Everyone has heard of "inflation" and "deflation" and, when things go really bad and another recession is just around the corner coupled with soaring prices and plunging wages like in Japan for example, "stagflation." But have you heard about its optimistic, happy-go-lucky cousin?
Just 2 short months ago we warned of the rising voice among the cognoscenti tilting their windmills towards the concept of "helicopter money," as Deutsche bank noted, "perhaps there's an increasing weariness that more QE globally whilst inevitable, is a blunt growth tool and that stopping it will be extremely difficult (let alone reversing it) without a positive growth shock." Committing what Commerzbank calls "the ultimate sin" is now reaching the mainstream as Germany's Der Spiegel notes it is becoming increasingly clear that Draghi and his fellow central bank leaders have exhausted all traditional means for combatting deflation; and many economists are demanding that the European Central Bank hand out money to consumers to stimulate the economy.
Disillusionment with Europe's single currency continues to grow with the cracks beginning to show in it's heartland, Germany, where the third largest political party is now selling gold coins and bars to raise funds.
"For real world people, it is a simple common sense that wealth does not fall from the sky. It has to be produced. It is beyond me that such an obvious truth is so difficult for elite economists to comprehend. This is largely because they just sit in the ivy tower, imagining the magic golden touch such as monetary and fiscal policies, mocking practitioners. They are so ignorant and arrogant."
Bankruptcies in Japan more than doubled in the first nine months of 2014 compared with the same period a year ago. Japan has embarked on a radical monetary experiment to spur inflation. But it may backfire and lead to stagflation and in a worst case scenario a German ‘Weimar’ style hyperinflation ...
When it comes to the Fed's QE3 generosity, what was the bottom line? Here is the answer.
I challenge the central banker, manager, trader, and investors to manufacture and financially engineer a safer and better alternative to the USD.
Alongside the CPI data released earlier which showed the smallest possible broad price increase, when considering that previously the BLS reported flat nominal hourly wages in September, it implied that real wages declined once again. Sure enough, in a separate report today, the BLS announced that real average hourly earnings (in constant 1982-1984 dollars) declined once again, this time from $10.34 to $10.32, a -0.2% drop from past month. This also means that since March, there has been just one month in which real hourly wages have increased, and that was mostly due to the outright deflationary print the BLS reported last month.
Amid two (notably female) resignations this weekend (Justice Minister Matushima and Trade Minister Obuchi for alleged misuse of political funds), Abenomics tilt towards women as a pillar of the Japanese recovery is taking yet another blow, removing "one of his ways of distracting people from his less popular policies." However,it is Japan's Economy Minister, Akira Amari, that went full economic retard this weekend - having learned well from his wise American central-planning brethren. Rather than face reality that Abenomics currency devaluation printfest has crushed the consumer beyond all expectations (as we noted since the start and Goldman just admitted), he blames the weather for economic weakness: "including the effects of large typhoons and heavy rains in July and August, Japan’s 3Q economic situation is probably not a strong recovery."
"...much like when the Germans bombed Pearl Harbor, nothing is over yet. The Fed has not undone its extraordinary loose monetary policy and is just now stopping its direct QE purchases... Paul [Krugman] will continue to be mostly wrong, mostly dishonest about it, incredibly rude, and in a crass class by himself."
This week has seen some market volatility (see VIX Chart) reminiscent of the functioning market from days of old. The markets are spooked, bad news is overtaking good news and bearish views are becoming vogue. We are seeing a titanic battle taking place between the various bull and bear camps and they are starting to unleash some serious firepower.
Copious amounts of monetary whiskey have been downed in the global economy and yet the recovery remains weak at best. The mother of all monetary hangovers awaits us all and will likely manifest in stagflation and sharply higher inflation.
Relative to stock market indices, broad commodity indices are now at their lowest levels since the late-1990s dot com boom. Key commodity price ratios, such as those between precious and industrial metals, are already at levels associated with financial crises such as that of 2008. In other words, there is already ‘blood on the commodity streets’, presenting investors and commodity traders with potentially attractive opportunities.
US Industrial Production and the NY Fed Empire State Manufacturing survey are the two main releases for the US. In Europe, the euro area trade balance will be the notable print. Beyond today, US PPI, German ZEW and UK CPI are the main economic reports tomorrow. Wednesday will see the release of BOE’s meeting minutes, the US CPI, and the Euro area inflation report. On Thursday, President Obama will host Poroshenko and on the data front we have Philly Fed, initial claims, and building permits to watch out for, but the biggest market moving event will surely be the Scottish independence referendum. German PPI will be the key release on what will otherwise be a relatively quiet Friday.
Were this extreme policy to be implemented it would be a further and deliberate debasement of fiat currencies. Alan Greenspan’s warning of “fiat money in extremis” becomes more real by the day. Were this silly proposal ever to become policy, it would significantly increase the risk of inflation and stagflation. In a worst case scenario, it will lead to currency collapse and hyperinflation.