If Everybody Is Importing Inflation... Then Who Is Exporting It?

Tyler Durden's picture

Recently, some have started to ask a very pertinent question when it comes to the global Current Account: with every developed and developing country supposedly seeing a surge in exports, just who is it that is doing all the importing? Sean Corrigan from Diapason takes this question, and flips it on its head, as regards the printing of money and the "trade balance" of inflation: if every central bank continues to excuse itself from taking responsibility from what is now a global money printing pandemic, claiming it is merely importing inflation... then who is doing all the inflation exporting? Read on for some brilliant observations...

From Sean Corrigan of Diapason Securities

In his recent Congressional testimony, our dangerous monetary Dr. Moreau was forthright in defence of his latest wild experiment in inflationism, saying that the rate of the fall in the value of people's money was "expected to persist below the levels that Federal Reserve policymakers have judged to be consistent with their mandate."

Obviously, the Chairman has not been to the gas station recently, nor has he popped out to the supermarket to restock his larder or he might have noticed that, as AP reported at about the time he was speaking, "Some food makers... began selectively raising prices within the past few quarters. Those higher prices have begun filtering into stores. Supermarkets have resisted price increases for some time, hoping to hold onto their cost-conscious customers in the tough economy. But chains such as Kroger now also say higher prices are coming..."

As the article goes on to note, such notables as Kellogg, Sara Lee, Smucker, Tyson Foods, and McDonalds are well on the way to taking steps to defend their margins with overt price rises while many companies have already moved to disguise the adjustment by changing portion sizes or switching to lower grade ingredients.

Cotton prices have, meanwhile, more than doubled in the past 5 months — potentially pushing up apparel costs across the board — an escalation which has not been seen in a like period for at least half a century.


While Bernanke is trying to blame such inconveniences on demand in the emerging markets (without inquiring too closely into what it is that such demand is predicated upon), the disinterested observer might note that it is not entirely a coincidence that this latest resurgence has occurred as he and his colleagues have done their best to make good on the cart-before-the-horse, Jackson Hole doctrine of raising inflation expectations in order to lower hypothetical real yields in some corner of the de Wittian multiverse (incidentally, a source of obvious contradiction when he now attempts to deflect his critics with the claim that such expectations have remained gratifyingly 'stable')

Indeed, as the next figure shows, the rate of increase of proper (Austrian) money supply this past semester is in excess of trend to its greatest degree since the immediate LEH-AIG, core meltdown SCRAM and lies in the 96th percentile of the last three decades' range.

Moreover, as the graph appended in large format at the end of this article makes plain, the implementation of QE-II via the programme of buying Treasury bonds has been mirrored in a surge in commodity prices no less strikingly than did their rebound from the post-Crash lows correspond to that of QE-I.


But, as one TV anchor challenged me earlier this week, "isn't a little bit of inflation a price worth paying for an increase in employment" to which the answer is unequivocally, "No!", not least because of the eternal temptation to try to avoid ever paying it.

More fundamentally, this whole issue of using monetary and fiscal 'stimulus' to repair a slump which has been typically brought about through previous, ill-judged attempts to steer 'policy' has at its heart a dirty little secret. Because of the entrenched factional interests of the Entitlement State — often, but not always, reinforced by labour union militancy — the same Fabian elite whose bankrupt, Tooth Fairy wishfulness has cost far too many souls their livelihoods perennially despairs of anyone ever regaining employment by facing up to the tough but inescapable fact that the man giving them a job has to earn his living, too.

Thus our leaders routinely quail before the political and presentational difficulties of telling those who have misleadingly become accustomed to a better standard of living in the Boom than their input into the productive process actually merits that they must now face a less comfortable reality and temporarily accept less reward for more effort while the economic structure reorders itself in a more sustainably fashion.

Ultimately, the so-called Keynesian miracle is based on the shallow deceit that if Mohammed will not go to the mountain of lower unit, nominal wages, the mountain must be transported to Mohammed using the machinery of inflation to reduce the real value of those same wages.

The only problem with this nostrum is that it fails — in typical aggregationist fashion — to see that what counts for each individual employer (the idiosyncratic human atom who helps constitute the featureless, mathematical abstraction called 'employment') is that the monetary value of the sales of his particular goods or services must rise faster than the sums he expends on the workers who give rise to them — i.e., that the value of their marginal product exceeds once more their marginal cost, or else there is no point hiring them.

Even that is not the end of the story, for our businessman also needs to pay for all the other inputs which go into his endeavour — raw materials, plant, equipment, components, capital means, rent, taxes, and levies such as mandatory health-care, carbon taxes, unemployment 'insurance', and pension contributions (the last, you will notice, thoroughly amenable to alleviating political action of a far more beneficial kind).

It should be obvious that, once the authorities begin monkeying with the volume of money in the system, it rapidly becomes almost a matter of happenstance that any one company finds itself in the favourable position that its costs will inflate more slowly than its revenues: it should be even more apparent that it is an outright impossibility that this can be the case for everyone, all at once [see the succeeding figure for a very broad brush illustration in the case of the UK].

Further complications arise from the consideration that the very fact there has even been a Bust proves that an inordinate number of people had previously been lured by the economy-wide Ponzi scheme of the Boom into lines of work which have now been shown to be either sub-marginal, or completely unviable. Part of the reason for this is that the Boom has introduced a progressively wider and more pervasive disparity between what people do to acquire their own purchasing power and what they choose to spend it on (whether that takes the form of end-goods or debt service payments).

Given this reality, what do you suppose are the chances that the renewed inflationary tide will not only lift all boats equally — that there will somehow arise absolutely no differential injection, or Cantillon, effects - but that it will preferentially refloat the seabed wrecks of those which have foundered amid the Bust and so miraculously restore employment and income levels to their former, febrile heights?

Beyond even this, a further malign feature of inflation is that it makes the reading of the underlying balance of supply and demand - not just for specific goods, but for all goods in their ever- shifting, near-infinite matrix of interrelations - even more difficult than usual because it corrupts the signals inherent in their relative, even more than in their absolute, prices.

Think of the transmission of money in the act of exchange as the sending of a communique describing some essential features of what took place in that transaction and why. Now imagine that the text of the message is arbitrarily and unpredictably altered — sometimes with the addition of characters, sometimes with their deletion - and also that the time taken to deliver such missives is expanding and contracting in what may be a quasi-random fashion.

Contemplate the difficulties which also arise because of the time-varying nature of the inflation. Because the inflation is an extraneous act of political will (or financial caprice) — and so is subject to sudden stops, starts, and redirections — it represents a dangerous aggravation of the normal entrepreneurial hazards inherent in organizing profitable production on into an uncertain future in a constantly-evolving economy.

At the very least, this confusion should serve to heighten actual business risk even if ostensible risk premia are being artificially suppressed by the weight of new money acting on the financial market - a combination which is all too likely to lead an entirely new fleet of White Star liners on to the rocks of the inevitable Bust to come.

 


If there is not yet much hope that an inveterate 'output gapologist' like Mr. Bernanke — or, for that matter, Mr. King — will be persuaded of the foregoing, there are clear signs that — somewhat belatedly, perhaps — some of those in office in the emerging market power houses have begun to waken to their peril.

In Brazil, official rates have been raised four times for a total of 250bps and there is a great deal of expectation that another 50bps is in the pipeline. India, for its part, has moved the repo rate up in seven stages for a cumulative 175bps with, again, another 50bps thought likely to materialize over the next couple of months. China, of course, has so far only managed to steel itself to deliver three hikes of 25bps in an interval in which the annual CPI could well have accelerated more than three times as fast.

That said, the latest editorial in the official People's Daily mouthpiece was fairly uncompromising on the interpretation which it hoped would be put upon the latest of these rises.

"To sustain sound and stable economic growth, Chinese policymakers must take more measures to prevent inflation from escalating further... The timing of the announcement, at the very end of the lunar New Year holiday, displays an extraordinary sense of urgency. Had the pressure of accelerating inflation not been so huge, Chinese central bank officials would not have needed to break their holiday to take action..."

Just in case we were in any doubt of his inflationary intent, Chairman Bernanke had the gall to express an open disapproval of the move — branding it as 'surprising'. Given that he blames China for rising food prices, this may seem just a little too cute, but his incoherence was only compounded by his remarks that instead of interest rates, the Chinese should revalue the currency and so redirect exports to meet internal demand.

Well, over the long run, that does makes sense for the ordinary Chinese, but it completely misses one or two obvious, interim objections, namely that: (a) since capital and labour is heterogeneous, Ben - as we discussed above - a painless reallocation would be impossible to engineer outside of a Harvard eco department spreadsheet and (b) even if, by some miracle, domestic consumers did manage to take up all the redirected, former export goods (and at a profitable price for their makers), pressure on world resources would hardly abated by the cessation of Chinese saving this involved (however inequitably 'forced' much of this may currently be).

For their part, the Chinese were quick to shoot back at their decrier that:-

"In addition to such domestic factors as rising food prices and labour costs, the super-loose monetary policies that major developed economies have adopted to inflate their way out of recession are also undermining the country's efforts to curb inflation by driving a large amount of capital flows into emerging economies including China."

"...[Bernanke's] remarks indicate that the United States is far from even recognizing the danger of too much cheap money, which, to a certain extent, led the world into the worst global financial crisis in more than 70 years in the first place, and now threatens to fuel runaway inflation in many emerging economies."

What a funny old world it is: all this 'imported' inflation everywhere we look and, seemingly no-one to be found anywhere who is actually responsible for 'exporting' it.

 

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RobD's picture

O.T Fight Club is on TNT at 6:00pm pacific.

MsCreant's picture

No, fight club is on, here, now.

Trimmed Hedge's picture

I'm too cheap to afford cable.  : (

Bringin It's picture

MsCreant and Trimmed Hedge one on top of  the other.  Excuse me while I ponder that for a moment ;)

TH. re. cable - try download.

Cash_is_Trash's picture

La inflacion es exportada por los Estados Unidos.

El Visconde Monetario Von Bernankestein es el responsable.

...hijo de su puta madre.

Mentaliusanything's picture

Correct - The reserve currency is what all comodities are priced in.

Weaken the currency you force the lift in asking prices (or you will go out backwards)

Strong reserve currency means cheaper life.

Michael's picture

Someone should forward the past three days postings at ZH to BB.

Cash_is_Trash's picture

I don't trust Zero Hedge, it's all fact and realistic data, that just doesn't do it when the whole country is living a lie.

sbenard's picture

LOL! Now I know why you wrote that in Spanish! When I lived in South America, I always found that profanity didn't seem to have quite the bite in the other tongue!

And by the way -- I couldn't agree more!

Wood's picture

I have fight club on blu ray anytime I want.  Meatloaf still dies.  Forward or backward.  I cry everytime.

 

edit:  you should reserve the domain:  zerohedgefightclub.com soon as you can.  just sayin'....

10kby2k's picture

What if our politicans had balls ....like any fighter.  Just a bunch of vaginas.

slackrabbit's picture

In life he was known as Meatloaf.. in death "his name is Robert Paulsen"

;-)

snowball777's picture

the guilty

But seriously...is BernankeMoreau responsible for Russian wheat fires, failed cotton crops in Pakistan, and cold weather fucking up the veggies in Mexico?

At least some of this inflation has to be based on supply shocks and increased EM demand...not all of it mind you, but we do ourselves a disservice to pretend that it is all Bennie and the Inkjets.

 

mberry8870's picture

Personally I think there are a number of things working at once, growth of a middle class of about 2 billion people, bio-fuels, weather and the impact on the margins of this massive amount of currency printing at the same time. I think the issue is that this irresponsible printing money at this time tipped the scales.

More Critical Thinking Wanted's picture

 

It's not money printing. It's called "more trade".

ZH asks this rhetorical question:

Recently, some have started to ask a very pertinent question when it comes to the global Current Account: with every developed and developing country supposedly seeing a surge in exports, just who is it that is doing all the importing?

It's like claiming:

All districts in a city report heavy outbound car traffic. If every district is reporting heavy outbound traffic then where is all the inbound traffic??

How about the simple concept of "there's heavy traffic in both directions"?

Did the concept of "increased trade all around the world increasing both exports and imports" never occur to the genius who wrote this article?

So this article earns the #1 spot for the most idiotic ZH headline ever :-)

 

Terminus C's picture

If all countries are seeing a current account surplus... then there is an issue of reporting.  If all countries are just seeing an increase in exports then you may have a point.  For the most part I understand you to be a troll (judging from your previous posts) and I think that you recognize my initial statement to be the intention of the headline.  If the second interpretation I mentioned was the intention, then you have a point.

More Critical Thinking Wanted's picture

 

If all countries are seeing a current account surplus... then there is an issue of reporting.  If all countries are just seeing an increase in exports then you may have a point.  For the most part I understand you to be a troll (judging from your previous posts) and I think that you recognize my initial statement to be the intention of the headline.  If the second interpretation I mentioned was the intention, then you have a point.

So you agree with me that the sentence I quoted is bogus on its face?

Now, you imply that it might just be an honest mistake and that the intended text would have to be about the account balance. Except that the article does not even cite any current account and import/export statistics. It keeps babbling about the Austrian money supply and PPI statistics - which are as far from global trade data as it gets.

AFAICS the article is pretty much bogus in its entirety, and the bogosity starts right in the first paragraph. The article apparently tries to make up for blatantly broken links of logic by volume - but science does not work that way: it's the weakest link that breaks the chain. I'd prefer a half-page article that is robust in its entirety and does not make elementary mistakes.

Btw., you think I'm a troll, still you agree that I made a valid and relevant point? That's a pretty funny definition of 'troll' :-)

 

More Critical Thinking Wanted's picture

 

The Baltic Dry Index increased by 20% in the last 2 weeks.

Funny enough, that development was not reported on ZH, only when it was dropping :-)

It's a bit like ZH's gold price reporting: weekly and monthly highs are always reported - and sometimes even intraday highs are reported as big news, but weekly lows or monthly lows of gold - that's not news on ZH :-)

 

DonnieD's picture

Baltric Dry declined 60% since September and 75% since last May. How does that correlate with demand pushing up prices?

We are living in a world economy that is centrally planned by governments and the governments lie their asses off to stay in power. Do you really believe the US GDP/inflation numbers, much less Chinas?

More Critical Thinking Wanted's picture

 

Do you really believe the US GDP/inflation numbers, much less Chinas?

The US inflation (CPI) numbers were largely confirmed by an independent MIT project recently featured on ZH:

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/von%...

So the US government's CPI metric appears to match reality.

China's inflation data I cannot trust as there's no transparency and no independent verification - and even the official data suggests very high inflationary pressures.

Baltric Dry declined 60% since September and 75% since last May. How does that correlate with demand pushing up prices?

Four important points:

  1. All data suggests that much of the food commodities price increases are due to reduced production/supply. Reduced demand for shipping Russian grain over the sea would result in a lower BDI.
  2. Most global food commodity shipping is not captured in the BDI (it is 'Baltic' for a reason) - so an uptick in demand in India or China would not show up in the BDI. And that is precisely what other data suggests is happening: India and China is importing (much) more food.
  3. Oil shipping is not captured in the BDI - and for oil too, much of the price pressure is due to production/supply problems: peak oil. Pressure on the supply side gets captured via decreased (or stagnating) shipping.
  4. There was a much colder than average winter in Europe:

https://secure.wikimedia.org/wikipedia/en/wiki/Winter_of_2010%E2%80%9320...

Which negatively impacts demand for shipping.

I'd expect a strong BDI up-swing to continue into the spring.

We are living in a world economy that is centrally planned by governments and the governments lie their asses off to stay in power.

We are most definitely living in such a world - but FYI, western government power to lie about key economic data is limited. There's a lot of independent/private data capture going on, so any 'big lie' gets figured out quickly. Most big companies rely on accurate economic data - so the demand for accurate data is very strong.

The power of authoritarian dictatorships to lie about economic data and to suppress independent data gathering is undisputed - we cannot trust anything coming out of China for example.

 

Moe Howard's picture

The problem with the numbers is that they don't take into account real people, real lives.

Say for example you are retired from the Army. You get a check about 1/10th of a retired LA police officer or fireman. There has been no cost of living increase for the last two years. On March 1st, Federal Withholding from Army retirement checks is going up for most retirees, and I quote:

Recent changes to the tax law, tax tables, and other legislation changed the amount of Federal Income Tax Withheld. These changes will be reflected in your Retired Payment dated March 1, 2011.

Give this some thought. What prices do the government claim have fallen? Big TVs, cars [I question this] and homes. Well, in my area, in the last two years, purchasing the same exact new vehicle costs over $2K more. I am sure it is the same elsewhere. A big TV for a retired person would be, at most, every 5 years. Home? Retired people who are actually retired aren't buying homes anyway, however, home prices are the same now as two years ago.

So the bottom line is the government is cutting retired military pay. They are doing this in two ways: Inflating the money supply so the cash the retiree gets is less; and increasing taxes to reduce real income. I am positive it is the same for people on social security.

I think what they have in mind is to cut the Federal Budget by reducing the worth of the FRNs paid out, and taxing the payout more. This is being done without holding messy votes in Congress.

The banksters inflation hurts real people. In other countries, like Tunisa, Egypt, Algeria, it starves the ordinary people. They aren't purchasing houses, cars, big screens. They are purchasing flat bread, cooking oil, sugar and tea.

More Critical Thinking Wanted's picture

What prices do the government claim have fallen?

COLA increases have been largely eliminated from wage deals in the Reagan and Bush anti-union and pro-business legislative and policy efforts. COLA adjustments were common in the 70s.

If you check the CPI data I quoted then after early 2009 the 'government inflation data' (and the MIT inflation data) shows steady increases in the cost of living.

 

Andre's picture

I have to disagree based on personal anecdotal evidence.

  • 15 lb. bag basmati rice at Costco - up $7 in 3 months (15.99 to 22.99)
  • gasoline - up 11 cents in 2 months (2.95 to 3.06)
  • unsheathed copper wire, 12 ga. at Home Depot  - up 3ct./ft in 2 months (.23 to .26)

Other basic prices have risen here (WA state) as well to a similar degree.

I see the misstatement of the CPI as an act of psychology. In previous downturns there was enough liquidity to turn around and say "Things are better!" People would believe it, go out, and buy the country out of recession. At this point, the gap between the statement and the common experience is wide enough the credibility of the system is being undermined in the eyes of the common person, which is a definite problem for a consumer-based economy.

It does not help there is a disturbing employment situation, but I would rather not be flamed for going so far OT.

 

More Critical Thinking Wanted's picture
  • 15 lb. bag basmati rice at Costco - up $7 in 3 months (15.99 to 22.99)
  • gasoline - up 11 cents in 2 months (2.95 to 3.06)
  • unsheathed copper wire, 12 ga. at Home Depot  - up 3ct./ft in 2 months (.23 to .26)

That's +3.7% for gasoline, +13% for copper wire and +43% for rice.

Roughly in line with how these commodities moved (if you use WTI crude for oil, not Brent crude).

A couple of comments:

The last CPI reading is about 1.5 months old (it takes time to collect the data). Here's the latest CPI:

http://research.stlouisfed.org/fred2/graph/fredgraph.png?bgcolor=%23B3CD...

The December CPI was at around 3.5% YOY. I'd expect the next reading to go up.

You listed three products whose price directly depends on a given commodity's price that went up recently. But most everyday products (even including food) do not depend on commodity prices nearly as much:

For example a loaf of bread only has about 10% wheat cost component: the rest is labor and distribution costs - and those are not going up, with this labor market ...

 

snowball777's picture

The Baltic Dry Index increased by 20% in the last 2 weeks.

Geee...what major geopolitik event occured over the past two weeks near one of the most popular shipping lanes in history?

 

Orly's picture

Don't kill his buzz, man.  He's on a roll.

/:

More Critical Thinking Wanted's picture

Geee...what major geopolitik event occured over the past two weeks near one of the most popular shipping lanes in history?

I suspect you did not realize that by stating that you clearly support the argument that commodity prices are predominantly affected by basic supply & demand forces (such as fears of Suez closing off shipping routes), not by liquidity from the evil Fed? :-)

 

DonnieD's picture

Commodity prices are predominantly affected by supply and demand forces. It's the central bank's inflation on top of those prices that earns Genocide Ben his nickname.

More Critical Thinking Wanted's picture

Commodity prices are predominantly affected by supply and demand forces. It's the central bank's inflation on top of those prices that earns Genocide Ben his nickname.

Do you have actual hard data about how much global inflation was created by the Fed, or are you just throwing around baseless genocide accusations?

Also, did you know that more money in the US does not affect global supply and demand forced for food in any major direct way, so alone that statement of yours is in contradiction with your notion that there's significant 'Fed inflation' on top of supply & demand inflation ...

 

skipjack's picture

"more money in the US does not affect global supply and demand forced for food in any major direct way"

 

You have some fact behind that statement ?  Fed money printing goes first to the PDs, who turn right around and ...tada!...bid up commodities.  Which, I might point out, are mostly not based in the US.

 

 

More Critical Thinking Wanted's picture

 

Read the arguments I made above - they are full of references to hard data.

 

Orly's picture

No, I think he's saying that a speculative blip on a chart secondary to a major geopolitik event should not be construed as a change in pattern.

In general, I hear your basic theme: it's not all doom and gloom out there- and you're probably right.  But you cheapen your argument by trying to hype up every last little detail and I think it is working against you.  It makes your arguments seem cheap and based on staccato signals of faulty information.  Kinda like watching Fox News.  /:

Just my opinion, of course, but it may behoove you to pick your battles more carefully.

More Critical Thinking Wanted's picture

 

No, I think he's saying that a speculative blip on a chart secondary to a major geopolitik event should not be construed as a change in pattern.

I did not claim that.

I just countered the (incorrect) notion that a drop in $BDI means 'no supply & demand forces at play', because the index is mostly blind to supply squeezes and is mostly blind to non-European demand surges - and current food shortages are precisely due to supply squeezes in Europe and demand surges elsewhere.

The $BDI would obviously have to show big upticks on increasing demand - but I'm not making that argument.

(Regarding the picking of battles you are quite right - but my goal is to make arguments, even if they are complex or borderline - not to be always seen correct.)

 

Orly's picture

"...my goal is to make arguments, even if they are complex or borderline - not to be always seen correct."

 

I'm with you there 100%, Critical T.  Rock on!

snowball777's picture

I suspect you haven't read the post at the top of this thread.

the grateful unemployed's picture

how much does Egypt make every time a ship crosses the Suez?

zaknick's picture

4-5 billion/year and 1 million barrels of oil per day cross it.

FeralSerf's picture

We're working on that middle class growth thing and it's rumoured that a solution for it is in sight.  Stay tuned -- you might even get to watch it contract.

tmosley's picture

Exactly.  Crops have never failed before for any reason.  Blaming the weather is not simply a convenient excuse.  The Soviet Union should have won the cold war, they just kept having droughts.  No-one could have been expected to produce like that.

snowball777's picture

you write these posts from a room with no windows, don't you?

...and a curiously high ratio of CO2 to oxygen.

StychoKiller's picture

"What is the Law?"

"To deny that we are printing, that is the Law -- are we not Banksters?"

Bitch Tits's picture

See now, I see it as another financial scam. Odd how we're now hearing about all these horrible things happening in the food markets.

Kind of reminds me of the Toyota situation, which came about when American car companies were on their last leg. Now it seems that it was all "user error", after all, eh?

I guess it's time for food producers to get their pint of blood from the "non-productive". Or maybe just those "gambling" on food producers. It's the new post-real estate fad.

Hedgetard55's picture

The fucking Icelanders are exporting the inflation, now, bitchez.

gwar5's picture

We are exporting inflation... and damn proud of it! ...Judging by the Bernank's reaction.

HoofHearted's picture

Both exporting inflation and keeping a good lot of it for ourselves. It's the least a humanitarian like the Bernank can do...share with everyone, and charity begins at home.

Everybodys All American's picture

China I believe will continue to raise rates and will never give in to Bernanke's foolish dollar policy.

Hephasteus's picture

Cotton would have been much much much higher if we hadn't used tons of polyester fibers over the last half centry. Now that we have slow down on that. Oops.