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The Fed is Either Ignorant or Lying About Inflation… Neither Is Good
The Fed claims that inflation is just “noise” but the clear signs of inflation have been appearing everywhere in the system going as far back as 2008.
Let’s be clear here… inflation does NOT mean prices have to move higher in nominal terms. The reason for this is because companies cannot and will not simply raise prices overnight. Consumers will not simply put up with the cost of a good going up time and again.
So don’t look for the cost of an item to necessarily go straight up in nominal terms. This can happen, but more often than not, corporations engage in a number of different strategies to maintain profit margins without raising prices.
These strategies include:
1) Shrinking the box/package of the good, thereby selling less for the same amount.
2) Not filling the package all the way; again selling less for the same amount.
3) Changing what’s considered a “serving size” or the quantity of good being sold.
4) Swapping in lower quality ingredients, thereby selling a lower quality good for the same amount.
Companies have been doing all of these since 2008. Most recently however, costs have risen to the point that these strategies won’t cut it anymore. Consequently, we’re starting to see prices going up across the board.
Housing is now more expensive relative to incomes than it was in 2007. Food prices for 5 out of 6 items at the grocery store have risen year over year. Gas prices are at their highest levels since the oil bubble of 2008. Healthcare costs have risen. In fact, just about everything under the sun except phones and computer tablets have risen.
This is why the Fed’s claim that higher prices are just “noise” is so ridiculous. The Fed is either ignorant or lying. Neither of those is good. Indeed, the only support the Fed has for its claim is that bond yields remain at historic lows (see below).
However, the Fed is missing the big picture here. The reason bonds continue to fall in yield is because:
1) Wall Street is front-running the Fed’s QE programs (buying bonds from the Treasury and then flipping them to the Fed for a quick profit).
2) Financial institutions, particularly in Europe, remain highly leveraged and so are seeking higher-grade collateral by buying US Treasuries.
3) The Fed has created an artificial floor beneath Treasury demand by soaking up half or more of all US debt issuance each month for the last five years.
You cannot mess around with the entire risk profile of the investment world and expect not to see asset classes mispricing risk. The Fed has pumped money into the system in over 90% of months since 2008. It’s kept interest rates at zero throughout this period. And it’s put nearly $4 trillion into the financial system.
Does the Fed really think it could do this and NOT cause inflation?
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There is only one way to kill the beast.
these's no market risk if theres no market
If they substituted sawdust for flour in your favorite bakery goods the Fed would define it as 'fiber' and call it deflation since you are getting higher quality for the same price. Nothing to see here.
Think inflation is bad now? Wait until the dollar is no longer the world's reserve currency.
http://www.zerohedge.com/news/2014-07-02/brics-are-morphing-anti-dollar-...
From what I see in Texas if the Obama adminitration gets a nation wide plague going by shipping thos lice and diseased kids by air all over the country, we will face another wild card Black Swan in the form of some kind of plague. So far we've seen, Scabies, Hoof in Mouth, Swine Flu, HIV, Measles, Whooping Cough, and strange stuff from Central America.
Kids and the elderly will be the hardest hit and there is going to be a demand increse for medical supplies. I see that for some reason hospitals are already facing a saline solution shortage. Probably due to some dumb government regulation. If hard quarentines have to be done then the cost of shipping everything is going up.
You will also see a strong demand to bring back DDT.
Ignorant or lying? Why not BOTH!
'higher-grade collateral.... US Treasuries'
more like junk toilet paper
Of course they are lying - they are not stupid
Ignorant
Lying
When I read about what happened in Germany and the hyperinflation (The Death of Money) it was amazing to learn the leaders, bankers, and intellectuals could not conceive that the printing of fiat money in mass was what caused the inflation. They truly didn't connect the dots. Fast forward to 2014. Our descendants will struggle with the idea that unlimited credit creation was not understood to undermine the currency. Our fate was sealed in 1971 when we abandoned the pseudo gold standard and untethered our currency. Just add social benefits (unfunded) and a bunch of unfunded wars and here we are. Plus the voluntary de-industrialization of our country as we were sold out by our leaders.
When over 10% of the population cashes out their IRA/401K, buys (physical) gold, sells leveraged real estate, shuns debt, and generally "Goes Galt" we will know the change is close. Then the remaining 90% will say "we never saw it coming". I welcome the economic revolution. I regret the death and bloodshed that always comes with it.
First the deflation, then the hyperinflation. Watch Argentina to see our future. Next sign? Cash for medical services bypassing Obamacare. Already happening in my world. Providers are going Galt. Cash only. No insurance accepted. Can silver coin be far away? I keep asking to get a clue.
To play devil’s advocate, goods price inflation is not possible (or shall we say, cannot last long) without the corresponding rise in wages. And wages are not rising. Shrinking package sizes is not a sign of inflation, but rather a sign of manufacturer's profit squeeze. If we had real inflation then they would have no problem selling the same-sized packages for more $. Yet they can’t.
Price inflation is indeed possible without increasing wages.
How? Simple.
Answer: expanding debt.
Remember that inflation isn't about how much people earn, it's about how much people spend.
If people can't spend income, they borrow and spend instead.
Every dollar borrowed is a dollar created, within a fiat currency regime.
For the proletariat in most of the Western world, wages are static or declining, but debt is growing. The proles aren't getting paid more. They're borrowing more. The massive increase in borrowed money is driving higher consumer prices.
That's why we see flat wages but rising education, housing, health care, and transport costs. People are paying higher and higher prices for these things, but not out of their wages or savings. They're borrowing and spending the money into the economy.
We're not getting hyperinflation, but we are getting steady, grinding, relentless inflation around 5% if it were measured objectively. That sort of inflation won't have you pushing wheelbarrows full of cash, but within about 15 years it will very nicely cut your real income by half.
Now the questions should be, "Who the hell would lend more and more money to people whose wages are flat or declining? How can such a situation ever begin, or if begun, persist for any appreciable length of time such as to drive higher inflation?"
At least part of the answer lies in the massive systemic public subsidization of private debts. e.g. Banks lend money to broke students because the government uses its own credit to guarantee the loans. The broke student thus obtains the loan, and spends the money into the economy, and helps to encourage soaring tuition costs.
Governments guarantee mortgages, too. This doesn't only drive higher housing prices. Since home equity can be borrowed against, a lot of all-round consumer spending is indirectly supported by public guarantee of private debts.
This is to say nothing of monomaniacal central bank cheap credit policy which fosters all manner of debt expansion.
So that's why you can see flat wages and rising consumer prices. Shouldn't be able to happen. But our bunch of wonderfuck bourgeoisie found a way to do it. Yes They Can.
Still, these are one-off examples. Education costs? Sure. Through the roof. Yet, because of less .gov subsidy and more desperation among sheepl to get that degree no matter what, because, frankly, it is the only remaining way to get a reasonable chance at good life for kids. Housing? Sure, but it mostly just mirrors stock market reflecting all the same hopes for recovery and fears of inflation. Again, people are acting out of greed and desperation. Health care is a great example of success for cartels and lobbying. Transport is oil. Utilities are unions and monopolies. Every special group is doing all they can to keep squeezing as much money as possible. Some are certainly more successful than others. Food producers have it tough between rising costs and not rising wages, hence the smaller packages. My own sense of inflation is based on how much labor my money can buy and how much salaries have been rising over the last 5-10 years. And this inflation is surprisingly close to the official CPI. The rest is really a mix of tidal waves of hot and/or desperate money chasing particular items. If they want their bubbles they can keep their bubbles.
LOL, our tax dollars at work. Classy!
http://hotair.com/archives/2014/06/25/epa-employees-warned-to-stop-defec...
The Federal Reserve is digging their own grave and they don't even know it. They really aren't the smart guys everyone wants to give them credit for being...
http://www.globaldeflationnews.com/the-creature-from-jekyll-island-the-e...
Regardless of what you name it the "Federal Reserve Nightmare" or the "Yellen conundrum", the box Ben Bernanke made when he painted both himself and the Federal Reserve in a corner remains. Bernanke has by passing the chairmanship to Yellen escaped from the QE trap but left the rest of us fully in its grasp.
With a policy of loose and cheap money and an inflation target of just 2% the Federal Reserve continues to please those gambling that not fighting the Fed guarantees profits. As many Americans are forced to pay higher food, gasoline, and health insurance premiums, I wish someone would let the Fed know we are already there. Any thought that inflation is not higher has come from the false illusion brought from lower payments on things like auto loans and mortgages, this is a one off and will not continue. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/06/exit-strategy-from-qe-remains-elu...
Greenspam put us on the path, that no one has the gonads to stop
Stealth inflation, coming to a horsemeat microwave lasagna near you.
"Stealth inflation, coming to a horsemeat microwave lasagna near you."
So are we talking horse meat as a substitute for beef pink slime? Or horse pink slime replacing beef pink slime?
The only metric of inflation that concerns the Fed is wage increases. Everything else is not of interest to them and thus can be eliminated from their calculations.
I remember the first time i opened a candy bar and found the fake cardboard insert.. that was the last time i bought that Candy bar.
Americans are not that Stupid. they can Vote with their Pocket books & Wallets
The Fed is willfully ignorant of the plight of working people and purposely lying.
1) Shrinking the box/package of the good, thereby selling less for the same amount.
The toilet paper dispenser is not growing..
It is part of the FED anti Obesity program....
It's called 'de-sheeting'...
http://m.us.wsj.com/articles/SB10001424127887323971204578626223494483866...
"If it seems like the toilet paper runs out more quickly, it might not be your imagination. Consumer products makers call it "desheeting," reducing the number of sheets on a roll or in a tissue box."