 50% for the top quintile, and almost 30% for the lowest quintile. The figure “% of Annual Expenditures” represents how much food, housing, clothing and transportation—the basic necessities—represents of the total expenditures of each quintile. The figure “% of Income” shows the basic necessities as percentages of after-tax income for each quintile.)
Now, it’s no trick to see that rising prices of basic necessities—as a result of plain vanilla Fed-induced inflation, and not the hyperinflation I am positing—will affect everyone: But especially the middle class, the working poor and the poor.
It would be nice if we could quantify that effect. But we can’t just input a hypothetical inflation rate, apply it to the data, and come out with a number expressing how much each percentage point of inflation will affect each quintile of the population.
We can’t because, as prices rise, people buy less of a necessity: Higher gas prices means people drive less. Higher food prices means people eat less, or less quality of food. Higher heating oil prices means people heat their homes at a lower temperature—or in some cases not at all.
But although we can’t easily quantify it, we can comfortably make certain claims about the effects of rising consumer prices on the population.
The first claim I would venture to make—and one that I don’t think will be particularly controversial—is this: Any household spending more than two-thirds of their after-tax income on food, housing, clothing and transportation will suffer an immediate, negative impact from the Fed’s efforts at induced inflation.
That covers pretty much the bottom three quintiles of American households. So 60% of the U.S. population will suffer an immediate effect of rising prices—the stated policy goal of Ben Bernanke’s QE2.
QE2 is having the immediate intended effect of pushing up asset prices, bouying up the financial sector—but it’s also pushing up commodity prices, which have been rising ever since QE2 was first toyed with as a policy option back in the spring.
Lag times may vary, but rising commodity prices inevitably translate into rising consumer prices for basic necessities on Main Street. QE2 is directly responsible for the rise in the last few weeks of all commodities. This will inevitably lead to higher consumer prices.
This inevitable effect of rising prices for the basic necessities gives lie to the stated goal that the Fed has of helping the American people by way of QE2. The policy is not helping—on the contrary: A minimum of 60% of the population will feel immediate, unavoidable pain directly as a result of QE2. They will spend more for basic necessities than they spent previously for them.
Or else, if they don’t spend more, they will consume less. This ought to be obvious: People who cannot afford to spend more on a necessity will instead consume less of it, be it food, gas, or heating oil.
So here’s Fed Lie Number 2: QE2 will not get the economy spending again—on the contrary, rising consumer prices brought about because of QE2’s pushing up commodity prices will insure that the population cuts back on consumption, even if in nominal terms they are spending the same, or even more.
The key assumption that I am making, of course, and which has to be made in any analysis of the effects of rising consumer prices across socio-economic groups, is that wages and salaries will either not rise, or will rise with a lag time of no less than six months.
This is an easy assumption for me to make: Even in the best of economic times, wages and salaries do not rise in lockstep with an expanding economy. And we are currently not in an expanding economy.
It is reasonable to assume that, during a period of steadily rising prices coupled with stagnant economic growth, wages and salaries will not rise for at least six months, if not longer. And of course, if unemployment were to rise above the current U-6 rate of 17%, then obviously aggregate wages and salaries would contract further—which would further aggravate the effects of the rising prices of basic necessities on the bottom 60% of the population for sure. If unemployment continues to rise, then that bottom 60% would begin to grow into the bottom 70% or 80%—maybe even hit the top quintile as well.
Wages are key. If inflation hit consumer prices as well as wages in equal measure, the net effect would be zero—which is more or less what you see in ordinary expansion-driven inflation, the kind prevalent in healthy economies: There are price pressures on commodities, which eventually translate into higher prices at the supermarket—but there are also price pressures on wages, as the economy in toto is expanding, and therefore bidding up scarce labor as it grows. In an expanding economy, prices might be rising—but wages are rising too, so no complaints.
However, in a stagnating or contracting environment—such as what we are experiencing now in the American economy—there are obviously no pressures on wages: If anything, there are downward pressures on wages and salaries.
So if commodity prices rise, people—especially the poor, the working poor, and the middle-class, but maybe even the upper-middle class—are really going to take a hit, as more of their after-tax income goes to paying for basic necessities.
Some people might think that the debasing of the dollar via QE2 will mean that the real cost of housing will fall, as rents and fixed mortgages will be undermined by inflation. They might think this is a good thing.
But this only makes sense if your earnings are absolute: If you’re boss is paying you in gold coins, or silver lingots. But if you live on a dollar income, especially a fixed income—as so many seniors do, let alone the average wage earner—even if your housing costs remain nominally static, rising food, transportation and clothing prices will still take bigger and bigger bites out of that dollar-based income. Please look at the last line of the above table—“Food, Clothing, Transportation as % of Income”—which I calculated precisely for this objection.
The only ones who won’t feel the pain of rising prices of basic necessities that bad is the top quintile—maybe. If they’re income comes predominantly from equities, maybe. If not, then they’re going to take the hit as well.
Way to go, Benny! Your QE2 is going to hit all five quintiles! Be proud!
As I have discussed in detail elsewhere, and which ought to be clear from my discussion in this post, Ben Bernanke and the fucking idiots at the Fed committed the post hoc ergo propter hoc fallacy with regards inflation: They seem to genuinely think that inflation begets growth, rather than understanding that growth begets inflation. (I don’t buy conspiracy theories that claim Benny and the Fed Fucktards are deliberately creating inflation to save the elite’s bacon—I think Benny and his Lollipop Gang are simply and genuinely stupid.) So he and his minions have started up QE2, hell bent on creating inflation in the American economy.
He seems to be succeeding, too.
According to Producer Price Index numbers, grains have risen 33% year over year, oil 20% year over year (both figures September-to-September, link is here). Ever since the idea of QE2 was floated back in May/June, commodities of all kinds have been steadily rising. And as of last week, when Quantitative Easing 2 was officially unleashed, commodity prices have surged even more—and will continue to rise for the foreseeable future. Not just precious metals but grains, sugar, coffee, not to mention oil—they are all rising.
Anecdotally, there is increasing evidence that food prices at the supermarkets have been rising for some time. I do not live in the United States, but I’m in close contact with literally dozens of people, both friends and business associates. From casual conversations and long discussions, I’ve been hearing that supermarket prices are rising across the board, and have been rising since at least mid-spring—yet the price rises do not seem to be reflected in the CPI.
That’s because of how the CPI—the Consumer Price Index, the traditional (and official) metric of U.S. inflation—is calculated. It uses data from past years—currently the 2007 and 2008 consumer survey—to create a basket of products, goods and services, which it uses to calculate monthly price changes.
However, the CPI doesn’t slice the baloney fine: If a product-x that was sold in a 20 ounce package for $3.99 back in 2007 is now being sold in an 18 oz. package at the same price, CPI does not compute that there was an 11.1% inflation in the price of product-x. Rather, according to the CPI, there was zero price inflation in product-x—because it sold for the same price, regardless of whether the package was 10% smaller.
But this is exactly what seems to be happening in food, as well as in other categories of what one would consider basic necessities: Foodstuffs are being sold in smaller units, cotton clothing is now being sold for the same price, only made of synthetic materials, and so on. A recent blog post on Zero Hedge highlighted the specific case of coffee at WalMart, previously sold in a package of 39 oz. for $9.88, now being sold for $10.48—in a 33.9 oz package. This represents a 22% jump in price. Cases such as this are common, and cropping up like mushrooms on the web—enough to confirm that stealth inflation is happening, without needing to stop by John Williams’ Shadow Government Statistics.
This brings the obvious question: If food, transportation, clothing and housing prices rise, but the CPI doesn’t measure it—was there inflation?
This isn’t a Zen koan or Berkeley’s tree falling in the woods—this is real. So my answer is obvious: Yes.
But according to the Fed and to most of the economic commentariat (except for a few notable and distinguished exceptions), since the CPI is not rising, there is no inflation. At least not in theory. In practice? That’s something else.
So! What does this all mean?
It means that Americans are the frog in the metaphor. Between 60% and 80% of them—to be precise—are slowly being boiled alive. The bottom 60% to 80%, to be even more precise.
Because of QE2 in all its iterations—its rumor back in the spring, its announcement last week, its forthcoming implementation—prices for food, housing, clothing and transportation are rising, and will continue to rise as Bernanke’s policy works its magic on commodity prices, and eventually reaches the supermarkets.
The financial sectors might be pleased that their assets are being bouyed by this flood of money coming from the Eccles Building—but the rest of the population will be drowning.
It won’t be just the bottom two-thirds of the population that will feel the pain of QE2: The upper-middle class and even the top quintile will inevitably see more and more of their income going to pay for basic necessities, while their wages and salaries remain stagnant—assuming, of course, that they’re lucky enough to still have a job.
All the while, since the Consumer Price Index will be lagging or flat, the mainstream economists and the Fed drones will keep up a steady chant of, “There is no inflation! There is no inflation!”—even as a majority of the population feels the squeeze of rising prices for the basic necessities. It’ll be a lot like a bunch of cooks, standing around the boiling pot, saying to the poor frog, “It’s only cold water! Don’t worry! It’s still cold! Trust us!”
So like the frog in the metaphor, the bottom 60% of American households will be slowly boiled alive by rising prices—
—brought by QE2.
As I said, you don’t have to buy my hyperinflation call and currency collapse scenario to realize this effect of QE2. This effect of Bernanke’s policy is immediate, undeniable, and inevitable: QE2 will hurt a vast majority of the American population, while helping only a very, very few.
To this, I say: Yeay, Benny—way to help the American people. Way to fucking go.
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Private int'l capital continues the cap gains from U.S. leverage...
The Obama administration notified Congress of plans to sell as many as 84 new F-15 fighter jets, helicopters and other gear with an estimated $60 billion price tag to Saudi Arabia.
Sometimes I wish I were Joe Stacks co-pilot.... Oh the humanity.... did you see CSCO ???? OMG, We need a after hours POMO program.
Bernanke and the rest of the Fed cocksuckers are QE2 screwing the American people, so the bankstas can be paid record bonuses.
well mister gonzalo thinks it's just an innocent error in judgement by mister ben. he certainly wouldn't conspire with the big bankers who control the privately owned federal reserve bank.
"The more we spend, the richer we are" -- Joe Biden, V.P., USA
"Show us the money!!" -- Cuba Gooding Jr.
"Gold is the elephant in the room." --Bob Zoellick
"The Federal Reserve will not monetize this debt" -- Ben Bernanke
"You can't be serious!!" -- John McEnroe
"We are in a period of unusual uncertainty" -- Ben Bernanke
"The Fed is running a Ponzi scheme" -- Bill Gross, PIMCO
"No, Mr. Bond, I expect you to die" -- Ari Goldfinger
"My impression is the USA is basically helpless" -- German Finance Minister
"The world is in a currency war" -- Brazilian Finance Minister
"Baby, that's what I call a short squeeze" -- porn star Joclyn James to Ben Bernanke
Y'all make my head want to explode. This isn't as difficult, complicated, or as deep as many here make it out to be.
We have a fractional reserve banking system that uses a fiat currency as a means of exchange. We knew it was "safe" at about 12:1 but we maxed out the card and shot our wad at somewhere between 30-to-100:1.
Now the system is reverting to 12:1. That means only one thing - America's standard of living will decrease to some unknown point. The only thing worth discussing is how we fast we get there and what kind of pain we'll feel on the way.
As for our so-called leaders they - as shown by their actions - are either incompetent or doing this on purpose. Now, allowing for the sake of argument that they are not incompetent, we have to ask, why would do what they're doing in the manner in which they are doing it?
Well, let me ask you this . . . imagine you were told your closest family was going to die. But, you were given a choice in how their demise occurred. You can have them either die tomorrow in a really violent car wreck, or you can have them die two years from now after suffering from some debilitating disease. Either way, the result is the same. So, from the standpoint of your OWN recovery, which would you choose?
What I'm getting at here is that humans deal with adverse change a lot better when they are given time to slowly accept the change. I think this is what our leaders are doing - they are attempting to control the RATE at which we assume our new lowered standard of living.
Is it right for them to make this choice for us? Absolutely not. The American public deserves to know the truth and a chance to decide their own fate. But to risk the outright social, political, and economic chaos that would likely follow such an admission is to great for TPTB. Thus, they are doing everything they can to SLOW the rate of descent such that the American sheeple can adjust. Kind of like letting a goldfish adjust to the temperature of the water in his new bowl by keeping him in a Ziploc bag for an hour or so.
To me, it's no more complex than that.
The danger, I feel, that we should be discussing is what happens if they LOSE CONTROL?? There's where I feel the problem may lie and that's the reason I am keeing my Eyes On The World. I am not afraid of my government - I am afraid of what the million plus people in my immediate vicinity will do when the SHTF and they are cold, hungry and wet with no grocery store, water or heat.
So, as for me, where do I stand personally? Was I the one who chose the paddle over writing 200 sentences on the board? Damn right. I always said, "Let's get it on and get it over with!" I'm all about some short-term pain for long-term gain.
Embrace the Depression I say, and may the best men (and hopefully our Republic) be left standing.
EOTW
Would'a made a damn fine inauguration day speech for O ba ma.
I actually feel like I'm some inter galactic trip and was supposed to remain criogenically (sp?) frozen until we reached our destination. Instead I woke up w/ only a few others while the masses doze (froze?) on. To our horror we found the ship had been taken over...blah, blah...you get the point...I don't like this game anymore and would prefer to wake up.
Instead, I feel my former dreamy life will soon turn into a fight for survival and for liberty while we struggle w/ the new, lower equilibrium. WTF happened to my nice little ponzi life built on the backs of the poor of the world?
I'm sure there are millions in the world - in every nationstate where the banking class & their warriors occupy for "resources" - that agree with you. . .
now it's the amrkn's turn to wake up to their reality.
this post is not "aimed" at you, you appear to understand that a simple twist of fate has you born to a country that has "peaked" albeit on the backs of generations of "others" - just pointing out that what goes around, comes around, and unfortunately the results always hurt those most who are considered "extra to the plot". . .
we can all be thankful we are not consigned to live in lands considered "resource-full" by those who name things.
So, you've opted for the obvious vision of the future and thrown your tin-foil hat to the curb. Good! I find I'm inclined to see things your way. These guys know what's coming and tapping the brakes to prevent a complete pile-up. Gimme the wreck and the hospital stay, but that's just me.
One of my contrary indicators has just gone wildly bullish: Don Luskin says we'll kick ass next year. That means, without a doubt, that we are royally screwed.
Very well said...thank you.
Thank you ... and to Rocky as well. I guess my point is we can spend all day trying to second guess what, why, and who, but excepting for around the campfire with a belly full of bourbon, th parlor games bore me. I look for events - triggers if you will - that signify the next stage. Those can come rapidly or in trends, so keeping up and on pulse is important, but to me it's more the what than the why. And I don't have a dollar to invest anyway, so I could care less what the markets do - I spend my time honing my skills on how to feed myself and my family off-grid and believe that takes real work.
Check this site:
http://endtimesreport.com/
It's available on CD-ROM cheap.
G/L
Thanks for the link. Bookmarked.
EOTW, well said. Curious, how that acronym can be 'eyes' or 'end'. Welcome on board.
My only addition is that IMHO the rate of descent is controlled not to allow the populace to get acclimated, but to maximize the grip of control -- which may or may not involve buying enough time to allow for a cataclysmic "external event" to lay blame upon for said descent.
Good post, but I could have done without the collective insult at the beginning.
Aye, no offense meant. It was more a statement of overwhelming information overload if anything. But yes, apologies all around to any offended.
Ben is getting away with it. Answerable-to-no-one Ben, with even more power than the CP of the PRC, is getting away with it. Every government on the face of the Earth, and the 305 million Americans who do not work on Wall Street or have William Shatner's deal with Priceline, are scrambling to immunize themselves as much as possible from Ben's PhD Thesis gone horribly wrong, and Ben is getting away with it. Folks on this board are ripping Robo and Harry a new a-hole for stating much of the obvious, yet Ben is getting away with it. Between now and Christmas a dozen or more Americans will go postal and take out a hundred or more family, friends, co-workers and innocent bystanders, and Ben is getting away with it.
Myself included, collectively we will do nothing but try to immunize ourselves from Ben's madness, when we all know all it would take is one brave man or woman so that Ben could not get away with this.
Ben is a figurehead. Should he retire tomorrow and go back to teaching, another goon would replace him. Just like Bush being gone means nothing, meet the new boss same as same old boss. The owners of the fed will instruct the Chairman and FOMC about their actions. The only difference is Ben does it without a teleprompter, though still not good at fielding hard questions.
Still doesn't change the fact he could stand to have a new idea or two introduced into his head.
Deleted on second thought.
lol, yup, don't go there. . .
It's naïve in the extreme to believe that Ben is not simply following a game plan laid out by those who appointed him to the position. How is he any different from the last talking puppet, Paulson?
Folks:
The top 20% is around $100,000 per household and up.
Those households pay (in millions) 767,000 of taxes.
The bottom 80% pay 260,000 (in millions).
Now, does that coincide with the 80-20 rule?
Go to: http://www.gao.gov/new.items/d11142.pdf.
See page 90
I think it speaks more to our income distribution curve than the 80/20 rule.
When I become Ben I'll raise rates 500bp. That way when I buy bonds they'll be cheaper.
Very good point Gonzalo.
Cease and Desist Ben.
This is my longest post, ever. I'm working on some stuff here and help would be great. Are there flaws with the following...
We know deflation allows the value of housing to reset to match people's incomes. We speak of this as an unwinding that needs to occur, a dialectical process where the hot air is let out of the house price through a series of failures: Margin calls, sales, flooded markets, inability to liquidate, bankruptcies, etc.
Likewise the prices of things like medical care and education need to deflate because they too have been artificially inflated due to the moral hazard created by subsidies. I bet there are more things you can find to add to this list.
Housing, education, and the medical system are, essentially, ponzi schemes, not that there is no value there, but that they have evolved in such a manner as to develop practices to get the available money, rather than maximizing the value you get for the services provided. Likewise, much of finance is a ponzi scheme. Doubt too many folks are going to argue with me, so far.
I have been trying to articulate something else I see that perhaps parallels this, in an inverted kind of way. I expect a shit storm of junks, but I keep coming to what feels to me to be an inescapeable conclusion:
Just like the prices of housing, medical, and education need to come down because they have been artifically inflated, the prices of commodities MUST GO UP in order to acheive a sustainable equilibrium in the economy. This too is a winding process, but it will be a winding up.
Much of what presents itself to us in the market place as "value" (CDS, MBS, stocks, etc) only has value because of our perception of it, or our belief that others will perceive it as valuable. As the economy fails, more and more of these will be liquidated. As it passes hands, the $ value will decrease because lots of it will be flooding the market, at the same time the value of the dollar being applied to it will be decreasing in the face of increased printing. And at the same time the underlying assets of the item are depreciating, too (what ever would be liquidated in a bankruptcy). Lots of bleeding along lots of dimensions. So these things are fluff, concepts, air. People on the losing end of these deals are going to stop buying them and their value will go to zero, or close to zero.
What will they do? What must they do? As that devaluation process rachets down, the money will flow to commodities. And as everyone rushes to buy commodities with their devalued dollars in a desperate attempt to preserve some of the value, all the money will show up to bid and drive the price of real, useful things, up. I know, this is a big "duh," but here is my underlying thesis. Because there is so much PONZI in the system, because so much of it is smoke and mirrors and perceptions, to set things right, the only things that have real value, must be priced to reflect reality without PONZI. Unwinding is deponzification, a destructive tsunami rush of cash which will pour out of things like the stock market, bonds, etc. bleeding value as it does so, and into commodities.
And those commodities will stay at those prices because of supply and demand, not deflate (though they may overshoot, and correct after a bit). No one will want to hold anything that isn't solid, or a service associated with creating and preserving the commodity. What we call speculation in commodities is Mother Nature's attempt to set things back the way they ought to be.
Houses should have never cost this much. Food should have never been this cheap. Mother nature, on a long enough time line, will have all our pounds of flesh. Mother Market is a bitch and she will have what is hers and she will set it straight.
Securitization mutiplied credit. Mortgages,credit card debt,student loan debt was sold off creating more debt, ton's of debt and in the early 90's this hit overdrive. The real asset price inflation started because of this.The leveraged buyouts ...
They are having a really hard time starting the securitization game again(fraud). So credit is really tight. The banks off balance sheet makes them insolvent (Shadow banking system/securitization market/siv's/cdo's ect ....)
A lot of people are underwater and really do not want to go out borrow/credit/debt.
The commodities will go up as the dollar drops/demand/restocking.
The Q.E. 2 was a mortar shot at all the countries that peg to the dollar(china/asia). They will feel the real pain in 8-12 weeks.
Over time, everything reverts to the mean.
Great, "the mean" is pre-industrial, pre-fossil fuel.
What do you mean, man?
I mean, buy a fucking horse, and like it.
Do it. Do it.
Donkey works for me.Aiming to get one and go panning for gold. Figure its a great way to spend retirement and stay out of the crazyworld. Cant hardly wait for spring.
I agree with this completely, and I think that,
is the service of what our courts have charged to not only persons, but corporations, and this legalese could soon be responsible for the takeover of our sovereign rights.
It may be my nightmare that justifies this, but I have a feeling that when the sovereign debt/bond market collapses, the corporate bond market will have an inverse move to the upside, pricing corporate bonds higher (and thusly their stocks). It would be the opposite move that has occurred historically, as usually monie runs towards treasuries. This would provide safety by the corporations and then it would be the corporations holding the purse strings, except that CBs would still have vaults of "gold" that they could issue as collateral against their debt. This would essentially give corporations equal power, and if you say they have it now, I would not completely disagree, but then it would be awkwardly apparent. I can not help but think of the Supreme Court decision last year proposing corporate dictatorship through unlimited donations to show how the house has prepared accordingly.
-
We need to create a new Risk board game, but do it with corporations, instead of countries. I think that would get the flavor of what you stated. Food for thought. And if you are not part of a corporation...???
Reasoned and reasonable thought all. I do, however, respectfully disagree on a couple of aspects:
(1) commodities do not have to go up - though they will as more excess money looks for 'safety';
(2) commodities going up, with other prices going down - will not create a sustainable equilibrium.
There is simply far too much debt across the system - Fed, state, muni, corporate, bank, individual, and far too many derivates, for the system to happily move to some other equilibrium. Any reset will lead to profits for some, and losses for others - which will lead the latter to default, which will cause a cascade of defaults. That's why, IMHO, they are trying to continue the current paradigm for as long as they can - and just blow another bubble. The current system is a house of cards, take away one and the rest collapse...
They can't restructure without a grand bargain. A reset will occur whether they like it or not, and that's why I wish they faced up to it and made it happen on a collective set of terms and not at some chaotic point.
As I re-read your post, it sounds to a certain degree like a form of hyper-inflation or at least bi-flation. Agreed there, but I'm not sure this will be a sustainable equilibrium either...
Not sustainable for all, that is just true. Equilibrium may be a bad word choice. Perhaps a stillness for those that have. I am seeing it as a kind of hydrolic system and one of the steps in redistributing the capital that had been invested in ponzi, was to see it all eventually land in commodities.
Thanks for your answer.
I quickly scanned through all the comments here and it appears that I'm the only person who's prepared to call bullshit on this entire hyperinflation thesis.
Look, there's only one way we're going to get hyperinflation and that's if the world suddenly ditches the US dollar as the global reserve currency, emphasis on the sudden. It's highly unlikely that this will happen [suddenly] given that the US essentially has the casting vote in all IMF decisions. Inevitably, the USD will be replaced, it has to be, but it won't happen overnight, giving the Fed time to dampen inflation by slowly increasing reserve requirements as much as it takes.
This whole hyperinflation thesis depends on Bernanke printing money but he's not. Look at Japan. Has Japan experienced the catastrophic hyperinflation that Lira warns about? No! So why the hell do people think that the US will have hyperinflation when it's implementing a QE program that is structurally the same as Japan's?
Next, regarding debt I again seem to be a lone voice here. The debt is not a problem when it's owed to the Fed. Interest service on debt to the Fed is effectively zero because the Fed pays it all back to the Treasury. Next, given that the nation has been "bankalized", the Fed is the government. Debt you owe to yourself is not debt. That's why Japan's debt is also a non event.
People just don't get it. There is no intention to pay off the debt (owed to the Fed) because the debt is irrelevant.
China does the same damn thing every day but because the government openly controls the central bank, "debt" is (rightly) not recorded as debt and I don't see people like Lira having a brain explosion about it.
Junk away junkers, you don't understand this.
Riddle me this, batshit crazy: If that's the case then why doesn't the Fed just send every adult citizen a credit card with a million dollar balance? You gotta admit that would spur the economy. Problem solved, no debt, no problem.
Give the raccoon a prize. That, indeed, is Bernanke's policy of last resort, the helicopter drop.
Why not do it? Because it's "The Great Redistribution". Flushing cash to the outside would have to be balanced by drawing cash from the inside and that's not in the interests of the banks that the Fed represents. Banks would have to realize their losses and fight (survival of the fittest style) for cash from the peons. Should appeal to the [F]au[x]strians out there.
The right way to do it would be to nationalize the Fed, strike off all debts owed to the Fed (can't have a debt to yourself) and gradually eliminate taxation.
If inflation starts to increase, increase taxation and eliminate the take. During times of deflation, print and pay a citizen dividend. Under a truly democratic government, the business cycle then becomes an election issue rather than a decision made by a handful of men.
While at it, gradually increase reserve requirements, re-implement Glass-Steagall and severely curtail derivatives activity, all limiting the ability of member banks to suicide the economy. All of which sounds something like what White (BIS) and Volcker would say.
Unless I'm mistaken you contradict yourself here. First you state, correctly, that hyperinflation will only occur if the world ditches the US dollar. This assumes that hyperinflation is a politcal event, which I believe it is. It is defined by the loss of confidence in a fiat currency. Yet, then you state the "whole hyperinflation thesis depends on Bernanke printing money" which really doesn't have have a whole lot to do with hyperinflation (if it's a political event it can't also be a monetary event). Right? Or am I misreading your statement.
Also, I understand the Fed to be a private party who's profits (interest) are paid out to their owners and partner banks. What am I missing where, as you state it, that all the interest goes back to the Treasury?
Firstly, you're confusing something I said with something Lira said. I agree, hyperinflation is a political event, the required fiatscos to cause hyperinflation already exist, but their concentrated repatriation requires political triggers.
I'm talking about the thesis presented in the article here in which hyperinflation is being called as triggered by Bernanke's money printing. My point is that I believe this to be wrong because Bernanke isn't actually printing anything at all, he's simply releasing reserves.
On the final part, yeah, you're missing something. Most people aren't aware of it, leading them to freak out (unnecessarily) about US debt. The Treasury and the Fed have a nice little deal going. The Fed returns money to the Treasury, covering all the income made from holdings of US government bonds (minus some operational expenses).
Last year, the Fed paid 47 billion to the Treasury: http://www.businessweek.com/news/2010-04-21/fed-returns-47-4-billion-of-...
Here's the consolidated annual financial report so you can see for yourself. Go to page 3: http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt200...
minus some operational expenses
2% interest on $14 T debt is $280 B, not $47 B
That's some Fed haircut, not to forget the 6% dividends to Fed Bank owners
Except the Fed doesn't have 14T in Treasury securities. End of last financial year it had 806B.
That number will grow larger and larger making interest service less and less relevant. As Bruce pointed out in one of his posts, with the Fed sitting on the bid, foreign interests are likely to take it as a chance to offload bonds.
I would agree with most of what you posit, specially the part about internally owned debt. Although Japan's economy still sucks boar tits, they are not suffering hyperinflation. Yet, you fail to account for two facts:
1. There are 3 reasons (other than the political vestiges of Brenton Woods II) that the dollar is the reserve currency. The first is the massive amounts of dollar that leave the US due to our massive imports of foreign goods. Specially oil. All these dollars sit in CBs and are used to settle transactions both ways. As the US economy continues its downward spiral and the dollar becomes more devalued against other currencies, we will import less and less products. You can already see oil inventories accumulating in the US due to the reduced demand. A weaker economy means lessened oil usage. OPEC countries have been denominating oil in dollars (and gold) for 70 years. But several cracks have appeared. China and Russia have signed an agreement for exclusive import of oil and gas products needed by China from Russia. None of these transactions will be conducted in dollars. Secondly OPEC countries have been diversifying from the dollar for a couple of decades. Saddam's oil for food program had switched to Euros before the war. So, it wouldn't be a reach for the OPEC countries to announce that they will no longer accept dollars and demand either gold or another asset / fiat in exchange. This would drain the oil dollars sitting in the CBs. Where would all those dollars go to? Right back into our markets. Some of it to purchase assets (remember the Japanese buying property in the 80's?), some just to pay for US exports. The flooding dollars, unbalanced by outgoing oil dollars, would increase the currency velocity in the US markets.
2. US treasuries. T-Bills are denominated in dollars and foreign markets must hold dollars in order to purchase our t-bills. But, if the Fed is buying all the debt, there would be minimal amount of t-bills off shore. Where would those dollars go? Right back to our shores. So, yes, the Fed can absorb those dollars. What is the mechanism to do so? Interst rates. The Fed would have to raise rates to absorb the surplus dollars from circulation and return them to the Treasury. This would increase the interest rates that the US government must pay for the bonds purchased by the Fed. This type of increase would force the Treasury to borrow faster, negating any dollar absorption by the Fed.
3. There is no other fiat that can substitute. The Euro was created to do precisely that. It hasn't worked because EUs finances suck worst than ours, but another currency could emerge (SDRs or even the Yuan) to take the dollar's place. This would mean the destruction of the dollar. Why? because without demand for dollars, there would be no need for anyone to buy them, add to that the overprinting by the Fed and voila, loss of currency confidence in the overseas markets. When you can not use dollars to buy assets in the international markets (or not at a volume enough to mellow price), imported goods would skyrocket overnight. Oil in particular would be the most disruptive as we import 60% of our oil and everything, from food to clothing is oil dependent. US produced oil would also rise in dollar price (oil is a fungible asset so US oil would not be cheaper than imported oil) and that would destroy the economy. It doesn't matter if we produce enough to cover our needs eventually. Although it would require a 60% reduction in our usage. Eventually demand would meet the price. But at what cost. A reduction of that size would call for a massive die off in the US. Ask Argentinians about exporting products so expensive that they can buy them in country (food).
Second, politics. China holds 3/4 of a trillion dollars in t-bills. They could dump them in the open market and destroy our economy. Most eggheads argue that they would never do so because it would hurt their economy and they would loose a trillion dollars. And? The US spent a trillion fighting two wars for zero ROI. What makes anyone think that the Chinese would not be willing to sacrifice a trillion dollars to destroy the US economy and become the sole super power overnight? Secondly, once our economy is destroyed, they can ride in and purchase our real estate, minerals and other assets at a discount. Oil men in Texas and farmers in Kansas would be more than willing to sell land and products to the Chinese in order to survive. Baring Federal protectionist laws, it would be seen internationally as an act of mercy not an act of war.
Yes, all the above are political events. We live in a world were most of our neighbors dislike us. I wouldn't sleep comfortable at night if I knew my feuding neighbor had a gun pointed at my head. And neither would you.
Thankyou for the thoughtful post goldsaver, I'll respond to each point:
1: Correct, as the US economy continues to decay, the rest of the world will increasingly move away from using the USD as a trading currency. We're already seeing this in multiple places as you correctly state. This is why I agree that the USD's days are numbered. Either a new currency has to appear in the US (eg Amero), floating the USD free as a trading currency under control of the IMF, or, more likely, the USD (as a global trading currency) will be replaced by a modified SDR which will indeed be inflationary for the (local) USD forcing the Fed to come up with means to absorb. There are plenty of options here for the Fed, the most obvious responses being to raise interest rates, raise taxation, raise reserve requirements and park all that cash long term at the Fed (preferably destroy it).
2: Pretty much already covered in #1 but you're making a mistake here (that everyone makes) by believing that the Treasury is going to keep having to float shorter and shorter paper to service more and more interest on debt being bought by the Fed in a feedback loop that can only lead to the bankruptcy of the USA. Incorrect. The Fed returns money that it makes as income on its holdings of US Gov Bonds to the Treasury. In other words, the Treasury pays $0 in interest on its debt to the Fed, so the feedback scenario is a false alarm. Put another way, the yield on Treasury paper is irrelevant when the Fed is the buyer. [Edit: I'd also add that the Fedury (they are the same) will continue to roll bond holdings indefinitely, only allowing maturation (reducing the roll) if inflation appears, coupled with an austerity program).
3: I believe the SDR will be remodeled. The USD will still remain as a major component but it will be reduced. The effects will be inflationary for the US but nothing that the Fed can't control. Global elites have been wanting the SDR as the primary global trading "currency" for decades because they believe it offers greater stability and a means to reduce economic imbalances between nations (flashpoints that lead to war). I agree with them. Bring it on. American dominance is over, sorry.
4: What you're talking about here is WW III. I doubt that it would happen, but yes, the possibility that it might does indeed keep me awake some nights.
Great discussion. Is intelligent feedback (and sometimes sheer entertainment) why I come to ZH. My concern remains oil prices. Oil prices, been a critical element in our economy, are very sensitive to the status of the dollar. Although you are right that the fed has many tools (probably more than I know off) to control internal inflation, it can do little to control outside devaluation of the dollar as it relates to FOREX. As you can already see, other CBs are racing to the bottom in response to Bernanke's devaluation of the dollar. When the dollar looses its status, the value of the dollar will crash. Other countries have prevented this from happening in order to keep the trade imbalance going, but eventually Ben can print longer than they can. If there is a crash in the dollar, oil prices would completely decimate the US economy. If $150/barrel oil plunged us into a short market downturn, what would happen if oil was $300/barrel? $400/barrel? We can look at Argentina for the answer. When the government finally decoupled the peso from the dollar (it was extremely overvalued) the country went (and it still is) into a hyper-inflationary dive. Zimbabwe's printing also drove their economy into the toilet. The only reasons that have prevented this from happening in the US is our status as reserve currency and our status as the oil purchasing currency. Take away those two and there is nothing else left. Might not happen overnight, after all it took Germany three years to destroy the papiermark, but once it happens it would be catastrophic and exponential.
The game, as I see it, is all about China. For decades, CBs have got to know one another and become quite friendly, scratching each others' backs through reciprocal bond purchases and managing terms of trade.
Then here comes young, brash, rude China, ignoring all the gentleman's agreements, pegging its currency to the USD and aggressively importing industrial activity (as a consequence of that peg) at the expense of the USA.
America asked nicely for China to break that peg, China said "fuck you". In response America is now leaning on the status of the USD as a trading currency to put everyone else (particularly Europe) into the same situation against China.
Something has to give. The US is banking on the entire world pressuring China to break that peg. It backfires if the entire world simply ditches the dollar. My best guess is the former holds, Western CBs have too much friendly history to betray America. Read between the lines of Greenspan's recent statement (linked to by ZH earlier) and you can see that he's saying the exact same thing.
Meanwhile, yes, you pinned the elephant in the room. Declining energy-resource availability per capita, particularly troublesome because China has so little access to domestic oil (plenty of coal but not oil).
Long story short. That's why the US has the bulk of its military might stationed in the Persian Gulf and will leave it there indefinitely.
Zimbabwe
http://www.youtube.com/watch?v=JGmCjTPJw-g
GL
I like your blog but I'm with those who think you've got it wrong.
First QE is not printing any more money. Look at the M1 M2 charts. PDs are selling treasuries for digital cash and taking the digital cash and buying new assets. All QE is doing is blowing out the Feds balance sheet and keeping rates artificially low.
Second there will be NO hyperinflation in consumer goods unless demand spikes, supply diminishes, or faith in the dollar goes to zero. I get milk at the local Safeway for $2.50 and eggs for $1 and gas for $3 - I can get an awesome warm jacket for $49. THESE PRICES HAVE NOT CHANGED DRAMATICALLY IN 30 YEARS! DEMAND IS VERY LOW DUE TO CONSUMER DELEVERAGING. This demand will not pick up until jobs grow and consumer balance sheets are back to levels 20 years ago. And there is not much problem with supply. Oil inventories are at historically HIGH levels. Cotton inventories are being stockpiled by manufacturers. yes commodities are high but likely because of trading and speculation - not because of inventory shortages or consumer demand. And finally I seriousely doubt all faith would be lost in the dollar. WHY? Because too many countries have a vested interest in the dollar. Occams Razor says the most likely scenario is the G10 countries along with China and a few others hammering out a financial accord that devalues the dollar to a certain amount (50%?) and produces some type of currency standard or attempt at govt fiscal responsability as the Euro attempted. While this will suck it is not hyperinflation.
For hyperinflation in the US there would have to be:
1) Huge M1/M2 growth - aint happening
2) Huge consumer demand growth - aint happening
3) Collapse of faith in dollar - too much worldwide support and too much US cash flow (ie GDP and subsequent taxation)
A 70s style oil embargo or a natural event that limited supplies in combination with our current economics would precipitate double digit inflation like we had in the 80s
Ok, good, someone else who gets it (I'm surprised there are no junks yet).
What's going to happen to the US dollar is that it will be replaced (as the global trading currency) by a modernized SDR. This will result in the dollar devaluing, yes, as all those surplus Eurodollars that have been made obsolete repatriate. Given that the US controls the IMF, this process will be done in the least disruptive manner possible, giving the Fed time to absorb Eurodollars. Note also that because many of these Eurodollars were the result of swaps, unwinding the swaps shares the pain, meaning that the other end of those swaps will play nice.
What we'll get in the modernized SDR is increased breadth in the currencies covered (possibly including gold) and a reduction in % of the USD.
BOUNTY: LOOKING FOR DEFLATIONISTS
Hello, everyone. I am offering $100 to the first person who can direct me to the first deflationist in the room. I'd like to ask him/her a few questions. Hurry, the $100 could be worth $10 in a few days. Thx.
OK,ok...I'll bite.
Yup, me and Bob. Personally I think massive and continuing de-leverage action in companies and people will continue, despite anything the (insignificant) FED does.
I would look for a massive rally in the dollar (I like the number "118") and gold back at $275/oz. Curiously, look for pork bellies to be the lone benefactor of a stupendous explosion in price as bacon is bought and hoarded by the general public.
By the way, that $100 should be worth $151.28 in a matter of years.
Partially agree here.
If the world's central banks manage to keep things relatively stable then rather than defaults we will see servicing of debts (over time). That's deflationary.
Right now, I'm a tentative buyer of the USD/EUR because I think the Fed is doing a much better job than most people (around here) realize, while the Europeans have completely screwed up with this ridiculous austerity program.
Don't agree with you on gold though. Too many people see precious metals as an inflation play, but they're more than that, they're a confidence play. Precious metals do well when faith in the currency system of the world is low, which is true during periods of both uncontrolled inflation AND deflation. Gold stocks rallied spectacularly in the US when deflation ruled. It wasn't until the govt confiscated gold that it was silenced.
On the flipside, during periods of high (but predictable and stable) inflation, precious metals suck because there are better, more profitable ventures. The key is volatility of economic conditions.
As I have said before, inflation in things one needs and deflation in things one wants to sell cancel each other out so that prices are flat. Thus we all get flatulation.
Coffee shot out of nose. Nice one.
Seriously, "flatulation" is a scenario hardly anyone considers. People are too binary, insisting that we're in for hyperinflation or catastrophic deflation. But you are probably more accurate chindit. We'll see regions of concentrated inflation and regions of deflation. In aggregate, I expect something like Japan leaning towards net deflation. Things remaining flat.
"Flatulation", still laughing at that one. Awesome.
Fiatulation.
You better give Cheesy Bitch some o' dat or you'll be sleeping on the couch.
That's not the way I remember most reasoned comments on ZH. Most here, IMO, believe in deflation of asset prices (in particular, housing) and inflation in consumables (food, fuel, raw materials) -- ie. biflation, stagflation, flatulation, whatever-you-wish-to-call-it. Or maybe it's just me.
Mediocritus,
What the Fed can't control is whether holders of current US paper roll or not. It's fine if Bennie buys all of China's UST paper. But that leaves China with lots of dollars to buy food, oil, minerals. More USD out of the cage. As confidence is lost in this currency, it's velocity increase dramatically -- this cannot be controlled and this is how hyperinflation kicks off.
Actually I mostly agree with you here.
Yes, an uncontrolled currency dump is what triggers hyperinflation. Such dumps are usually caused by political events. I can't see it happening in America. What would the political event be? The US still control the IMF and the US people are docile.
Yes, if Bennie buys the paper, the Fed can control things. Largely that's what QE is all about, the Fed becoming the primary buyer / holder of bonds.
Yes, China is the bogeyman here. If China suddenly dumps everything then there is a problem. But again, I don't see this happening, it could mean armed conflict and I doubt that China is that stupid. If China does try to dump then I'm certain the BoJ, ECB and Fed would combine forces to soak it all up.
Today's rumor is:
China did launch a missile and it detonated a EMP device near the Carnival Cruise ship and destroyed all, and I mean all of it's electronic hardware.
Then the USS Ronald Reagan (very large carrier) was sent immediately to give aid, aid as in many troops and techies to board said ship and get a handle on damage control and I mean damage control of the political type.
The MSM is showing the "troops" bringing much needed food to the starving vacationers, spam and crackers, oh boy! Do you really think the ship has run out of all food in two days? The DOD waited to release their most recent statement on this event until after they reviewed all face book, twitter and blog responses regarding this event. Then selecting the most believable response. apparently they went with what the shepple had all ready convinced themselves had happened. A JET PLANE CONTRAIL.
And If you try to Google this, remember about Web Site Optimization.
Riiiight, riiiight ........ So all electronics were instantly destroyed ... but passengers were able to blog, twitter and facebook what happened. Good one! hahahahaha
How much do they pay you to float these balloons?
Listen Mr. Lira, I'm not fan of Bernanke but if you're going to continue to write these breathless tomes, you owe it to your readers to get it right. Instead of providing us with sensationalist anecdotal bullshit like "food prices are rising across the board" why not find out the truth. It ain’t that hard to get at. True professionals do the legwork. Guys like you rely on anecdotes from their hundreds of friends wherever.
Regarding food, some items are rising, but others are stable and others still are getting cheaper. Most people are scared and worried, and so they generalize. I track the numbers and I am paying LESS in total for food this year than last. Fruit is up. Dairy is down. Meat is level.
Other items are up. Gasoline for example, but I was able to turn the screws on my insurance company and now I am paying 50% less for auto insurance this year than last. It required me to change my behavior to a degree, but that’s not the point. The point is that I have options and am leveraging them to the extent possible.
The reason the CPI doesn’t reflect your version of reality is because your version of reality is wrong. You could easily verify this if you spent an hour verifying information instead of relying on overextended Yankee yuppies who are scared because they miscalculated and now hear the roar of the falls.
Boys and girls, I’m almost done. The paradigm has shifted. You can hitch up your big boy britches and get on with it, or you can sit around and listen to guys like Gonzalo and Deninger who play to your fears by reminding you just how totally fucked you are.
Is it gonna be bad? Absolutely. Are you fucked? that’s your call. Personally, I’m sick of this bullshit. Durden, your site is going to be a case study one day. As for me, adifuckingos!
Don't let the door hit you on your...Oh, never mind.
Nah, hang around morphine man. Read the posts above, not everyone is hyperventilating. Need more people like you to balance the arguments.
Seriously, when the fuck did ZH become so infected by groupthink? It wasn't like this a year ago, not at all.
I agree about sticking around. I was just rude cause morphine was.
Oh, that's good then....bitch.</humor>
Bitchez.
Your basket must be different than J6P and you must play by the rules the BLS want you to. You readily admit to practicing substitution and therein lies the problem. If you remove the Hedonics and Substitution that Regan gave us, the true cost of living is going up. When I go to by Icecream (dairy) a half gallon in now 1.5 L. When I want a Half Gallon of OJ it is now 59oz. I do my research everyday and PPI prices will be passed along. USE MORE GUN next time.
Why would you drink horrible WalMart coffee anyways? I'd use the price increase as incentive to reduce drinking coffee. Maybe cut down on food as well.
Mediocritus,
As the Chinese have gone around the globe in the last few years doing resource deals for multi-10s of billions of dollars, it's clear they have been slipping the dollar trap as fast as they can. I've wondered if they might not be contracting to pay, and paying, in UST Notes and Bonds? Just a thought.
In any case, all those 10s and 100s of billions are already out there or committed to be. I think the hyper-cat is largely out of the bag, frankly--a latent inflation waiting for the velocity trigger event. I see no way to stop it without imploding the economy now. The Fed and TPTB face the "die now or die later" choice and so they will print. How and when the phase-shift to a new monetary/exchange system comes is not clear but I lean towards hyperinflation for end of this one.
Absolutely no doubt that the Chinese are not stupid. They've been offloading clown bucks to whoever is stupid enough to take them for years now, in exchange for land, commodities, real estate, etc.
I watch Australia closely because I have significant investments there and it's extremely obvious that the Chinese "dump" has been in slow motion for many years, indirectly, through suckers such as Australia.
On your last point, bear in mind that this is not just the case for the US, it's true for all tier one nations (just that the US is most exposed due to the USD being the global reserve currency). Every tier one nation is at risk of a currency dump induced hyperinflationary event, all the CBs know it, which is why they're all so gentlemanly to one another. The exception here is the new kid on the block: China.
Point is that the if the world turns hostile against the US, then the US can fight back using its foreign currency reserves. Tier one central banks operate under M.A.D.
Taken together, while I do acknowledge that US hyperinflation is possible, I see the probability as very low. If it does happen, then it happens in the context of WW III, not something that anyone wants to see, even China.
Let 'em drink Ripple!
Nov. 10 (Bloomberg) -- Investors may be better off
reserving wine than adding to their U.S. dollar holdings with
select vintages returning triple the amount of the greenback
during the past decade.
The CHART OF THE DAY shows the difference between the Liv-
ex 100 Fine Wine Index and IncontinentalExchange Inc.’s Dollar
Index is the widest ever. Since the wine index’s inception in
2001, the Dollar Index has dropped 32 percent, while the Liv-ex
100 has more than tripled.
“Fine wines are a better store of value than the current
favorite reserve currencies and can be drunk by reserve managers
if it all turns utterly hopeless,” Alan Ruskin, global head of
Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New
York wrote to clients yesterday.
yes this thing will not work, just opening up another can of worms for QE3
*slaps forehead*
This vid sums it up perfectly.
http://www.youtube.com/watch?v=Za-9cqeIzEw
Love Zero Hedge and the smart, funny posters here. If I may, let me lay out what I think the Fed is trying to do.
It is clear that Ben wants inflation. Debasing the dollar is the last big stick the US holds over the world. In a high-inflation scenario, US consumers will have to turn to US producers for their needs, because imports will have become too expensive. US exports will be cheaper for the rest of the world. Economic growth will then be driven by increased domestic and foreign demand, and voila! Prosperity!!
What is being swept under the rug is that getting to that scenario involves a reset in the standard of living for J6P. Our leaders seem intent on offering up the welfare and livelihood of the bottom 80% of earners in order to maintain their status quo. If your household income is $70k a year, a $5 loaf of bread is daunting. If you make $700k a year, u wipe your dog's ass with $5 loaves of bread.
Will the world let the Fed devalue the dollar to the point that the US becomes a net exporter? Fuck no, but the game in the mean time should be vicious.
Disclosure: Long silver and beer.
gillimus! It's been a while! How are the professor and Maryann? Say hi to the skipper for me, ok?
Gilligan. Whole different name.
Fuck You! $70.000 a year..daunting what about all of us making $30.000 or $10,000 ...starvation where I live
If you're making $30k a year then you are starving. Wish I had better news for you.
Your wrong of course about Baranke's motivation. He's in it to save the 2B2Fails. Remember that the major stockholders of the 2B2Fails also are the major stockholders of the none publicly traded but privately held corporation called the Federal Reserve Bank. It's hard to miss. If it walks like a duck, quacks like a duck and swims like a duck.... it's a duck.
Bingo
Yup.
Amazing how simple their scam is to understand.
Which means, amazing how dumb most humans are.
The powers that be will push this to collapse.
In the Great Depression people could wander, meander, walk or ride a horse and find day labor and a meal.
In today's world the cities will collapse without a continous flow of trains and semi's to bring the food in; there is MAYBE a 2-3 day supply.
One good riot and things will dominoe.
Ooops...
Like the cruise off LA, all spam and poptarts.
Gonzalo, You had me at Fucktards.
The crisis will really hit when foreigners stop accepting US dollars for payment. To get rid of their dollars on hand, they will likely buy up exports from the US such as our food supply, iron ore, coal, timber, cotton, and other commodities they can use. That means scarcity of supply for American citizens and a devastating inflation. And you can dream up the consequences if the US tried to stop them.
I wouldn't worry about the CPI, when the money is used up in necessities then no more iJunk will be purchased and the markets will sag.
What I can't wait for is $4 gas then the real fireworks start as GM FORD and Shyster wind up with a colon full of SOOVIEs and 40k pickups...the its back to the BROHAMA!! for some more fun bux!!
http://www.youtube.com/watch?v=aW2pj109Cr8
.
margaret kennedy, 45 % of price is an interest payment. ....
.
3:45.
look
hey cramer admitted he is 100% in gold.....although you wouldn't know it by his stupid clown show.
Looks like gold 12000.
Are you kidding? If Cramer's touting gold, time to GTFO.
+1, although if Cramer truly is 100% gold then I'm Tara Banks.
Hey, look on the bright side of higher food prices. Maybe we'll learn as a nation to quit wasting so much damn money on expensive, ornately-packaged, pre-cooked crap and learn how to make a food budget stretch again. I daresay it might lead to a return to sensible, healthy eating in this country. Imagine a mother of three going to the store, buying a ten-pound bag of rice, and actually using all of it?
And yes, I'm personally bad at this. Although I want to punch a kitten when my wife brings home a Costco-sized bag of pre-peeled baby carrots, all in their nice little individually-wrapped packages. Half of which goes bad in the fridge and gets fed to the chickens or thrown out.
that's a great point MM. how much of the costs of what you buy at the grocery goes into packaging? and how much of that packaging is immediately thrown into a landfill to spend the next 10,000 years decomposing?
and how much petroleum is used per day in creating this packaging? it's mindboggling when you think about it. all to get thrown in the trash.
the 1st person who can design a small machine that can break down this plastic into a reusable form (which can then be reprocessed and used as material for a 3d printer for example) is going to be a gazillionaire.
with that said, even though i see the inevitability of change, i still must vehemently reject the methods in which that change is being implemented. then again, the main reason i believe that those methods are being allowed to occur is because most people are vehemently resistant to the inevitability of change. and so it goes...
Maybe I'm just new to this planet...but what's wrong with frog soup?
“It is unacceptable to hold the aspirations of an entire people hostage to the greed and paranoia of bankrupt regimes.” - President Obama, India, Nov 8 2010.
Note: he's actually refering to the Burmese regime (not the US). He really should get the teleprompt writers avoid such potentially confusing rhetoric.
i have noticed this too. invariably when certain condemnations
are made like this they more aptly apply to the speakers own
circumstance.
If that were true, we would have deflation rather than a Fed Chairman panicked at the prospect of even a whiff of it.
Truth be told, the predators make more money off the peons borrowing and revolving ... often multiples of the amount borrowed .... The Politicos are afraid of deflation because it costs them votes as the peons find themselves hemmorhaging what remains of their little wealth to cover their debts.
So it is in the better interest of the Criminal Elite to ensure the asset-inflation debt-loading bandwagon continues to roll.
BTW, the number of Federal workers making over $150k has increased ten fold over the past decade, which puts them very comfortably (in today's dollars that is) in the upper quintile least hurt by inflation, and it is no accident that several of the richest counties in the US surround Washington DC.
We are Doomed!
If that were true, we would have deflation rather than a Fed Chairman panicked at the prospect of even a whiff of it.
That's presumptuous. All you can say is that he wants to appear petrified of it. In the end, deleveraging->deflation is how the spoils of the credit run up are utilized. Yes, this process can work independently of the log ride economy to some extent, but by and large it is dependent on a greater deflationary cycle for, among other things, greater control of government and a shedding of inefficient unions/middlemen/deadbeats. In other words, once the principal actors have siphoned enough money out of the system and safely converted it to real assets, deleveraging->deflation is the process whereby they get to start whipping us in broad daylight instead of through a bombardment of advertising, directed social structure, and systemic indoctrination.
In other words, his panic could just as easily be a manipulation tool meant to be, among other things, an alibi/aid for plausible deniability/additional propaganda tool meant to confuse the populace into believing massive inflation is not occurring in a meaningful way as well as hiding the real motive behind the credit run-up.
lulz... "Bernanke’s stated purpose in QE2 is to spark consumer spending, and thereby reignite the economy."
http://www.frbsf.org/publications/economics/letter/2010/el2010-01.html
Fed vs Fed?
Guess huh-what? GDP is not coming from the consumer. So it must come from somewheres else, and if not? And thanks to all the bumblers, it won't come from business either. Make everything expensive and put everyone out of work and then we will see their deflation. Not economically viable!
As Chindia sucks down the commodities with a weak US/Western economy, debt up to the eyeballs, and debased currency... that is the question folks, yes it is.
Maybe the inflationistas can take a look at this plot and tell me how, exactly, prices are going to stay high?
http://3.bp.blogspot.com/_1o2wiBm5r_M/TNV-fGODKeI/AAAAAAAABwA/QQznS36q2q...
Markets are way too excited about QE2, they've run up for nothing. Don't chase this one.
GL - In relation to #1 if costs are going up but wages are not then folks will obtain more part time employment thereby increasing productivity. As far as #2 goes it will plus up the consumption of the top 10-20% while everyone else gets to support productivity gains in the broad economy. This must be what economists at the fed call a virtuous cycle. Of course more folks chasing fewer jobs will reduce manpower expenditures increasing earnings supporting asset prices and further consolidation. WhoT!
Artificial insemination continues to get pawned off as real sex. No wonder these folks live off of streaming porn, barely legal lap dances & 7,000EUR massages.
Grocery Shrink Ray:
http://consumerist.com/cgi-bin/mt/mt-search.cgi?blog_id=1&tag=grocery%20...
EURO daily chart bearish warnings continue.
US Dollar daily chart bullish warnings continue.
http://stockmarket618.wordpress.com
Well it won't hurt them when it comes to food because they are all on foodstamps which then frees up their other income to purchase non food items.
How exactly are prices going to stay high?
All you need to know is they want inflation.
Delicate strategies of boiling water aside QE is designed to incite 'panic buying'. Simply put, the FED is trying to scare us into spending... in order to beat the now baked in the cake rising prices.
Anticipation for this event, which when in action becomes the definition of self fulfilling hyperinflation, is the fuse. As inflation fears increase proportionate amounts of TNT are added to 'the bomb' (velocity).
Given the notoriety for bomb making, jawboning, and of course unintended consequences the rise in prices will be stunning. The only question, really a forgone conclusion, regards the chances of successful 'reverse throttling'.
Good luck.
qe2=stealing, ongoing, to continue the system of stealing
which is our money system. some are trying to look
forward but it is too difficult , too outrageous a proposition
to take your eyes off of the "rear view".
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http://maxkeiser.com/watch/on-the-edge/episode-78-05-november-2010-guest-damon-vrabel/
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