Has John Williams' Hyperinflation Thesis Been Delayed As Core CPI Comes In Flat?

Tyler Durden's picture

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out. 

As for today's CPI, David Rosenberg does a great job of defending the deflation thesis:

While the headline consumer price index (CPI) for the U.S. came in at +0.4% MoM in November, the big news was it was all energy (+4.1% MoM) and that the core (excluding food and energy) and excluding energy segments of the CPI came in at zero. How do you spell F-L-A-T?

Consider that we have a massive $2.3 trillion Fed balance sheet, near zero rates, the weakening in the U.S. dollar this year, all the massive fiscal stimulus, and the best we can do on the inflation front is ZERO on the core and a three-month trend of 1.5% at an annual rate? There are still too many pockets of deflation to be bearish on the fixed-income market:

  • Apparel prices down 0.3% MoM in November
  • Recreation down 0.2%
  • Rents down 0.1%
  • Household furnishings down 0.3%
  • Hotels rates down 1.5%
  • Grocery stores and restaurants 0%, drugs 0% too
  • Communications -0.3%
  • Computers -0.2%

It’s a good thing we have health services (+0.4%) and education (+0.2%) because without these two non-cyclical sectors, the core CPI would be in deflation right now.

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trav777's picture

yes...massive game of brinksmanship.  China has been all too happy to import our inflation and export their deflation.

At this point, currency wars are on tap.

The issue really becomes that most of our "economy" is valueless.  Look at the percentage composed of government and FIRE.  This is shit of NO real value.  The UK is worse tho

geopol's picture

It looks like we have two countries shorting their own currency....

I'll stay on the sidelines and play GOLD..



litoralkey's picture

The coming hyperinflation is the real reason Copenhagen has been so fervently negotiated by the 2nd and 3rd world countries.

Janos Pasztor—the Director of U.N. secretary-general Ban Ki-moon’s Climate Change Support Team—was characterizing the nature of the talks between the rich and poor nations of the world when he said the following: “This is not a climate-change negotiation … It’s about something much more fundamental. It’s about economic strength.” The nations at the negotiation, he added, “just have to slug it out.”

Chapter 9:
Joseph Stiglitz and Globalization

Economics has been driving globalization, especially though the lowering of communication and transportation costs. But politics has shaped it. The rules of the game have been largely set by the advanced industrial countries - and particularly by special interests within those countries - and, not surprisingly, they have shaped globalization to further their own interests. They have not sought to create a fair set of rules, let alone a set of rules that would promote the well-being of those in the poorest countries of the world."

- Joseph E. Stiglitz

Even more excruciating has been the experience of Russia since the fall of Communism. During the 1990s, In the first years of the new market economies of the former Soviet Union, the IMF and Treasury prescribed free market "shock therapy" - immediate privatization, opening of capital markets and elimination of price controls. The result was instant economic trauma - hyperinflation, rampant official looting by so-called oligarchs of the formerly state-owned industries, capital flight, impoverishment of millions. The new day of prosperity predicted by the Washington Consensus appeared in Russia, as elsewhere, in the form of Depression. Output fell by one-third from the already spare level of the Communist era. Pensioners whose stipends were fixed were wiped out by the inflation and left to sell apples in the streets or to starve. (Life expectancy itself in Russia fell by four years between 1990 and 2000.) This experience was imitated by other members of the former Soviet Union and eluded only by the few who eluded the therapy, Slovenia and Poland, for example. http://demandsidethebook.blogspot.com/2009/10/chapter10-joseph-stiglitz-...


This was the first year since the passage of the Social Security law that there wasn't a BLS CPI inflation indexed increase in Social Security benefits checks. BLS has been understating inflation for decades to lower the US Federal government's inflation adjusted liabilities. Never before did they dare go negative YoY though. Sign of the times.

I personally don't see hyperinflation in the USA until per unit labor costs of foreigners' export industries rise enough from their domestic economies' economic growth that the manufacturers in aggregate have to broadly increase the dollar denominated costs of goods exported to USA. Which is to say, I see it as a gradual and controlled readjustment of economic power, not a sudden collapse that hurts all players involved.