Home » Posts tagged 'inflation'

Tag Archives: inflation

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase

Loonie Tumbles To 6-Week Lows After Inflation, Retail Sales Slump

The loonie has tumbled to six-week lows (above 1.31/USD) following dismal prints for retail sales and inflation this morning.

Against expectations of a 0.1% rise MoM, Canadian core retail sales slumped 0.4% MoM in August. This is the first drop in retail sales since 2017…

Worse still was consumer price inflation plunged in September, dropping 0.4% MoM, deflating for the second month in a row…

We suspect this is not helped by the collapse in Western Canada Select prices…

And the biggest reaction so far is in the Loonie…

But, on the bright side, weed is legal now, eh?!

Why Competing Currencies is the Solution to a Collapsing Dollar

Why Competing Currencies is the Solution to a Collapsing Dollar

Cooperate when you think everyone involved will benefit.

Compete when you think something needs improvement.

For too long, certain states have been cooperating with the federal government without any benefit to the state or the citizens who live there. I recently highlighted five states, in particular, that would be better off as countries, without the federal government controlling them, and leaching off them.

Instead, states should be competing against the federal government.

They should be solving problems that the federal government cannot, or will not, solve.

One of America’s biggest problems is a fiat currency which has lost 85% of its value since 1971 when Nixon eliminated the gold standard.

Yesterday I discussed one possible solution. States could create or incentivize banks that safely store deposits of gold and silver, and issue a digital representation of its value. The value would not be denominated in dollars. Instead, the precious metals themselves would be indexed to purchasing power.

The banks would make money in the same way banks currently do, by lending and charging interest.

States could incentivize the use of this real money by giving discounts to anyone who paid their taxes with this new digital metal-backed money.

And the state’s incentive to do this is to cushion an economic crisis triggered by massive debt, inflation, and loss of confidence in value the US dollar.

But one possible pitfall of this system is a shortage of physical gold or silver to deposit, thus creating excess demand, and driving the price of gold and silver up.

So here’s another alternative.

State Cryptocurrency

You know the golden rule–he who has the gold makes the rules.

If states position themselves right, they can avert financial disaster when DC’s luck finally runs out.

…click on the above link to read the rest of the article…

Hedge Fund CIO: “Some See Parallels Between Today And The Late-1930s, Which Led To World War II”

The future is unknowable. Yet never has capital been so concentrated in strategies that depend on the future closely resembling the past. The most dominant of these strategies requires bonds to rally when stocks fall. For decades, both rose inexorably. And a new array of increasingly complex and illiquid strategies depends on a jump in volatility to be followed by a rapid decline of equal magnitude. They appear uncorrelated until they are not.

Virtually every investment portfolio measures risk by utilizing some combination of volatility and correlation, both of which are backward-looking and low. But the present is knowable. The past too. And the multi-decade trends that carried us to today produced levels of inequality rarely seen.

Low levels of inflation, growth, productivity, and volatility are features of this cycle’s increasingly unequal distribution. But cycle extremes produce pressures that reverse their direction.

On cue, an anti-establishment political wave washed away the globalists, with promises to turn the tide. Such change is nothing new, just another loop around the sun.

Now signs of a cycle swing abound; shifting trade agreements, global supply chains, military dynamics, immigration, wage pressures, polarization, nationalism, tribalism.

To an observer, it’s neither right nor wrong, it simply is. Some see parallels between today and the late-1930s, which led to World War II. We also see parallels with the mid-1960s, which led to The Great Inflation.

What comes next is sure to look different still. But investment strategies that prospered from the past decade’s low inflation, growth, productivity and volatility will face headwinds as this cycle turns.

…click on the above link to read the rest of the article…

The “VaR Shock” Is Back: Global Bonds Lose $880 Billion In One Week

Markets were in turmoil, S&P futures were locked limit down as traders panicked, the establishment political system was in chaos and global bond portfolios were about to suffer a near record $1.2 trillion in losses in just a few days.

All this took place in the hours and days following Donald Trump’s November 8, 2016 election as a Value at Risk (or VaR) shockwave spread around the globe over fears Trump would ignite an inflationary conflagration that would undo years of unorthodox monetary policy, sending interest rates soaring and crashing stock  markets.

In retrospect it didn’t happen, and as the initial shock from the political revolution in the US fizzled, bond buying resumed and the VaR shock of 2016 faded as an unpleasant memory.

Or rather, it didn’t happen then, because fast forward a little under two years, when the realization that something may is profoundly changing with the US economy has unleashed the latest global bond market Value at Risk, or VaR shock, when in just the span of three days as interest rates blew out both in the US and across the world…

some $876 billion in aggregate bond market value was lost, the biggest weekly drop since the Trump election VaR shock, and wiping out one year’s worth of mark to market profits as the aggregate value of global bonds tumbled to $48.9 trillion, the lowest going back to October 2017.

The immediate catalysts have been extensively discussed here in recent days: a record non-manufacturing ISM, a surprisingly hawkish speech by Fed Chair Powell in which he warned that rates “may go past neutral” and, topping it off, another strong nonfarm payrolls report. Meanwhile, European bonds have tumbled on renewed fears about Italian politics while Emerging Markets have been routed as a result of the strong dollar which in turn has squashed local bonds.

…click on the above link to read the rest of the article…

Loans Sour in Turkey, Inflation Hits 25%, Interest Rates Spike, Fears of Contagion Rise

Loans Sour in Turkey, Inflation Hits 25%, Interest Rates Spike, Fears of Contagion Rise

The economic miracle fueled by foreign-currency debt. 

The Bank of Turkey’s decision mid-September to hike its policy rate from 17.75% to 24% may have temporarily stemmed the rout in the Turkish lira, but the hiatus is now over. This week, the pressure is back on the nation’s currency, which is down almost 40% against the US dollar year to date, as well on its beleaguered banks, 20 of which were slapped with another downgrade by Fitch Ratings.

The lenders, Fitch said, are “more likely to come under pressure as a result of the further depreciation of the Turkish lira (by about 20% against the US dollar since the last rating review), the spike in interest rates (driven by the increase in the policy rate to 24% from 17.75% on 13 September) and the weaker growth outlook.”

The banks affected include foreign-owned subsidiaries such as Turkiye Garanti Bankasi A.S. (half-owned by Spain’s BBVA), Yapi ve Kredi Bankasi A.S. (part owned by Italy’s Unicredit), ING Bank A.S. and HSBC Bank A.S., which were downgraded to BB- from BB, as well as large state-owned banks (B+ from BB-), all with negative outlooks. As Fitch warns, the recent interest rate hike is likely to hurt lira borrowers’ debt service capacity, while exposures to the construction and energy sectors and high borrower concentrations are also “significant sources of risks at many banks.”

As long as the current climate of economic and financial instability continues, these problems are not going to go away. According to data recently published by the Turkish Statistical Institute, economic confidence in Turkey has sunk to a decade-low. Last week the country’s Finance Minister (and President Erdogan’s son-in-law) desperately tried to assure investors that he would, in classic Draghi fashion, do “whatever it takes” to support local banks, but few seem to believe that he has such means at his disposal.

…click on the above link to read the rest of the article…

“Shocking” Turkish Inflation Hits 15 Year High, Unleashing Stagflationary Shockwave; Lira Plunges

A few days ago we discussed how soaring oil prices have been a stagflationary double whammy to emerging markets, which have been hit not only by a surging dollar, resulting in a collapse in local currencies and spiking import costs, but a spike in local currency oil and gasoline prices resulting in a surge in inflation and a slowdown in the economy as local infrastructure grinds to a halt.

This morning, this dynamic was revealed clearly – and painfully for Turkish residents – when Ankara reported that consumer inflation climbed to one of the highest levels since President Recep Erdogan came to power 15 years ago, spurring more calls for higher interest rates to rein in prices or at least for Erdogan to normalize relations with the US.

Turkish inflation soared to 24.5% in September from a year earlier (up 6.3% on the month, the highest since April 2001), rising for the 6th consecutive month driven by an across-the-board spike provoked by the lira’s meltdown; it was also the highest since June 2003 and rising above all Wall Street expectations where the median estimate was 21.1%. Worse, the CPI print was higher than the central bank’s policy rate of 24% suggesting more rate hikes are now imminent… but will Erdogan agree?

Medley Global analyst Nigel Rendell said the inflation figure was “a shocker” but said he was cautiously optimistic that weak consumption might offset inflationary pressures at some point.

“Interest rates of 24 percent provide some protection, and there is a sense that the weakness of domestic demand will be the dominating disinflationary force in a few months’ time once the foreign exchange pass-through has fed its way through the system.”

As the following key highlights from the Turkstat report show, the price increases was broad based across virtually all categories (via Bloomberg):

…click on the above link to read the rest of the article…

US Gross National Debt Jumps by $1.27 Trillion in Fiscal 2018, Hits $21.5 Trillion

US Gross National Debt Jumps by $1.27 Trillion in Fiscal 2018, Hits $21.5 Trillion

But wait — these are the Boom Times!

The US gross national debt jumped by $84 billion on September 28, the last business day of fiscal year 2018, the Treasury Department reported Monday afternoon. During the entire fiscal year 2018, the gross national debt ballooned by $1.271 trillion to a breath-taking height of $21.52 trillion.

Just six months ago, on March 16, it had pierced the $21-trillion mark. At the end of September 2017, it was still $20.2 trillion. The flat spots in the chart below, followed by the vertical spikes, are the results of the debt-ceiling grandstanding in Congress:

These trillions are whizzing by so fast they’re hard to see. What was that, we asked? Where did that go?

Over the fiscal year, the gross national debt increased by 6.3% and now amounts to 105.4% of current-dollar GDP.

But this isn’t the Great Recession when tax revenues collapsed because millions of people lost their jobs and because companies lost money or went bankrupt as their sales collapsed and credit froze up; and when government expenditures soared because support payments such as unemployment compensation and food stamps soared, and because there was some stimulus spending too.

But no – these are the good times. Over the last 12-month period through Q2, the economy, as measured by nominal GDP grew 5.4%. “Nominal” GDP rather than inflation-adjusted (“real”) GDP because the debt isn’t adjusted for inflation either, and we want an apples-to-apples comparison.

The increases in the gross national debt have been a fiasco for many years. Even after the Great Recession was declared over and done with, the gross national debt increased on average by $954 billion per fiscal year from 2011 through 2017.

…click on the above link to read the rest of the article…

Mike Pento Warns Global Central Banks Are Entering The Danger Zone

Authored by Michael Pento via PentoPort.com,

Investors are experiencing huge moves in commodities, currencies, equities and in sovereign debt across the globe. And now the fall has arrived. Expect the volatility currently witnessed in markets to only surge.

This is because global central banks have overwhelmingly turned hawkish in a vain attempt to gradually let the air out of the massive bubbles they have spent the last decade recreating. Unfortunately, that is not the nature of asset bubbles—they don’t end with a whimper–and they are about to burst in violent fashion.

First off, our central bank hiked rates for the 8th time since December 2015 at the September FOMC meeting. While the Fed did remove the word accommodative from its policy statement, it also raised the neutral rate to 3%, from 2.9% on the Fed Funds Rate. And, most importantly, predicted it would stay above that neutral rate for two years—keeping it at the 3.4% level. It also indicated that December would be the next rate hike and that three more hikes are on the agenda for 2019.

Nevertheless, the Fed is now caught in a hydraulic press of its own making; and is completely unaware of the predicament it is in. An inflation rate of 2% has been its goal for the past decade. And now inflation, when measured by core CPI, is up 2.2% y/y and is up 2.7% y/y on the headline rate. Even though the Fed emphasizes the Personal Consumption Expenditure inflation rate rather than Consumer Price Inflation, it is still aware that inflation is rising above its target.

…click on the above link to read the rest of the article…

The Fed’s In A Box And People Are Starting To Notice

The Fed’s In A Box And People Are Starting To Notice

It’s long been an article of faith in the sound money community that the Fed, by bailing out every dysfunctional financial entity in sight, would eventually be forced to choose between the deflationary collapse of a mountain of bad debt and the inflationary chaos of a plunging currency.

That generation-defining crossroad is finally in sight.

On one hand, a tight labor market is pushing inflation to levels that normally call for higher interest rates:


source: tradingeconomics.com


source: tradingeconomics.com

Today’s Fed-heads are old enough to remember the 1970s, when failure to get inflation under control produced a decade-long monetary crisis that was only resolved with (not exaggerating here) interest rates approaching 20%.

On the other hand, the yield curve – the difference between long-term and short-term interest rates – is trending towards zero and will, if it keeps falling, invert, meaning that short rates will exceed long. When this has happened in the past a recession has ensued.

yield curve Fed's in a box

With a system this highly leveraged it’s completely possible that the next recession will threaten the whole fiat currency/globalization/fractional reserve banking world. No one at the Fed wants to preside over that, leading some to view rising inflation as the lesser of two evils. See Atlanta Fed Chief Pledges to Oppose Hike Inverting Yield Curve.

A lot of people seem to be aware of the Fed’s dilemma. Here’s an excerpt from a recent Reuters article on the subject:

Fed’s Powell between a rock and hard place: Ignore the yield curve or tight job market?

Unemployment near a 20-year low screams at the U.S. Federal Reserve to raise interest rates or risk a too-hot economy. The bond market, not far from a state that typically precedes a recession, says not so fast.

…click on the above link to read the rest of the article…

Rethinking the Fed’s 2% Inflation Target: Spotlight On an Absurd Debate

Is the Fed’s 2% inflation target too high or too low? That’s the big debate now amongst central bankers.

The Wall Street Journal reports Policy Makers Rethink a 2% Inflation Target.

From Ottawa to Oslo, policy makers have been considering whether that level of consumer-price growth, a Holy Grail for the world’s major central banks over the past quarter-century, is still relevant.

The 2% target was always an arbitrary figure, some economists argue, and even if it was optimal two decades ago, that is no longer the case given deep changes that have since reshaped the global economy.

Trouble is, it isn’t clear what inflation rate would be better. Dozens of academic studies that considered that question have produced answers ranging from 6% to less than zero, according to a survey published last year by Federal Reserve economist Anthony M. Diercks.

“Whatever [inflation] rate was thought to be optimal in 2006 or before is now too low,” says Olivier Blanchard, a senior fellow at the Peterson Institute for International Economics in Washington, D.C., who has called for a 4% target.

Factors such as aging populations, low economic growth and higher savings rates are working to push down the neutral interest rate, at which the economy is growing at a sustainable rate for the long run and inflation is stable. As a result, central banks run a greater risk of taking benchmark interest rates to zero or below when seeking to support growth.

Demographics

Logic would dictate that if demographics work to hold the inflation target lower, then the target ought to be lower not higher.

Lesson from Japan, ECB

Japan provides ample evidence of what happens to savers when the central bank holds down rates hoping for higher inflation. All Japan did was accumulate debt. Inflation went nowhere.

…click on the above link to read the rest of the article…

Nine “Fascinating” Stats About Inflation

In a report on the history (and future) of inflation from Deutsche Bank’s Jim Reid, the credit strategist notes that while it may not feel like it, but we live in inflationary times relative to long-term history.

Before the start of the twentieth century prices generally crept higher only very slowly over time and were indeed often flat for very long periods. For example in the UK the overall price level was broadly unchanged between 1800 and 1938. However, inflation moved higher everywhere across the globe at numerous points in the twentieth century. UK prices since 1938 have increased by a multiple of 50 (+4885%) and of the 25 countries with continuous inflation data back to 1900, the UK is one of only 5 countries in the sample not to experience extreme inflation (defined as >25% YoY) in a given year. Of these 25 countries only Holland (3.0%), Canada (3.0%), the US (3.0%) and Switzerland (2.1%) have seen average annual inflation at 3% or below.

As shown in the chart below, while inflation was virtually non-existent until the 20th century, all of that changed once the Federal Reserve was created…

And while we will discuss in a follow up post Reid’s observations on just “what changed in the twentieth century”, below we list some “fascinatingf stats” about inflation as we thank the central bankers for unleashing this most powerful economic force on the face of the planet.

From Deutsche Bank:

  1. No country has seen average annual inflation below 2% since 1971 when we moved to a global fiat currency system (87 in our sample), only 28 averaged less than 5%. No country has seen annual average inflation below 2% since 1900 (25 in our sample) and only 4 between 2-3%.
  2. UK prices (longest history we have) were more or less unchanged between 1800 and 1938 but have subsequently risen by a stunning multiple of 50 times (4885%) in the 80 years since this point. In the 728 years between 1210 and 1938 prices only rose 26 times.

…click on the above link to read the rest of the article…

The Committee to Destroy the World: The Federal Reserve

The general belief among average citizens is that the purpose of central banks is to help the economy by fighting inflation and mitigating financial crisis. It’s a fairy tale that politicians like to encourage. If there were any truth to it, however, where was the Federal Reserve during the crisis of 2007? Rather than helping, it was widening the crisis with its easy money policies.

While central banks are not a government entity, their primary purpose is to create money for the benefit of the government. By mindlessly printing fiat currency, central banks create a shaky illusion of financial stability. In reality, each central bank is a monopoly that controls the production of distribution of currency and interest rates. Most importantly, it also controls gold reserves. While paper currency allegedly has the backing of the government, it is the central bank that controls the value of the currency at any specific time.

The first central bank, the Central Bank of England, was created in the 17th century as a scheme to enable the king to pay off his debts. As each country established its own central bank, it has been used by its government as a personal bank account.

With the government’s permission, central banks print money for the use of commercial banks to lend out at a specified rate of interest. Together, they work at inflating the money supply through a system called fractional-reserve banking. Commercial banks are required to keep a fraction of their money in reserve. For example, if someone deposits $1,000, the bank has to keep 10 percent in its vaults. That $100 cannot be lent out. It can only lend out $900, thereby creating two separate claims on those funds: the original deposit of $1,000 and the subsequent borrower of the $900. The supply of money in circulation has been artificially increased to $1,900. That is only one of the ways central banks manipulate the fiat money supply.

…click on the above link to read the rest of the article…

.

Bad Money

Dreamstime

Bad Money

Our debt-based fiat money system poses an existential threat

We’re all going to have to be a lot more resilient in the future.

The “long emergency“, as James Howard Kunstler puts it, is now upon us.

If ever there was a wake-up call from Mother Nature, it’s been the weather events over the past 12 months.

Last year, the triplet Hurricanes Harvey, Maria, and Irma resulted in thousands of deaths (mainly in Puerto Rico) and tens of $billions in destruction.

This year has seen a rash of 120° F (50° C) summer days, droughts, current monster storms like Typhoon Mangkhut and Hurricane Florence — as well as numerous 100/500/1,000-year floods spread across the globe.

And that’s just so far.

It remains nearly impossible to connect climate change directly to any particular weather event. But taken together, it’s becoming increasingly difficult to dismiss the scientific claim that the quantity of heat trapped in the earth’s weather systems impacts the amount of water that now falls (or refuses to fall) from the sky and the high-temperature heat waves that now shatter records with such regularity that once-rare extreme conditions are now becoming routine.

Our “new normal” is quickly diverging from the natural conditions most of us have grown up with. Permafrost isn’t “permanent ” anymore — it melts. The Arctic now can be ice-free. In a growing number of regions in the US, you can leave a screenless window open on an August evening (with the lights on!), and remain unmolested by the swarms of insects that used to prowl the night.

All of these symptoms are connected by a root cause: our society’s relentless addiction to growth. And while we do our best here at PeakProsperity.com to continually raise awareness of this existential threat, the rest of the media completely ignores it.

meltdown? That’s splashed everwhere…

…click on the above link to read the rest of the article…

Clinging to Old Theories of Inflation

QUESTION: Mr. Armstrong, I think I am starting to understand your view of inflation. It is very complex. I think some people cannot think beyond a simple one dimension concept as you often say. So I am trying to be more dynamic in my thinking process. Here you point out that when debt is collateral it is the same as printing money but worse because it pays interest. Then you point out that hyperinflation takes place not because of printing money but because a collapse in confidence and people then hoard their wealth which reduces the economic output and that compels a government to print more to cover expenses. So there is a line that is crossed and kicks in that collapse in confidence as in Venezuela. This is very interesting but complex. Is this a fair statement?

ANSWER: You are doing very well. You are correct. Some people cannot get beyond an increase in money supply is automatically inflationary one-dimensional thinking. If that was true, then why did 10 years of Quantitative Easing by the ECB fail completely to create inflation given that theory? It is like brainwashing kids with global warming ignoring all evidence to the contrary.

There is yet another dimension that you have to add to this complexity. The BULK of the money is actually created by the banks in leveraged lending. If I lent you $100 and you signed a note that you would repay it, then the note becomes my asset on my balance sheet. I can take that to a bank and borrow on my account receivables. In this instance, just you and I are creating money. Now let a bank stand between us.

…click on the above link to read the rest of the article…

“It Will Get A Lot Worse”: Global Stocks Tumble As EM Contagion Roils Markets

Global stocks tumbled on Wednesday, as a drop in European markets followed a broad sell-off across Asia, as rising pressure on emerging markets intensified concerns of contagion and spillover into developed markets, leading to a sea of red in world stocks.

A day after emerging market currencies tumbled, it was the stock market’s turn in the hot seat, with shares sliding from Japan to Australia, and were crushed in Indonesia, where the nation’s benchmark lost almost 4%. Meanwhile, with no let-up in trade tensions near and new $200bn in US tariffs against China likely to be slapped as soon as tomorrow, the dollar strengthened for a fifth session and commodities slipped, led by oil, while the 10-year Treasury yield eased back to 2.89%.

At the same time, with the Fed showing no signs of slowing its rate hikes, investors are turning ever more cautious on emerging markets. Traders were focused on turmoil in developing nations wondering just how high rates will reach to contain the currency selloff, how acute the resulting economic slowdown will be and whether the volatility will spill into developed markets. Overnight, inflation in the Philippines exceeded 6% for the first time in nine years, joining Turkey and Argentina as another developing economy with soaring prices.

Predictably, the ongoing rout in emerging markets has not only not showed any signs of letting up, but accelerated overnight, with most currencies around the globe sliding against the soaring dollar, while the MSCI index of emerging market stocks heading toward a bear market.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase