and his merry band of economists cling to the 1960s view that America is in a little vacuum and when the US slows, the whole world will slow and inflation (what little there is) will disappear. I said then this view is dangerous and the fact the guy who is the 2nd most powerful man in the US is clinging to this mythology should scare people. Thankfully a few of his minions are finally waking up to the fact that on July 1, 2008 inflation won't suddenly go away (what little there is), and that we are actually part of an ecosystem called "Earth" and don't exist in a vacuum. If they only read the blog....A few other nations have followed us into the abyss - Canada is joining us in the cut parade due to proximity to US (more flooding of the world with paper currency), as is the UK (our subprime brother in arms). Meanwhile just about every other country in the world is raising rates to fight off inflation. As I've said since last summer thank god we have no inflation here and our government reports are so magical that they can somehow counteract the reality on the ground. Somehow inflation cannot cross oceans nor the Canadian or Mexican border or else our lower and middle class would have some serious problems. (2 months ago our CPI inflation was 0.0% - that's amazing magic) Again, I pray for the day the economic reports show negative inflation (deflation!) and the CNBC talking heads look into the camera and say -0.1% inflation today - woo hoo! Meanwhile crude is @ $120 and every food product is now up 30%+ year over year. It is such a circus that it would be funny, if not for the fact so many people who could least afford it are getting pummeled.
And I'd say we can stop blaming oil prices on the weak dollar; if true gold would of been ramping hard the past 2 weeks instead of being comatose. Supply/demand imbalances seem to be the main culprit. And stop blaming oil companies - people need to read up and see the policies of government and Federal Reserve are helping to cause the suffering - not "greedy oil executives" - but most are financially illiterate about what is really happening, so they cling on to the villain the politicians present to them. Run huge deficits, create paper money out of thin air, allow bubbles to keep repeating every 5-6 years now, kill off regulation because it "stops financial innovation and America's competitiveness", etc.
Oh well, bring the helicopters Ben... flood the system with more money so we can elevate all assets, including the stock market (banks are not passing this money out to customers - so I assume they are making nice trading gains with all the new shiny Treasuries the Fed is printing out like mad and exchanging for toxic waste mortgage paper). I continue to say, enjoy your stock gains but remember 8% gains in a 14% inflationary environment means you lost 6% this year in real terms. And your salary went backwards. And your cost of living went up (stock up on food stuffs now, they will only continue to go up with this flooding of the world with fiat currencies). But people continue to cheer on Wall Street. And the CEOs of banks are laughing to the... well... bank. The Fed has their back at least!
Anyhow, off to those silly Europeans who actually think inflation is a problem... funny guys...
- The euro surpassed $1.60 for the first time as European Central Bank officials said they'll increase interest rates if inflation doesn't slow.
- The dollar weakened for a second straight day as oil surged above $119 a barrel and Federal Reserve Bank of Dallas President Richard Fisher said inflation is starting to grip U.S. consumers. South Africa's rand appreciated against all of the major currencies on bets rising consumer prices will force the central bank to increase its target lending rate.
- The 15-nation currency strengthened against the dollar as ECB governing council member Christian Noyer said policy makers will act to restrain consumer prices if inflation doesn't slow. ``Our big problem is to make sure that inflation falls back below 2 percent next year,'' Noyer said today in an interview on RTL radio. ``We'll do what it takes for that,'' he said, adding, ``If needed, we'll move rates.''
- His colleague, Nicholas Garganas, said at a press conference in Athens that inflation will ``remain high'' in the coming months and isn't expected to fall at a ``rapid pace'' in the second half.
- The Dallas Fed's Fisher said yesterday in a Fox Business Network interview airing today that inflation from rising food and energy prices has been so persistent that it's starting to affect consumers' expectations for future prices. ``I'm concerned that we might be on a path of higher inflation than we would otherwise have had,'' he said.
- Fisher voted against interest-rate cuts at the Jan. 30 and March 18 meetings, and was joined in dissent by Philadelphia Fed President Charles Plosser at the March meeting.
Thankfully there are no ill effects from the Fed policies - not according to government reports anyhow. When do we start hearing stories of people quitting work because its too expensive to get to their low paying "service job" that politicians say are "great for America" as we gut the production capability over the past 2 decades. Can't be too far off now.
- Cabbies here complain their take-home pay is thinner than it used to be. Trucking companies across the country are making drivers slow down to conserve fuel.
- And the rest of us? With gas prices now averaging $3.50 a gallon nationwide, according to AAA and the Oil Price Information Service, more and more Americans who have to drive are weighing the need for each and every trip.
- "To get to the doctors and all that, it's an awful lot of money," said Carol Licata, a 75-year-old retiree from Arnold, Pa., who said a larger portion of her fixed income is now going toward gas. "I don't drive that often, but have to take necessary trips ... and (gas) takes a big chunk out of our budget."
- In Los Angeles, for example, fiction writer Brian Edwards sold his gas-guzzling Ford truck and now relies on his skateboard or the bus to get around. (see this is the funny part of the wealth transfer or reverse colonization as I like to call it - the Asian nations have consumers buying up their first car - whereas the poorer Americans are giving up cars for... skateboards. Nice! Give it 20 more years and we'll be in exact role reversal - at that point the factories should start being built here to take advantage of the low cost labor of those working poor 3rd world Americans) Sharon Cooper of Chicago, meanwhile, said she is planning to buy a bicycle to use on her 2 1/2-mile commute to work.
- "The farther you get from the wellhead, the greater the misery," said Tom Kloza of the Oil Price Information Service in Wall, N.J. "There's a lot of stations across the country that are literally on the brink of bankruptcy." Samer Katib, the manager of a Marathon station in Chicago, said business has fallen at least 30 percent this year because customers are cutting back on driving and only using their cars when absolutely necessary. "It's just go to your work and go home," he said of people's driving habits these days, adding that customers no longer stop in for profit-fattening drinks like they used to. "They need all their money for gas," he said.
- "It's a mess here," Goldstone said. "People just are not shopping and everyone's trying to figure out a way to get people back in their cars."
And for you eager real estate investors? Here is a trend I'm giving you first... smaller homes... in inner ring suburbs. With heating costs and A/C costs killing people on top of gasoline prices - those outer suburb McMansions are going to be ghost towns left for the truly well off. The middle class will be moving closer to work, in homes they can afford to pay the utilities. Start scouting those type of homes - thats where the next real estate boom will be (2011). Or buy a farm.
6 comments:
I understand the mass liquidity creation from Ben, but at the same time, the credit issues reduce liquidity. Isn't inflation more from the fact that the inflation that was once being 'exported' overseas is now trickling back? Shouldn't some of the BRIC countries be increasing their rates to stabilize long term growth? I just dont see any solution for the US. (other than time to work off excess) The US needs the liquidity for the fractional banking system to work, but raising rates wont stop inflation, since it is being created from much higher demand overseas. I would agree that it would be long term productive to just let the banks get railed, so that home prices can finally reflect reasonable costs. "AKA a true kitchen sink quarter" for the US. The accounting rules which dont allow the total write down of assets is actually causing a problem in the short term. They are slowing the natural balancing forces of free markets.
No easy solution
But to keep their own currencies stable every country pegged to our dollar needs to lower rates, and create more paper money
so we have a developing world awash with cash due to our "export" of lower rates.
I said a long time ago that much of the coming inflation is due to world of shortages, not cutting rates. But you dont cut rates 300 basis points if worldwide inflation due to a world of shortages is staring at you. But this Fed, like govt, is reactionary not predictive. So looking forward is not a strength.
And yes, there is no easy way out of this mess - there will just be more asset sales and transfer of wealth out from this country to others to keep subsidizing our way of life. And keep the mirage going. We shall see how it goes. This was the first expansion that real wages did not rise even with the govt low inflation reports. And if you remember in the early part of the decade people were scratching their head as this was the "jobless" recovery. If we are going to print money to inflate we might as well create infrastructure jobs or green jobs (build solar farms) instead of handing money to people to spend which just goes back to China.
I read today when the rebate checks were conceived crude was $91, now its $119. That equates to a $200B increase in cost to Americans. How much was the rebate plan? Yep. All gone. And we continue down this path of whistling along, saying lets have a gas tax holiday or not contribute to strategic reserves. Laughable. The problems are big, complex, and global. Yet the solutions are so simplistic that anyone serious just laughs.
Anyhow! It doesnt matter. Stock market is not economy. What I find hilarious is all the best companies now are ones whose products are INPUT costs... meaning if they are doing well, all their upstream customers are going to get their profit margins slashed by rising costs. Airlines are the first one that is very obvious, autos is another. I am just trying to think outside of natural resources, grains, and iPods what we have to bring to the global table at this point. Oh yes, movie stars.
"Shouldn't some of the BRIC countries be increasing their rates to stabilize long term growth? "
Yes they have been doing, China has been raising rates every quarter for nearly 2 years. What does it do? It attracts more capital. And sucks it out of low rate nations. Like us. Which causes what if you have a liquidity problem. More printing of paper money just to stay flat. But you have to look at it globally, not just America in a vacuum. There is not a liquidity vacuum globally - there are countries awash in cash. So you have to look at the economics without borders. Just because 1 country has a liquidity crunch does not mean the macro economic world revolves around them. Does Canada have any liquidity problems? No. Saudi Arabia? no. China? No. India? No. Brazil? No. Russia? No. Germany? No. Japan? No. Australia? No. Etc.
The US is just between a rock and a hard place. Yes - Agree, that spending on infrastructure is one way to go. Much better than rebate cheques. There are alot of things that are better, quite frankly. But the US is operating in a manner that is most self serving. (first to the politicians, and then to the corporations. there isnt much left after that) It is alot like a prisoner's dilemma game between the US and the world, is it not? You know the solution... just no-one trusts each other to implement it.
here is an interesting take, unfortunately I find myself agreeing with most of it, and I've written many similar comments
http://tinyurl.com/3v9vpd
Essentially the "real economy" has become a series of inflationary illusions to create paper wealth with not much behind it. Think about it. If we took away our housing industry as a "growth driver" what do we really have outside of natural resources, "high finance", defense, and agriculture? Most of our auto is now outsourced or being shredded, steel left in the 70s - there is a boom now and we have 3% of our old capacity, most technology has been outsourced outside of R&D and a few major companies, textiles gone from the Carolinas long ago. We have service jobs. Just a transfer of money from me to you. We have "pharma" but one could say what do we get over W. Europe for 2x the cost? We have worst infant mortality, we have huge swaths of the country who use the emergency room as their "primary care", drug costs are not allowed to be negotiated by govt in most cases, etc. This is a better system?
Look around at the school system and infrastructure - both crumbling. We won't fix a bridge or rebuild until it collapes and kills people. (See MN) Compare our test scores with the rest of the world. Take out the top 5% which are fine in schools and compare the 10th through 60th percentile - we are way behind. Thats the "future". We are not investing and strategic thinking about anything. Instead we let those at the top and their lobbyists dictate the terms of the country and direction. So instead we have debates full of "well you knew someone who in the 60s was trying to bomb govt building, so therefore arent you a terrorist" and "why dont you were the american pin? are you not patriotic". Just stupid tabloid stuff as the article says.
**business has fallen at least 30 percent this year because customers are cutting back on driving and only using their cars when absolutely necessary**
This is completely false.
From last weeks petroleum consumption report:
Over the last four weeks, motor gasoline demand has averaged nearly 9.3
million barrels per day, up by 0.8 percent from the same period last year.
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