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Inflation expectation up 60% in 6 months – Thanks Ben!
It wouldn’t be fair to say that Bernanke is responsible for all the
run-up in global food prices. There are many factors at play. That’s not
to say the US monetary policy doesn’t have a central role in the global
commodities market. The Fed has a big axe. Policies like ZIRP and QE
encourage speculation. It's contributing to overheating in a number of
countries, this is adding to demand at every level. How much can we
blame Bernanke for the increases in global food/commodities prices over
the last year or so? My guess is about 25%.
I would make a similar argument for the stock market. Ben’s cheap money
has added to equity values. But he can’t take all the credit for high
stocks. I would give him kudos for about half of the fluff since the
summer.
At some point in the near future Ben is going to defend QE. I think he
will say that his policies are responsible for 90% of the stock market
advance and less than 10% of the commodities. In other words; he will talk his book.
There is one area that provides a clear-cut measure of what the Fed is
doing. I doubt even Ben would argue that he is not 95% responsible for
this success/failure. Inflation expectations have widened substantially since QE2 was first brought up by the Chairman in Jackson Hole. Consider these charts of 10-year coupons Vs Tips:
This is the post Jackson Hole period. Inflation expectations (Tens minus Tips) have risen damn near every week:
This looks back a few years. We are at the “wides”.
Bernanke can dodge a lot of things. He can’t dodge this. He might even celebrate this by pointing to it and saying, “Look what I have brought you!” “This is a greater measure of my success than the move in the S&P!” And that will hang him. Inflation expectations based on the Tips market have widened from 151 to 241 in just six-months. That comes to a real 60% increase.
Inflation expectations have been rising by about 10% a month. Is there
any wonder why global food supplies are getting short if key barometers
on future inflation are in high gear in the USA? If expectations are
rising 10% a month here, they are rising at 20% (or more) in dozens of
countries around the world.
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A friend points out another way to look at the 2s vs 10s . The 280
number stands out (pushing the highs). Put that number into perspective.
If you had a hundred G’s of spare cash you could eek out $3,360 bucks a
year by putting it to work in the ten-year. If you were afraid of where
rates are headed and just park it in the two-year you get a lousy $580
return. In order to get 3,360 of income you have to come up with 570,000
big ones. The yield on the 10’s is 6X’s richer than 2’s.
How could anyone not argue that the Treasury market is not distorted by
QE? This is another thing that Ben will point as a measure of his
success. He’ll eat those words too. There are some powerful forces being
whipped up. Lots of records. Too many for my liking.
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"Policies like ZIRP and QE encourage speculation."
I always find it interesting that market adherents can both defend the market and lambast it for "speculation" (if it's NOT speculation, then it's a "sure thing," and we all know that the market ISN'T a sure thing). It's ALL SPECULATION! What the issue is is in excessive influence causing skewed speculation.
The game won't go on for much longer at this rate. The world cannot withstand these types of price increases in food for much longer. Corn is going straight upward like it did in mid-2008.
a QE3 will cause WWIII
Ben wants inflation, he just can't say so.
(muttering under his breath)
"Oh dear, Mother-in-law's cat is stumbling towards the busy highway...quick...someone...stop it..."
Spot on Bruce. I cannot but help thinking that Ben Bernanke is operating on the belief that the primary inflation expectation he is looking to pump is residential real estate and is probably expecting food/commodities inflation to remain "moderate", conveniently forgetting the concept of speculation and its influence in pricing commodities. Especially with all the QE money floating around world markets. Amazing that policy makers act as if the concept of excessive slack will keep a lid on commodities pricing while not applying to RRE in a ZIRP/QE environment.
Those buttfucks in buttfuckistan could end all this inflation now by depegging. These unfair pegs that strip us of our industrial base have to go! Starvstion is...anywhere and everywhere a monetary and political event. Buttfuckistan can end food inflation now. Dont blame berskanke for starving buttfucks.
And as things worsened, the rallying cry in Buttfuckistan became, "It's all the Bungplookers' fault!"
And as history records (and all schoolchildren know), thus began the Great and Epic Battle between Buttfuckistan and Bungplookistan. The slaughter was horrific and devastating, until only two warriors remained: one a Buttfucker, the other a Bungplooker. And at that moment, as they surveyed the senseless carnage all about them, they realized their folly and tearfully embraced . . . . . . . and depegged.
To this day, statues of Buttfuckers and Bungplookers adorn city centers throughout both countries, who now live as peaceful and prosperous neighbors.
@ewmayer:You think he gives a f*** about food riots in Bungplookistan?
... tearful sniff... I have a certain fondness for Bungplookistan! I hope they'll be alright. Note to citizenry. When complaining, immolate banksters, not yourself! Just a thought...
When oil pops above 120 and food inflation seeps in, the gov will just report core inflation at .1. Peeps won't even glance up while drinking Pabst and eating their Hungry Man chicken dinner.
Nothing to see here, please move along.
Thank goodness they just printed those nice brand new high security hundreds!! Oh wait? Do they count in M3?
Thank goodness AAPL sold millions of ipads so millions could text about meaningless contacts (not relationships) on facebook. Inflation and food shortages will end the insane focus on social networking. The only question on facebook will be where can I find some food without being attacked raped or murdered? We live in an unreal disconnected fancy world but that is going to change. People who are hungry are not very social.
People'll still be on-line ordering pizza deliveries.
big USD dumping...
No, it's JPY, AUD and EUR strength. They're trying their level best to buck the technicals but the market may be too heavy for them to lift. Besides, most of the time, the technicals win- eventually.
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Watch the GBPJPY pair, which has already broken with a long trend line on the H4 that has been intact since the end of last year. A sustained break below 131.44 yields a downside target of ~129.32.
The USDJPY pair, on the other hand, has displayed the same trend but in the opposite direction. Watch the pair lower for confirmation of the GBPJPY trade because then they will be trading in the same direction and one pair will feed off the other, as there is no natural hedge in the market.
If the breaks lower do happen and They "allow" stocks to fall, all the x/JPY crosses could tumble like stones.
Watch for whiplash.
:D
basically Asia sovereigns sold a ton of USD, bought EUR and gave a heads up to various investment banks/others that had huge offers on the AUD/CAD risk crosses. anyone trying to short off 50/100 MA would have got destroyed.
the rumour is to keep china's/japan nutty buys of EU debt safe for another day.
i agree with what you are saying re: sells stocks to FX. i think we got a big inflation induced dump coming. contrarian play as opposed to inflation boosting stocks etc
Yes, I would have to agree. I hear some people saying DOW 36,000 on Unca Ben's pump...but that's later. I mean, has everyone forgotten the potential disruption and dislocation this will cause? $5 gasoline and the price of eggs goes through the roof.
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Why would they be buying and selling in such huge chunks? Seems to me, if I were a diabolical central banker, I would direct my people to do it on the down-low. You're right, strange things are afoot at the Circle K.
asia buying and selling in huge chunks? they are terrible investors, buying EUR and EU debt!
i am already paying too much for my tequila and scotch... :)
Pueblo Viejo, if you can get it. It's good and cheap.
noted and thanks, I'll check it out
currently drinking El Calpricho, damn fine that one.
ton of intervention going on now (FX) more so EUR being bought @500-600billion. USD/JPY selling @500 billion at the same time.
caused all risk trades upward via HFT bids.
but Shanghai is down again.
inflation crunch and China's quick draw bond diversification plan (sell UST buy EU bonds) all at once.
something is in the wind...and it's bad s***
Say, Chump, did you witness those flash-crashes in the EURCHF last week? My broker actually felt so bad, he gave me my money back.
I asked Tyler and they didn't notice anything.
The trades lasted for about three minutes whereby the pair went up about 200-pips, then came right back to where it was about three minutes later.
The specific time and date for one was 11 December 2011 @ 17:26 GMT.
I have the feeling that they were setting fail-safes for the possible big one.
There were three more like it in the following couple of days.
Just watched NBC Nightly news, no blame on Bernanke there. Barely a mention of high food prices. Everybody is "surprised" at this.
http://themeanoldinvestor.blogspot.com/2011/01/when-population-and-agriculture-collide.html
Food prices are going to bite poor nations very hard by year's end. There have been food riots and marches all over the middle east; Algeria and Tunisia are only the most violent. Wait for wheat to go over $9.25/bu this summer.
If there is a better recruiting tool than that for AQ, I'd love to know what it is.
This is going to be a summer to remember..
Summer of Recovery!!!
That was last year.
Them green shoots are likely to be a @#$%^&* beanstalk to the sky by summer!
They bloom bi-annually...Would you believe tri-annually?
Waaaay OT:
Bruce, I'm sorry, but I just have to ask...
Are you paying someone to graffitise walls or is there some simple draw program that lets you draw like a thug?
It looks cool, though I somehow doubt that people are inspired to scrawl "Risk" on someone else's wall.
:D
Google "Risk, graffiti" go to images and you will find a number with this word. I don't spray paint. I just find it interesting.
http://www.google.com/images?q=risk+graffiti+image&hl=en&prmd=ivns&source=lnms&tbs=isch:1&ei=-zs2TZHgN4T7lwfD_NyVAw&sa=X&oi=mode_link&ct=mode&cd=2&ved=0CAcQ_AUoAQ&biw=1920&bih=955
Wow. I need to get out more.
Thanks.
Not much call for Grafitti in a small town of around 2000 souls.
I'm so glad you asked! I have often wondered where BK was getting those bad-ass graffiti photos. . .you're one of my favorites BK. Appreciate your writing style as well as your graffiti. Clear, to the point, well-informed, and not the slightest hint of asshatiness. Cheers!
Cheers back at ya.
"Ben can't ignore what he is doing."
Au contraire ... he and his bankster buddies have proved masterful at ignoring the real damage their actions cause for decades now.
This is a man who has managed to ignore that he was instrumental in causing the biggest debt explosion and leveraged boom-and-bust in human history. You think he gives a f*** about food riots in Bungplookistan? After all, food prices are notoriously "volatile", so those poor bastards who can't handle all that "volatility" will have to just suck it up, maybe accept a bailout-for-lifetime-debt-servitude trade courtesy of the IMF, which is run by more of Ben's banker-psychopath buddies.
Bruce, I fear you give the Ben Bernankes of the world much too much credit for having a conscience. Consciences are for the serfs, dude - it's an effective thing to exploit to keep 'em in their place.
The reason why buttfuckistan is going to have food riots is because the buttfucks wont depeg. They could end all this food inflation now by depegging.
No it's run by the SAME banker psychopaths. Ben bernanke is a MEMBER OF THE IMF so is Geihtner. In fact the tax scandal and what got him named turbo tax timmy is that he didn't pay income taxes to america for money and income he got from IMF.
Hmmn ...
I'm wondering if 10-2 yr spread isn't more a default risk. Who is going to be able to pay anything in ten years?
arbitrage trade 10yr going to 4%, oil (WTI) hitting 95 and puts on risk/commod nations as China faces hyperinflation.
dow and s&p should sell on (oil/food) inflation.
The yield on the 10s will be richer than the 2s until the banks are recapitalized. That could be awhile. Only the PPT knows how long. They are borrowing for next to nothing and then go out and purchase bps at longer maturity. Easy, low risk money courtesy Uncle Ben's printing press. Nice work if you can get it.
It's irrelevant. They need another crash to transfer real wealth. They have to suck people into the market. Period. If they don't the "wrong" people lose and it will get very ugly.
I am not sure what is surprising with this. Usually, the almost explicit point of QE is exactly that - raise people's inflation expectations.
Correct. Says so in the graph.
At a time where rising food prices are causing riots, QE is going to take a share of the blame. Connect the dots. Bernanke is going to get blamed for food riots.
You don't find that surprising? You don't see the very significant implications of this? This has not played out. It will. It will end with QE2 being disgraced. It will undermine the Fed.
That would be a very big deal and a very surprising outcome.
Graphs don't display intentions, explicit or not. And the inflation expectations that central bankers want to stoke are those of consumers and 'economy investors' (i.e. those who can hire with positive operating leverage, or those who have significant capex requirements).
The flip side of the argument is... Who would be to blame if the Fed (and other central banks) did NOT do any Q.E.? And instead allowed private sector deleveraging to compete with public sector deleveraging? It would be easy enough to see the history books say something like the following:
"The Second Great Depression (2008-2017) is widely thought to have been caused by excessive hawkishness in the early years of the downturn, by the then-central banking institution, the Federal Reserve, led by Ben "The Hatchet" Bernanke. The so-called 'Second Boston Tea Party' of Septemeber 2012, widely believed to be have been instigated by Libertarian bloggers and their followers, is seen to have been triggered by popular dissatisfaction with sharply falling personal income combined with severe private sector cutbacks. The event was marked with effigies of Ben Bernanke burned in the streets, widespread rioting, looting, and the implementation of a curfew which lasted for 6 weeks. Because of earlier government cutbacks, the curfew was enforced by temporary recruits, the remnants of the volunteer armed forces reserves, and 4 planeloads of police officers flown in from Canada and deputized for the duration. After the riots were quelled, a bipartisan Financial Reconstruction Panel (FRP) composed of Congressional representatives, representatives from the Obama administration, economists, and Zero Hedge bloggers met continuously for 12 weeks to hammer out solutions to lift the United States out of its downturn. Part way through the deliberations, the FRP was rendered ineffective by the massive swing in the political tide, leading to a clean sweep by Tea Party Republicans and Libertarians, headed by the Palin/Gingrich administration. The Financial Reconstruction Panel abandoned its efforts in early December of 2012 to await re-convening in February 2013 after the inauguration of the Palin administration. Initial post-election euphoria led to a massive rally in the stock market and a rise in the dollar, which were met with concentrated selling by foreign holders, and a brief jump in GDP from consumer spending. However, the euphoria was short-lived as the start of the Palin administration led to further cutbacks in government spending other than increases related to oil exploration and bridge construction in Alaska.
Why Did a Severe Recession Turn Into the Second Great Depression?
The rise in effective interest rates brought on by sharply lower demand and severe drop in money velocity combined with existing pressure from several consecutive years of falls in property prices helped to depress economic expectations on the part of consumers and corporations. These diminished expectations led to widespread programs of private sector layoffs in the 2009-2011 period, bringing broad measures of unemployment to approximately 25%. Sharply lower government receipts in 2010 and 2011 led to a wave of government cutbacks, including the elimination of approximately one-third of local and state government jobs, and 25% of federal government jobs by 2013, when compared to pre-downturn levels.
Most banking institutions ceased functioning as private institutions between 2009 and 2012 as a wave of foreclosures and a lack of central bank programs to support banks led to serial bank failures. Deposits were protected by the Federal Deposit Insurance Corporation (FDIC) in place at the time, but most institutions were put into run-off mode as lack of loan demand and lack of differentiation of customer service efforts meant staff levels were cut significantly. The government introduced two new banking institutions in early 2013 called the Federal Consumer Bank (FCB), led by Elizabeth Warren, and the Federal Wholesale Bank (FWB), led by Jamie Dimon. The mortgage entities previously known as Fannie Mae and Freddie Mac were combined as a mortgage provider under the FCB. Both Elizabeth Warren and Jamie Dimon resigned later that same year because of lack of governmental support for the economy.
Corporations repaid unsecured debt en masse in 2011 and 2012 and took out unsecured debt, leading to further bank failures 3-4 years later and the closure of the FWB in 2015, but the corporations themselves were saved because they had cut employment levels so severely early on and reduced unsecured debt to avoid catastrophic equity loss. Consumer lending by private sector banks dried up in 2011 because the default rate was higher than the newly-amended maximum interest rates allowed under the Consumer Financial Protection Act of 2010 (note: the goal was to spur lending and therefore spur consumption but the weight of negative economic stimulus from the simultaneous shrinkage of both private and public sector finances meant banks were unwilling to lend at low rates).
Economic historians believe that earlier application of quantitative easing measures by the Federal Reserve would have cushioned the downturn and led to earlier growth, which would have led to significantly fewer deaths in the late years of the downturn than were seen (a result of starvation and rogue banditry in rural areas). Because of substantial overcapacity in service sectors at the time, and massive competition industrial competition from southeast Asian countries, and the low-cost service models from what was known in the internet period as Web 2.0, most historians believe quantitative easing measures would have led to recovery without strife and without the inflation seen from 2015 to 2022. As it happened, the Palin administration arranged for the absorption of the Federal Reserve's functions into the Treasury Department in 2014, and embarked on a program of government spending that same year. One of the Palin administration's innovative measures, believed devised by Treasury Secretary Tyler Durden, was to exchange existing dollars for the now-used orange dollars and to put "use-by" dates on 90% of all money issuance. In 2015, the Palin administration, stung by accusations on Twitter of not having printed enough money, went on a program designed to expand the money supply by a factor of 2 within the year, while keeping the 'use-by' issuance ratio at 90%. Government debt was paid off by 2020, and the OrangeBack reached parity with the yen by 2022.
The subsequent two decades through until the Great Plague of '43 were marked by..."
In the end, which extreme you choose doesn't matter. Deleveraging will result in disappointment. Deleveraging happens because the monetary value of your assets and production goes down, or because the physical value of your money goes down faster than your ability to earn it. The question of which path is preferable may actually depend on which one is easier to stop. Given oversupply of capacity, I would suggest it is probably easier to stop it on the monetary upside rather than deflationary downside. But that's just me...
that's quite an effort.
what drivel he posted....
more keynesian "it would be worse if we didn't act" drivel
let me keep it simple for you, we've reached peak debt....it's fucking over.
What drivel you posted....
More ZH-ian lack of attention to detail. Read the last paragraph.
Let me keep it simple for you... it does not matter which extreme you follow... if you do not print money when deleveraging starts, debt owners will see spiralling debt and debt servicing costs to income and eventually you default through debt restructuring or through defaulted service to the population. If you do print money, you effectively default through inflation. Either one means that the benefits accruing to those who have to pay the debt (taxpayers or virtual taxpayers who receive the services offered by the state), end up dropping far below what they want/expect/need.
And I promise it's not over... Nothing cannot be undone.
Discuss.
Hint: Given that Govt Pensions/SocSec, Welfare, Education, and Health Care are generally considered untouchable, if the government pays those and the interest on existing debt, EVERYTHING ELSE in federal government spending is 100% funded by deficit spending right now. 72% of the rest is Defense. 8% Transport, 4% police/courts/prisons, 15% is "the other stuff" (all government agencies not shown above, executive branch, IRS, community development, housing assistance, EPA, energy, trade promotion, etc). Ex-Defense, in the category of all that stuff we cut, states outspend the federal government 3:1 (education and police are easy to see; utilities, waste management, water supply, etc are less obvious to most).
What combination of raising taxes (remember that 90% of workers pay 5% of personal income tax, the other 10% pays 95%), and cutting spending do you do, on top of an already bad economy, to fix things, and what effect does your cutting/taxing have on things?
Bruce: Good article. I fear that the American public won't catch on and blame the Fed until QE5, QE6 or later. I think that most Americans do not know who Ben Bernanke is or what QE is/does. I did not see a big public or MSM backlash when the list of foreign banks that the FED bailed out was released (or did I miss it?), so I don't see the Fed being undermined any time soon. We all need to keep educating others about the Fed and central banking.
The FED isn't going anywhere.