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Is Inflation Finally Here?
This article originally appeared in The Daily Capitalist.
Inflation is occurring but it is not what you think it is.
There were a number of articles Thursday commenting on the producer price index (PPI) numbers saying that "inflation" is upon us because prices are rising. I think we are on the verge of experiencing true inflation, but the PPI is mostly revealing supply and demand factors rather than price inflation.
The month-over-month increase of 1.1% is high (13.2% annualized) but it is a result of food and oil prices increasing internationally because of demand, temporary supply shortages, and OPEC manipulation. This shows up in the year-over-year index as well, at 4.1%. But again, the core Y-o-Y is 1.4%. Monthly core prices are up only 0.2%.
The Consumer Price Index for December mirrored the PPI:
The CPI in December jumped 0.5 percent, following a modest 0.1 percent rise the month before. Analysts had projected a 0.4 percent boost for the latest month. Excluding food and energy, CPI inflation came in at 0.1 percent, equaling the rise for November and matching expectations.
By major components, energy jumped 4.6 percent, following a 0.2 percent rise in November. Gasoline spiked a monthly 8.5 percent, following a 0.7 percent increase the prior month. Food price inflation actually slowed to 0.1 percent from 0.2 percent in November.
As in recent months, shelter helped keep the core rate soft. The index for shelter rose 0.1 percent for the third month in a row. The rent index rose 0.2 percent while the index for owners' equivalent rent increased 0.1 percent. Motor vehicles also helped the core. The index for new vehicles was unchanged in December while the used cars and trucks index fell 0.1 percent, its fourth consecutive decline. Also falling in December were the indexes for recreation, communication, and household furnishings and operations.
So where is the price inflation everyone is talking about? In a true inflation all prices go up. Here we are seeing supply and demand issues and many commentators confuse the two. Inflation, again, is an increase in the supply of money, and one of the impacts of inflation, among others, is price increases.
So are we also experiencing inflation? I believe we are and the core PPI increase of 1.4% is an example of price inflation when you consider real estate price and rent declines, and things like retail "deflation" found in small packaging, both considerable headwinds against price inflation.
Since inflation is the expansion of money supply, is that increasing?
Money supply continues to expand. As Michael Pollaro shows in his True (Austrian) Money Supply data (see The Contrarian Take), money supply has been increasing and is likely to increase further this year. In his December Money Watch he argues for higher money supply growth in 2011:
First, the recent surge in TMS2 – up an annualized 10% the past six months and 15.2% the past three – should be supportive of higher twelve-month rate of change increases over the coming months.
Second, the full impact of the Federal Reserve’s QE II asset purchase program was not felt in the money supply aggregates. Coming as it did mid-month, plus what appears to be a larger than projected draw-down in the Federal Reserve’s Agency portfolio, QE II yielded an annualized impact of just $600 billion in November instead of the projected $900 billion.
Third, and most important, private banking institutions are not only continuing to print money, but appear to be doing so at an accelerating rate. In fact, Uncovered Money Substitutes, i.e., bank deposit liabilities not covered by bank reserves, the issuance of which is the result of the banking systems’ efforts to lever up its loans and investments on top of what is currently a mountain of excess reserves, is growing at a year over year rate of 19.9%, a post credit crisis high.
This is the reason I part with the deflationists on inflation versus deflation. You have to look at money supply growth to determine what is happening. It is growing, but will it explode in 2011?
While Pollaro also makes a good argument (above) for credit expansion through banks buying securities, I believe it will take bank credit (loans) to make explosive money growth and dramatic price inflation happen.
Pollaro believes that loan volume, and thus money growth through credit expansion, is increasing. I too have been following bank loans and they have been growing, but the activity is primarily at the large banks. I believe that bank loan expansion has been rather modest. Pollaro looks at the chart of total loans and leases of all commercial banks (LOANS), based on a scale of percentage change from a year ago, and gets a chart that shows an apparent dramatic increase in loans:
While true, I prefer what I believe is a more realistic view of the same chart (LOANS) but measured by the volume of loans being made. And that view shows loan volume continues to be weak:
Pollaro also notes, correctly, that bank excess reserves (EXCRESNS) have been declining, something I have also pointed out. But as I see it, the decrease has been modest. The economic assumption behind the decrease is that this vast hoard of money the Fed "printed" has been sitting in banks vaults and not being lent out. I put "printed" in quotes because the Fed didn't really "print" money. Remember this isn't money base (currency), but rather an extension of credit the Fed made to banks during the early stages of the collapse to provide liquidity to the system, and it was created out of thin air, or by a keystroke, if you will. Bankers woke up the next morning and saw the Fed credited their accounts at the Fed with almost limitless credit. Banks create more money through credit expansion because the rules only require them to keep 10% or less on reserve (multiplier effect). The Fed's dilemma was and still is that banks didn't lend and thus expand the money supply as they wished. They believe, falsely, that money supply expansion will create economic growth.
Thus an indication that banks have started lending again will support the argument that we are headed for price inflation.
Lending is starting to loosen up, and is expanding the money supply. But bank lending is far from rapidly expanding. Latest Fed numbers show loan activity still contracting--for the third straight quarter. The big banks just broke even on their lending activity (i.e., loans made and loans retired were equal). Activity is still shrinking at the small banks. I still see substantial problems in the economy that would not lead me to conclude that businesses will start borrowing again as in a normal post-recession recovery, nor do I see banks lowering loan underwriting standards to accommodate marginal borrowers who need the money to stay afloat. Look for steady improvements but nothing dramatic in 2011 on this front.
I think quantitative easing (mostly QE I) has been the major factor in money supply expansion (see Pollaro's True Money Supply's data), and that QE II will further increase money supply this year. It is likely that because of long-term problems underlying our capital structure that economic growth will remain stagnant. As unemployment continue to remain high, the Fed is likely to engage in more quantitative easing in 2011, as the Administration pressures them to "do more."
This is why I think the deflationists and the hyper-inflationists are wrong. This is why we will have stagflation.
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Inflation is when you have a gross over supply of federal government employee dumb asses led by a underwhelming leader of the Democrats' choosing.
http://theautomaticearth.blogspot.com/2011/01/january-14-2011-zombie-mon...
2: Inflation
The fact that there’s all that zombie money around (or zombie credit, to be precise) leads many to believe the US witnesses inflation. Not true. First off, inflation is not the same as rising prices. Prices can rise because of different causes: scarcity, speculation and (real) inflation. And it’s important to be able to identify which of these causes is in play. If you call all price rises inflation, you lose the ability to distinguish between the causes, which means you lose a crucial analytical tool. There may be those who would like nothing better than for us to lose that tool, but it’s not smart to give in.
I know the media has force-fed the incorrect definition of inflation to the masses, and I know there are plenty of people who say rising prices is all they care about, not monetary theory. However, a clear view of causation is essential when it comes to defining your reaction to rising or falling prices, and prices that rise because of scarcity demand a totally different set of actions than those that do because of a rise in total supply of money and credit, combined with velocity of money, which is what inflation truly is.
The present, incorrect and force-fed "meaning" of inflation as all price rises no matter what their cause is, is relatively new. Rising prices used to be referred to as "(currency) devaluation". Not perfect, but way better than what we have now, where terms like “monetary inflation", "price inflation", "consumer inflation", "energy inflation" all the way down to "cookie inflation" fill the media.
Why is the distinction between the definitions important? Because today in the US both the money/credit supply and the velocity of money are falling (deflation), while some prices are rising, in particular those of food and energy. And no, you can't have deflation in one sector and inflation in the other. That really turns the whole debate into obscure nonsense. It's important that we can determine that if prices rise in times of deflation, the cause for those price rises must be something other than inflation.
In today's world, that something else is speculation. But not of the ordinary kind. What we have right now is zombie money speculation. The same unrecognized losses in the financial system that our governments cover up with criminally negligent accounting non-standards cause prices of oil and food to rise, since that's where the zombie money -inevitably- ends up. And it's not just the banks that invest zombie money, it's all of us.
If banks would have been forced to reveal their losses, the hammering of home prices would have been huge. Since this did not happen, a lot of people are still sitting pretty in their homes, which are way more overvalued -in free market terms- than just about anyone is ready to recognize. Also, if banks had revealed their losses, unemployment rates would have been far higher than they are today.
I know what many are thinking: maybe it's not such a bad idea to cover up those losses. But you're not seeing the whole picture. First, the cover-up has enabled the banks to access your money in order to pay down their debts. And second, zombie money is not the same as real money, as something that has been earned by adding real value. Zombie money is not real.
I read a piece at Zero Hedge the other day by a group that calls themselves the NIA, for National Inflation Association. But they don’t even know what inflation means. Hence their slogan: "Preparing Americans for Hyperinflation". Hey, if you can't define inflation, chances are you’ll miss the truth on hyperinflation too. Look, the US depends for its money and credit supply on international bond markets. Whenever Bernanke turns on his so-called "printing press", which in actual fact is an "additional credit" press, it's not as if free money is created. There‘s interest to be paid on all of it. And while interest rates may be low right now, it's not Bernanke who sets those rates, try as he might to make you think so.
If and when the bond markets decide that the risk on US debt rises enough -or too much-, they will decide what the interest rate is, not Bernanke, and not Geithner. Obviously, with every dollar printed, risk assessments will rise, and the outcome is inevitable: less appetite for US debt (don’t forget that there's plenty zombie money in the bond markets too), and higher rates. And only if and when the US no longer has access to international markets does the option of hyperinflation come into play. Now, I may be quite negative on the prospects for the US economy, but a full separation from global debt markets is a while away yet, and that means the prospect of hyperinflation is as well.
Preparing for hyperinflation is not just useless at this point in time, it's also damaging in that it makes people blind to the real problem: deflation. And before we get to hyperinflation, if we ever do, deflation will cause so much pain and grief and unrest and death, that the very thought of hyperinflation will come to be seen as a highly delusional non-issue.
So how long will the zombie money last? Can it last as long as Bernanke and Geithner and Obama and Dimon want it to? No, in fact, they're fighting a lost battle against time itself.
The zombie money has to disappear, and it will. It all starts and ends with US and European real estate, the one biggest investment of those of us living on Main Street, by far. US home prices have now fallen for 53 consecutive months, despite the fact that Fannie Mae and Freddie Mac buy up and guarantee near 100% of all mortgages, and despite the fact that the Fed has purchased huge swaths of the securities allegedly backed by these mortgages.
All those trillions "worth" of your money haven't been able to prevent that. And no amount of additional trillions will. Foreclosures are setting brand new records across the country, even as banks are ever more nervous about their paperwork, and their balance sheets. It doesn't matter how much money Washington throws at the issue, other than it’ll make you a whole lot poorer, for you’ll never see it back.
A further deterioration in home prices can't be prevented. Fannie and Freddie can’t buy 101% of mortgages; they're buying close to a 100% right now and prices still fall. Wal-Mart greeters, burger flippers and the rest of the great unwashed will not be allowed back into the housing market. There are over 10 million homes on the market, and perhaps twice that if you count all foreclosed properties that banks sit on (and the millions they won’t foreclose on), plus all those that people would like to sell but can't lest they go underwater. And the pool of potential buyers has shrunk with a vengeance since the 2005-6 "heydays". Huge increase in supply, huge decrease in demand; e all know where this will go.
Now, take Fannie and Freddie out of this picture. What do you see? They’ll be taken out in some way, and at some time, and it won’t take years. I know what I see: the housing and mortgage situation in the US has turned into what I've always called the “Bulgaria model”, where you guarantee the mortgage on your neighbor's home, and he guarantees yours; anything goes as long as it's not the free market your politicians and media tell you about. And we know what happened to Bulgaria in the end, don't we?
I’m all for a society, a government, that takes care of the weakest in its midst. I’m all against a government that props up the strongest in its midst, in this case the bankers with bonuses larger in one year than the weaker among us can make in a lifetime, the same bankers who lost more money in bad wagers than the entire country can cough up, and still be economically viable. We’re fast becoming zombie societies.
But first we'll have to live through this:
3: Food prices
Let’s start with the news that the Tunisian president has fled his country, and the military's taken over, according to Al Jazeera. Mass protests are ongoing in Morocco and Algeria. The riots in Tunisia are not all about food prices, but they were certainly a substantial factor. And more, much more, of the same is on the horizon, in many different places. But food prices this time around are not rising because of widespread dramatic shortages, at least not so far. And Lester Brown, much as I like the man, has it completely wrong:
In the same vein, the peak oil crowd fails to see what drives up oil prices today. Yes, long term trends affect prices to some extent. But no, Lester, you can't provide an accurate assessment of what’s happening if you don’t include the very obvious contribution of speculation, especially that which originates with zombie money. Ditto for oil prices.
Food prices are rising partly because, let’s not forget, China, unlike the US, does have inflation, with its money supply going through the roof. But much more than that they're rising because we have elected to kill off the principles of our own western economic systems, which were once supposed to be based on free market ideas, that dictate that success is rewarded and failure punished.
They have since come to resemble some kind of sophomore notion of Darwinianism, where the upper alpha rhino gets all the girls and the rest get none at all. And that in turn is supposed to pose as justice in human societies, whereas in reality it’s nothing but what happened in Bulgaria for decades.
The consequence is that the zombie money is now allowed to drive up food prices to levels which make sure that millions of people around the world will go hungry, and will revolt as a result of that. Blankfein, Dimon et al have long since realized that they can't maintain their velvet “God's work" thrones just by robbing Americans of all they're worth. Their losses are far too great. They need to have access to everyone's wealth all over the world.
And since oil and food are traded on international commodity markets, and they have gotten hold of all the money America is worth, and then some, they can play these markets as much as they want, whether it’s wheat or natural gas or gold. People like to claim that gold will rise as the US dollar becomes worth less, but they forget that it’s zombie money that has been buying gold, and that has thus lifted gold prices. Once daylight comes and the zombies are gone, there's only one way left to go for gold prices too.
So, once again, when will the zombie money see daylight?
This could be caused by any of a myriad of choices. We could force all banks to put foreclosed homes on the market, all at once. Or tell the same banks they have no right to foreclose on homes they have no perfect(ly legal) paper trail on. We could force all derivatives contracts out into the open. Or just the mortgage backed securities; that would do it. Provided we fold Fannie and Freddie, and not let the FHA or any of those guys take over.
As I wrote eons ago, even just closing down Fannie and Freddie for business one or two months would probably do the trick. China could wreck the US economy in 5 minutes simply by demanding to know what their purchases of Fannie and Freddie debt are worth (they have a lot of it). Or it could be a small country, maybe not Iceland, but surely Vietnam, or Belgium, or Denmark, insisting on knowing what that paper their banks and pension funds have so heavily invested in is really worth. MBS, or any other species of derivatives, the whole shebang only has a value attached to it by the grace of nobody trying to figure what that value is.
Is US housing debt, and the securities and derivatives based on that debt, a zombie, or a person? It may certainly seem confusing late at night. But then again, you can't have meaningful relationships with zombies, they're sort of one-dimensional. Funny how that resembles the person-rights US companies enjoy,
And frankly, does it really matter? What we know for sure is that the zombie money we elected to have flow through our financial systems is going to kill a lot of people this year. Want to plead innocence? How long do you think that excuse will be accepted?
Cue Tunisia.
Where our zombie money kills real people. Today.
"Inflation", has been being treated to the same dumbing down as other language components. (A cut in the rate of increase is a 'Decrease') WTF?
From its classic definition of "incomes rising to chase rising prices" (where raising income is possible in such venues as profits, fees, commissions, union contracts---non-fixed incomes---in the private sector) it has now morphed and degraded and finally been turned into some fungible useless word that economists with a leftist agenda or a conservative one use to extract some kind of benefit.
And governments use to stiff Social Security recipients by omitting all the expenses a retiree must pay at ever-increasing rates, (but allow defense contractors to include the rising prices of steel, copper, electronics, coffee, and St. Bart's condos in their invoices).
Yes. Inflation is ALWAYS with us. In the things that are absolutely essential for survival for the masses, and prosperity for the Elite 400. But like elephant in the room, it is conveniently ignored for the masses.
Dudes, if all prices are climbing, then where does the money come from? In your definition, if there is a fixed money supply, and food gets scarce and prices rise, then people have less money to spend on other goods, and these prices go down. Thus you don't have a general price rise. These are supply-demand issues, not inflation. Only when money supply is increased do all prices go up. Thus, the standard definitions if inflation are wrong. That's why the economy is screwed. Until we understand this simple idea, Bernanke will just continue to screw the economy.
Then Inflation is a 'designer drug'.
If my entire income in 2009 is spent on that which I need to survive, (and there are billions of people on this planet in that canoe) and that income is X and in 2010 my income remains at X, and the prices for that which I need to survive rises by 10% you are saying that is not inflation, but a supply/demand issue.
Then maybe we need to substitute Supply/Demand for the Cost of Living Index which heretofore has been guided by the Inflation numbers and adjusted accordingly to more accurately reflect a number that means something to ordinary people's survival.
I was reading with regular WTF exclamations until I came upon this passage:
This explains a lot about the bias of the article. Formally inflation is an across-the-board increase in the price level, but what we are witnessing today is not classical inflation, it's a general decimation of buying power in relation to most basic needs (food, energy), call it what you will. So to all those dicussing the finer points about inflation, deflation, biflation and stagflation, please take a look down from your ivory-tower window. You just might see a crowd forming with pitchforks. And no, they are not there to sell these tools of the trade to you, monsieur.
Agree with all you write except "...You just might see a crowd forming with pitchforks".....
Not in the U.S. you won't.
"So are we also experiencing inflation? I believe we are and the core PPI increase of 1.4% is an example of price inflation when you consider real estate price and rent declines"
the government moves housing component in and out of cpi calculations on a regular basis. bls took out housing c. 2000 when prices were increasing and added it back c. 2007 when housing started to cool....
the government is a lying sack of shit.
Crash JP Morgan - demand delivery
....due to our high unemployment rate, we are not experiencing any of the wage cost push inflation that happened in the '70's. If we had normally "full employment" right now, you better believe there would be the added inflationary pressure of wage demands to help workers offset rising prices such as gasoline. Our defunct unions no longer have the power they once did to offset cost of living increases with higher hourly rates.
Just because the AMERICAN PEOPLE are being SCREWED and led down a PATH to SOCIALISM doesn't mean we can't sit back and relax occasionally, right???
Light a blunt and listen to some Pink Floyd while enjoying the video "SUNSETS ON AMERICA" at (http://www.youtube.com/watch?v=WfJFGQiK3nc) for a little relief and escape from the TYRANNY.
Anonymous-
This ocean view really ties the rug together dude!! Puff..Puff..
Notice how the NEW TERRORIST as stereotyped by the MAINSTREAM MEDIA are WHITE DUDES in a suit and tie like Mr. Vincent McCrudden??
Watch the YouTube video "The New American Terrorist ~ Regular Joe's" at (http://www.youtube.com/watch?v=bz9E5aTURWE).
Anonymous-
Isn't American tyranny great? I can't wait for the Gestapo to knock on my door and jail me for being a capitalist!!!!
google: "define:inflation":
Definitions of inflation on the Web:
* a general and progressive increase in prices; "in inflation everything gets more valuable except money"
http://wordnetweb.princeton.edu/perl/webwn
* In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
http://en.wikipedia.org/wiki/Inflation
* Inflation is a persistent increase in prices, triggered when demand for goods is greater than the available supply.
http://www.morganstanleyindividual.com/customerservice/dictionary/Defaul...
* The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index.
http://www.statefarm.com/learning/life_stages/retire/glossary.asp
It's not inflation when word slowly spreads that the country is bankrupt and the currency has really nothing backing it anymore.
That's a reflection of lack of faith in the currency and ultimately the government.
Until there's a successor to the existing "legal" tender every producer, every merchant, every trader will just increase margins and pass on the increase to the next guy.
I'm not an expert on inflation, deflation or stagflation but I'm sure that neither of these terms fits what it means when a currency is on its death bed waiting for the lights to go out.
You can't even describe this stuff anymore.
As BB debases the currency further and climate shocks and natureal disasters hit food production I give it about 3-6 months untill you see the cost of food accelerate out of sight.
Then you will get Americans rioting in the streets. Nothing like hunger and total furstration at a corrupt country to in the end get people onto the streets. I don't think it will be a gradual thing, it will be like a phase shift, where a last spec of dirt starts the landslide.
Start accumulating non pershiable food stuffs now.
As long as Americans have midless ball games and TV to brainwash them 24x7 in HD plus food stamps and beer - they will meekly become slaves. All TV and the media fawns over, honors, bows and scrapes to Hussein-Mugabe. He is Ghandi, MLK, JFK, RFK, Budda, Jesus, Santa, Elvis and the deity known as Bono of U2 rolled into one.
Well, gold is deflating, anyway....
Paper and futures? Yes, for now.
The metal itself: not so much...it just kinda sits there bein' shiny.
How could inflation be here? The nice sounding person on PRI/NPR said just this evening that there's no inflation. The CPI is low - even food prices aren't rising. The nice man on the radio said Bernanke was actually a little concerned that inflation was too low.
It's not like milk, meat, flour, suger or corn have gone up in price at all. Inflation? Phffft. Delusional I say! Delusional!
:-)
As I recall, in the early 70's the first indications of inflation that we noticed were rising food and energy prices. It was only later that wages and prices of other products started rising.
So it is hard to tell yet whether the commodity price increases that we are seeing are caused by monetary expansion or just due to demand increases. It may be a few months before we get a clear picture of what is happening.
The commodity price increases are due to several causes: in several countries there are problems with crops due to flooding, etc. which will affect the price.
We also have investors pushing the prices up because they are looking for other places to "make" money since the stock market is fixed & they can't "make" any profits there anymore. So they are looking for other places to "make" their money & commodities is it right now.
AND, you have China gobbling up a lot of commodities for their needs. The biggest culprit, I feel, is the investors looking for profits, pushing the prices further and faster than any of the other reasons.
The 70's had no internet and no central bank running amok with the printing press.
When you spend more than you earn and you print the "money" to pay back your debts all the while taking on more debt to pay even the cost of borrowing old and new debt.. well, it's a clusterfuck and it won't go away.
The paper has no more "faith" value.
The 60/70s had LBJs "great society" act plus 2 wars resulting in large deficits and a greatly devalued dollar. Reagan countered with the "deficits don't matter" philosophy... until they do.
I don't know, manufacturers in the UK certainly are not mentioning "stagflation", they are saying inflation out loud. I mentioned this yesterday on another thread ( http://www.zerohedge.com/article/four-financial-farces%E2%80%A6-all-whic... )
"I heard yesterday that a major bike manufacturer's raw material costs (in the UK) are up by 40%, yet that company has no choice but to absorb some of the cost increase to stay competitive - a typical story. Higher retail price, lower orders, lower profit. That can't last forever."
CPI deals with a specific basket of goods that may not reflect real price increases in the market place. For example, supermarkets deliberately have loss leaders to entice customers to come to their businesses, and you may even see them competing against each other exhorting the cheapness of branded goods in their stores. Same story with apparel - all the major retail chains seem to be permanently on sale these days - that's not because their costs have come down, it is because they are desperate for custom! Let's have a look (Courtesy of US Bureau of Labor Statistics):
I would agree with since it seems like almost all governments are devaluing their currency. Food crops have suffered around the world and thus has more of an impact on the supply/demand curves.
We need a run on physical, but the sheeple seem content to play by the bankers' rules.
Bernanke-flation only includes US housing so, everything else is ignored until we reach the "normal" level of 16% price increase per year.
These reports always seem arbitrary to me depending on where you live ,how far you commute, and whether you own your home, or are paying rent ,or are paying interest on a home or car etc . But if fuel goes up and food prices go up it hits everyone who doesn't have alot of cash on hand to cover these expenses . i think there would be something close to riots here in the USA right now if we were not providing free food stamps ,and welfare, and 2 plus years of unemployment etc. If the people were having to really feel it, this economic charade would have already been exposed. My nephew spent 2 years on unemployment and lived with relatives and wasn't hurting, 2 weeks after the money ran out he had a job .....
There might be riots in Arizona by June. Gov. Brewer wants to cut healthcare for the low income (Medicaid) completely, leaving a couple hundred thousand with NO healthcare. Hospital ER wards will be packed to the gills, and there will be lots of short tempers & hospitals will not be able to work with that kind of a load. Health care costs will soar & you might see some hospitals go belly up. WTF are these govt officials thinking?
My niece is a trauma nurse at LA County. Her husband works for ICE and anytime he shows up in uniform to meet up with her, the lineup in ER gets a hell of a lot shorter in about 40 seconds.
"My nephew spent 2 years on unemployment and lived with relatives and wasn't hurting, 2 weeks after the money ran out he had a job ....."
Boy, was he ever lucky.
It's truly a miracle!
Just found out steel plate is going up $100 per ton, a .20 per pound increase in March.I have been paying anywhere between .43 and .48 per pound in the last month, and this will put the brakes on a lot of the few building projects. I am telling customers that I can only price work for two weeks, or to the end of the month, whichever comes first. I thought last year was bad, but this year is shaping up to be really bad.
IMHO anti-deflation arrived w QE1, inflation arrived w QE 1.5 this past summer, then significant inflation arrived w QE 2. This year it's manifesting in chosen commodities including common stocks.
As Austrian theory predicts and as the author states, money supply growth never translates into equivalent or better than equivalent output growth. Thus, stagflation. Sell the rips; hold cash as an investment when and if short rates rise. Otherwise, currencies of well-run countries and of course gold are buy and hold investments in this sort of environment. Common stocks as a class- not so much. Insiders want another chance to buy low.
**In a true inflation all prices go up.**
I saw that too. In the end, prices of goods and services are all relative (to each other.)
It would have been nice if the author had busted out the relative price elasticities or inelasticities of goods and services.
The author's conclusion, that stagflation is the current and future destination of this country, is ending the arguement prematurely. Stagflation is a transitional stage of an economy that sinking.
The logical conclusion of any economy stuck in a stagflationary state is higher interst rates as capital becomes scarce due to monies flowing towards necessities (and the relative inelastic nature of their demand) and flowing out of luxuries (and their relative elastic nature of demand.) In 3rd grader, "You gotta eat, but you don't need to buy Halo 4."
A site such as ZH and its community are a real world example of the "stagflation" phenomenon. As we exchange information and use gained knowledge, we bid up prices of goods and services that exhibit relative inelastic pricing properties. Thats what you do when a government prints money or corrupts freedom of trade. A negative or possitive feedback loop if there ever was one (depending on if your the farmer or the lawyer, its all relative.)
Stagflation, when taken its day of judgement, is hyperinflationary. Or, your telling me that the USA, the EU, Japan and China are going to organically grow at rate great enough to pay off past and future debts. Um, not going to happen.
There is another type of "inflation" that is not covered by this story.
Devalued currency induced cost push inflation.
This is one of the main reasons causing the the inflated values in the commodity markets. This is speculating wealth seeking safe haven in anything other than cash, which it sees as losing purchasing power through QE II. Hence the higher cost price push of food and energy. Coupled with "value deflation" which is less for more through smaller packaging, smaller portions and of less quality, which is pushing the consumer farther into a hole.
+1
and don't forget the dreaded fellation.
Which is invariably followed by deflation. If done properly.
larded deflation
Agreed on the bank lending front. While plenty of capital is available, the underwriting criteria has been raised so high that combined with companies still showing battered financial statements from three years of hell (i.e., 2008 through 2010), the volume of quality deals has been significantly reduced. Much easier to simply buy guaranteed returns on government debt (via borrowing from the Fed at basically zero) and government equities (i.e., the stock market). Why take a risk and actually invest in a protective business operation when the government and the Fed are guaranteeing your pay/bonus.
BTW, I'm tired of hearing/reading about the play on inflation with re-packaging products (into smaller sizes). If I'm getting less and paying the same, or getting the same and paying more, that's inflation. Period. Also on the inflation debate, keep housing and cars out of the equation for now and focus on the basics including food, energy, health/medical, and education. Can anyone direct me to a resource that monitors these items as the fact of life is that for most people, you can't do without any of these items? Once I've fixed my overhead in housing and autos, any change in these items don't affect me daily (but the others surely do). Any bets as I'm guessing YOY increase of at least 10% (when the packaging BS is removed from the equation).
Finally, the article touches on a subject which really is the death sentence for the US (long-term). That is, the deployment of capital has been so poorly directed over the past 3 years (into failed banks, the government, overpriced real estate, worthless companies such as GM and AIG, etc.) that the damage to the long-term competitiveness of the US is done, finished, guaranteed, or call it what ever you want. Just imagine what the capital could have accomplished if it was really allowed to be put to productive uses as opposed to directed by the government? As long as TPTB continue to control and direct the flow of capital, the base fuel of a capitalist economy, the outcome will be predictable.
And one final thought and something to ponder, growing a business too rapidly or fast, without having an adequate capital structure in-place, is a disasster waiting to happen. Companies will simply grow themselves out of business and run out of cash and oh by the way, if you think a bank will be there to help out, think again as remember one truth that has held in my travels with banks over the years - When you need cash/capital, it won't be there and when you don't, the banks will have more than enough to provide you.
bravo...well said... there must be shopping websites you can go to..or simply browse ads from newspapers that are a year old with groceries in them and make up a weekly shop of the same items from todays equivalent. I have seen some analysis done this way in broadsheets, just can't remember where. Gas prices and utility bills should be easy enough for your own residence, then either your kids tuition fees or a neighbors and your health care premiums. I suggest you then post it in the forums and see if someone matches it to demographics. We need a people volume adjusted inflation rate not a CPI urban/core measure.
Target has sticks of cheddar cheese that were going for $1.99 - now $2.14. Mini Red Baron pizza 2-pack $3.00 - now $3.14. Most of the food companies just decrease the box size or ingredients.
CR has an article on this and a bunch of reader sent in photo proof and examples
http://pressroom.consumerreports.org/pressroom/2011/01/cr-finds-more-pro...
http://www.consumerreports.org/cro/magazine-archive/2011/february/home-g...
Thanks for the info as I appreciate the follow-up. One item I know off the bat is my catastrophic health care coverage (only one I can afford) has increased by 38% in one year (and yes, I'm in California). No doubt when I look closer at utility rates, food bill, education (again I know this has increased by over 10%), etc. will be up as well. Just want to confirm what I basically already know.
Prices are not "going up", the reserve currency is being rebuked.
The stock market is not "going up" the pricing mechanism is being repudiated and the cost of holding a fractional interest in American companies reflect the repudiation of the currency. Gonzolo Lira, Davis of Hinde Capital, Stansbury all have articulated it.
http://hindecapital.com/docs/hil_reports/Debt_No%20Jubilee7.pdf
You could say that the currency is being debased by printing more money and gives the impression that prices are rising. But, then prices are the only mechanism to measure it. ASo, I believe it is more accurate to say prices are rising. If you flood the economy with more pieces of paper currency, then GDP will go up, but not because of productivity but because of price increases. If everyone woke up tomorrow with 2X their cash, we would not be richer, but prices would double. I think this is what a lot of what the markets' rise is saying since by QE, new money hits Wall Street first.
I listened to the link but Porter lost me when he falsely claimed that Germans pay $6.50 a gallon for gas because they can't use the euro to purchase oil.
Germany's fuel tax is about $2 a gallon and its VAT is 19%. So almost all of the difference is tax, not seignorige.
i googled this guys name....his credibility went quickly out the window...
OPEC manipulation? Nah ...
It is ALL bank manipulation. Producers have no power. The banks manipulate and dictate all prices.
Have you heard of the 1970s oil shocks? Do you really believe what you said?