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The Fed is Playing a Dangerous Game With Inflation

Phoenix Capital Research's picture




 

The Fed is Playing a Dangerous Game With Inflation

 

In the last few months, something major has begun.

 

That something is inflation.

 

Regardless of what the CPI inflation measure tells you, the core items that affect most consumers’ pockets are healthcare, housing (rental or home prices), and food.

 

All of these are rising in price.

 

Take a stroll down the food aisles at the grocery store…Turkey has risen 34% year over year from its January 2013 price. Boneless chicken breasts are up 11%. Grapefruits are up 13%. Strawberries are up 39%. Spaghetti and macaronic is up 8.4%.

 

As far as housing goes, prices are beginning to move sharply upwards. The homeowners equivalent rent index rose 2.5% from its January 2013 levels. This is a sharper increase from the 2% year over year changes of 2011 and 2012.

 

Healthcare costs are rising sharply as well.

 

And yet, despite this, the Fed believes that inflation is too low.

 

Fed optimistic on growth, wary of bubbles

Yellen and her supporters are optimistic, but believe the economy has a long way to go

 

New Fed Chairwoman Janet Yellen and her core supporters on the Fed’s policy committee “are optimistic the economy is on the mend, but believe it has a long way to go,” said Jim Glassman, economist at J.P. Morgan Chase.

 

This core majority on the Fed don’t think the unemployment rate is telling the whole story on the economy.

 

They see inflation as running too low, signaling “the economy is not there,” Glassman said.

 

http://www.marketwatch.com/story/fed-optimistic-on-growth-wary-of-bubbles-2014-02-28?mod=latestnewssocialflow&link=sfmw

 

 

Fed’s Evans Is Willing to Risk Higher Inflation to Boost Hiring

Federal Reserve Bank of Chicago President Charles Evans said Friday the central bank should be willing to allow inflation to go over its 2% target if that will help the economy get back on track more quickly.

 

“We need to repeatedly state clearly that our 2% objective is not a ceiling for inflation,” Mr. Evans said in the text of a speech.

 

http://blogs.wsj.com/economics/2014/02/28/feds-evans-is-willing-to-risk-higher-inflation-to-boost-hiring/

 

The Fed is playing a very dangerous game here.

 

It was way behind the curve on deflation and economic weakness going into the crash of 2008. Today, it continues to worry about deflation when the clear signs show that inflation is already on the rise.

 

As anyone who remembers the 1970s can tell you, once inflation hits, it has a bad tendency to become a REAL problem before the Fed acts.

 

Investors should take note now. Inflation began to appear in early 2014. Given that the Fed is proclaiming that inflation is too low, it’s only going to get worse.

 

Be warned!

 

For a FREE Special Report on how to protect your portfolio from inflation, swing by

www.gainspainscapital.com

 

Best Regards

Phoenix Capital Research

 

 

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Thu, 03/13/2014 - 11:39 | 4543123 optimator
optimator's picture

The Banksters need to inflate the cost of housing so they can get the homes they own sold at a profit and get them and their expenses off the books.  

Thu, 03/13/2014 - 10:11 | 4542639 whidbey-2
whidbey-2's picture

If anything fear disinflation, if you are in the 90% who are having income problems, read too little income.  The inflation in food, health care  and shelter are policy enduced  and will end when the economy shrinks a little more.  The pressures from the EU, Japan and China will push down USA exports and further cut household income. We are probably entering the new policy ice age. God only knows what follows, but it is usually wars.

Thu, 03/13/2014 - 09:45 | 4542561 swmnguy
swmnguy's picture

Healthcare, Housing and Food are indeed going up in price, but for different reasons. 

Healthcare has been in an inflationary spiral for about 25 years.  All the kerfuffle about ACA/Obamacare is partisan bullshit; the fact is, ACA is a backdoor bailout for the insurance companies, forcing people to buy a product that has risen in price to the point that a critical mass of people and employers can no longer afford to pay for it.  Meanwhile, ACA gives the insurance companies cover to terminate their least-profitable policies, and to force healthy people into costlier policies that either cover much less for the same price, or cost much more for the same coverage.  I've noted that the new "cost equivalent" policies to my grandfathered (temporarily, no doubt, until it is discontinued) HDLP plan include chemical dependency, but are "60%" plans rather than my current 100%, meaning my out-of-pocket maximum rather than being the same as my deductible is now nearly half-again my deductible.  By attempting to buy time for the insurance companies before simple household economic destroys the current system, instead ACA has hastened the inevitable.  That's why I stick to my prediction that in early 2017, a Republican President will open up Medicare to everyone to great fanfare and it will be extremely politically popular.

Housing is going up in price because rather than fix the bubble, we suborned all financial policy to make sure it stayed in a bubble, so the banks could launder their worthless derivatives off onto the Fed, trading them for Treasuries more or less.  That's why all the QE printed money hasn't leaked out into the larger "real" economy; it's just being used to stuffed into the holes in the floodwall caused by the worthless mortgage-backed derivatives.  The "free" money also allows the banks to hold huge numbers of properties in the "shadow inventory," creating an artificial shortage and keeping prices high except for cronies, who are allowed the cherrypick the properties in "shadow inventory" leaving only falling-down shacks in the pool, blighting neighborhoods and draining local resources rather than being lived-in, taxpaying residences.

Food is going up in cost due to weather (finally, something that really does have to do with weather).  Cold and drought have raised hell with crops.  Also the food supply chain is heavily dependent on transportation fuel.  I can buy blueberries in Minneapolis is January, flown in from Chile, for $4.99/pint.  That's more than I want to pay so I don't buy them, but what the hell?  I can't mail a 16 oz. package to Chile for $4.99, and that doesn't include any value in the package.

So all these things are indeed going up in price, but none of it has much to do with the Fed's policies and concern about deflation.  All the money the Fed is creating isn't going to cause Weimar-style inflation unless it gets out of the banks' vaults.  And it isn't going to, because it's sopping up the enormous leakage of worthless derivatives the banks have been hiding for 5+ years, so nobody figures out they're all completely insolvent.  The money-printing is a closed loop.  If it got out into the economy, sure, we'd have raging inflation. But it isn't.  With wages stagnant to declining, and prices still going up as required in a system dominated by fractional-reserve lending at interest, we're not going to have a Weimar/Zimbabwe situation anytime soon.  What we will have is a collapse in actual consumer wealth and therefore spending.  In a way, deflationary issues are nearer than inflationary.  I'm sure as hell not taking on any debt as a consumer.  Nobody I know is.  That has to worry the Fed.  Their prime; nay, only; concern is the health of the interest-based lending system.  And that system has killed, gutted and eaten the Golden Goose.

Thu, 03/13/2014 - 09:00 | 4542399 earnulf
earnulf's picture

This is nothing new, just a shill piece to sell their shill research paper.

Shadowstat's has been trumpteting the government's BS on inflation for years and documenting the government "changes" to "improve" the CPI since they starting fiddling with it in 1980.

If you use the 1980 formulations, inflation has been running around 6-8% which more closely mirrors my price experience in real life, not the less than 2% BS that the feds are always pushing into the headlines.

 

 

Thu, 03/13/2014 - 04:04 | 4542051 MeelionDollerBogus
MeelionDollerBogus's picture

Sell da bubble! that goldz thar she's a headin' down to 200!

oh wait, sorry, that's tardcoin.

Nevermind.

Clocking in at 1373 USD , 1521 cdn, 1513.52 aud, silver still lagging the trend curve at 21.37 when it could be e(1373x3/2635+19/12) = 23.255 as per http://flic.kr/p/f17z1s. It's like a parallel but lower curve is forming under the older trend but since the time-frame is less than 10 weeks I'm not sure if that small adjustment would last. For the time being... whatever the trend equation pops out the silver price seems to be trend_silver / 1.05 = actual_silver.

That USLV is killin' it though.

Thu, 03/13/2014 - 02:47 | 4542005 Global Observer
Global Observer's picture

There is nothing that the Fed can do or not do to help the people. The Fed was created to shore up the banking system and that is what they are doing. The objectives set for the Fed of low inflation and low unemployment are ridiculous, since the Fed cannot directly affect either. Inflation results from bank lending and government deficit spending. The fed can influence the former and has absolutely no control on the latter. As for unemployment, the Fed has as much control/influence over it as it has over global warming.

Yes, there is going to be high inflation in the US and probably even hyperinflation. But that is because of the accumulated government deficit spending and expanded bank credit that over the decades was held by foreigners and will soon find its way back into the US. Not because of any particular policies of the Fed.

I am not defending the Fed. An entity like the Fed, a government created entity whose basic purpose is to ensure the sustenance of a for-profit private system, has no place in any political system except a kleptocracy. The Fed is merely a symptom of the disease, neither the cause nor the whole of it.

Thu, 03/13/2014 - 07:25 | 4542188 Comte d'herblay
Comte d'herblay's picture

The only change I would make in your post is the words "Banking System". 

We tend to use words haphazardly more and more, in too many instances to hide the truth.

There are no such things as: governments, corporations (the Supremes notwithstanding) hospitals, charities, churches, and the FED.

Behind each of those innocuous sounding institutional names are genuine, avaricious, larcenous, murderous, uncaring, gravely faulted human beans.

As such, statements like "mistakes were made", are used to relieve the individual human beans of all responsibility.

In this case, the Kleptocracy MEMBERS are the one who benefit from the actions of (not the Fed Chairsatans) Alan Greenspan, Bernanke, Yellen including themselves.  What is really happening is the FED is giving money to individuals like Lord Blankfein, Joe Cassano, Dick Fuld, and using institutional names to hide that fact.

Ben bernanke may state that he is fighting to sustain the banking system but he isn't.  He's printing money to give to criminals who in other countries with a sense of justice would be executed in the public square in 2009. 

The FED is not the FED.  It is 12 men and women who are put in place to assure the prosperity and untouchability of mainly the Jewish Mafia here, in Great Britain, Singapore, Hong Kong, and Belgium. 

 

Thu, 03/13/2014 - 08:45 | 4542356 Global Observer
Global Observer's picture

No doubt, all institutions have individuals within them. However, the individuals are not free to do what they want. They are constrained by the institutions' mandate, which is often enforced by the power of the government.

If the Fed Chairperson decides to buy the debt of state or local governments, s/he will be hauled off to jail, because they exceeded their legal mandate. It is in that sense that the institutions are more important than the individuals that occupy different positions within them. It is possible certain families succeeded in benefitting from these institutions over generations, but quite likely most of the beneficiaries during the life of these institutions would be those who did so because they played by the rules of the institutions and proved themselves to be the best in sustaining them.

Fri, 03/14/2014 - 15:47 | 4549358 Comte d'herblay
Comte d'herblay's picture

There are human beans more powerful than any government and exercise power far beyond their mandate or legitimately stated purpose. 

And they do so free from accusation, indictment, and prosecution. 

The FED is one of those 'institutions' with an individual at the helm in a more powerful position that any Senate Committee Chairman, or POTUS, that is acting now and has acted to enrich a choice few, printing quadrillions of FRNs given no questions asked to the Jewish MAfia on Wall street.  Ostensibly to save the free world economy, but if you buy that then an inspection of your bullshit radar needs performed. 

The FED is buying the debt of State governments hiding that fact by giving new money at the rate of a trillion up front in 2009 and continuing for 4 yearss at the ratre of $85 billion a month (recently dropped to $75 Billion a month---and if you believe those numbers there is no hope for you)  to a few Big so-called Banks, that in turn buy and sell the securities in the pension funds of the states and keeping a large part of the money for their own compensation. 

Sorry but your ideal while wholesome and worthy is just that. An ideal. 

 

Thu, 03/13/2014 - 04:15 | 4542064 MeelionDollerBogus
MeelionDollerBogus's picture

"Inflation results from bank lending and government deficit spending. The fed can influence the former and has absolutely no control on the latter."

As we say in le Canada, qu'est que fuck?

Print dollars / issue credit, multiply leverage at minion aka member banks, purchase treasuries directly, also purchase treasuries through minion primary dealers, hence printed (issued) money buys government debt, financing deficits.

I try to be an entertaining troll when I do that but really, this is just a statement of fact.

Tell you what, just to be nice, how about you go -1 your own post and I'll just leave it be.

Thu, 03/13/2014 - 07:09 | 4542172 Global Observer
Global Observer's picture

The member banks are not minions, they are the very reason the Fed exists. It exists to provide liquidity to member banks. It cannot control what they do with the liquidity. They are free to purchase treasuries with it or park them with the Fed. The liquidity is provided by direct lending at the Fed Funds Rate or by purchasing assets the member banks hold, like treasuries. Either way it is the job of the Fed to provide liquidity to member banks, just as the case is with every Central Bank of every country.

The US government raked up US$ 12 trillion debt by 2009 without the need for any QE operations and with less than a US$ 1 trillion in base money. How did it accomplish that? All the base money paid to purchase treasuries comes right back to the banks when the government spends that money, which can be used to buy more treasuries. No QE operations are necessary for the government to keep borrowing. If they don't have the reserves to buy treasuries, banks would borrow the reserves from the Fed at Fed Funds Rate (which it cannot refuse) to buy treasuries, only the treasury yields would be so high as to offset the cost of borrowing reserves to buy treasuries.

The only direct affect of QE (which itself was an act of desperation by the Fed) was to keep the government borrowing costs low. But with the Congress and the President showing no intentions of reigning spending (with the debt ceiling suspended until next year), it can't be justifiably argued that the Fed's actions encouraged government deficit spending.

But there is one problem with blaming the government for excessive spending or bailing the banks out; it directly points the finger of responsibility to those who put them in that position, the people. But it is quite convenient to blame a central bank, since the people never voted for them. Quite convenient, but has no basis in reality.

Thu, 03/13/2014 - 23:36 | 4546497 MeelionDollerBogus
MeelionDollerBogus's picture

You learned nothing.

Try again.

Actual, real QE has been happening without names/numbers for the events since 1996 and 1987.

With 0% error: there has been no liquidity crunch or crisis. None.

There's a solvency crisis, entirely different. These banks are all bankrupt. Every last one of them trillions in the negatives.

That's not a liquidity issue. Those who are bankrupt must be removed. They and all their assets. All other choices are criminal fraud. Period.

Thu, 03/13/2014 - 01:40 | 4541943 Rastadamus
Rastadamus's picture

short everything but gold and silver, bitchez!

Thu, 03/13/2014 - 00:30 | 4541843 elwind45
elwind45's picture

Now that my regulars are becoming math majors and China going all sub prime maybe my store could token lower prices? It is plain to see its the wholesalers who are making up for falling volumes than anything the Fed does going forward? There is too much slack to believe otherwise?

Wed, 03/12/2014 - 22:49 | 4541552 Son of Loki
Wed, 03/12/2014 - 20:21 | 4541072 Cycle
Cycle's picture

The Fed is not playing, it is paying its Masters. The 0.0001%.

Wed, 03/12/2014 - 22:43 | 4541527 CSA
CSA's picture

You guys need to relax.  Obama has this.

Wed, 03/12/2014 - 20:09 | 4541020 Kreditanstalt
Kreditanstalt's picture

But CREDIT UPTAKE is deflating...and to a fractional reserve banking/fiat currency system that's all that matters...

Wed, 03/12/2014 - 20:08 | 4541017 messymerry
messymerry's picture

This makes perfect sense.  We have been eating inflation externalities for the past six years.  The effing crony capitalists downsizing and substituting third world quality goods for the top shelf stuff we used to get.  Walmart has stuff today that I used to see in Greece in the early 2000s.  You can only downsize and screw quality for so long.  That time has passed and now prices must rise.  Expect this to continue until the lies can no longer be hidden in shit statistics.  Then we will see what kind of cloth our leaders are made of. 

Grab you hats kiddos, it's gonna be a hell of a ride...

Thu, 03/13/2014 - 07:57 | 4542243 kumquatsunite
kumquatsunite's picture

I've always thought people don't understand the shipping of jobs overseas. When Clinton pressured business for more money via taxes to support the welfare programs, business started shipping jobs overseas. Makes sense doesn't it. Between that the the giant PONZI of immigration (why have immigration when there are no jobs? hmmm...see: false real estate boom/collapse) the foundation of our economy was gutted.

Knew a lot of people who worked in the Michigan car factories (Lansing, et al) when they were up and running. Those guys were so proud of "making cars" and their jobs. Nothing makes anyone feel better than a great job, being productive, paying your own way. That's why welfare guts the country; hold out your hand equals anger on the inside.

Thu, 03/13/2014 - 07:57 | 4542242 kumquatsunite
kumquatsunite's picture

I've always thought people don't understand the shipping of jobs overseas. When Clinton pressured business for more money via taxes to support the welfare programs, business started shipping jobs overseas. Makes sense doesn't it. Between that the the giant PONZI of immigration (why have immigration when there are no jobs? hmmm...see: false real estate boom/collapse) the foundation of our economy was gutted.

Knew a lot of people who worked in the Michigan car factories (Lansing, et al) when they were up and running. Those guys were so proud of "making cars" and their jobs. Nothing makes anyone feel better than a great job, being productive, paying your own way. That's why welfare guts the country; hold out your hand equals anger on the inside.

Wed, 03/12/2014 - 19:50 | 4540965 starman
starman's picture

RIP USA

Wed, 03/12/2014 - 19:43 | 4540936 Seal
Seal's picture

the Fed is driving the wrong way down a one way street rearranging the signs so the arrow point their way but the "one way" is upside down. melt up crash ahead

Wed, 03/12/2014 - 20:27 | 4541098 Buck Johnson
Buck Johnson's picture

Exactly, a melt up is happening and the more up we go the worse it will get.  The curve has changed because of the manipulation.

Wed, 03/12/2014 - 19:18 | 4540855 H. Perowne
H. Perowne's picture

Graham, Malcolm Gladwell is likely a millionaire and has written several NYT bestsellers simply by playing his role as Captain Obvious. Have you ever considered a career change?

Wed, 03/12/2014 - 19:14 | 4540832 HpDeskjet
HpDeskjet's picture

This is not "good" and therefore sustainable inflation => prices go up, wages stable or down, i.e. ppl have less money to spend and that will ultimately be recessionary/deflationary (again).

Wed, 03/12/2014 - 21:53 | 4541356 Debeachesand Je...
Debeachesand Jerseyshores's picture

It's called StagFlation.................

Wed, 03/12/2014 - 18:44 | 4540712 madmax1965
madmax1965's picture

No shit Sherlock!  Brilliant observations!

Wed, 03/12/2014 - 19:43 | 4540946 boogerbently
boogerbently's picture

"Hiring" won't resume until the Dems vacate the WH.

Thu, 03/13/2014 - 00:09 | 4541794 RaceToTheBottom
RaceToTheBottom's picture

The Red Team VS Blue Team is nothing but a distraction.  Please stop being a distraction.

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