In recent years a good part of the monetary debate has become a simple war of words, with much of the conflict focused on the definition for the word “inflation.”
Whereas economists up until the 1960’s or 1970’s mostly defined inflation as an expansion of the money supply, the vast majority now see it as simply rising prices. Since then the “experts” have gone further and devised variations on the word “inflation” (such as “deflation,” “disinflation,” and “stagflation”). And while past central banking policy usually focused on “inflation fighting,” now bankers talk about “inflation ceilings” and more recently “inflation targets”. The latest front in this campaign came this week when Bloomberg News unveiled a brand new word: “lowflation” which it defines as a situation where prices are rising, but not fast enough to offer the economic benefits that are apparently delivered by higher inflation. Although the article was printed on April Fool’s Day, sadly I do not believe it was meant as a joke.
We are sure the weather is to blame but what happens when pent-up demand (from a frosty east coast emerging from its hibernation) bumps up against a drought-stricken west coast unable to plant to meet that demand? The spot price (not futures speculation-driven) of US Foodstuffs is the best performing asset in 2014 – up a staggering 19%…
h/t Bloomberg’s Chase van der Rhoer
And it will only get much, much worse.
And 2008 will seem like a walk in the park.
Quantitative easing = printing money = creating money out of thin air = increasing the money supply = inflation = hidden tax on monetary assets = theft!
When a country embarks on deficit financing (Obamanomics) and inflationism (Quantitative easing) you wipe out the middle class and wealth is transferred from the middle class and the poor to the rich. - Ron Paul
“Deficits mean future tax increases, pure and simple. Deficit spending should be viewed as a tax on future generations, and politicians who create deficits should be exposed as tax hikers.” - Ron Paul
I have an old acquaintance named Sam who has a hell of a deal for you.
Sam is actually a pretty famous guy with a big reputation. Unfortunately he has been a bit down and out on his luck lately… but he’s trying to make a comeback. And Sam is prepared to float you a really great investment opportunity.
Here’s the deal he’s offering: you give Sam your hard-earned retirement savings. Sam will invest your funds, and pay you a rate of return.
Granted, the rate of return he’s promising doesn’t quite keep up with inflation. So you will be losing some money. But don’t dwell on that too much.
Beginning by disavowing Mario Gabelli of any belief that rising stock prices help ‘most’ people (“Fed data suggests half the US population has seen a 40% drop in wealth since 2007“), Marc Faber discusses his increasingly imminent fears of the markets in this recent Barron’s interview.
Quoting Hussman as a caveat, “The problem with bubbles is that they force one to decide whether to look like an idiot before the peak, or an idiot after the peak. There’s no calling the top,” Faber warns there are a lot of questions about the quality of earnings (from buybacks to unfunded pensions) but “statistics show that company insiders are selling their shares like crazy.”
His first recommendation – short the Russell 2000, buy 10-year US Treasuries (“there will be no magnificent US recovery”), and miners and adds “own physical gold because the old system will implode. Those who own paper assets are doomed.”
Dedicated readers of The Wall Street Journal have recently been offered many dire warnings about a clear and present danger that is stalking the global economy. They are not referring to a possible looming stock or real estate bubble (which you can find more on in my latest newsletter). Nor are they talking about other usual suspects such as global warming, peak oil, the Arab Spring, sovereign defaults, the breakup of the euro, Miley Cyrus, a nuclear Iran, or Obamacare. Instead they are warning about the horror that could result from falling prices, otherwise known as deflation. Get the kids into the basement Mom… they just marked down Cheerios! Continue reading »
Hyperinflation leads to the complete breakdown in the demand for a currency, which means simply that no one wishes to hold it. Everyone wants to get rid of that kind of money as fast as possible. Prices, denominated in the hyper-inflated currency, suddenly and dramatically go through the roof. The most famous examples, although there are many others, are Germany in the early 1920s and Zimbabwe just a few years ago. German Reichsmarks and Zim dollars were printed in million and even trillion unit denominations.
1) Politicians believe there are no consequences for destroying our liberty…
Stimulus and response. That’s the easiest way of summing this up. When politicians steal, and there are no consequences, they’re going to keep stealing.
Cyprus proved this point handily. The government froze bank accounts for everyone in the country (of course, the big bosses got their money out in time). And yet, there was no violent revolution in the streets. People just accepted it.
Poland nationalized pensions. Argentina imposed severe capital controls. The French are taxing everything under the sun. The US government was caught red-handed spying on… everyone.
If policymakers were gunfighters, they’d be out of bullets: They have run out of effective policy tools to improve the economy.
So the question is simple: If there is a recession in 2014, and policymakers are out of bullets, how will it play out across the American economy?
Recently, Deutsche Bank’s Jim Reid very astutely pointed out that the current “expansion” of the U.S. economy is on its fifth year—the seventh longest in history.
Over the past 30 years, the rise in the price of Christmas according to PNC’s annual 12-days-of-Christmas price index has matched the CPI at around 2.9% YoY. However, in recent years, the reality is considerably worse than the well-managed inflation data the government profers. The price of Christmas in 2013 is up a stunning 7.7% over 2012 – the biggest jump since 2010′ 9.2% rise. The biggest driver of the increase were the dancing ladies (must be the minimum wage decree?) though 8 items saw modest increases also. Once again, it seems the government’s benign inflation data is fictionalized by reality’s rising price of everything.
The economic turmoil in Venezuela has received increasing international media attention over the past few months. In September, the toilet paper shortage (which followed food shortages and electricity blackouts) resulted in the “temporary occupation” of the Paper Manufacturing Company, as armed troops were sent to ensure the “fair distribution” of available stocks. Similar action occurred a few days ago against electronics stores: President Nicolás Maduro accused electronics vendors of price-gouging, and jailed them with the warning that “this is just the start of what I’m going to do to protect the Venezuelan people.”
Earlier this month, in another attempt to ensure “happiness for all people,” Maduro began to hand out Christmas bonuses, in preparation for the coming elections in December. But political campaigning is not the only reason for the government’s open-handedness. The annual inflation rate in Venezuela has been rapidly rising in recent months, and has now reached a staggering 54 percent (not accounting for possible under-estimations). Although not yet officially in hyperinflation, monetary expansion is pushing Venezuela toward the brink.
In such an environment, paychecks need to be distributed quickly, before prices have time to rise; hence, early bonuses. This kind of policy is nothing new in economic history: Venezuela’s hyperinflationary episode is unfolding in much the same way Germany’s did nearly a century ago.
Most people – certainly most governments and economists – define inflation as a general rise in prices. But this is wrong. Inflation is an increase in the money supply, of which a rising general price level is just one possible result – and not the most common one.
More often, excessive money creation shows up as asset bubbles, where the new money, instead of flowing equally to all the products that are for sale at a given time, flow disproportionately into the ‘hottest’ asset classes. Readers who were paying attention in the 1990s might recall that the consumer price index was well-behaved while huge amounts of money flowed into financial assets, producing the dot-com bubble.
The same thing happened in the 2000s, when excess currency flowed into housing and equities. In each case, mainstream economists and government officials pointed to modest consumer price inflation as a sign that things were fine. And in each case they were simply looking in the wrong place and completely missing the destabilizing effects of an inflating money supply. Continue reading »
According to a whistleblower that has recently come forward, Census employees have been faking and manipulating U.S. employment numbers for years. In fact, it is being alleged that this manipulation was a significant reason for why the official unemployment rate dipped sharply just before the last presidential election. What you are about to read is incredibly disturbing. The numbers that the American people depend upon to make important decisions are being faked. But should we be surprised by this? After all, Barack Obama has been caught telling dozens of major lies over the past five years. At this point it is incredible that there are any Americans that still trust anything that comes out of his mouth. And of course it is not just Obama that has been lying to us. Corruption and deception are rampant throughout the entire federal government, and this has been the case for years. Now that some light is being shed on this, hopefully the American people will respond with overwhelming outrage and disgust.
One of the least discussed, but potentially most significant, provisions in President Obama’s budget is the use of the “chained consumer price index” (chained CPI), to measure the effect of inflation on people’s standard of living. Chained CPI is an effort to alter the perceived impact of inflation via the gimmick of “full substitution.” This is the assumption that when the price of one consumer product increases, consumers will simply substitute a similar, lower-cost product with no adverse effect. Thus, the government decides your standard of living is not affected if you can no longer afford to eat steak, as long as you can afford to eat hamburger. Continue reading »
If you believe that there is high inflation in the United States, you are just imagining things. That is the message that the U.S. government and the Federal Reserve would have us to believe. You might have noticed that the government announced on Wednesday that the cost of living increase for Social Security beneficiaries will only be 1.5 percent next year. This is one of the smallest cost of living increases that we have ever seen. The federal government is able to get away with this because the official numbers say that there is hardly any inflation in the U.S. right now. Of course anyone that shops for groceries or that pays bills regularly knows what a load of nonsense the official inflation rate is. The U.S. government has changed the way that inflation is calculated numerous times since 1978, and each time it has been changed the goal has been to make inflation appear to be even lower. According to John Williams of shadowstats.com, if the inflation rate was still calculated the same way that it was back when Jimmy Carter was president, the official rate of inflation would be somewhere between 8 and 10 percent today. But if the mainstream news actually reported such a number, everyone would be screaming and yelling about getting inflation under control. Instead, the super low number that gets put out to the public makes it look like the Federal Reserve has plenty of room to do even more reckless money printing. It is a giant scam, but most Americans are falling for it.
Meanwhile, the prices of the things that most Americans buy on a regular basis just keep going up. The following are just a few examples of price inflation that we have seen lately: Continue reading »
Quick: which BRIC nation has the highest consumer loan default rate?
If you said China, India or Russia, you are wrong. Actually, if you said China you are probably right, but since absolutely all economic “data” in China is worthless, manipulated propaganda, only a retrospective post-mortem after the Chinese credit, housing, commodity, consumption bubbles have all burst will we know the answer. So excluding China, which country’s consumers after a multi-year shopping spree funded entirely on credit, are suddenly suffering the epic hangover of soaring non-performing loans as they suddenly find themselves unable to even pay the interest on the debt? Just ask former billionaire Eike Batista whose OGX oil corporation is days away from filing bankruptcy. The answer, with 5.6% of all loans in default, above Russia, South Africa, Mexico, Turkey and India, is Brazil.
It is this same Brazil, where years of credit-driven expansion have resulted in rampant, 6% inflation, which moments ago forced the central bank to once again hike its key policy rate by another 50 bps to 9.50% in an attempt to halt surging prices and contain the flood of liquidity, both foreign and domestic. Continue reading »
This morning I received a research note from a private bank I work with occasionally.Buried in the text was a call for lower gold prices, and the analysts listed five reasons why they think gold prices will decline. Here’s what they had to say:1) “We expect the scaling back of [the Fed’s] stimulus to happen this year at the December meeting. A reduction in monetary stimulus . . . shall reduce the attractiveness of gold as a zero-income asset.”
2) “Inflation pressures in the developed world should remain subdued, lowering demand for gold as an inflation-hedge.”
3) “We expect the US recovery to accelerate, reducing the attractiveness for gold as a safe-haven asset.”
4) “A subsequent improvement in investor sentiment shall also reduce demand for gold as safe-haven asset.”
5) “Physical demand from India should be discouraged by the gold import duty increases and other measures that aim to reduce the current account deficit.”
My analysis? These guys are completely missing the point.
The reality is that today’s financial markets are controlled and manipulated by central bankers who are destructively expanding their balance sheets to the point of insolvency. Many central banks are already insolvent. Most “rich” countries are bankrupt. Continue reading »
There is a reason why every fiat currency in the history of the world has eventually failed. At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money. Sometimes, the motivation for doing this is good. When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had “more money”. Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago. Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt. Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose. The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it. But quantitative easing worked for the Weimar Republic for a little while too. At first, more money caused economic activity to increase and unemployment was low. But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today. This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening.
It is really easy to start printing money, but it is incredibly hard to stop. Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit. The behavior of the Fed is so shameful that even CNBC is comparing it to a drug addict at this point: Continue reading »