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Showing posts with label Inflation. Show all posts
Showing posts with label Inflation. Show all posts
Wednesday, November 10, 2010
Thursday, September 3, 2009
The Spend-And-Borrow Economy
http://www.forbes.com/2009/08/26/stimulus-recession-fiscal-monetary-liquidity-taxes-opinions-columnists-nouriel-roubini.html
Doctor Doom
The Spend-And-Borrow Economy
Nouriel Roubini, 08.27.09
In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?
This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.
Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government's liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)
Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which--only partially achieved--was to hold down long-term interest rates.
The Fed, for example, has committed to spending $1.8 trillion on longer-dated Treasury bonds and other securities, but most of this spending is money the government has printed itself, simply by creating central bank monetary base. It doesn't add to the budget deficit, although it does add to the long-term risk profile of the government doing the spending as monetization of fiscal deficit can eventually be inflationary.
This massive escalation of central government spending and borrowing was necessary. For most of last year, governments lagged well behind the curve of the unfolding crisis. For too long policymakers continued to believe that the house-price bubble was an isolated aberration that would self-correct without impacting the wider economy, and that the unprecedented growth in household indebtedness was not a matter of concern. By the final quarter of last year, however, the global economy was in freefall, with industrial production, private demand, employment and broad GDP all contracting at a rate indicating something close to depression at hand. Policymakers suddenly went into corrective overdrive in late 2008--not a moment too soon.
The second-quarter GDP estimates for the U.S. show just how significant this aggressive front-loaded policy stimulus has been. While total GDP growth was sharply negative in the first quarter--around -5.6%--the rate of decline in the second quarter had moderated to around -1.5%. Credit this relative improvement to governmental monetary, fiscal and financial stimulus. The private components of GDP, private demand and capital expenditure, were actually still very weak. But government spending rose by 5.6%, breaking what otherwise would have been another quarter of headlong GDP contraction.
Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.
The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%--that's an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.
Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt--or most likely do some combination of all three.
Monetization is already happening. This is where a government effectively prints money by allowing the central bank to create base money that is used to buy government debt, thereby increasing liquidity and holding down long-term interest rates (because the additional demand for these securities pushes up bond prices, thereby lowering the real interest rate the securities pay, as well as putting money into the pockets of the investors who have sold the securities).
Over time, monetization is inflationary, but the inflationary effect is insidious because it is not immediately visible. In the short run deflation will outplay inflation. In most developed countries today there is so much slack in economies, with weak demand and high unemployment, that prices cannot rise. The velocity of money is also weak, as financial institutions are receiving liquidity from central banks and hoarding it to rebuild their balance sheets, instead of lending it out. But as the economy recovers, these effects will abate, and the growth of the monetary base caused by monetization will eventually drive expected and actual inflation. And once markets start to anticipate that scenario, it may already be too late to avert an inflationary surge.
Simply issuing debt in the form of Treasury bonds offers no escape. The more debt a government issues, the higher the risk it will eventually face refinancing problems and/or default on that debt. Accordingly, investors will demand a higher return for investing in that debt, and that in turn will push up rates. Independent rating agencies have already downgraded the sovereign risk rating of countries like Greece and Ireland, and it cannot be ruled out that core economies of the OECD, including the U.S., could eventually be downgraded.
As it happens, there is little sign today of investors demanding a significantly higher risk premium on U.S. government debt. That is partly because private savings are increasing: Those savings have to be invested somewhere and investors are cautious about alternative investments. Foreign demand for U.S. bonds also remains robust so far. But this demand is unlikely to survive another big round of government-financed stimulus and bailout spending. And unfortunately, such a spending round is rather likely.
Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong.
A rough calculation goes like this: Stimulus money to keep the lid on rising unemployment is likely to be around $200 billion. Add to that the likely temporary partial extension of the Bush tax cuts and funding of the current administration's plans for universal health care (an additional bill of around $1.5 trillion over 10 years) and you get deficits close to12% of GDP.
This amounts to a fiscal train wreck. For the U.S., it means deficits could remain over 10% of GDP for years. Bond issuance will remain enormous, and it will mean that the Fed will almost certainly have to monetize a proportion of the debt by buying even more government or government-backed securities.
A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.
Yet the alternative--the early withdrawal of the stimulus drug that governments have been dispensing so freely--is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment--a time when unemployment is rising, and private demand is still contracting--could be catastrophic, turning recovery into renewed recession.
History offers more than one example of this error. It happened in Japan in the late 1990s when the Japanese government feared the effects of fiscal deficits and of an increase in inflation as the economy was beginning to recover after almost a decade of deflation. Consumption taxes were raised too soon and the "zero interest rate policy" was abandoned. Within a year the economy was back in recession.
It also happened in the U.S. in the 1930s. President Roosevelt instituted a massive stimulus package when he came to office in 1933, to push the U.S. economy out of the depression, but by 1937 the administration was worrying that inflation was returning and that deficits were too large; so it cut spending and raised rates and the Fed tightened monetary policy. By 1938 the economy was heading back into near-depression.
So policymakers are between a rock and a hard place. Stop spending now and risk renewed recession and deeper deflation (stag-deflation). Keep spending now and risk renewed recession amid rising inflation expectations (stagflation).
Yet there is a space between the rock and the hard place. It is not a big space, but it is there.
Governments will have to manage perceptions. Today investors remain willing to bankroll federal spending without any clear or firm indication of how the fiscal crisis--and it is a crisis of extraordinary proportions--is going to be dealt with. That won't last. Clear indications will soon be needed as to how and when public finances will be repaired. That doesn't have to be accomplished soon--but it does have to be communicated soon.
Monetary policy can most likely remain looser for longer (in the developed economies at least)--as long as there is a clear commitment to fiscal consolidation. But a credible fiscal commitment to medium-term fiscal sustainability is vital, because that is what will open up the very narrow window that is the exit route from our current and unsustainable spend-and-borrow economy.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.
Doctor Doom
The Spend-And-Borrow Economy
Nouriel Roubini, 08.27.09
In the last few months the world economy has been saved from a near-depression. That feat has been achieved by a range of extraordinary government stimulus measures: In the U.S. and in China, and to a lesser extent in Europe, Japan and other countries, governments have pumped liquidity, slashed policy rates, cut taxes, primed demand and ring-fenced and back-stopped the financial system. All of this has worked, but at a cost. Governments have been spending and borrowing like never before. The question now is: how do they stop?
This is not a simple problem. Restore normality too soon and the risk is that a weak recovery will double dip into a second and deeper recession. Restore it too late and inflation will already be ingrained.
Consider how much has been committed and how much has been spent. In the U.S. alone, when you add up the government's liquidity support measures, its re-capitalizations of banks, its guarantees of bad assets, its extension of deposit insurance and guarantees of unsecured bank debt, at least $12 trillion has been committed, and a quarter of that has already been spent. Along with the rise in spending there has also been a very large fiscal stimulus, pushing the federal budget deficit to 13% of gross domestic product this year. (Next year, on current plans, the deficit will fall back but still amount to 10% of GDP.)
Not all the measures adopted appear on the budgetary bottom line. As well as monetary easing and fiscal stimulus, the U.S. and other governments have resorted to unconventional measures to ease monetary conditions. In the U.S., Japan and the U.K., real interest rates have been pushed down to zero, and governments have resorted to buying long-dated securities, the goal of which--only partially achieved--was to hold down long-term interest rates.
The Fed, for example, has committed to spending $1.8 trillion on longer-dated Treasury bonds and other securities, but most of this spending is money the government has printed itself, simply by creating central bank monetary base. It doesn't add to the budget deficit, although it does add to the long-term risk profile of the government doing the spending as monetization of fiscal deficit can eventually be inflationary.
This massive escalation of central government spending and borrowing was necessary. For most of last year, governments lagged well behind the curve of the unfolding crisis. For too long policymakers continued to believe that the house-price bubble was an isolated aberration that would self-correct without impacting the wider economy, and that the unprecedented growth in household indebtedness was not a matter of concern. By the final quarter of last year, however, the global economy was in freefall, with industrial production, private demand, employment and broad GDP all contracting at a rate indicating something close to depression at hand. Policymakers suddenly went into corrective overdrive in late 2008--not a moment too soon.
The second-quarter GDP estimates for the U.S. show just how significant this aggressive front-loaded policy stimulus has been. While total GDP growth was sharply negative in the first quarter--around -5.6%--the rate of decline in the second quarter had moderated to around -1.5%. Credit this relative improvement to governmental monetary, fiscal and financial stimulus. The private components of GDP, private demand and capital expenditure, were actually still very weak. But government spending rose by 5.6%, breaking what otherwise would have been another quarter of headlong GDP contraction.
Necessary as the stimulus has been, it cannot go on indefinitely. Governments cannot run deficits of 10% or more of GDP, and they cannot go on doubling the monetary base, without eventually stoking inflation expectations, pushing up long-term interest rates and eventually eroding their very viability as sovereign borrowers. Not even the U.S. can do that.
The fiscal implications of the current policy package are particularly serious. For the time being, fiscal policy has been put at the service of survival, but the current price of survival is that net public debt is going to double as a share of GDP between 2008 and 2014. Even using the very optimistic forecasts of the Congressional Budget Office, which anticipate growth of around 4% over the next few years, the net debt burden will rise from 40% of GDP to 80%--that's an increase in the debt stock of about $9 trillion. The interest charge alone on that increased debt will be in the region of $300 billion to $400 billion a year, which in turn may mean more borrowing to pay the interest if primary deficits are not reduced. When governments reach the point where they are borrowing to pay the interest on their borrowing they are coming dangerously close to running a sovereign Ponzi scheme.
Ponzi schemes have a way of ending unhappily. To get out of the Ponzi trap, governments will have to raise taxes, or cut spending, or monetize the debt--or most likely do some combination of all three.
Monetization is already happening. This is where a government effectively prints money by allowing the central bank to create base money that is used to buy government debt, thereby increasing liquidity and holding down long-term interest rates (because the additional demand for these securities pushes up bond prices, thereby lowering the real interest rate the securities pay, as well as putting money into the pockets of the investors who have sold the securities).
Over time, monetization is inflationary, but the inflationary effect is insidious because it is not immediately visible. In the short run deflation will outplay inflation. In most developed countries today there is so much slack in economies, with weak demand and high unemployment, that prices cannot rise. The velocity of money is also weak, as financial institutions are receiving liquidity from central banks and hoarding it to rebuild their balance sheets, instead of lending it out. But as the economy recovers, these effects will abate, and the growth of the monetary base caused by monetization will eventually drive expected and actual inflation. And once markets start to anticipate that scenario, it may already be too late to avert an inflationary surge.
Simply issuing debt in the form of Treasury bonds offers no escape. The more debt a government issues, the higher the risk it will eventually face refinancing problems and/or default on that debt. Accordingly, investors will demand a higher return for investing in that debt, and that in turn will push up rates. Independent rating agencies have already downgraded the sovereign risk rating of countries like Greece and Ireland, and it cannot be ruled out that core economies of the OECD, including the U.S., could eventually be downgraded.
As it happens, there is little sign today of investors demanding a significantly higher risk premium on U.S. government debt. That is partly because private savings are increasing: Those savings have to be invested somewhere and investors are cautious about alternative investments. Foreign demand for U.S. bonds also remains robust so far. But this demand is unlikely to survive another big round of government-financed stimulus and bailout spending. And unfortunately, such a spending round is rather likely.
Consider that by the end of 2010 most of the tax cuts legislated by the Bush administration in 2001 and 2003 are due to expire. This means that there will be a sharp tax hike, including income taxes, capital gains taxes and taxes on dividends and estates. This hike--equivalent to around 1.5% to 2% of GDP--is already factored in to future calculations of government indebtedness. So if by next year the recovery proves as anemic as I expect, and if unemployment is around 10.5%-11%, as I also expect, then the pressure for another stimulus round early in 2010 will be strong.
A rough calculation goes like this: Stimulus money to keep the lid on rising unemployment is likely to be around $200 billion. Add to that the likely temporary partial extension of the Bush tax cuts and funding of the current administration's plans for universal health care (an additional bill of around $1.5 trillion over 10 years) and you get deficits close to12% of GDP.
This amounts to a fiscal train wreck. For the U.S., it means deficits could remain over 10% of GDP for years. Bond issuance will remain enormous, and it will mean that the Fed will almost certainly have to monetize a proportion of the debt by buying even more government or government-backed securities.
A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.
Yet the alternative--the early withdrawal of the stimulus drug that governments have been dispensing so freely--is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment--a time when unemployment is rising, and private demand is still contracting--could be catastrophic, turning recovery into renewed recession.
History offers more than one example of this error. It happened in Japan in the late 1990s when the Japanese government feared the effects of fiscal deficits and of an increase in inflation as the economy was beginning to recover after almost a decade of deflation. Consumption taxes were raised too soon and the "zero interest rate policy" was abandoned. Within a year the economy was back in recession.
It also happened in the U.S. in the 1930s. President Roosevelt instituted a massive stimulus package when he came to office in 1933, to push the U.S. economy out of the depression, but by 1937 the administration was worrying that inflation was returning and that deficits were too large; so it cut spending and raised rates and the Fed tightened monetary policy. By 1938 the economy was heading back into near-depression.
So policymakers are between a rock and a hard place. Stop spending now and risk renewed recession and deeper deflation (stag-deflation). Keep spending now and risk renewed recession amid rising inflation expectations (stagflation).
Yet there is a space between the rock and the hard place. It is not a big space, but it is there.
Governments will have to manage perceptions. Today investors remain willing to bankroll federal spending without any clear or firm indication of how the fiscal crisis--and it is a crisis of extraordinary proportions--is going to be dealt with. That won't last. Clear indications will soon be needed as to how and when public finances will be repaired. That doesn't have to be accomplished soon--but it does have to be communicated soon.
Monetary policy can most likely remain looser for longer (in the developed economies at least)--as long as there is a clear commitment to fiscal consolidation. But a credible fiscal commitment to medium-term fiscal sustainability is vital, because that is what will open up the very narrow window that is the exit route from our current and unsustainable spend-and-borrow economy.
Nouriel Roubini, a professor at the Stern Business School at New York University and chairman of Roubini Global Economics, is a weekly columnist for Forbes.
Thursday, November 27, 2008
Consumer prices drop record 1 percent in October
http://biz.yahoo.com/ap/081119/economy.html
Consumer prices drop record 1 percent in October
Wednesday November 19, 2008
By Martin Crutsinger, AP Economics Writer
Consumer prices drop by largest amount in past 61 years as energy prices see record plunge
WASHINGTON (AP) -- Consumer prices plunged by the largest amount in the past 61 years in October as gasoline pump prices dropped by a record amount.
The Labor Department said Wednesday that consumer prices fell by 1 percent last month, the biggest one-month decline on records that go back to February 1947. The drop was twice as large as the 0.5 percent decline analysts expected.
In other economic news, the Commerce Department reported that construction of new homes and apartments fell by 4.5 percent in October to an annual rate of 791,000 units. That was the slowest construction pace on records going back to 1959 and underscored that housing remains caught in a severe slump.
The big drop in inflation reflected not only a huge fall in gasoline and other energy costs, but widespread declines in other areas. Core consumer prices, which exclude food and energy, fell by 0.1 percent last month, the first drop in core prices in more than a quarter-century.
There were price declines for clothing, new and used cars, and airline fares. Analysts predicted further declines in the months ahead as retailers struggle to attract consumers who are being battered by rising unemployment and the weak economy.
"This report clearly reflects the crunch in discretionary consumers' spending which is likely to persist for the foreseeable future," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
The big retreat in consumer prices represented a remarkable turnaround from just a few months ago when a relentless surge in energy prices raised concerns that inflation could get out of control.
Since that time, the economy has been jolted by the most serious financial crisis in seven decades with all the turbulence expected to push the country into a severe and prolonged recession.
The U.S. troubles have quickly spread overseas, depressing growth around the world and cutting into demand for oil and other products, a development that has resulted in sharp declines in the price of crude oil and other commodities.
While some are worried that the price retreat could raise the prospect of a deflation, a prolonged bout of falling prices, most economists believe that current conditions are not likely to set the stage for such a development, which last occurred in the U.S. during the Great Depression.
Over the past 12 months, consumer prices have risen by 3.7 percent. That is substantially below the 17-year high of a 12-month price increase of 5.6 percent set this summer. Core prices are up 2.2 percent over the past 12 months.
This price moderation is giving the Federal Reserve the room it needs to cut interest rates to battle the economic slump. The central bank is expected to cut the federal funds rate, the interest that banks charge each other, down to 0.5 percent at its December meeting, even lower than the 1 percent where the funds rate stands currently. The 1 percent funds rate ties the record low for the past half century.
For October, energy prices fell by a record 8.6 percent, led by a record 14.2 percent drop in gasoline prices. Since prices at the pump have continued to fall this month, analysts are looking for a big decline in energy costs in November as well.
The nationwide average for regular gasoline now stands at $2.07, down 33 cents since the start of the month, according to the Energy Information Agency, and well below record-highs above $4 per gallon this summer.
Food costs rose 0.3 percent in October, just half the increase of September, as dairy products and fruit showed declines. Food prices are still 6.1 percent above where they were a year ago, reflecting big increases in past months as grocery stores hiked costs to reflect the higher cost of transportation.
Excluding food and energy, consumer prices fell by 0.1 percent, the first decline in core prices since a similar drop in December 1982 as the country was battling the effects of a severe recession.
Many analysts believe the current downturn will be the worst recession since the 1981-82 slump.
The big drop in inflation meant workers got a break in their discretionary incomes although average weekly earnings, after adjusting for inflation, were still down by 0.9 percent from a year ago. However, that was smaller than the 2.5 percent decrease seen in the prior two months.
Saturday, August 30, 2008
The Real Rate of Inflation is 13%
http://www.infowars.com/?p=4189
The Real Rate of Inflation is 13%
The Mogambo Guru
The Daily Reckoning
August 27, 2008
It was when “official government-approved” inflation figures were released that I really lost it last week, as that particular rate of inflation is now a staggering 5.6%. This is - as you can probably tell by the look of panic and terror on my face - Terrible, Terrible News (TTN).
And when you look at what John Williams at shadowstats.com calculates as inflation, according to the time-honored method of actually looking at real prices instead of the “qualified estimates” that are used today, you will see that annual inflation in consumer prices is actually running at over 13%! Some of the worst in American history! We’re freaking doomed!
Anthony Cherniawski of The Practical Investor is not interested in my dour assessment of the situation, and took a look at the Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (CPI-U), which increased a whopping 0.5% (non-seasonally adjusted) in July, which is plenty bad enough for one month, but one’s tongue tries to hide by jumping down one’s throat when one learns that it was not a fluke, and that prices are 5.6% higher than in July 2007! 5.6% annual inflation is the best they can wring from admittedly-doctored statistics? Yikes! I’m screaming my guts out here!
Mr. Cherniawski coolly says that I don’t know the literal half of it, as “The alarming part of this report is the acceleration of inflation in the past 3 months. While the unadjusted rate for the past 12 months was 6.2%, the 3-month annualized rate of increase was 11.9%.” Yikes! We’re freaking doomed!
The report itself noted, without any hint of alarm, that “On a seasonally adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent increase in June.” Yow!
Some of the terrifying specifics were that the energy index rose 4%, which accounted for “about half of the overall increase in the all items index.”
The worse news for people who eat food is that “the food index rose 0.9 percent in July after rising 0.8 percent in June. Indexes for five of the six major grocery store food groups rose at least 1.0 percent.” In one freaking month! This is outrageous inflation!
This inflation in food may be why Heraldtribune.com interviewed Vicki Escarra, president and CEO of an outfit called America’s Second Harvest, which is “the nation’s largest food bank network”, and which is a name that they are soon changing to “Feeding America”, which seems oddly apropos, considering that in January, they surveyed their 200 food banks and found that “demand was up 20 percent over last year.” Wow! What an increase!
“We’re seeing more and more people visiting food banks for the first time because they’ve lost their jobs or they’re not getting raises”, she says. Yikes! People are reduced to begging for food because they are not getting raises!
Equally alarming is the news from John Williams at shadowstats.com, who says that real inflation in prices, as measured in a subset of the BLS Consumer Price Indexes, the CPI-W, “jumped to 6.2%”.
What makes the CPI-W inflation subset so interesting is that, as Mr. Williams explains, “The CPI-W is used for making the annual cost-of-living adjustments to Social Security payments” which would indicate that the federal budget line-item for Social Security, already one of the largest categories in the whole bloated federal budget that is already over $3 trillion a year, will be increasing by a theoretical 6.2%, just by virtue of mandated higher payments!
Then, to make it all worse, the Labor Department reported the latest survey of producer prices for July, the Producer Price Index, which went up by a stunning 1.2% for the month, where the only saving grace is that it is less than the 1.8% increase in June!
As Mark Gongloff so pithily explained in his Ahead Of The Tape column of the Wall Street Journal, “While consumers suffer inflation a the bottom of the pricing pipeline, producers feel it at the top”, and that producers will be very keen about passing higher costs along to the consumer as quickly as possible, because “to the extent inflation gets stuck with them, their profits suffer.”
And since everybody knows the ugliness of profits suffering, I will not go into it, as it usually means that I am going to be fired soon, and I don’t want to think about that right now, other than to say that “profits that suffer” is ugly in the best of times, and it will be Much, Much Uglier (MMU) this time, thanks to seemingly-impossible leveraged investment use of every freaking dime, real or imagined, here or in the future.
Okay, I will say one other thing; if you are not buying gold, silver and oil in a fit of terrified self-preservation, to the exclusion of everything else including back-to-school clothes for your stupid kids that make them look like mental defectives and cost a fortune, then you are almost certainly making the biggest mistake of your life.
Well, maybe the second biggest mistake after deciding to have the damned kids. Or maybe the third biggest mistake after deciding to get married in the first damned place and then having the damned kids in the second place, but you get the point.
The Real Rate of Inflation is 13%
The Mogambo Guru
The Daily Reckoning
August 27, 2008
It was when “official government-approved” inflation figures were released that I really lost it last week, as that particular rate of inflation is now a staggering 5.6%. This is - as you can probably tell by the look of panic and terror on my face - Terrible, Terrible News (TTN).
And when you look at what John Williams at shadowstats.com calculates as inflation, according to the time-honored method of actually looking at real prices instead of the “qualified estimates” that are used today, you will see that annual inflation in consumer prices is actually running at over 13%! Some of the worst in American history! We’re freaking doomed!
Anthony Cherniawski of The Practical Investor is not interested in my dour assessment of the situation, and took a look at the Bureau of Labor Statistics’ Consumer Price Index for All Urban Consumers (CPI-U), which increased a whopping 0.5% (non-seasonally adjusted) in July, which is plenty bad enough for one month, but one’s tongue tries to hide by jumping down one’s throat when one learns that it was not a fluke, and that prices are 5.6% higher than in July 2007! 5.6% annual inflation is the best they can wring from admittedly-doctored statistics? Yikes! I’m screaming my guts out here!
Mr. Cherniawski coolly says that I don’t know the literal half of it, as “The alarming part of this report is the acceleration of inflation in the past 3 months. While the unadjusted rate for the past 12 months was 6.2%, the 3-month annualized rate of increase was 11.9%.” Yikes! We’re freaking doomed!
The report itself noted, without any hint of alarm, that “On a seasonally adjusted basis, the CPI-U advanced 0.8 percent in July, following a 1.1 percent increase in June.” Yow!
Some of the terrifying specifics were that the energy index rose 4%, which accounted for “about half of the overall increase in the all items index.”
The worse news for people who eat food is that “the food index rose 0.9 percent in July after rising 0.8 percent in June. Indexes for five of the six major grocery store food groups rose at least 1.0 percent.” In one freaking month! This is outrageous inflation!
This inflation in food may be why Heraldtribune.com interviewed Vicki Escarra, president and CEO of an outfit called America’s Second Harvest, which is “the nation’s largest food bank network”, and which is a name that they are soon changing to “Feeding America”, which seems oddly apropos, considering that in January, they surveyed their 200 food banks and found that “demand was up 20 percent over last year.” Wow! What an increase!
“We’re seeing more and more people visiting food banks for the first time because they’ve lost their jobs or they’re not getting raises”, she says. Yikes! People are reduced to begging for food because they are not getting raises!
Equally alarming is the news from John Williams at shadowstats.com, who says that real inflation in prices, as measured in a subset of the BLS Consumer Price Indexes, the CPI-W, “jumped to 6.2%”.
What makes the CPI-W inflation subset so interesting is that, as Mr. Williams explains, “The CPI-W is used for making the annual cost-of-living adjustments to Social Security payments” which would indicate that the federal budget line-item for Social Security, already one of the largest categories in the whole bloated federal budget that is already over $3 trillion a year, will be increasing by a theoretical 6.2%, just by virtue of mandated higher payments!
Then, to make it all worse, the Labor Department reported the latest survey of producer prices for July, the Producer Price Index, which went up by a stunning 1.2% for the month, where the only saving grace is that it is less than the 1.8% increase in June!
As Mark Gongloff so pithily explained in his Ahead Of The Tape column of the Wall Street Journal, “While consumers suffer inflation a the bottom of the pricing pipeline, producers feel it at the top”, and that producers will be very keen about passing higher costs along to the consumer as quickly as possible, because “to the extent inflation gets stuck with them, their profits suffer.”
And since everybody knows the ugliness of profits suffering, I will not go into it, as it usually means that I am going to be fired soon, and I don’t want to think about that right now, other than to say that “profits that suffer” is ugly in the best of times, and it will be Much, Much Uglier (MMU) this time, thanks to seemingly-impossible leveraged investment use of every freaking dime, real or imagined, here or in the future.
Okay, I will say one other thing; if you are not buying gold, silver and oil in a fit of terrified self-preservation, to the exclusion of everything else including back-to-school clothes for your stupid kids that make them look like mental defectives and cost a fortune, then you are almost certainly making the biggest mistake of your life.
Well, maybe the second biggest mistake after deciding to have the damned kids. Or maybe the third biggest mistake after deciding to get married in the first damned place and then having the damned kids in the second place, but you get the point.
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