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Inflation Expectation Tuesday: Obama, Please Earmark $200 in the Budget for “Fed Research” so Bernanke Can Get a StockCharts Account
Growing up,
I always assumed that people in a position of power or authority got there
based on merit. It never crossed my mind that someone might actually be in
charge of something VERY important like, say, the monetary system, and NOT know
what he or she was doing.
After all,
the US has created a system for verifying if you’re an expert or not, hasn’t
it? If you have an advanced degree, especially from a prestigious school, then
you should know what you’re talking about, right? And if you not only graduated
from a prestigious school but actually TAUGHT at one for decades… well then
you’ve GOT to be an expert, right?
After all, you literally have been PAID to
study and think for your entire adult life.
I only ask
all of this, because according to Fed Chairman Ben Bernanke, the Fed sees
little risk of inflation occurring in the US at this time. This is rather
staggering given that ANYONE with access to the Internet (forget the education
and degree) could gain access to charts that clearly show the US is heading
towards, if not ALREADY IN, an inflationary storm.
Below is a
chart of the US Dollar. I got this chart from a research tool called
stockcharts.com. It costs about $180 ($15 per month). However, this same image
can be culled from numerous free sources. So if budgetary restraints forbid
ear-marking $200 for “research” at the Fed, a quick visit to Bigcharts.com or
Yahoo! Finance should do the trick.
As you can
see, the US Dollar has fallen from about 88 to 76 in the last six months.
That’s a 13% decline… in six months. I
realize this might be hard for those who don’t look at charts too often so I’ve
annotated things so it’s easy to grasp.
Now, I DON’T
have a PhD in Economics from Harvard, but it seems pretty obvious to me that
when the currency in which assets are priced loses value, the prices of assets denominated in that currency will
rise… which is inflation.
Now if only
there were a tool for visualizing the price of various assets…
Surprise!
Stockcharts has this one too! The below chart is for the Jeffries Commodities
index (a basket of commodities or hard assets). As you can see, while the US
Dollar has fallen, these prices have RISEN.
Of course,
this means that when you lump together ALL commodities, their prices are
generally rising. I realize this is pretty out
there as far as economic research goes. So let’s try to make things more
concrete and “close to home.”
The below
chart shows the price of agricultural commodities over the last year.
Agricultural commodities are things like wheat, soybeans, cotton, orange juice,
and coffee. Human beings use these materials to create things like food and clothing, which they need to survive on Earth.
As you can
see, the prices of agricultural commodities are rising. Because of this, the
cost of food will… RIIIIIISE. So will
the cost of making clothing. This means humans will have to spend MORE money to
buy the SAME amount of FOOD and CLOTHING... which is innnnnflation.
We’ve
already covered a lot of ground in this research, but I’ve saved the best for
last.
You see,
there’s one commodity which is VERY important for the US economy. It’s called
oil and it’s used to make our cars go VROOM! Just as importantly, oil is used by truck companies to ship
food and other goods around the US.
I mention
all of this because the price of oil is also… going up!
In closing,
I know this research isn’t presented in the usual academic format. As such it
may not be ivy-league material. However, on planet earth, the cost of
commodities is an important gauge for inflation. The same goes for the value of
the US Dollar. If the US Dollar falls
and prices rise, then you are
experiencing inflation.
Which, as
the above charts show, we are experiencing NOW. Forget risk of it happening. It
is happening right now. Today.
On a closing
note, I know I’ve been as vocal a critic of the Government’s spending as
anyone, but I personally would not mind if Obama and pals want to earmark an
additional $200 in the 2011 National Budget for “Fed Research.” I assume once
Ben Bernanke and the rest of the folks at the Fed get ahold of this incredible
charting technology, they’ll be better able to monitor how the world operates
and make better forecasts.
After all,
that’s how research works, right?
Good
Investing!
Graham
Summers
PS. If you’re worried about the future of the stock market
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heh heh
ALL AMERICANS SHOULD SHORT BAC. IT IS YOUR PATRIOTIC DUTY. A JOURNEY OF ONE THOUSAND MILES STARTS WITH THE FIRST STEP.
Bernanke has given everyone a homework problem:
"When the shit finally hits the fan, what does one do to keep all the shit off of oneself?"
Cover yourself in shining armor, preferably gold, but silver will do in a pinch!
I KNOW!!!! Whatever the fuck it takes :-D Did I get it right?
I know a plethora of PhD's who are book smart and street stupid. Their theories and quantitative calculations are more important and real than common sense or what is staring them in the face.
Put them in a suit and give them a position and they can talk the talk and APPEAR as though they don't have their head completely up their ass; especially when no one questions them.
Super article. Could not help but laugh.
When will the sheeples finally figure this out? When will 2 million + march on Washington? How can we be so stupid?
this was a nice little primer.....
"If you have an advanced degree, especially from a prestigious school, then you should know what you’re talking about, right?"
without getting on my soap box about the turdity of much education i will state that the collapse of the 1920s/30s and now (and all troubles in between) came from the hands of the educated proving that iq and education are two distinct phenomenon and that education (in certain fields) is not all that it is cracked up to be. at the end of the day the fed is run by evil witch doctors too stupid to find their butts with both hands tied behind their backs.
The medievals defined "speed" as "degree of motion." While you can sorta see what they were getting at, the definition is useless. Galileo redefined it as "change in distance per unit time" and the entire field of physics was possible.
Today, most people try to define "inflation" as "an increase in the general price level." Aside from two problems, it's a useless definition. First, one cannot even define, much less measure the general price level (do you substitute leather driving gloves for buggy whips when tech changes?) Second, prices do not directly and proportionally change in response to inflation. There is no force in the market to enforce the monetarist notion of the linear quantity theory of money and prices.
But the definition is useless anyways. It misses the real issue in the economy: the expansion of credit. Credit can only expand as people and businesses and governments can pay the interest on the debt. Then it can't expand any more, and the process of defaults begins. Prices may or may not fall as loans are written off. Demand of course is collapsing, so the prices of all sorts of things like condos in South Beach fall. But supply is also collapsing so the prices of energy and food could rise.
The above should NOT be taken as a defense of Bernanke, who is a corrupt and incompetent buffoon as charged.
Mr. Summers, Love your work. Always eager for the next installment. May I ask you to comment on corporate junk bonds. Is it a bubble as I think?
Thanks
Hey!! Your 3rd chart confused my kid's gerbil. Funny stuff. Milestones
And what, pray tell, happens when increasing prices are not met with increasing incomes?
Net DEFLATION (if you spend all your non-growing income on gas and wheaties you won't be buying something else).
In short, cost-push inflation is NOT the same as demand-pull inflation.
"And what, pray tell, happens when increasing prices are not met with increasing incomes?"
A bunch of us in the service industry go out of business. Many of whom are not eligible for unemployment. My customers are trying to put food on the table, keep the lights on and gas in the tank.
I have an issue with unemployment. Of course they shouldn't be getting state unemployment which had to be contributed to. But why the heck shouldn't they get the federal stimulus extension? They paid federal taxes and its coming out of federal taxes. NO FAIR!!!!!!!!
X is an unknown quantity and a 'spurt' is a drip under pressure.
Here's something else to that makes inflation alot more even than the charts show. We see inflation in oil, which is used as fuel for the trucks and vehicles that move our produce and products to the shelves, not to mention the fuel that is used for plastics and fertilizer. So it costs all these people more to use the fuel for whatever they need it for. Then you add the inflation of the agricultural commodities itself and raw products and you get an exponential move up in inflation. One sector adding it's inflation on another sector etc. etc.. where eventually you have some items that went up 2 or 3 times in price at the grocery store. Just wait when oil gets up to 100 a barrel or more, it's going to be crazy. The difference last time was that the depression was just starting, now in the 2nd or 3rd inning people will definitely feel the rise.
Phoenix - Another good post - a little over my head . Let me see if I caught the drift. If the dollar goes down , I need more of them to buy the same item , but the item also goes up because it was devalued against the dollar . Why doesn't "dilution of shares" apply to fiatscos ? those printed ad infinum ?
He knows what he is doing. Inflation doesn't effect anyone but the little people and the fed ain't in the little people business. He is spreading the loss, pushing the risk. He is forcing capital to move, he is the capital herder. Soon they will slaughter it for the meat. BBQ at the fed to follow.
How about double digit rises in health care ins. and higher education for the past 5+ years?
I mean, don't get me wrong, I got mine and y'all can bleed out. Just sayin'.
I agree with your thesis in general... but showing the charts with longer timelines would give us a better historical perspective.
You got me all confused by those silly arrow thingies. In on chart you have a down arrow, that is labeled falling and imply this is BAAAD! And then go right out there and draw up arrows labeled "Going up" and imply this is BAAAAD! as well. Well, you can't have your cake and eat it mister!
Jumps in local property taxes hurts as well. Insurance costs more.
Everything seems to be taking money out of my pocket.
Everything seems to be taking money out of my pocket Have been thinking the same thing for some time now...
You use currency and money interchangeably. Currency is a representation of the latter. If the currency supply increases, then it will take more to buy the same item or represent a similar amount of money. Money is a cumulative abstraction of work, product, resources, etc.
If you are careful, one can discern the difference between the two.
While the Fed is clearly manipulating the currency, money is beyond their reach. Making the distinction between the two will set you free.
If you had attended and taught at a big name prestigious university and worked for the Federal Reserve, then you would know the definition of "core" inflation. Food doesn't count and neither does energy, even though those 2 items account for more than 55% of the 20% with the lowest incomes. The CPI is rigged to keep down cost of living increases for people on social security and welfare. Categories going up a lot get a are under weighted factor while categories staying flat, such as housing, are over weighted.
Now go back to school and stop trying to look at reality!
Yes, but the core is getting a rethink. This according to top secret Fed documents:
1) The core inflation number each month will now be comprised of the five lowest data points of the month.
2) In the event even the five lowest data points show inflation higher than 3 percent per annum, the five data points will be comprised from five data points from previous years, or, if necessary, different countries or parallel universes.
Ahh, but of course, the Fed's system of econometrics entirely corrects for nuisances such as "highly variable" commodities, so it totally avoids even addressing this nasty little issue. Inflation? What inflation?
What manner of bureaucrat could ever possibly come up with a system that priced out food and energy costs when attempting to gauge inflation? Probably one ordered to do so, so as not to irritate the various Federal retirement systems, Federal cola increases, Social Security, Medicare, etc. What a crock.
"Probably one ordered to do so, so as not to irritate the various Federal retirement systems, Federal cola increases, Social Security, Medicare, etc."
Not to mention the propagandization of public data releases; move along, nothing to see here.
The decisions for all of the sorts of changes within data series to which you refer were made at the highest levels of government, for the most "intellectual, well meaning, altruistic and responsible of reasons in the best interests of the American public*" all of which have been well documented in public releases; methodology, composition, etc.
* I just made that up.
Read "political reasons".
For example. Joe Sixpack says; "Shit everybody I know's out of work, I'm scared shit-less and gonna batten down the hatches."
To which the gubamint responds; "Watchu mean dawg, unemployment onee 6%, MOFO"
Case closed. Gubamint's happy, Joe Six pack is happy and I have something to criticize from the front row seat on the Destruction of Modern Civilization as We Know It Happens in Real Time.
So what the fuck's the matter?
(Hmmmm. Maybe a tidge testy tonight? Little too much Bullshite thrown at us by TPTB today, Knukles?)
Check out this chart of the real cost of living;
http://www.caseyresearch.com/editorial/3791?ppref=ZAC175ED1010A
All those arrows would confuse "Helicopter Ben".
Boy your not kidding but you have to realize Ben says he doing this for the economy but his lips say TO HELP THE BANKS.
I dont like the word "research"...I mean, its redundant in itself isnt it?
Fuck Im really hungover today. FYI.
That article is a SCREAM! VegasBD, we both know that the way to not be hung over is to be shit faced all the time. This makes one think that Bernanke is in his office, getting a little bit too shit faced on company time. How else could Bernanke come up with all those really fucked up, brain dead, un-imaginative ideas?