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A Tale Of Two Inflations: Why US CPI Is Flawed And Why Bernanke Will Maintain ZIRP As Revolutions Rage

Tyler Durden's picture





 

For all those wondering why the Federal Reserve will likely never hike rates on the basis of undisputed surging food and energy prices, here is the reason: in the US, the food component as a percentage of overall CPI is 7.8%. In China it is 31.4%. In India 47.1%! The US CPI, therefore, is a completely irrelevant metric when it comes to measuring the one factor that has been responsible for two revolutions already year to date. In other words, if food prices were to double, US CPI would go up by 7.8%, while in China it would grow by nearly 50%. As Nicholas Colas observes when he looks at this data: "This dichotomy points to the potential for increasingly disparate monetary policies when comparing the Federal Reserve future actions to other central banks." This is a huge point that needs far greater prominence in the media, as it confirms that the very models that run central planning for the world's increasingly more involved and desperate central banks are so divergent that it is likely that the US will continue exporting inflation to the developed world long after most of its drowning in bloodshed and rioting. Genocide Ben indeed.

The chart below is all one needs to realize just how great the food price impact variation is for various central planning committees:

Note the US and India at the opposite ends of the spectrum!

For those who wish to learn more, here is Nic Colas of BNY explaining why this really is "a kinda big deal":

It is called “Tonghuo pengzhang” in China and “mudrasphiti” in India; in the U.S, the word is “inflation.” And, just as the word is different in each country, so are the weights given to various components in the baskets used to calculate price inflation all around the world. In this note I will focus on how the recent price spikes in food and energy commodities filter through to the Consumer Price Index (CPI) used by a variety of countries to measure their rate of inflation.

The reason to focus on food and fuel is easy to explain – the prices of both have risen dramatically in the past 12 months. Two points here:

  • According to the Food and Agriculture Organization of the United Nations (FAO) Food Price Index, the price for basic food commodities around the world is up 28.3% over the past year. See here for more details: http://www.fao.org/worldfoodsituation/FoodPricesIndex/en/. The price of a barrel of oil has risen by 19% over the same period (see attached chart). Compare these changes to how financial assets such as the S&P 500 have performed – up 24% in the past 12 months – and you will see that the commodities complex has largely kept pace with traditional risk assets such as equities. That is a function of low interest rates in the U.S. and Europe as well as infusions of incremental liquidity from the quantitative easing.
  • More disturbing than the rapid increase in price for these basic and necessary commodities is the fact that these prices are now much more correlated than at any point in the last 2 decades. While the overall correlation for the FAO Food Price Index and spot prices for oil is only 14% for the period from 1990 to the present, this relationship is 61% for the past 6 years. From 1990 to 1995, it was  actually -22%.

Yet while the rising tide of global inflation may be lifting both energy and food prices in lock step, the effect of these changes does not fall equally on all countries. The accompanying charts show the proportion allotted to food and fuel prices in the Consumer Price Index calculations for 25 countries, across a wide swath of the developed and emerging economies of the globe. Three points merit attention:

  • Food and energy are an unusually small portion of the basket of goods and services used to calculate the CPI inflation rate for the United States. They are a combined 16.4% of the CPI basket versus an average of 26.4% for the +20 other countries we sampled for this note. Rising food and energy prices therefore effectively have a 60% greater impact on the rest of the world’s inflation metrics than they do on these measurements in the United States.
  • Yes, we know that economic purists focus on “inflation expectations” rather than simplistic and rearward looking price surveys. At the same time, monetary policymakers around the world do lean quite heavily on CPI measurements to evaluate their next moves. And inflation expectations can rise quickly once the general interest news media latches onto the story that CPI price inflation is marching higher.
  • This disparity is most pronounced in comparing the American economy to those of emerging markets. Take, for example, weighting for the food component in various countries’ CPI measurements. The U.S. has the lowest percent allocation for food of any country in our sample, at just 7.8% of the total CPI basket. The average for the other 24 countries is 17.3%, and this includes developed economies such as Japan (19%), Sweden (14%) and Germany (10%). But at the far end of the distribution are two important emerging markets – India (47%) and China (31%). It certainly makes sense that still-developing economies with low income/capita would have higher proportions of consumer spending going towards food. But this means that the food inflation we noted at the top of this piece falls disproportionately on these economies and their citizens relative to the United States.
  • The spread for the energy component of CPI is less pronounced, but still visible. The cost for gasoline, heating oil and natural gas takes up 8.6% of the average U.S. consumer’s expenditures according to the weightings of the American version of CPI. That is lower than the rest-of-world’s 9.1%. India, which is not yet as motorized as many emerging economies, is only at 5.5%.

These differences are important, to my mind, because of what they tell us about prospective central bank policies around the world. The U.S. will be quite literally the last country to feel dramatic inflationary pressures from rising food prices. This leaves the Federal Reserve open to keeping its current policies in place, everything else equal, than any other central bank. At the other end of the spectrum, the high percentage of food costs represented in Chinese CPI means that central bankers there must be more aggressive in their fight against rising inflationary expectations.

 

 


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Fri, 02/11/2011 - 11:30 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

The post is an excellent illustration of the calculus of food inflation as it relates to Fed policy.  However, it does not address the complex variables of food subsidy programs, like SNAP, which exacerbate the problem.

America could save more than $10 billion in 2011, and much more in subsequent healthcare costs in the years to follow.  How?  Simply require SNAP participants to qualify for benefits each month by stepping on a scale.  If a participant's Body Mass Index (BMI) is above CDC standards for obesity(1), then they would not be eligible to receive SNAP benefits for the month.

In 2010 the USA printed and taxed its citizens $64,704,466,071 to pay for the SNAP program (2).  At least 20% of Americans are overweight (3).  If 20% of the SNAP participants failed to qualify, then that equates to more than a $12 Billion savings each year.  I know may not seem like much money in today's Bernank-e-con-omy, but we need to start somewhere. 

The real savings come if people actually do lose weight.  In a study funded by the CDC it was determined that, "The annual healthcare cost of obesity in the US has doubled in less than a decade and may be as high as 147 billion dollars a year (4) says new government-sponsored research."

"Lead author Dr Eric Finkelstein, director of RTI's Public Health Economics Program, and colleagues analyzed data from the 1998 and 2006 Medical Expenditure Panel Surveys,"  according to Medical News Today.  They found that:

·         In 1998 the medical costs of obesity in the US were estimated at around 78.5 billion dollars a year, half of which was financed by Medicare and Medicaid (government health insurance for seniors and families on low incomes).

·         Between 1998 and 2006, the prevalence of obesity in the US went up by 37 per cent.

·         This rise in obesity prevalence added 40 billion dollars to the annual healthcare bill for obesity.

·         The annual healthcare costs of obesity could be as high as 147 billion dollars for 2008.

·         Obesity is now responsible for 9.1 per cent of annual medical costs compared with 6.5 per cent in 1998.

·         The medical costs for an obese person are 42 per cent higher than for a person of normal weight.

·         This equates to an additional 1,429 dollars per year: the costs for an obese person on Medicare are even greater.

·         Much of the additional Medicare cost for an obese person are the result of the added prescription drug benefit.

·         Medicare prescription drug payments for obese recipients are about 600 dollars a year more than for normal weight recipients.

·         Obesity accounts for 8.5 per cet of Medicare expenditure, 11.8 per cent of Medicaid expenditure, and 12.9 per cent of private insurance expenditure.
 
Finkelstein told the press that, "Although bariatric surgery and other treatments for obesity are increasing in popularity, in actuality these treatments remain rare.  As a result, the medical costs attributable to obesity are almost entirely a result of costs generated from treating the diseases that obesity promotes."

The FLOTUS with the toned arms and garden, Michelle Obama, and the USDA, both seem to believe this is an important issue.  From the First Lady's website, www.Letsmove.gov (5):

"The Dietary Guidelines for Americans, put forth by the U.S. Department of Agriculture (USDA), provide science-based advice for individuals over the age of two to promote health and reduce the risk of major chronic diseases. The current Dietary Guidelines, encourage most Americans to eat fewer calories, be more physically active, and make wiser food choices."

I sure wish the person we are paying to oversee our Nation's health, the Surgeon General of the United States of America, would throw her weight behind this idea.  I have not heard anything from her in two years in office.

 
Sources:
1.  http://www.cdc.gov/healthyweight/assessing/bmi/
2.  http://www.fns.usda.gov/pd/34SNAPmonthly.htm
3.  http://www.cdc.gov/obesity/data/trends.html
4.  http://www.medicalnewstoday.com/articles/158948.php
5.  http://www.letsmove.gov/eathealthy.php

Fri, 02/11/2011 - 11:35 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Way too complicated.  Let the food subsidies be doled out from the twentieth floor of a high-rise with no elevators.

Fri, 02/11/2011 - 11:50 | Link to Comment GoinFawr
GoinFawr's picture

hahaha!

Fri, 02/11/2011 - 14:22 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

hahaha indeed - but US food over-consumption is just a drop in the ocean compared to India's and China's increase in consumption.

And that is what is causing global food inflation, combined with supply shortages. So the whole premise of this article is false:

A Tale Of Two Inflations: Why US CPI Is Flawed And Why Bernanke Will Maintain ZIRP As Revolutions Rage

It has been pointed out again and again that global food price inflation has not been caused by dollar inflation.

For example see global food prices not going up during much of QE1 (from mid 2009 to mid 2010) and being decoupled from other commodity prices:

https://lh5.googleusercontent.com/_VgJQTp0Bsf0/TU6_YfTtTSI/AAAAAAAAAMU/2...

Instead they started going up last summer when key grain production areas in Europe were hit by record heat-waves ...

This kills the whole "dollars newly printed are moving up commodity prices" notion. Reality of global food prices of the past 2 years show that this is simply not true.

Or go to a 20 years history of dollar strength and see 40%+ dollar inflation during the Greenspan era of "printing dollars":

http://research.stlouisfed.org/fred2/graph/fredgraph.png?&chart_type=lin...

If Bernanke's 5% USD weakening caused 30% global food price increases then how come Greenspan's 40% USD weakening was not accompanied by 240% of global food prices increases?

So all the data suggests that the whole "the Fed is the cause of global food price increases" theory reported on ZH is a lie.

You may consider Bernanke the evil reborn, you may disagree with the concept of central banks - but you should not lie to make your points ...

As one of the Ten Commandments declared: "You shall not bear false witness against your neighbor".

 

Fri, 02/11/2011 - 14:24 | Link to Comment thedrickster
thedrickster's picture

Dear lying sack of shit who refuses to answer posts in which he is substantively challenged. I preempted your arrive to this thread two hours ago, see post #952724.

Are you really such a shilling sack of shit that you cannot address this chart:

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximize...

Was the Russell 2K also hit by a heat wave fucker?

 

 

Fri, 02/11/2011 - 15:10 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

Call me a dummy but have you posted this graph to support my position? If you pull the slider just a tad wider you will get the 'big picture':

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

See how detached food prices in dollars (NYSE:DBA, the blue line) are from the other symbols you compared it to? See how QE1 'risk off' left food prices within a narrow channel from 2009 to mid 2010?

See how the blue line started rising in the summer of 2010, as record heat-waves started making it clear that the grain harvest in eastern Europe was in trouble?

Record heat like the first ever 100F temperature reading in Moscow in the summer of 2010, in hundreds of years of meteorological record-keeping:

http://news.nationalgeographic.com/news/2010/08/photogalleries/100810-ru...

2010 was also the hottest climate year on record:

http://data.giss.nasa.gov/gistemp/tabledata/GLB.Ts+dSST.txt

 

Here's an even better chart of the correlation, still using your NYSE:DBA global food prices chart but comparing it to dollar inflation (the dollar index):

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

How come QE1 had no effect whatsoever, while global food prices started rising well before QE2 was started? Perhaps because in 2009 there was a good harvest while in 2010 we had a very poor harvest?

So yes, your own chart shows that you are wrong. Or are you one of those who does not take 'no' as an answer? :-)

 

Fri, 02/11/2011 - 15:21 | Link to Comment thedrickster
thedrickster's picture

I am beginning to think that I may have the damaged cortex, that or you are the most obtuse & dishonest fucker I have encountered.

How can you bring USDX in the discussion without addressing my actual point and the GLARING issue right there in front you.

DBA, QQQQ and the Russell 2K are PERFECTLY correlated from Aug (front running QE2) until risk off. This is a melt-up.

Then again you devolve back into pure conjecture that food prices were flat during QE1 and that somehow proves your point?

Let's look again at the chart;

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=Linear&c...

What do you know, assets correlated again. From Nov 08 to Mar 10 look at the correlation between ag commods and the Russell 2K. Note it doesn't break down until the QE1 risk off in the first Q of 2010. Again anyone who operates in reality and doesn't spend all day on a Fed branch website knew this implicity, EVERYTHING WAS FUCKING CORRELATED.

I think there are plenty of theories out there as to where QE1 ended up, I'm not sure to which I subscribe. That said if you cannot see the melt-up from Aug 2010 on, I truly cannot help you. Rather than proposing a hypothesis other than the run up to and execution of QE2, hot money melting up every risk asset class in the world, YOU BLAME A FUCKING DROUGHT.

You are a fraud, go away.

Fri, 02/11/2011 - 16:03 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

DBA, QQQQ and the Russell 2K are PERFECTLY correlated from Aug (front running QE2) until risk off. This is a melt-up.

You are making a rookie mistake here and you are blaming me for it :-)

Do you know why their values are correlated? Because they are all priced in USD so (all other things being equal) their charts will obviously follow the ebb and flow of the dollar (DXY).

But if you want to see the real effective global food prices, the real prices non-US countries pay for food import, then you need to transform that chart to the USD-neutral 'global currency basket', i.e. you need to create an invariant chart like I did in the second chart I linked to:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

I posted a similar chart previously:

https://lh5.googleusercontent.com/_VgJQTp0Bsf0/TU6_YfTtTSI/AAAAAAAAAMU/2...

That shows the baseline of how those countries are seeing food import prices in their own currencies. And yes, this is basic stuff.

I even posted an example calculation of how this works in practice, I showed a sample commodities trade transaction between India and Russia:

http://www.zerohedge.com/article/did-wikileaks-confirm-peak-oil-saudi-sa...

But the ironic thing is that even if in the original USD-obscured chart you posted the big non-QE global food price surge starting in mid 2010 can be seen very clearly, if you widen the time-scale a bit:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

You have to be blind to not see the blue line of food prices going from sideways movement for more than a year to a straight +40% dash :-)

 

Fri, 02/11/2011 - 16:33 | Link to Comment Stimulus Billy
Stimulus Billy's picture

Please, all of you, do not confuse reality (the cost of eating) with the value of stock market indexes.

Fri, 02/11/2011 - 17:40 | Link to Comment thedrickster
thedrickster's picture

I am done with you but can't let this post go.

Are you really so focused on a summer weather induced food price spike obfuscation to not see the obvious here?

https://lh5.googleusercontent.com/_VgJQTp0Bsf0/TU6_YfTtTSI/AAAAAAAAAMU/2...

Look at the correlation, presumably all non-food commodities begin an upward move with food in July 10 (at perhaps an albiet SLIGHTLY lower rate given the relative slopes). What say you to this, drought? I say QE1 finally shows up in commodities pits.

Layer the baltic dry index on top of your charts, what does that look like?

Finally I don't see how a focus on USD denominated asset prices is a "rookie mistake". What is the topic of conversation here? What is the hypothesis? 

How does the lockstep rise in USD denominated risk asset prices absolve the Fed and QEx? What I see and what I am interested in is ANOTHER Fed blown asset bubble. This isn't ebb & flow, this is a move with conviction. 

So by all means tell those pegged to the USD and net food importers crossing in USD, that USD asset prices are irrelevant to the discussion.

 

Sat, 02/12/2011 - 05:58 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

Look at the correlation, presumably all non-food commodities begin an upward move with food in July 10 (at perhaps an albiet SLIGHTLY lower rate given the relative slopes). What say you to this, drought?

You misunderstood the graph, the blue line is all commodities - food included. It necessarily bears the characteristics of food price movement as well.

Compare oil to the dollar index for example, over the same time period:

http://chart.finance.yahoo.com/z?s=BNO&t=1y&q=l&l=on&z=l&c=UUP&p=s&a=v&p...

This shows you not only the inverse price correlation with the dollar index but will also tell you that during this period there was an about 20% increase in the real (global) value of oil, while food rose by 40%+.

It will also show you that the general macro pattern of oil price movement is different from that of food price movement: while food prices moved up by 40% almost in a straight line (as the supply worries increased in probability and started to sink in and play out) the oil price movements were in 'waves', as various supply worries and political instabilities in 2010 shaped it.

You can see key oil events there such as the rises and drops during the summer as worries about the BP oil-spill efforts were increasing / dropping.

In that graph you will also see much of the 20% rise in real oil prices happened after late November 2010. (the 'increase' in prices visible before that in the graph was mostly due to the weakening in the dollar [the green line]: global oil prices remained relatively unchanged.)

So under your theory, do you think that food prices started increasing in the summer, magically frontrunning the Fed's September QE2 decision (which was based on the catastrophic August 2010 core CPI reading) - while oil prices waited until December 2010??? Your theory of commodity price increases being linked to QE2 liquidity makes no sense at all :-)

So by all means tell those pegged to the USD

Do you mean those who voluntarily pegged themselves to the USD via selling the yuan and buying the dollar, despite the US asking them not to peg?

So you are mixing up cause and effect again: by all means I'm telling them to stop doing that if it hurts  ...

 

Fri, 02/11/2011 - 15:23 | Link to Comment thedrickster
Fri, 02/11/2011 - 16:11 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

This reply applies to your updated chart too:

http://www.zerohedge.com/article/tale-two-inflations-here-why-us-cpi-ind...

Note that you can still see the USD 'micro-structure' in pricing even in 2007-2008 - there was no QE back then ... :-)

And yes, USD micro-structure is a common property of pretty much all USD instruments that have some sort of foreign trade link. (and most of them have)

Btw., what we can see in the 2007-2011 chart is another interesting thing: the huge 2008 commodities supply squeeze.

In any case, my conclusion still stands: you are confusing the ages-old USD micro-structure/correlation of commodities prices (their inverse correlation with the dollar's strength) with a QE link. You need to look at 'global/currency-neutral' price charts if you want to see the real forces that move global commodity prices.

 

Fri, 02/11/2011 - 17:48 | Link to Comment thedrickster
thedrickster's picture

FYI it's not me junking you.

" you are confusing the ages-old USD micro-structure/correlation of commodities prices (their inverse correlation with the dollar's strength) with a QE link."

And what is driving USD strength at this point?

Fri, 02/11/2011 - 22:41 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

It does not matter, because when the dollar index ticks up, commodities tick down ...

They are in an inverse relationship. They compensate out. Commodities are priced globally, not by the USD. When the dollar weakens by 1% then oil goes up by 1% (all other things being equal). So the price of oil to India or Russia stays largely constant. And that's expected: nothing happened on the oil market, only the dollar got weaker, why should India pay less or more for Russian oil??

Do you really still not understand this simple concept?

This is why you see the Russell 2K or other indices correlating with commodities prices.

 

Sat, 02/12/2011 - 00:52 | Link to Comment thedrickster
thedrickster's picture

After nearly 12 hours I think I have won.

You concede the Russell 2K and the Qs tick along with commodities, in fact you readily assert inverse dollar correlation.

That said, why not just inflate down to nominal zero? Then obviously by your metrics the R2K would stand at 90K and I would be filthy rich beyond any parasite's wildest dreams.

Sat, 02/12/2011 - 01:07 | Link to Comment thedrickster
thedrickster's picture

Fundamentals?

Fuck that, do QE9, buy 20T in long bonds and ride the wealth effect to nirvana.

Fri, 02/11/2011 - 18:50 | Link to Comment meizu
meizu's picture

heat-waves, droughts, supply shocks can at most cause temporary price increase

Fri, 02/11/2011 - 14:30 | Link to Comment thedrickster
thedrickster's picture

" then how come Greenspan's 40% USD weakening was not accompanied by 240% of global food prices increases?"

Greenspan's asset bubble was in tech followed by housing. The Bernank's bubble is bringing every risk asset along for the ride.

I don't doubt that there is organic demand & supply crunch within the ag commodity future bubble but for you to discount the global risk asset bubble that is apparent to anyone that cares enough about their cerebral cortex to not spend all day on Fed Branch banks' websites, is just a fucking lie, period. Shilling, obfuscation, flat lying to protect your (likely) employer or benefactor.

Asshole.

 

Fri, 02/11/2011 - 14:37 | Link to Comment Sophist Economicus
Sophist Economicus's picture

Well done!   Now, for god's sake, take it easy.....So many more posts, so little time - gotta save yourself for things that matter - not stupid trolls

Fri, 02/11/2011 - 15:09 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

Greenspan's asset bubble was in tech followed by housing. The Bernank's bubble is bringing every risk asset along for the ride.

The hard data of global food prices over both QE1 and QE2 destroys that hypothesis quickly:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

(the blue line is 'global food prices', approximated via a food commodities fund and a dollar index fund.)

As ZH reported it so prominently in 2009, QE1 was a global 'risk off' all-out liquidity rush as well.

How come global food prices ... went down up until the middle of 2010?

Maybe this helps you understand what happened in the middle of 2010 (and QE2 only started months after the food uptick):

See how the blue line started rising in the summer of 2010, as record heat-wavesstarted making it clear that the grain harvest in eastern Europe was in trouble?

Record heat like the first ever 100F temperature reading in Moscow in the summer of 2010, in hundreds of years of meteorological record-keeping:

http://news.nationalgeographic.com/news/2010/08/photogalleries/100810-ru...

 

Fri, 02/11/2011 - 15:30 | Link to Comment thedrickster
thedrickster's picture

"See how the blue line started rising in the summer of 2010, as record heat-wavesstarted making it clear that the grain harvest in eastern Europe was in trouble?"

Magically QQQQ and the Russell 2K tick and the same time and show nice correlation. Again it must be another case of a drought induced tech bubble...I'm sure some asshole economist at the Fed has proven it conclusively.

Fri, 02/11/2011 - 16:19 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

Magically QQQQ and the Russell 2K tick and the same time and show nice correlation.

Of course, as all are priced in USD and all instruments involve a lot of foreign trade so their 'real price' correlates inversely with the USD's strength. What else did you expect?

This correlation is visible for decades going back, pretty much ever since commodities markets existed ...

If you want to see the real effective global food prices, the real prices non-US countries pay for food import, then you need to transform that chart to the USD-neutral 'global currency basket', i.e. you need to create an invariant chart like I did in the second chart I linked to:

https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximiz...

This chart shows the baseline of how those countries are seeing food import prices in their own currencies.

I've been trying to explain this to you ever since you started arguing this point.

I expected an eventual "indeed you are right, silly me!" reply from you - instead you are hurling insults at me. Could we please settle this question finally? It's not rocket science.

 

Fri, 02/11/2011 - 16:23 | Link to Comment thedrickster
thedrickster's picture

"the real effective global food prices, the real prices non-US countries pay for food import,"

Because net food importers buy food in their local currency? Oh wait.

Fri, 02/11/2011 - 17:26 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

Because net food importers buy food in their local currency?

Correct, they have their local currency to buy food with, and if you follow the link I gave you:

http://www.zerohedge.com/article/did-wikileaks-confirm-peak-oil-saudi-sa...

You'll see that that's precisely what happens in the end: they have their local currency which they convert to USD, which the seller of the commodity converts to its own local currency:

(X/Y) * (Y/Z) = X/Z

The 'Y' rate, USD, is largely eliminated from non-US trade transactions.

The USD is an intermediary currency and its numeric, exchange value is largely immaterial - what matters to the oil transaction I linked to is the Rupees->Rubles exchange rate and the price of the commodity (which compensates for USD fluctuations).

If you check the intraday charts you will see that most commodity prices will fluctuate up and down daily to eliminate the effects of the USD rate - inversely to the dollar index.

 

Fri, 02/11/2011 - 18:16 | Link to Comment thedrickster
thedrickster's picture

Algebraically in a vaccumm sure, unless X must equal Y. That would be CNY no?

Fri, 02/11/2011 - 22:46 | Link to Comment More Critical T...
More Critical Thinking Wanted's picture

 

CNY is not 'X equals Y' - China does not print dollars.

It is: "every time China sees the dollar weakening, it voluntarily (and against the US's express wishes) sells yuans and buys dollars - to undercut US export/production prices."

That is equivalent to: "Every time the dollar weakens I pull out a bit of hair. Do I get to blame Bernanke for my eventual baldness?"

 

Sat, 02/12/2011 - 01:05 | Link to Comment thedrickster
thedrickster's picture

"against the US's express wishes"

You are lying again.

It's not parasitism, in this case it is quite symbiotic. With the Fed having just past China in absolute holdings, without the peg demand for US Treasury securities at the current yield colllapses.

The peg is all the Empire has left and amazingly totalitarian collectivists like yourself condemn it, your salvation.

So am I correct in saying that 1) The Fed's actions have no impact on China's various bubbles and naturally without the Renimbi peg and the requisite demand for US treasuries, the US fiscal house of cards would come crashing down with the Fed already being the largest single holders of USTs and derived CNY demand having passed away.

Organic demand died 3 years ago.

Plug this into your model, the risk free asset is now toxic paper.

Fri, 02/11/2011 - 15:25 | Link to Comment thedrickster
thedrickster's picture

Sorry I just really hate the shilling ivory tower fed sycophant type.

That and this little bastard was one of the shrieking Giffords commissars.

I will be a grown-up now and forget he exists, I promise.

Fri, 02/11/2011 - 18:43 | Link to Comment meizu
meizu's picture

"Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply"

http://en.wikipedia.org/wiki/Inflation

crack open any Introductory Economics text book, it will tell you you can not generate sustained price inflation from supply shocks, you can only do it by increasing the money supply

Fri, 02/11/2011 - 18:46 | Link to Comment meizu
meizu's picture

"Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply"

http://en.wikipedia.org/wiki/Inflation

open any Introductory Economics text book, it will tell you you can not generate sustained price inflation from supply shocks, you can only do it by increasing the money supply

Fri, 02/11/2011 - 12:29 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Never tasted banker - the flesh is perhaps a little too rich for my taste.

Fri, 02/11/2011 - 11:36 | Link to Comment Bob
Bob's picture

Fat chance of that!  Even conservatives will reject it as government intrusion. 

Fri, 02/11/2011 - 11:49 | Link to Comment Sean7k
Sean7k's picture

Well, we could also outlaw the sale of soft drinks and fast food as well. Let's get rid of snacks and ice cream- or we could put scales in the markets and let a person's BMI determine which foods they could buy as well. Actually, most "production" prepared foods contribute to this problem- therefore, we should outlaw all those as well and require people to cook from scratch. 

We probably should look into pesticide, herbicide and fertilizers used on food and livestock as these likely cause cancer and we all know the cost of cancer. Cigarettes would need to be outlawed as well- they kill more people than everything combined. 

We could really start saving money if we got rid of war...

Fri, 02/11/2011 - 11:51 | Link to Comment GoinFawr
GoinFawr's picture

tumours love their fructose!

Fri, 02/11/2011 - 11:57 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

You can have all of those things, just stop requiring me to pay for it now...

...$64,704,466,071 to pay for the SNAP program

...and later when you become ill:

Obesity accounts for 8.5 per cent of Medicare expenditure, 11.8 per cent of Medicaid expenditure...

Fri, 02/11/2011 - 12:05 | Link to Comment Sean7k
Sean7k's picture

I want to stop paying for EVERYTHING, but in the land of totalitarian centrally planned socialism it will require a revolution. I also suspect you are thin. Not that I'm obese, I'm not. Picking and choosing your favorite government expenditures merely pits one group against another.

Picking on the poor and hungry is somewhat cruel. Perhaps we can agree that the devastation practiced by the bankers is a bigger problem and either seize their assets to pay for this or just kill them all and start over. That seems like a fairer solution to me. 

Fri, 02/11/2011 - 12:07 | Link to Comment Bob
Bob's picture

Pragmatism ftw.

Fri, 02/11/2011 - 12:08 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Picking on the poor and hungry is somewhat cruel.

Hungry people are not obese.

Fri, 02/11/2011 - 12:11 | Link to Comment Bob
Bob's picture

Social engineering just won't play well on this one. 

Fri, 02/11/2011 - 12:19 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Then good luck with means testing on Medicare.  How is that not social engineering that selects spenders and slackers over savers and producers?

Furthermore, how is a progressive income tax not social engineering?

Fri, 02/11/2011 - 12:29 | Link to Comment Bob
Bob's picture

Just yanking your chain!  I just can't see trading good health for food as politically tenable.  That doesn't make it bad . . . just irrelevant.

Fri, 02/11/2011 - 12:28 | Link to Comment Sean7k
Sean7k's picture

Well, you could move somewhere everybody is hungry. Africa has some nice malnutrition, North Korea is probably a hot bed of thin people. 

You are selecting a slice of the population to practice complete social control. You aren't even interested in their health, only the cost to you. 

Until you're willing to call for the same control over all aspects of fiscal waste, you are just another authoritarian central planner. Who will be next? Is this not the basis of 1984? You want to promote tyranny? 

I've read your posts and that is not you. 

Fri, 02/11/2011 - 12:31 | Link to Comment Bob
Bob's picture

The poor will become the exemplars of all our highest ideals as they--unlike everyone else--will have to be perfect to earn their keep.  It'll be like an inspirational zoo!

Fri, 02/11/2011 - 13:13 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

The poor are fattened up, dumbed down, drugged out, and penned in. 

The poor are being farmed for votes.

 

Fri, 02/11/2011 - 14:28 | Link to Comment Bob
Bob's picture

Well said.  Of course, structural unemployment needed to maintain labor "liquidity" under the best of conditions will inevitably create an underclass over time. 

Fri, 02/11/2011 - 13:11 | Link to Comment piceridu
piceridu's picture

Hungry people are not obese.

Please read Good Calories, Bad Calories by Gary Taubes
This book will change the way you think about being fat and food.


Fri, 02/11/2011 - 13:27 | Link to Comment Diogenes
Diogenes's picture

But obese people are always hungry.

Fri, 02/11/2011 - 12:20 | Link to Comment GoinFawr
GoinFawr's picture

Love it Sean, but you can't kill bankers. They are like that broom Mickey conjured up in Fantasia: chop 'em up and they will rise a thousand fold more determined, self righteous and indignant than ever. No, best to hit 'em right where their skeevy little hearts lie, their assets. Knock their egos down and put 'em to work sweeping up at homeless shelters in bright orange jumpsuits.

Put 'em in the stocks and let people throw commodities (puns intended) at their heads; we'd soon see if they still wanted to include PM's in that basket!

IMHO, natch.

Fri, 02/11/2011 - 12:29 | Link to Comment Sean7k
Sean7k's picture

Lol. The entertainment value would be off the charts and the poor could work off a few pounds. Sounds like a win-win to me!

Fri, 02/11/2011 - 14:35 | Link to Comment taint
taint's picture

can I throw high velocity pb?

Fri, 02/11/2011 - 14:19 | Link to Comment flattrader
flattrader's picture

Eat the rich.

Then the vegans.  They are grassfed and all natural.

Fri, 02/11/2011 - 12:01 | Link to Comment MrBoompi
MrBoompi's picture

Children are also fed under the SNAP program, so like all other forms of welfare some would punish innocent hungry children for the actions of their parents. I'm not making a judgement just pointing this out.

If we want to talk about "fat" as it relates to the budget we could collect a lot more from raising taxes on the top 1/2% than withholding food stamps from the obese.

Fri, 02/11/2011 - 12:02 | Link to Comment Canucklehead
Canucklehead's picture

About that obesity factor business...

... BMI provides a reliable indicator of body fatness for "most" people and is used to screen for weight categories that "may" lead to health problems...

Anyone familar with the subject knows that genetic disposition has a lot to do with your weight.  Have you seen many tall/thin/svelte Inuit lately?  What about "stocky" eastern europeans?

Ah yes, the application of scientific principles to generate a tax base.

HH, are you "involved with"/"hawking" carbon credits? 

You realize this is simply "Global Warming Tax 2.0".

Fri, 02/11/2011 - 12:24 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

Enjoy your free Cheese Whiz and Medicare angioplasty.

You earned it.

Fri, 02/11/2011 - 12:51 | Link to Comment RobD
RobD's picture

BMI is totally useless as a test for heath. When I was in the Navy back in the 80's they used BMI to determine if a sailor needed some extra physical training. It did not work so well when a few SEALS were found to have a "high" BMI. The Navy changed to a much better system that measured % body fat and walla all those SEALS were found to be in great shape.

Fri, 02/11/2011 - 13:23 | Link to Comment Diogenes
Diogenes's picture

That would work if all food was the same and if eating were voluntary. Unfortunately, a human being cannot stop eating cold turkey for a month at a time without suffering adverse health effects that overwhelm the health benefits of weight loss.

What is more not all food is the same in its effect on weight. The cheap, starchy, fatty foods, plus soda and beer supply the sustinance of the poor and working class. To get them to switch to fresh fruits, Arugula salad, vegetables, dry wine and Perrier  cannot be done for nothing.

Fri, 02/11/2011 - 15:16 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

"America could save more than $10 billion in 2011, and much more in subsequent healthcare costs in the years to follow.  How?  Simply require SNAP participants to qualify for benefits each month by stepping on a scale."

There you go, talking about solutions, solving problems, saving money.

Nobody in DC wants any problems solved. They're not interested in saving money.  They spend more money every chance they get, helping Bernokio keep the presses running and collapsing the currency, what he clearly said he wants to do.

Fri, 02/11/2011 - 11:24 | Link to Comment Michael
Michael's picture

Serious question.

Why can't the Federal Reserve just forgive the US bond debt it holds?

Fri, 02/11/2011 - 11:30 | Link to Comment Harmonious_Diss...
Harmonious_Dissonance's picture

Debt Forgiveness = Default (Bankers wouldn't like that)

Fri, 02/11/2011 - 11:40 | Link to Comment Michael
Michael's picture

Default to who? The Fed? The US owns the Fed. And don't tell me the Fed is a privately owned company.

I'm only talking about what the Fed holds.

Fri, 02/11/2011 - 12:20 | Link to Comment gwar5
gwar5's picture

The Fed is plenty private enough. They're a corporation, excluded from taxpayer oversight, have their own lobbyists, we can't audit them and have to sue them to find out what they're putting on the taxpayer dime. The Federal Reserve Act is specifically written so they don't have accountability, regardless of the facade. Fuck 'em. If they're just a branch of government they won't mind if we default. Just one example:

"The real issue about the Federal Reserve Bank hiring a lobbyist is corruption. A federally chartered agency should not be using money to hire lobbyists to influence Congress. By federal law (and and by the Federal Reserve's own account) all profits from the Federal Reserve are supposed to return to the U.S. Treasury (i.e., the taxpayers). Hiring a lobbyist robs the taxpayers of those dollars and corruptly uses taxpayer dollars to lobby directly against taxpayer interests. Congress should investigate the propriety of this action."  --- Thomas Eddlem, New American June 8, 2009.

Fri, 02/11/2011 - 16:10 | Link to Comment Boonie
Boonie's picture

The Federal Reserve Board ("Fed") is a public or governmental agency.  "Independent within the government" as they describe themselves on their website.  The Federal Reserve Banks ("FRBs") are in fact private banking corporations whose shareholders are the national banks within each FRB's district. 

In answer to your question, I think the Fed will "forgive" the debt, but with a catch.  Of course, there's always a catch.  The Fed and FRBs do not own the official U.S. gold reserves (let's assume those reserves exist at Fort Knox, West Point, and the Denver Mint with a relatively small amount in the FRB-NY's vault).  Those 8,000 or so tonnes are owned by the U.S. Treasury Department.  261,498,899.316 fine troy ounces valued at the "legal standard value" of $42.2222/ounce or a book value of $11,041,058,821.09.  In the U.S. annual financial statements FYE 9/30/2010, this gold is included in the balance sheet as with "Cash and Other Monetary Assets."  http://www.fms.treas.gov/fr/10frusg/10stmt.pdf.  See note 2 to the financial statements.  http://....../10notes.pdf.  This gold is "pledged as collateral for gold certificates issued and authorized to the Federal Reserve Banks by the Secretary of the Treasury."  The gold certificates are included in the "Other Liabilities" of the balance sheet.  See note 19.  "Treasury may redeem the gold certificates at any time." 

Next, go to any Federal Reserve Statistical Release, H.1, and the Consolidated Statement of Condition of All Federal Reserve Banks will show an asset entitled "Gold certificate account" and the most recent book value of $11.037 billion.  Go to Statement 9 and you will see how the "Gold certificate account" is allocated to each of the FRBs. 

That my friend is how the Fed and FRBs will forgive the debt.  When the crisis hits, they'll gladly do it in return for our gold.  The only question is whether they forgive the debt (currently $1.311 trillion and counting) for all of our gold, which means an ounce in $ terms of $5,016, or whether that will be part of the larger recapitalization of the whole $14 trillion + shebang, in which case we're talking a $ ounce of gold in the $30,000 or more and counting?        

Fri, 02/11/2011 - 11:33 | Link to Comment whatsinaname
whatsinaname's picture

At least you get 8-10 % on savings CD in India (thanks to perenially high food inflation maybe). Wonder what Chinese CD's yield ?

Fri, 02/11/2011 - 11:37 | Link to Comment gwar5
gwar5's picture

I've wondered the same thing. And why we can't get rid of the Fed.

I think it's coming in exchange for an IMF central bank.

I bet foregiveness of the Fed UST debt will be the carrot to sucker us in.

IMF discusses plan to replace dollar as reserve currency - Feb. 10, 2011

Bancor: The Name Of The Global Currency That A Shocking IMF Report Is Proposing

Fri, 02/11/2011 - 11:58 | Link to Comment packman
packman's picture

"Why can't the Federal Reserve just forgive the US bond debt it holds?"

For all intents and purposes - it is forgiving it, by continuing to buy ever-increasing amounts of it.

Using the brother-in-law analogy - your BIL borrows $1000, and agrees to pay it back in 1 year.  A year goes by - he can pay it back, but only if he borrows $2000 (because he now owes an additional $1000 to other people, that he can't pay back either).  So he borrows $2000 from you, and uses $1000 of it to pay you back the original $1000.

The underlying assumption is that eventually he'll get a job, and be able to pay you back the full amount.  Until then the "full amount" just continues to grow and grow.

 

Fri, 02/11/2011 - 12:03 | Link to Comment Michael
Michael's picture

I loaned my brother 3 grand 10 years ago and he just paid me back this year at zero interest. I didn't get bent out of shape about it.

Fri, 02/11/2011 - 15:34 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

"Why can't the Federal Reserve just forgive the US bond debt it holds?"

They are forgiving it. Slowly. By debasing the dollar.

And no, federal govt doesn't own the Fed.

Fri, 02/11/2011 - 11:24 | Link to Comment umop episdn
umop episdn's picture

If food prices were to double, the CPI may or may not increase. Depends on how the Gen Ben feels that day. Ignorance is strength!

Fri, 02/11/2011 - 12:08 | Link to Comment jus_lite_reading
jus_lite_reading's picture

Like I said, everything is upside down. BTW, sugar is down 2.2% today...

Fri, 02/11/2011 - 11:25 | Link to Comment MrTrader
MrTrader's picture

We are not living anymore in a free society - have never been, but in fascistic one where the FED decides about politics and the future not only of the US but of emergin markets policies and else! Revolution needs to be undertaken! Viva Che Guevara!

Fri, 02/11/2011 - 11:29 | Link to Comment JonNadler
JonNadler's picture

Che Guevarra?

Que mi**da estas diciendo?

 

As if Cuba is not fascist. Oh sure let's replace Bush-Obama-Bernank with Fidel,

Fri, 02/11/2011 - 12:06 | Link to Comment MrTrader
MrTrader's picture

Fidel, at least, has some "cojones grandes" !!!!

Fri, 02/11/2011 - 14:03 | Link to Comment JonNadler
JonNadler's picture

si er verdad

not fair to Fidel to compare them

Fri, 02/11/2011 - 11:36 | Link to Comment Michael
Michael's picture

I'm ready to go full bore in support of everything the Fed and Obama is doing. If today is opposite day, I believe the debt ceiling should be raised on a 5 year basis. Raise the debt ceiling to 20 trillion. Implement an immediate one trillion stimulus package to build high speed rail cross country. Make unemployment benefits unlimited. Pay full 4 year tuition for higher education up front to universities, defer pay back 30 years.

Can you think of any thing else to add to this list?

Fri, 02/11/2011 - 11:39 | Link to Comment Bastiat
Bastiat's picture

Send everybody with a SSN a check for $100K.

Fri, 02/11/2011 - 11:43 | Link to Comment Michael
Michael's picture

That doesn't count. You have to make it look somewhat legitimate.

Fri, 02/11/2011 - 11:45 | Link to Comment Bastiat
Bastiat's picture

I'll never make it as policy wonk.  I mean, damn! we talking about a party or a prayer meeting?

Fri, 02/11/2011 - 11:59 | Link to Comment GoinFawr
GoinFawr's picture

As long as we're fantasizing:

That 100k to any breathing American could have worked in late 2008, but only if every one of them had the ability to 'keep a secret' and every bank that was insolvent was allowed to fail.

That's the problem with a lot of good ideas: they hinge on their beneficiaries not being stupid or greedy.

Fri, 02/11/2011 - 11:59 | Link to Comment Michael
Michael's picture

I'm talking about the logical reasoning at ZH market reaction to our analysis of markets and them always doing exactly the opposite of what seems reasonable. The only ones who may get religion on our opposite days is the market.

Fri, 02/11/2011 - 13:17 | Link to Comment hambone
hambone's picture

dup

Fri, 02/11/2011 - 13:26 | Link to Comment hambone
hambone's picture

Offer the $100k as a personal line of credit from the Fed - no doc, no collateral needed.  Just a willingness to created "velocity"...er, leverage and the next great bubble.

Since homes no longer can be used for MEW's...what about offer the same from individuals SS accouts.  We allow it from 401ks.  Take a "loan" now and leverage it up (or in reality just live it up).  Who cares so long as the bubble keeps growing.

Fri, 02/11/2011 - 15:52 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

"I'm ready to go full bore in support of everything the Fed and Obama is doing."

So you're full-bore supporting Fed & Obama slowly wiping out the middle class, slowly destroring America. 

You must be a bankster, they're the only ones benefiting from it.

No, they're not going to give any hot-off-the-presses money to Americans at large, some of it goes to the federal government to keep them playing along, the rest goes to banksters here and around the world, the wealth transfer aspect of it.

Fri, 02/11/2011 - 11:25 | Link to Comment gwar5
gwar5's picture

The Fed and Gov.co completely lie about all stats to justify their central planning

They profiteer from their own intentional screw ups.

Fri, 02/11/2011 - 11:25 | Link to Comment 99er
99er's picture

And so the IMF recommends the SDR as a replacement for the USD.

http://money.cnn.com/2011/02/10/markets/dollar/index.htm

Got gold?

Fri, 02/11/2011 - 12:27 | Link to Comment chopper read
chopper read's picture

their answer to debt-slavery is more debt-slavery.  SDRs, designed by banksters to serve banksters.

Fri, 02/11/2011 - 11:25 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Nothing unexpected here.  People running a household or business OR both know that the cost for food and fuel as a percentage of their total costs is HUGE and getting larger.

Hedge accordingly.

Fri, 02/11/2011 - 11:40 | Link to Comment Bob
Bob's picture

Unfortunately, the only "people" who count are those running financial corporations and, though I don't break bread or travel with any of them, I suspect that the increases in food and fuel costs are negligible as a proportion of their income.

Fri, 02/11/2011 - 11:48 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Very true, hence the fact that the "financial sector" of the economy has become a cancer that the broader economy can no longer support.

Hedge accordingly.

Fri, 02/11/2011 - 11:28 | Link to Comment TraderMark
TraderMark's picture

A better comparision is US to UK

 

UK does not have OER (owners equivalent rent) and shows a 4%ish CPI.  They have austerity in place and you are telling me they have higher inflation than the US which not only has no austerity but is spending like a mad man.

Amazing what you can do when you heavily weight housing, which is something I "buy" weekly (not).  Somehow UK has 3% more inflation than US... yeppers.

Fri, 02/11/2011 - 11:31 | Link to Comment whatsinaname
whatsinaname's picture

I believe the UK has a higher weight for food in its CPI formula hence higher inflation. Does anybody have a chart for countries other than US, China & India ?

Not surprised that India has been forced to hike 7 times in recent months.

Fri, 02/11/2011 - 12:52 | Link to Comment Captain Kink
Captain Kink's picture

on the chart, is says their weighting of food in UK CPI (or eqquivalent) is 10.8%.

Fri, 02/11/2011 - 11:37 | Link to Comment Don Birnam
Don Birnam's picture

+1

Fri, 02/11/2011 - 11:29 | Link to Comment Jason T
Jason T's picture

meanwhile, food stamp benefit for family of 4 in NY making less than $28k a year gets $668 a month.  I passed  4th grade math and I know $668 a month is not 7.8% of $3000 a month in earnings for this family after food stamp benefit.  Its more like 20%!!!!

Fri, 02/11/2011 - 11:34 | Link to Comment topcallingtroll
topcallingtroll's picture

They need the extra food stamps to trade for drugs.

Fri, 02/11/2011 - 11:44 | Link to Comment Bob
Bob's picture

What are you trying to show--that lower income people pay a higher proportion of income for food, whether with stamps or cash?

Fri, 02/11/2011 - 12:17 | Link to Comment Agent P
Agent P's picture

This actually brings up an interesting question (to me at least).  The article talks about developing countries having a higher weighting to food, because incomes are lower so a greater percentage of the family budget is allocated to staples.  Makes perfect sense. 

My question is this: Does SNAP count as a percentage of income?  In other words, is it included when looking at the percentage of household income spent on food?  With ~44 million Americans receving SNAP benefits, I think this would have a significant impact on the calculation.

Does anyone know the answer to this?

Fri, 02/11/2011 - 12:46 | Link to Comment Bob
Bob's picture

Good question.  IIRC from undergrad days, transfer payments are treated as income when calculating GDP using the "income method."  Whether this applies to personal income I don't recall.  It's been a long time.

In this paper, I find NY treating transfers (as well as employer-paid insurance) as personal income:

http://www.empire.state.ny.us/NYSDataCenter/Data/EconomicData/PersonalIn...

 

Fri, 02/11/2011 - 11:30 | Link to Comment BobPaulson
BobPaulson's picture

Ask an economist whether food or iPhone manufacturing are more important and they'll say they latter because they say you can just sell more iPhones and buy food. This is fed from many idiotic ideas that the world is still full and abundant with resources and we need to grow our way out of every economic crunch.

I wish we had more people who understand global strategy making decisions: food, fuel and water will be the most valuable resource, and much of it won't be for sale, no matter how many f***ing toilet paper FRN's you wave around. Once you get to near-war footing, there is no market kids. 

Fri, 02/11/2011 - 11:32 | Link to Comment topcallingtroll
topcallingtroll's picture

The developing world needs to conduct monetary policy consistent with their individual economic circumstances rather than copy the fed, but they will keep soft targeting and hard targeting exchange rates to favor their manufacturing plutocrats at the expense of their poor. The true genocidal maniacs are the foreign mercantilists who wont allow their currencies to rise as much as they should.

Fri, 02/11/2011 - 11:37 | Link to Comment FunkyMonkeyBoy
FunkyMonkeyBoy's picture

Come on American citizens, show us the great spirit you claim to have. Get rid of that parasitic tapeworm you have willingly ingested (the FED), it's making the world feel very unwell...

... come on, don't wait until it's too late.

Fri, 02/11/2011 - 11:46 | Link to Comment Pure Evil
Pure Evil's picture

I think our relationship with the FED can best be described as co-dependency.

If we were to try and rid ourselves of the parasitic tapeworm we may start suffering the effects of seperation anxiety.

Fri, 02/11/2011 - 11:35 | Link to Comment Agent P
Agent P's picture

It represents even less ("eh hmm, zero") if the "core" number, and everyone knows that's the one that matters.

Fri, 02/11/2011 - 11:36 | Link to Comment BennyBoy
BennyBoy's picture

Yahooo!

Inflation is our number one export!

Revolutions are our number two export!

Proving ponzi scheme central banking works!

Fri, 02/11/2011 - 11:59 | Link to Comment thedrickster
thedrickster's picture

Don't forget guns and fighter jets....

Vertical integration bitches.

Fri, 02/11/2011 - 11:37 | Link to Comment JonNadler
JonNadler's picture

if the average salary is about 38,000 and 7.8% of that is about 3000, divided by 52 weeks = 57 a week in food money? Who spends only 57 a week in food.

 

Fri, 02/11/2011 - 12:11 | Link to Comment Chump
Chump's picture

Family of 3, our strictly-adhered-to budget is 50$/week for groceries.

We're on the front lines here.

Fri, 02/11/2011 - 12:23 | Link to Comment Agent P
Agent P's picture

Kudos to you.  I've got a family of 5, and I can't get out of Wal-Mart for under $120 anymore, and that's with mostly private label stuff.  Thing that scares me is my young'ins are all still little and don't eat much...what's the food bill going to look like when I have three teenagers in the house? 

Fri, 02/11/2011 - 13:34 | Link to Comment cxl9
cxl9's picture

When I was a teenager (~30 years ago) I worked two restaurant jobs. Back then you got one free meal per shift. I can't imagine how much that saved my dad in food bills. Subsidized by the dining-out public, of course.

Fri, 02/11/2011 - 13:35 | Link to Comment Diogenes
Diogenes's picture

"what's the food bill going to look like when I have three teenagers in the house? "

That's why poor people send their teenagers to join the Army. They are the only ones who can afford to feed them.

Fri, 02/11/2011 - 13:15 | Link to Comment chopper read
chopper read's picture

8.6% for energy is $3,250.

$3,250/52 weeks = $63 per week 'allowed' for gasoline AND natural gas cooking and heating costs.

...oh, the joys of central economic planning and money printing.

Fri, 02/11/2011 - 11:37 | Link to Comment MsCreant
MsCreant's picture

Ben must be a member of Fight Club. He went out and started a fight with the intention of losing.

 

Fri, 02/11/2011 - 12:03 | Link to Comment GoinFawr
GoinFawr's picture

haha!

You lot are all killing it on this thread!

Fri, 02/11/2011 - 11:43 | Link to Comment Tense INDIAN
Tense INDIAN's picture

YOU might WANNA SHORT APPLE for the next 6 days..........

 

http://markettechnicals-jonak.blogspot.com/2011/02/apple-and-nsei.html

Fri, 02/11/2011 - 11:43 | Link to Comment buzzsaw99
buzzsaw99's picture

steak on sale $4.99/lb here. let them eat cake.

Fri, 02/11/2011 - 11:44 | Link to Comment thedrickster
thedrickster's picture

Countdown until More-Critical-Thinking-Wanted the SuperShill collectivist scumbag chimes in with alchemist's babble about how "the global economic recovery" and a fucking drought are to blame.

Didn't care to respond to respond to my point made yesterday on correlations did you bitch?

I suppose the R2K was also hit by the same drought induced supply fears in Summer '10. The free 20 second chart that renders your wasted hours, debillitating cognitive dissonance, unapologetic shilling, hell your entire world view for naught:

http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximize...

Now run along before the Bernank's salad gets soggy.

Fri, 02/11/2011 - 11:44 | Link to Comment Bahamas
Bahamas's picture

It is interesting to notice how Hugo Chavez is governing his Country.

http://www.globalresearch.ca/index.php?context=va&aid=23155

Fri, 02/11/2011 - 11:54 | Link to Comment Bob
Bob's picture

It would be interesting to hear a critique by someone with an informed contrary perspective.

Fri, 02/11/2011 - 12:07 | Link to Comment GoinFawr
GoinFawr's picture

Don't worry, I'm sure DoChen will be here any minute with first hand incontrovertible evidence that Chavez is, in fact, the reincarnation of Hitler.

Fri, 02/11/2011 - 12:16 | Link to Comment Bob
Bob's picture

LOL.  I once got a postcard from a friend who spent some time there as a guest of Chavez (he was an author/Iraq War whistle blower).  Strangely, it took three months for delivery.  I didn't know if it was their poor postal service or DHS . . .

 

Fri, 02/11/2011 - 11:44 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

As an American, the correct question is "so what?"

If America's inflation is dominated by rents and not food, and rents are not going up, and therefore inflation is LOW, then so what?   If food costs affect other countries more, they have their own central banks and their own fiscal policies to address their own problems.

Why would you want US citizens to influence their own lives in ways they do not want to in order to affect the lives of people in other countries.  Is this not intrusive?

Fri, 02/11/2011 - 11:49 | Link to Comment buzzsaw99
buzzsaw99's picture

If food costs affect other countries more, they have their own central banks and their own fiscal policies to address their own problems...

This is true if they don't import heavily. It is also true if they have clownbux enough to heavily subsidize. Otherwise this statement is false.

Fri, 02/11/2011 - 12:15 | Link to Comment thedrickster
thedrickster's picture

I took it as highlighting the disingenuty of the Fed's sycophantic defenders.

Clearly the Bernank is engaged in a no limit hold'em currency war and in the short term anyway, has been winning the battle.

What the shills don't understand is that self-immolation is a piss poor strategy for winning the war.

Oops I used violent rhetoric, countdown until More Critical Thinking Wanted accuses me of shooting Gabby. I can only hope that his kind of shilling sycophant suffers most when the Bernank's bullets start ricocheting back. Unlikely though, the sheeple will blame speculators and the scumbag central planners will rule until Nibru renders them irrevelant.

 

 

Fri, 02/11/2011 - 12:01 | Link to Comment Caviar Emptor
Caviar Emptor's picture

Trouble is it ain't just food inflation. It's everything you need to maintain a middle class life. It affects both consumers and businesses alike as input costs rise but the ability of the average American to absorb price increases is increasingly constrained by deflating net worth (real estate) and incomes. 

It's way more fragile than they'd like you to understand: as people get squeezed their buying power gets crushed. As business cost inputs rise their margins get crushed. And that feeds the vicious cycle of declining employment opportunities. Businesses will continue to cut costs aggressively through offshoring and layoffs, and shifting focus to foreign countries. Just take a look at McDonald's latest earnings report: the only region in the world where their same store comps were down was North America. Surpriiiise!

Fri, 02/11/2011 - 11:49 | Link to Comment Ancona
Ancona's picture

I want my brick of gubbermint cheese.

Fri, 02/11/2011 - 11:52 | Link to Comment thedrickster
thedrickster's picture

Qu'ils mangent de la frommage, Don Francisco

Fri, 02/11/2011 - 11:51 | Link to Comment kornholio
kornholio's picture

who gives a fuk as long as apple is higher so just

BTF(shallow)DIP....

Fri, 02/11/2011 - 11:53 | Link to Comment dick cheneys ghost
dick cheneys ghost's picture

USDA gives $12 million to domino's to promote chesee pizza while the world starves.

 

http://nakedempire.wordpress.com/

 

Fri, 02/11/2011 - 11:54 | Link to Comment Caviar Emptor
Caviar Emptor's picture

There's a much more salient point about CPI which I've been pointing out on ZH for a long time: over 40% of the index is housing related. And that market is depressed and deflating and serves to cancel out the rampant inflation in food and other necessities of middle class life. 

CPI's failure as a useful metric is a perfect illustration of biflation at work: a double-whammy to the middle class and productive 'real' economy. Net worth and future earnings expectations deflate while all input costs inflate. Whammy-WHAMMY! 

And this situation isn't temporary as they'd like you to believe. As long as we officially endorse rising twin deficits and offshoring of jobs, the trend will remain intact. And the need to keep printing more and more to stay solvent will aggravate inflation. Vicious cycle. 

CPI and other metrics being obsolete is another clear hallmark that current Fed monetary policy is an anachronistic monster, like a dinosaur brought back to life in 2011. It's theory and methods all address the past, not the present. 

Fri, 02/11/2011 - 13:33 | Link to Comment Rainman
Rainman's picture

Bingo on the housing component of CPI. And since this metric uses an equivalent rental stat that is decreasing, the CPI gets a signifigant pushdown that greatly overpowers the food stat's influence on core CPI.

Fri, 02/11/2011 - 15:35 | Link to Comment ToddGak
ToddGak's picture

Yuppers.  If the inflation numbers ever start looking scary, they can easily just rejigger the weightings to get the CPI to where they want.  Most people don't look too deeply into the weightings, they just think "oh inflation's at only 2%...hmm...that doesn't seem right somehow" and leave it at that.

Fri, 02/11/2011 - 16:03 | Link to Comment Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

What makes you think that is accidental?  The banks, the fed and the uber-rich must be made whole on their bad RE bets.  The lower and middle class?  Well, fuck their couch.

3 years in and people still think the fed and government statisticians are "dumb" because their policies don't help the average joe.....I don't know if I should laugh or cry.

Fri, 02/11/2011 - 12:01 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Upon awakening each morning, and before his Pilates routine and yogurt & muesli breakfast, The Bernank dons his ruby red slippers, stands in the corner, clicks his heels together, and says "there is no inflation & the CPI proves I'm right, damnit!" three times.

Fri, 02/11/2011 - 12:01 | Link to Comment RexZeedog
RexZeedog's picture

Please don't be a dweeb. I've previously helped two elderly, infirm (and poor) senior citizen relatives obtain SNAP benefits - both of whom very much needed them. One, was a 95 year old (no deceased) old maid, who spent her life caring for elderly people herself as a domestic and after that, her parents. The other is a 76 year old man who worked 40+ years without a college education, but diligently and raised a family. Not everyone is destined for personal success and it's ignorant of you to mock SNAP users as a class. The big money issue which should be attacked 1st is ecess salralies and pensions for goverment workers.

Fri, 02/11/2011 - 12:01 | Link to Comment razorthin
razorthin's picture

And this is why they must be stopped.

http://www.cnbc.com/id/41517149

Fri, 02/11/2011 - 12:04 | Link to Comment Cursive
Cursive's picture

Brilliant. The official benchmark of inflation has a less than 8% weighting of our most basic need. Glad also to know that I can buy a $600 laptop today that has twice the storage as 5 years (but the same or slightly higher price) and that is considered deflationary. I don't need 500 GB of storage, so its useless to me. Milk? That I could use.

Fri, 02/11/2011 - 12:06 | Link to Comment 6 String
6 String's picture

The Bernak is killing it--the American Way. Export inflation and make China crumble to their fucking knees first. This is the American way kids. We will torment and fuck every other country to try to maintain our standard of living (of course, though, it can't last forever).

But it will last for some time: what is China gonna do? I mean, holy mother of a babbling god, they've got an entire economy made of smoke and mirrors that makes the Bernak and our central planners look like they actually believe in free markets. We just keep importing inflation to them, and they will fall. Their real estate market is a on a "rollcoaster to hell" as Chanos says. When their 70% of construction GDP comes crashing down, with the help of our imported inflation, what the fuck can China do to us? Sell our bonds. Give up their main export market? Not gonaa happen folks.

The Bernak has them by the fucking balls. Egypt, Algeria, etc., they're just weak, country bystanders in this game and the Bernak can care less about them in this tug of war of world power. The U.S. will walk over anyone or anything that stands in our way.....

It's why guys like Chanos and Tepper keep talking about the "least of our worries is the U.S." Of course, Japan will go the way of Zimababwe, we are crushing China and all this shit will actually put huge bids on our worthless pieces of paper.

Long USA. Short Emerging Markets. Long precious metals and strategic, basic neccessity commodites should be the trade here.

10-1 odds this gets junked at least 10 times lol (but i am being sarcastic sort of. My heart is full of hate this morning for everything human and I have run out of whiskey this morning).

 

Fri, 02/11/2011 - 12:15 | Link to Comment TruthInSunshine
TruthInSunshine's picture

While Americans can only be embarrassed and angered with/by the corruptness under which they live, including the mad and despotic acts of ChairCreature Ben S. Bernanke (and his handlers, at Goldman Sachs & JP Morgan - and their handlers), China is destined to be written into financial history books as 'The Big Short,' or alternatively, 'The Big Shart,' depending on one's translation of the always tricky English-to-Chinese conversion.

Fri, 02/11/2011 - 12:54 | Link to Comment Brick
Brick's picture

Food and Energy as a percentage of income is a lot higher in emerging economies than the US, but what the Fed is missing is that Food as a percentage of income for the low paid in the US is a lot higher than for the rich. This means inflation for the poor and old in the US is running rampant despite the overall average weighting. Since these are the people who are more likely to spend their disposable income I am not sure calculating the CPI the way they do benefits the economy. You might also want to consider that there is a bias in CPI calculations towards urban areas. This I think is probably the right thing as far as food is concerned but distorts the picture as far as energy consumption is required. CPI calculations current bias towards the rich (and I admit until recent years it worked the other way) means a lot of politicians are going to be voted out soon.

Fri, 02/11/2011 - 13:11 | Link to Comment meco1999
meco1999's picture

The average American household spends 7% of their total annual expenditures on food at home and 5.4% on eating out. Does the 7.8% "food" component in CPI include restaurant prices? If it only includes grocery store prices, then it seems pretty accurate as a percent of what the average American family spends on groceries.

http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/

Fri, 02/11/2011 - 14:14 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

The Mexican restaurant I eat lunch at every week has not changed prices, or portions, in more than two years.

Fri, 02/11/2011 - 15:40 | Link to Comment ToddGak
ToddGak's picture

Probably they are terrified of losing business if they do so.  They are most likely not giving wage increases to their workers, and just sucking up the loss in profits caused by increased input costs.

Fri, 02/11/2011 - 13:17 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

It is what I said above.

Rent dominates US citizen expenditures.  If it is not going up, then their inflation is low.

Yeah, the poor in the US are hit harder, but there has to be an average computed and that average has to be reported.  Food has low weighting because it's simply not the dominant part of the typical American's budget.

To report otherwise would be inaccurate.

Fri, 02/11/2011 - 13:44 | Link to Comment Diogenes
Diogenes's picture

Most of you seem to be overlooking the way things are connected. Commodity prices influence food products and many other things. A rise in commodity prices will eventually cause a rise in taxes, rents, and everything else.

 

"Do I smell smoke?"

"Don't worry I accidentally started a fire but it's only an old sofa, it can't affect the rest of the house".

Fri, 02/11/2011 - 13:59 | Link to Comment Hugh_Jorgan
Hugh_Jorgan's picture

If the Fed and the globalists in the present Administration continue to be a major contributing to widespread instability in the developing world, we will first experience new 911-scale terrorist activities, and eventually open war. Especially, in light of our perceived weakness and lack of leadership, the pseudo-Communist dirtbags in China and Russia will not allow our pseudo-Capitalist dirtbags here to endanger their control. They will foment blame and march into Taiwan, S. Korea, former Soviet nations, et al. Same with the Middle East, they will blame every ill on the US and Israel, and we will doom another century of humanity to our addiction to avarice and apathy.

Bottom line; if we don't find some smart decisions and sane leadership fast, we could be looking at WWIII before 2020.

Fri, 02/11/2011 - 14:04 | Link to Comment tellsometruth
tellsometruth's picture

Ben hearts core cpi per his recent testimony... what do u think Ben is getting (himself) for valentines day?

Fri, 02/11/2011 - 14:10 | Link to Comment jobs1234
jobs1234's picture

The issue is what would we do if China and India weaken economically due to inflation.

I know its BTFD every day time now, but no one seems to be asking "what if the people in China and India dont want to buy our stuff anymore, or cant afford it?"

We can export all the inflation we want but they are the only lifeline keeping our economy afloat. 

Fri, 02/11/2011 - 22:08 | Link to Comment Eireann go Brach
Eireann go Brach's picture

Bernankeinstein obviously does not eat or put gas in his car. Maybe he is an alien..sure looks kinda strange these days on TV..all twitchy and pale faced like some guy who has been up for 4 or 5 days.

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