• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Guest Post: Preparing Accordingly II

Tyler Durden's picture




 
0
Your rating: None
 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Sun, 02/13/2011 - 15:37 | 957951 flacon
flacon's picture

Love ya Turd!

Sun, 02/13/2011 - 16:15 | 958023 Bearster
Bearster's picture

I think few would disagree that what's taught in Econ 101 is all wrong.

For example, people don't drink more coffee just because Bernanke prints more money, so it's not true that the extra money "chases" coffee necessarily.  Speculators right now are buying up all sorts of bubbles.  We shall see if they are sustained or if they crash like all the others.

The notion of "cost-push" price increases is insane.  Consumer prices are not a function of producer prices.  While keynesians and monetarists of all stripes and flavors repeat this dogma as if it were true, it's not.  Companies are not increasing their costs because they cannot.

The author is correct, this can't be sustained.  So it won't be.  My bet is that margins continue to collapse and eventually companies get squeezed into bankruptcy.  Consumers don't have the money to pay more, and so they will do without rather than pay more.

Sun, 02/13/2011 - 16:27 | 958046 kaiserhoff
kaiserhoff's picture

Yes.  This is a simply function of too much liquidity chasing no sane investments.  Want to put your money in bonds, stocks, real estate?  The spill over into commodities is from newbies who don't know what it costs to carry these contracts forward.  They will get an expensive education.

Inflation will come, but not yet.  We would have to see increases in wages, real capacity constraints, investment in something other than Chinee Ghost Cities.  Anyone see any of that?  Remember what happened to oil right after $147.00?  See any banks actually lending instead of talking about it?

Inflation will come when Timmy and Ben hit the panic button.  From the way Traitor Ben looks, it won't be much longer.

Sun, 02/13/2011 - 16:35 | 958060 tmosley
tmosley's picture

I guess doubled coffee prices must be a figment of my imagination.

What else have my eyes lied to me about?

"There's no such thing as cost-push inflation".  What hogwash!  What do you think happens when margins are squeezed until businesses go bankrupt?  Those few remaining start *GASP* raising prices.  Even if demand collapses, production collapses faster.  This is what happened in Zimbabwe, and most every other nation that ever experienced hyperinflation.

But don't worry, "it can't happen here."

Sun, 02/13/2011 - 16:43 | 958069 snowball777
snowball777's picture

Point of reference: coffee inputs may have doubled, but my Peet's is only 7% more than in 2008.

The collapse in demand may cause prices to raise faster as the 'volume' trade gives way to 'boutique prices' for the remaining customers in the top 3% of incomes.

It depends on the product.

Sun, 02/13/2011 - 19:05 | 958310 duo
duo's picture

Peet's canned dozens of employees and is mixing in some crappy beans to maintain margins.

Sun, 02/13/2011 - 21:54 | 958622 Mach1513
Mach1513's picture

Is that why my last order included some bad sh*t?

Sun, 02/13/2011 - 21:56 | 958625 Mach1513
Mach1513's picture

Is that why my last order included some bad sh*t?

Sun, 02/13/2011 - 19:24 | 958339 CrockettAlmanac.com
CrockettAlmanac.com's picture

Can of Maxwell House (reg. price 10.99) was 5.99 on sale about six months ago. Two weeks ago 7.99 on sale and last week 8.99 on sale. I've switched to Chase and Sanborn reg. price 7.79 per can. Western PA.

Sun, 02/13/2011 - 19:57 | 958393 thetruth
thetruth's picture

you're proving the point in the article.  although costs have risen for the past two years, they have squeezed margins.  once there is nothing left to squeeze there is no choice but to pass higher prices to the consumer.  they can't fire everyone.

Sun, 02/13/2011 - 16:46 | 958078 topcallingtroll
topcallingtroll's picture

Who you gonna believe?  Me or your lyin' eyes.

Sun, 02/13/2011 - 16:51 | 958083 mtomato2
mtomato2's picture

Yeah.  I thought it was pretty basic math.  Things cost more for the manufacturers, so they eat as much as they can, trying not to scare off the consumer, or at least not send him running to the competition who can sustain slimmer margins.  Then when raw materials continue to go up, there is but one choice:  Close the doors or increase the price to the end user.  That is inflation, no? 

What am I missing?  What do Mish, and Kaiser and Bear, see that I don't?

Am I being stupid again?  DAMN!  I HATE when that happens!

 

Sun, 02/13/2011 - 17:46 | 958182 tellsometruth
tellsometruth's picture

shhh it can't be that simple...and to know what really is going on you need a phd

Sun, 02/13/2011 - 17:58 | 958203 Pool Shark
Pool Shark's picture

 

Bi-Flation

 

Deflation in the things we want

Inflation in the things we need

 

While food may be expensive in Egypt right now; I'll bet luxury goods aren't going up in price...

Sun, 02/13/2011 - 18:07 | 958222 BigJim
BigJim's picture

If this line of reasoning is stupid, where can I join the club?

Mon, 02/14/2011 - 09:25 | 959308 Dexter Morgan
Dexter Morgan's picture

I would not join any club that would have me as a member.

Sun, 02/13/2011 - 21:03 | 958519 Dburn
Dburn's picture

At least in the US, the reaction to squeezed margins is to fire more people. I wonder if they have much wiggle room in that area. First people got fired for lack of customers which the top of the margin squeeze or they got fired because the recession was a terrific excuse to try outsourcing expansion. The second round of lay-offs happens when there are no margins for the customers they do have.

Margin squeeze happens from the top first. No customers. Lower prices to steal some. Then input costs rise, so  substituting input happens until pissed off customers leave. Then the business takes a deep gulp of pepto and xanax mixture and raise prices.

Others who have leased everything in sight stop making payments. So a relatively uncomfortable times passes of overcapacity for a shrinking customer base until banks , who normally would repo the equipment, finally get into a liquidity trap of their own making and demand the equipment back to sell to the healthy businesses that are left or back to the manufacturers who by this time are giving their equipment away. So finally they are sold for a tiny fraction of cost to a Pawn shop or back to the original company operating under a new name as they rid themsleves of all debt and leases through bankruptcy.

Then it goes on like this with alternating closures for several rounds which is when some technological marvel appears that sinks everyone.

You know it's THAT bad when telemarketers call who gave you up for dead years and years ago.

Mon, 02/14/2011 - 00:26 | 958856 HungrySeagull
HungrySeagull's picture

I finally started tapping into my two year old supply of coffee that I purchased at 4.00

The current new cans cost twice that. And I use Folgers.

 

The old supply was nearing expiration.

Sun, 02/13/2011 - 16:51 | 958084 Sean7k
Sean7k's picture

This is the crux of the matter. Suppliers will allow the margins to squeeze them out of business, but those that remain will be able to raise prices, because people cannot provide their own chocolate, coffee, sugar, etc. 

Who would be in a position to ride out this margin collapse? Big corporations? We don't even need zimbabwe inflation- we only need 5-8% to effectively gut the middle class. Will they buy less? Sure. Will the world? Perhaps not. 

We are no longer the only consumer on the planet. As the dollar is debased, it will cost more for goods we import. 

Based on current weather models, the US will have a very difficult farming year- I expect decreased yields in the south and southern midwest along with terrible drought conditions in the central valley- meaning water and water costs. 

Sun, 02/13/2011 - 17:00 | 958099 MsCreant
MsCreant's picture

And when the harvest comes in, does it not get shipped to the highest bidder, which may or may not be US?

Sun, 02/13/2011 - 17:04 | 958107 Sean7k
Sean7k's picture

Unless we see tariffs and duties- you would be correctomundo.

Sun, 02/13/2011 - 18:25 | 958253 Trichy
Trichy's picture

When tariffs hits the ponzi is over anyway.

Sun, 02/13/2011 - 17:06 | 958109 Shameful
Shameful's picture

Was doing some digging online and little known fact, during a lot of famines the suffering nation was a net food exporter. Great Chinese Famine, Ukraine's Holodomo, Ireland's Potato Famine. All net food exporters while the locals suffered and died. And if memory serves Argentina was a food exporter though their collapse this past decade. So there is little reason to think that the US will not remain a food exporter no matter the local conditions.

Sun, 02/13/2011 - 17:49 | 958187 tellsometruth
tellsometruth's picture

interesting and stands to reason aswell... tell me more

Sun, 02/13/2011 - 21:06 | 958535 Shameful
Shameful's picture

In a nutshell most of the great famines in the modern era are man made. I'm not worried about a drought, or flooding, or mold. I'm worried about an insane government causing a famine though policy decisions.

I've also marveled at the divine humor. What if a famine were to hit the US. The land of plenty, amber waves of grain, full of obese people, facing a food shortage. Would the future laugh at us or pity us?

Mon, 02/14/2011 - 04:20 | 959097 Armchair Bear
Armchair Bear's picture

I heard an interesting theory last year - forget the source - some new-agey website probably -

It goes like this:  Humans have a gene that helps us store fat for times of famine - and it is activated psychically - so if this is true, with America being the fattest nation, we will have the worst food shortages - guess we will see what happens, no?

Sun, 02/13/2011 - 17:58 | 958206 oygevalt
oygevalt's picture

Well, in two of the three (Ireland and Ukraine), another ethnicity (British and Russian, respectively) were running the show and insisting on exports to their own homelands.  And I'm not sure if the political conditions in China at the time of their famine are sufficiently like our own.  But an interesting theory.  BTW, book just came out about the holodomor... horrible, horrible stuff about children eating each other in an orphanage.  Makes you stop and think, way beyond "riots will happen."

Sun, 02/13/2011 - 20:37 | 958473 Shameful
Shameful's picture

You're making my argument for me. Who is running the show in the US, the oligarchs. Are they any more loyal to the US then the British were to Ireland or the Soviets to Ukrainians? BTW Stalin was Georgian not Russian. Well by the actions of the oligarchs and the off shoring of jobs it's only natural they will sell food to the highest bidder. Good thing we still have small local farms...oh wait forgot the US has pushed a go big or go home attitude to farming. So the big corps hold the food supply. Who will they sell food to? The highest bidder. Works great so long as the Us can remain the highest bidder, but if the dollar goes...

As to the Holodomor, it was a nightmare, as were many of the Communist regimes of the past century, a century of murder. I'm a big proponent of people getting ready for bad time because I've read up on the horrors that governments love to inflict on their citizens.

Sun, 02/13/2011 - 23:15 | 958738 Bobbyrib
Bobbyrib's picture

Exactly why people invest in PM's.

Sun, 02/13/2011 - 18:04 | 958211 New_Meat
New_Meat's picture

Shameful-good research and I have some more local examples.

Wisconsin was a net dairy exporter in 1932, yet: e.g.:

http://www.jstor.org/pss/3741037

And, well, this has the bile rising in the back of my throat a bit, the hog-slaughter ('I'm thinking the H-word') in net <<weep>> hog-exporting states. e.g.:

http://www.lib.niu.edu/1993/ihy930578.html

Many more examples, all failures of central planning.

- Ned

 

 

Sun, 02/13/2011 - 20:42 | 958478 Shameful
Shameful's picture

Was it really a failure? If ones goal is to impoverish people and sow discord and death it's hardly a failure. Ones actions can be a success or failure when viewed through the proper lens. Economically for the masses central planning is an epic failure, but if the goal it destruction then it's a success from that point of view.

Love that in a depression bitching that food is to cheap. Well lucky for us we have Zimbabwe Ben so that won't be a problem. See he has already averted the real problem of the last depression. /sarc

Sun, 02/13/2011 - 21:42 | 958599 centerline
centerline's picture

The money is going experience inflation and our population is going is going to experience deflation.  In short, the party is over here.  Time to move the venue.

Sun, 02/13/2011 - 23:00 | 958719 New_Meat
New_Meat's picture

kulak isn't a current word, nor do I wish it's sense to become more widespread. - Ned

Mon, 02/14/2011 - 02:19 | 958993 Boxed Merlot
Boxed Merlot's picture

Mao's Great Famine by Frank Dikötter... "The horrors of China's Great Leap Forward are unveiled in a masterly study of the hateful plan."..

"Dikötter's painstaking research in newly opened local archives makes all too credible his estimate that the death toll reached 45 million people."

And this in the years 1958-1962. I still can't believe 45 million. Not to be flippant but that's equivalent to the current US unemployed.

Sun, 02/13/2011 - 23:13 | 958735 Bobbyrib
Bobbyrib's picture

Ireland's Potato Famine may not be the best example of countries exporting food while their people were starving. They didn't gain independence from Great Britain until the beginning of the 20th century.

Sun, 02/13/2011 - 18:10 | 958223 dizzyfingers
dizzyfingers's picture

Thanks for the confirmation (that I'm not as stupid as I felt reading that comment)...

Cost of zucchini at Walmart today: $3.59 per pound.

Sun, 02/13/2011 - 19:12 | 958323 Fish Gone Bad
Fish Gone Bad's picture

That's insane. I shop at a lot of ethnic markets.  I think zuchs were 3 pounds for $1.  The other day I saw black beans 3 pounds for $1.  Today at El Super there were white onions, 6 pounds for $1, broccoli or cauliflower 2 pounds for $1. 

 

Mon, 02/14/2011 - 04:28 | 959103 Lord Koos
Lord Koos's picture

Chinese markets have great prices.  You do have to look stuff over but they are way cheaper than regular US supermarkets.

Sun, 02/13/2011 - 19:15 | 958326 New_Meat
New_Meat's picture

diz: location of this, 'cuz around here, well, we give zuchini away.  Arbitrage possibilities abound!

Sun, 02/13/2011 - 23:35 | 958776 c-rev with a twist
c-rev with a twist's picture

Zuchinists believe in robust crops and prefer little to no government involvement in their growing.  Squashers prefer to dole out their produce to a broad number of people, including those who do not possess the means to grow for themselves.

 {:

Sun, 02/13/2011 - 20:15 | 958425 The Rogue Economist
The Rogue Economist's picture

+1

The high school definition of inflation is "Too many dollars chasing too few goods."

The more complex explanition is that each dollar represents a demand on the results of production at auction. Try giving just five people at any auction an amount of money that is significantly above everyone else. You'll see that those five bid everyone else up, whether they end up winning every auction or not.

This is simple and basic. Anyone who seeks to complicate it is trying to deceive you, or doesn't understand it.

Sun, 02/13/2011 - 16:52 | 958088 snowball777
snowball777's picture

What makes you think Keynesians and Monetarists don't understand 'sticky prices'?!

Are you implying prices are purely a function of demand? What business remains solvent thinking this way?

Sun, 02/13/2011 - 18:06 | 958217 New_Meat
New_Meat's picture

only the Keynes team bitches about 'stick prices.'

Price is what the concern can get.

Sun, 02/13/2011 - 20:39 | 958468 DosZap
DosZap's picture

Up until now I agree.

Consumer prices are not a function of producer prices.

They are/were a function of greed, and what the market would bear.(plus when any products mfg materials rise by 25% or more, you can expect the bottom line to be affected,so price up),demand down, less sales.

Just like so many here show disdain and even contempt for Flat Screener's, I share the same with any idiot paying $4.00 for a cup of Joe.

Asinine??, hell yes IMHO

 

Bearster got it slam dunked, When the prices get too expensive, they simply will refuse to buy,mkt shares go to hell,and here comes Chap11.

Been this way all my life(a long time).

Sun, 02/13/2011 - 20:45 | 958487 razorthin
razorthin's picture

did you just imply that a bubble might be "sustained"? can you flap your arms and fly too?

Sun, 02/13/2011 - 21:49 | 958615 goldfish1
goldfish1's picture

people don't drink more coffee just because

Bernanke prints more money...

Certainly more is consumed during a time of

easy credit, coffee included.

Fri, 04/22/2011 - 17:00 | 1197510 Mr Pinnion
Mr Pinnion's picture

So people will starve rather than pay more?

Naaaaa. they will get gov. hand-outs to buy more food.The gov will rob anybody who has money, to pay for the hand-outs.Soon everybody will be on hand outs.

Say hello to communism and its logical conclusion.Starvation.

Regards

Ozzy

 

Sun, 02/13/2011 - 15:40 | 957958 bugs_
bugs_'s picture

On the other hand Bernanke's replacement could raise interest rates to 18%, break the speculative pyramids of GS, JPM, MS, et al once again.  It could happen LOL.

Sun, 02/13/2011 - 16:15 | 958022 flacon
flacon's picture

Only in theory. In practice we would all start killing eachother. 

Sun, 02/13/2011 - 16:44 | 958072 topcallingtroll
topcallingtroll's picture

True.  Inflation is much safer because Keynes is right.  Most people are stupid.

Do NOT follow this link or you will be banned from the site!