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McDonald's and Wal Mart Warn of Inflation Because Big Banks Use Trillions of Taxpayer Money as Gambling Chips for Speculative Commodities Plays
The signs for inflation in food and basic consumer goods are widespread.
McDonald's is warning of inflation in food prices:
McDonald's
Corp forecast higher prices for beef, dairy and other items and said it
would cautiously raise prices to keep attracting diners, who are
grappling with higher grocery and gas bills.***
McDonald's
and other restaurant operators are getting squeezed by accelerating
food costs and must figure out how to raise prices without scaring away
already skittish diners.
Similarly, the American head of Wal Mart - the world's biggest retailer - is warning of price hikes across the board:
U.S.
consumers face "serious" inflation in the months ahead for clothing,
food and other products, the head of Wal-Mart's U.S. operations warned
Wednesday.***
Inflation is "going to be serious,"
Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's
editorial board. "We're seeing cost increases starting to come through
at a pretty rapid rate."
CNBC reported yesterday:
The
combination of rising gasoline prices and the steepest increase in the
cost of food in a generation is threatening to push the US economy
into a recession, according to Craig Johnson, president of Customer
Growth Partners.***
Of course, at lower income levels,
these percentages are much higher. One sign of the stress some
consumers are already feeling is that some AAA offices have already
seen an increase in out-of-gas service calls, as motorists try to put
off filling their tanks or drive around trying to seek out the gas
station with the least expensive price.
And as the New York Times notes, food producers are selling smaller portions for the same price, due to cost - push inflation:
With
prices for energy and for raw materials like corn, cotton and sugar
creeping up and expected to surge later this year, companies are barely
bothering to cover up the shrinking packs.
While it's tempting to say we've got inflation, things are not so black-and-white.
As I wrote in January:
Debates about inflation and deflation paint with too broad a brush, or too narrow a focus ...
Too
broad a brush because the economy is not a monolith ... different
asset classes can move in different directions at the same time.
Too narrow a focus because you can't analyze what's happening in the U.S. in a vacuum in a highly global economy.
MixedFlation
As I noted in 2008:
Some people think that some prices will go up at the same time that others go down.
For example, Dominic Frisby writes:
Are
we going to see rising prices or falling prices? Of course, it
depends on the asset class – and in what currency you are measuring.
***
Falling
prices in assets associated with debt [like houses]
and rising prices in things which you buy with cash – food, energy
and some imported goods.Adam Hamilton of Zeal LLC agrees:
Anything
typically financed by debt is likely to see its prices plunge
dramatically, like houses and cars, as the ongoing Great Bear bust
continues to destroy the gross excesses of debt via higher long rates.
Conversely, anything not typically ‘paid for’ with debt, including
groceries and general living expenses, is almost certain to rise in the
coming years. We are staring down a brutal environment of widespread
inflation marked by various sectors witnessing falling prices as debt
leverage implodes.So we may very well experience both inflation and deflation.
I wrote in July 2009:
You
know from experience that when you're in a national park, movie
theater or some other contained place, prices are higher than
elsewhere.
Basically, the stores in such places know you
can't go somewhere else, so they can charge you what I call "got you"
prices. In other words, you're a captive buyer, and they've "got you".
I've noticed the same thing with health care costs. My family's health care premiums increased 6% last year - on top of the 6% increase the year before.
This
is "got you" prices. The health care industry knows that Americans
are desperate for health care, and that if they raise prices, people
will pay.
I've previously pointed out that inflation versus
deflation is not necessarily an all-or-nothing proposition: we can have
inflation in some asset classes and deflation in others.
So
my current theory is that we will have deflation for some time in
most asset classes, but inflation in the "got you" classes of basic
necessities that everyone needs - food, energy, and health care.
In a tough economy, companies that can squeeze broke consumers for more money will do so
I reported in September 2009:
Jeffrey Saut - Chief Investment Strategist and Managing Director of Equity Research at Raymond James - is now confirming that theory:
Inflation,
or deflation, the argument rages; yet on CNBC last Thursday I opined
that we are currently experiencing both... It appears to me that the
country’s top quintile of wage-earners (the folks with the most assets)
are experiencing deflation as their home prices have collapsed, their
401K’s are substantially below where they were in October 2007, their
bonuses have been “whacked,” and the list goes on.Meanwhile, the
lower-income households are experiencing inflation with their heath
care costs rising, food prices escalating, insurance premiums
climbing, etc.Saut thinks inflation will eventually win out:
Our
“bet” is that the inflationary forces will eventually win out because
that’s the way it has always played since the Great Depression.But
that is not controversial. Indeed, even the greatest advocates of
the deflation theory say we may eventually get inflation. For
example, David Rosenberg says that deflationary periods can last years before inflation kicks in.Well-known financial analyst Dian L. Chu wrote in June 2010:
Despite
the seemingly tame headline inflation numbers, consumers never seem
to see price declines in certain categories like education and health.
For instance, prescription drug inflation escalated to 5% from less
than 3% in 2007 and 2008.So, it is pretty obvious what we have here--biflation--instead of deflation. Biflation is a state of the economy where inflation and deflation occur simultaneously.
***
The
price increase of commodities is caused by the increased money flow
(via loose monetary policy) chasing them. On the other hand, the growth
of economy is tempered with high unemployment and decreasing
purchasing power. This has resulted in a greater amount of money
directed toward essential items (inflation) and away from
non-essential items and things required credit to buy such as house
and cars (deflation).***
While all of that money Federal
Reserve pumped into the system could in theory cause inflation ...
weak banks and slack in the economy would weigh against that. Indeed,
it is likely that crude material price increases could begin to move
down the supply chain; however, end markets are still too weak to
allow a full price increase.So, in the near term, biflation
could be around through possibly 2012 with pockets of inflation seen
in certain sectors such as energy and feedstock chemicals, and
deflation/low inflation in other sectors, netted to a moderate
headline inflation number.[We've got] rising food, commodity, energy and healthcare costs. But housing is double-dipping, and wages are declining. And see this.
So despite what die-hard inflationists or deflationists might say (and I respect both camps), things are actually mixed.
Moreover, as I pointed out last year:
Given that speculators drove up the price of oil last year,
it is possible that - especially in a stagnant economy - speculators
could drive up the prices of some asset classes and drive others down.And see this.
And this.
Of course, instead of directly helping the American people, the government threw trillions at the giant banks (including foreign banks; and see this)
. The big banks have - in turn - used a lot of that money to speculate
in commodities, including food and other items which are now driving up
the price of consumer necessities. Instead of using the money to hire
Americans, they're hiring abroad (and getting tax refunds from the government).
Ironically, the financial system is in worse shape than it was in 2008, according to Standard and Poors:
Additional
fiscal risks we see for the U.S. include the potential for further
extraordinary official assistance to large players in the U.S.
financial or other sectors, along with outlays related to various
federal credit programs. We estimate that it could cost the U.S.
government as much as 3.5% of GDP to appropriately capitalize and
relaunch Fannie Mae and Freddie Mac, two financial institutions now
under federal control, in addition to the 1% of GDP already invested
(see "U.S. Government Cost To Resolve And Relaunch Fannie Mae And
Freddie Mac Could Approach $700 Billion," Nov. 4, 2010, RatingsDirect).
The potential for losses on federal direct and guaranteed loans
(such as student loans) is another material fiscal risk, in our view.
Most importantly, we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008 ....
In other words, the government has thrown trillions at the big banks,
but instead of using those funds to shore up their balance sheets and
return to prudent banking practices, the big boys have used the money as
new gambling chips for speculative commodities plays ... which are
hosing the American consumer at the grocery store, Wal Mart and the
pump.
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The GOP's jobs bills only serve to send work overseas.
Yeah like NAFTA. Oh that was passed by the democrat congress and signed by Clinton.
How about WTO? Oh that was Clinton too.
How about GATT. That was Clinton too.
How about shutting down American rigs drilling in the Gulf and lending billions to Brazilian and Colombian oil drilling companies? Oh that was Obama.
Gee, the moveon.org talking points page told me it was the Republicans that were shipping jobs overseas.
Nicely filleted ;-)
Also garbage.
NAFTA was negotiated under Bush 1. Perot reamed 'em both about it in '92.
The GATT and negotiations leating to the WTO go back to 1948. Think there might have been a Republican or two involved along the way?
Of course it's often hard to tell when a Republican means something "to be a factual statement".
do you enjoy the two party mental slave plantation?
both parties work together to fork you good and hard and you gain some kind of value promoting one over the other?
brilliant!
Because jobs bills are always so helpful.
It's called the New Deal. Check into it.
Six years after the Raw Deal, the unemployment rate was still the same while the country was deeper in debt. If you think central control of an economy out of a government office is the way to go, then you must love the USSR, Cuba, and The Fed.
Only if they hire people to draft the jobs bills.
They LONG AGO passed a full employment act ... but it only applies if you are the head of a TBTF bank, giant energy producer, or defense contractor ...
'speculative commodity plays'
as in people buying things for the future?
will somehow the non favored rich be prevented from taking delivery of a million tons of sugar (morgue) while others (morgue) get to buy more as the price falls?
what the heck rouse do people need?
The litany now rises amongst the national/global players about the cost of central production and localised delivery which now implies exploding transport prices for retail chain logistics...Watch out Mcdonalds! Watch out Wal Mart...you are now in the margin crunch full swing. So.... retail chains are now going to sizzle if their transport costs soar...
+1 for making it through an article without using the term "gulf oil"
There's not a big GULF between financial news, the economy, OIL prices, oil spills, war in Libya and Iraq and Afghanistan, the Japanese nuclear meltdown, rising food prices ... it's all connected (top 1% or - as Tyler points out - really the top .1%)
I think the confusion about this comes from the fact that our monetary generals are "fighting the last war." That is, everyone is thinking about inflation as if it the 1970's with the whole "wage/price" spiral. Of course when wages are rising this fuels inflation across the board. But thanks to the successful war against the evil unions the wage/price spiral mechanism no longer holds. we have a different kind of "inflation" but it is not based upon an increase in wages fueling demand but something different. We have weak demand inflation. Incomes have not risen and consumers cannot really borrow any more but they still need things like food and shelter.
So taking our heads out our spreadsheets for a second it is easy to see that people are going to spend their money on necessities first followed by luxuries. Secondly, an "asset" is only as good as what it can produce. Thus no matter what a home cost to build, it only has a "value" in terms of what people are willing and able to pay for it. This in turn is a function of all of the costs associated with owning that asset. Thus if a home costs $500 more a month to heat, all things being equal, my price point for that home is now $500 less a month. If you say that I will make that up in asset appreciation, you are smoking crack.
We will not see typical "inflation/deflation" in this cycle. Those statistics are a body count from another war. This war will be fought when we realize what we are fighting and it is going to be much harder to see and understand. The financialization of America away from creating true assets is what we need to fight. Absent true reform (which will probably require an even bigger disaster) we will be left with worthless companies and piles of debt that are a yoke around our neck.
>>I think the confusion about this comes from the fact that our monetary generals are "fighting the last war."<<
no, they are fighting this war. the mistake you make is you think they are actually working for america when they are actually a bunch of liars working against america.
they will try and loot everything they can from you - and this looting is all that their polciies promote.
Unions do nothing but bankrupt private and public entities. Why would any educated, motivated employee need a union?
Some one has been playing handball with your head too long. When you give one player all the chips (power) you don't have a game you have slavery (powerlessness) Go read your namesake again. Milestones
What about someone born poor in West Virginia? I went to school in Pittsburgh. You're quite correct that unions were inappropriate in the coalfields in the 19th century. Stringing the bosses from trees would barely have been justice.
I sympathize with your blanket condemnation of unions, but there are two types of unions. One extreme is an organization of workers who don't want to work in sweat-shop or dangerous conditions; the other extreme are "public" unions whose employers have a monopoly anyhow, like city services, public transportation, etc.
Strikes by public unions deny citizens the services that they paid taxes to get. That is patently unfair. Strikes by private unions for whatever reason are generally (ideally) no business of the government. There are numerous shades of difference in these two extremes, but I'm just quibbling with your blanket statement. There is nuance that must be considered. Frankly, I don't have a dog in either fight.
Here you go....
Look the commod story is the current hot story such that those who have.....can be bilked again by the likes of GS and other large market facilitators....Even the top 1% will believe the commodity story....
Make no mistake....it does not matter to the big banks what the label of the paper is...as long as it has sizzle...and can be bilked....The rest of the world does not matter whatsoever....
This is Blankfein...and his ilk´s world....These type of people do not have the true grit American qualities that made America great....These are the slick NY money hucksters that would sell their youngest child for a dime....
The key point here being as long as these type of people are allowed to walk around scot free ....they will bilk anyone who has the money that believes their stories....
Don´t think so....THINK AGAIN....
The US needs to get rid of this diseased ILK set....or it will die the economic death that it already is dying of....
You can't eat food or clothing.
As long as dildos and ipads are affordable there is no inflation.
I don't fucking get it. Inflation and deflation at the same time? No fucking shit. Things nobody can afford - houses, cars - go down in price, given the fact that there are NO FUCKING BUYERS. Things that people need - food, gas - go up in price because FRNs are worth shit but people still need to eat and get to work. Where's the fucking debate?
So let's hang the spectulators. Fuck.
Inflation in the things you need, deflation in the things you want but don't need to buy. It's as simple as that.
The speculators are fueled by Bernanke thin air bucks speculating with that money buying on margin driving commodity prices higher.
Gold and silver are the real money bellwether indicating the true value of paper money with a very small commodity component attached to them.
I'm an absolute pacifist. But if anyone was to die, it should be the banksters running this world, not the alleged "I-S-L-A-M-O TERRORISTS" advertised 24/7 by every (Talmudic) MSM.
I'm almost always opposed to the death penalty, but it wouldn't bother me a bit if we executed the bankster-in-chief and turned off his printing presses.