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David Stockman on the Continual Rise in the Cost of Living… And Why the Fed has No Shame
David Stockman on the Continual Rise in the Cost of Living… And Why the Fed has No Shame
Jay Powell did it again assuring the 1% that he has their back.
Markets recovered their poise over the last 24 hours, as investors were relieved after Fed Chair Powell stuck to his recent views on the economic outlook. In his remarks yesterday, he said that recent data didn’t “materially change the overall picture” and that on inflation “it is too soon to say whether the recent readings represent more than just a bump.” In addition, he reiterated that if “the economy evolves broadly as we expect, most FOMC participants see it as likely to be appropriate to begin lowering the policy rate at some point this year.” So that all helped to validate market pricing, which still expects 71 bps of rate cuts from the Fed by the December meeting.
Needless to say, the man has no shame. And that’s to say nothing of intellectual firepower. There is not even a smidgen of a case that rate cuts in the present context will help main street, and the Fed heads and their Wall Street megaphones don’t actually even try to make that argument.
Instead, they argue for rates cuts by default. If by some tortured version of the CPI (i.e. the “supercore” index, which eliminates 61% of the CPI items by weight) they can espy the in-coming inflation trend settling into a liberally defined vicinity of 2.00%, that’s purportedly good enough to end the money-printing pause that has been in place since March 2022. Thereafter, it’s back to business as usual, flooding the canyons of Wall Street with cheap credit and a new burst of financial asset inflation.
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“Catastrophic Outcomes”: Davos Elite Worried About Global Volatility, Cost-Of-Living Crisis
“Catastrophic Outcomes”: Davos Elite Worried About Global Volatility, Cost-Of-Living Crisis
What happens when plebs can’t afford bread, and the circuses aren’t that entertaining?
Nothing good. Which is why the cost-of-living crisis is the #1 problem, according to the World Economic Forum’s Global Risks Report – an annual poll of 1,200 government, business and civil society professionals.
According to the poll, there will be little respite from “energy inflation, food and security crises” in the coming years (or months?).
In the near term, nearly 70% of those polled say volatile economies and various ‘shocks’ are in the cards, while 20% or so of those polled say they fear “catastrophic outcomes” within the next 10 years, according to Bloomberg.
“Very few leaders in today’s generation have been through these kind of traditional risks around food and energy, while at the same time battling what’s coming up in terms of debt, what’s coming up in terms of climate,” said Saadia Zahidi, WEF managing director, who warned that the world may be entering a “vicious cycle.”
“We’re going to need a sort of new type of leadership that is much more agile,” she told Bloomberg Television.
Next week will mark the annual WEF conference in Davos, Switzerland, where the global elite will sit around and discuss how best to run our lives.
The gathering begins at a time when inflation is at a four-decade-high across many advanced economies, with interest rates far more elevated than anyone was predicting 12 months ago.
The report calls for global cooperation, and warns that if governments mishandle the current crisis they “risk creating societal distress at an unprecedented level, as investments in health, education and economic development disappear, further eroding social cohesion.”
Increases in military expenditure could reduce support for vulnerable households, leaving some countries in a “perpetual state of crisis” and set back the urgent need to tackle climate change and biodiversity loss. -Bloomberg
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Households Worldwide Wrecked By Soaring Gas Prices
Households Worldwide Wrecked By Soaring Gas Prices
Soaring commodity prices have been financially devastating for households, devoting larger and larger shares of disposable income to pay for energy.
For instance, at nine California filling stations, the price of regular gas is higher than the federal minimum wage. Patrick De Haan of GasBuddy said several gas stations in Los Angeles and San Francisco metro areas had recorded pump prices over the federal minimum wage ($7.25). One station in Los Angeles is now $7.83.
Ed Yardeni of Yardeni Research told CBS News that record-high fuel costs are denting workers’ paychecks. He estimated that the typical US household would spend upwards of $4,800 on gasoline this year, a $2,000 increase over last year. That financial burden is piling up for the working poor and households worldwide.
Bloomberg reports Brazilians are spending a whopping 33% of the monthly minimum wage to fill up a 14.5-gallon fuel tank. The figure is 24% in Mexico, 18% in Argentina, 17% in Chile, and 13% in Colombia.
The US isn’t as bad, only 6%, though notice purchasing power of Americans has drastically fallen in the last two years. In April 2020, one hour of work bought over 17 gallows of Regular gasoline at the pump. Today, an hour of work will only buy 7 gallons of gas in America…
High fuel costs are rapidly eating away at Brazilian wages, causing President Jair Bolsonaro’s popularity to sour. The president has supported legislation to lower taxes and fired three chiefs of the state-controlled oil company Petroleo Brasileiro SA because of high fuel costs.
In Europe, natural gas and electricity bills are expected to jump from 3.5% to 4.5% of household disposable income. The share of an energy bill that households have to pay continues to increase as Europe’s transition from Russian fossil fuels is bumpy, filled with shortages and elevated prices. This figure doesn’t even include petrol prices at the pump.
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The U.K. is two months away from a brutal cost-of-living crisis
The U.K. is two months away from a brutal cost-of-living crisis
Soaring inflation is causing headaches around the world, but in Britain the squeeze is coming from all sides
The squeeze is coming from all sides. U.K. consumer price-growth hit a 30-year high of 5.4 per cent in December, and is wiping out wage gains. The Bank of England is jacking up interest rates faster than the Federal Reserve. A cap on domestic energy costs is expected to rise by 50 per cent in April, just as taxes increase in a bid to repair the U.K. public finances. Brexit hasn’t come cheap, either.
The Resolution Foundation think tank says the outcome will be a “living standards catastrophe,” and the Centre for Economics and Business Research reckons annual living costs for a typical U.K. household will rise by 1,980 pounds (US$2,700) — even before taxes go up.
Monetary Inflation’s Game of Hide-and-Seek
For almost a decade, despite significant increases in the money supply, CPI-measured price inflation remained “tame.” Between March 2011 and March 2021, the M-2 money supply (cash, checking accounts, and small savings) went from $8.94 trillion to $19.9 trillion, or a 222.5 percent increase. Just in 2020, M-2 expanded by nearly 25 percent.
Yet, despite this, the CPI only went up by a little less than 20 percent, from 223 to 266.8 (100 = 1982-1984) between 2011 and 2021. The annual rates of CPI price inflation for this ten-year period were mostly less than 2 percent. What is called “core” price inflation – the CPI minus energy and food prices – averaged each one of these ten years a bit higher most of the time, but not by much in this period. (See my article, “Dangerous Monetary Manipulations and Fiscal Follies”.)
But what, exactly, does the Consumer Price Index tell us? All price indexes, including the CPI, are statistical constructions created by economists and statisticians that, in fact, have very little to do with the actions and decisions of consumers and producers in the everyday affairs of market demand and supply. And they are certainly not accurate and precise guides for central bank monetary policy.
Overall versus “Core” Price Inflation
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What Will You Do When Inflation Forces U.S. Households To Spend 40 Percent Of Their Incomes On Food?
What Will You Do When Inflation Forces U.S. Households To Spend 40 Percent Of Their Incomes On Food?
Did you know that the price of corn has risen 142 percent in the last 12 months? Of course corn is used in hundreds of different products we buy at the grocery store, and so everyone is going to feel the pain of this price increase. But it isn’t just the price of corn that is going crazy. We are seeing food prices shoot up dramatically all across the industry, and experts are warning that this is just the very beginning. So if you think that food prices are bad now, just wait, because they are going to get a whole lot worse.
Typically, Americans spend approximately 10 percent of their disposable personal incomes on food. The following comes directly from the USDA website…
In 2019, Americans spent an average of 9.5 percent of their disposable personal incomes on food—divided between food at home (4.9 percent) and food away from home (4.6 percent). Between 1960 and 1998, the average share of disposable personal income spent on total food by Americans, on average, fell from 17.0 to 10.1 percent, driven by a declining share of income spent on food at home.
Needless to say, the poorest Americans spend more of their incomes on food than the richest Americans.
According to the USDA, the poorest households spent an average of 36 percent of their disposable personal incomes on food in 2019…
As their incomes rise, households spend more money on food, but it represents a smaller overall budget share. In 2019, households in the lowest income quintile spent an average of $4,400 on food (representing 36.0 percent of income), while households in the highest income quintile spent an average of $13,987 on food (representing 8.0 percent of income).
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