Purchasing Power

David Asman: What happens now? If it’s Yellin she'll be like Bernanke on steroids. What does that mean for our economy?

Dr Paul:  Prepare for the destruction of the dollar and the crash of the bond market one day. The bond bubble is weakening although the interest rates have doubled in the last year.

Global central bankers really need to work on their "clear" communication skills: first, the Fed shocked everyone by not tapering on Wednesday, and now, in his first decision since taking over the reins of the Reserve Bank of India, its new head Raghuram Rajan, stunned the world even more, and all 36 analysts who predicted an unchanged decision by the central bank, with the first hike of the country's repurchase rate since 2011, by 25 bps to 7.5% in an attempt to rein in inflation. And just to keep the confusion to a maximum, the RBI also piled on the stunners by concurrently pursuing various other policies that contradicted the repo rate hike, and directly seek to inject even more liquidity into the market, thus offsetting any inflation-battling measures.

There are very few people that actually give even one hoot and even fewer that could give two of them when it comes to poverty of people that are living in society alongside us.

There is one good thing about money, apart from the fact that there is a race to grab it and keep in in our claws making it highly in demand, and that’s the fact that wealth attracts wealth. Money is a dirty little magnate that can only attract more money and it’s not a question of opposites attracting here.

In light of this morning's Obama-Boehner volleys, we thought a reflection on the facts was useful. The Congressional Budget Office (CBO) released its 2013 Long-Term Budget Outlook yesterday morning, and its government debt projections are dismal... But the CBO’s featured chart only tells a small part of the story. The baseline scenario happens to be bogus. Even as it shows our addiction to debt worsening, it doesn’t do justice to the severity of that addiction. (You may want to show the chart to your children. After all, they’ll be the ones who’ll have to deal with the debt we’re piling on today.)

Seth Klarman's Baupost Group will be returning money to investors at year-end. As II Alpha reports, though the amount has yet to be determined, this would be only the second time the hedge fund has returned money in the firm's 31-year history. With the world of asset managers, as we recently noted, increasingly become herd-like beta-chasers, it seems Klarman - just as he noted earlier in the year - will return capital unless investment opportunities dramatically increased - and that hasn't happened.

Back in April, we saw that merely asking the local economy minister what Argentina's rate of inflation is, was enough to prematurely terminate any interview and result in a mocking, viral twitter meme. Since then, things for Argentina haven't exactly worked out too well: a recent Appeals court ruling found in favor of Elliott and the holdout bondholders, resulting in a downgrade of the country to CCC+, and leaving it with the possibility of having to fund billions in deferred obligations. "The lawsuit could result in the interruption of payments on bonds currently under New York jurisdiction, or it could prompt Argentina to undertake a debt exchange that we could view as distressed," S&P said in the statement. "There is at least a one-in-three chance of either occurring within the coming 12 months." Of course, to many the fact that Argentina has still not redefaulted is even more surprising. The reason for that is that despite president Fernandez ongoing rose-colored glasses PR campaign, the domestic economy has been deteriorating at an accelerating pace with runaway inflation destroying local purchasing power for years. As a result of the ongoing authoritarian crackdown on not only individual liberties, but economic data, it has gotten to the point that the government is criminally prosecuting anyone who dares to publish independent inflation data.

For the right answer, we look to the past....

In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, we made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment we’ll give our best estimate as to what happens next. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.

The topic of "minimum wage" had been a hot one recently until Obama's red line and Syria stole the front pages. However, no matter how much one explains the dilemma of 'who, eventually,' pays for the increases in minimum wage that will, supposedly, bring a livable wage to all, everyone still wants more - for less. So we looked around the world to see - on a real purchasing power parity basis - just how 'tough' America's minimum wage earners have it. Turns out, only 9 nations in the world have a higher real minimum wage than the US.

The Old Continent: Europe. They have always liked to pride themselves on the fact that they were quaint guys living in leafy suburbs and going to work along cobbled streets.

Wealth has besotted people since time immemorial. It’s accrued, amassed, hidden, stolen and we would even die sometimes for it, or at least knock someone off more than likely to get what they have.

With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing. At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank conceded that policymakers rarely learn from their mistakes: "...in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur."

Even as the Indian capital outflows and current account exodus may be threatening to shut down the economy altogether (except for the three oil companies that received a last ditch USD infusion from the RBI yesterday), the central bank is planning and strategizing. And it appears to have come up with more of precisely the same that has led it to its current unprecedented predicament: prevent the population from converting their wealth into hard money, i.e., gold. But while the government's attempts to impose capital controls on gold purchases have been well documented, the latest foray is just a headspinner. Reuters reports that India is now considering a "radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency." Here we can safely assume that the commercial banks will pay for the gold in... Rupees which just hit an all time low?

This chart seems to sum up our fiscal challenges as well as anything else...