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The First “Global Inflationary Depression” Is Very Possible

The First “Global Inflationary Depression” Is Very Possible

It is possible that we might soon be witness to the first global inflationary depression. This is not a mix of words we normally see placed together. Several factors make this scenario possible. First, we seldom have depressions but instead, tend to roll through mild recessions, however, what we face may be far more severe. Second, in the past, times of falling economic activity have generally been deflationary as defaults rise but this time, not so much. Third, but not least, in the past, many events tended to be regional rather than global, but over the years as economies have become more interconnected the resulting codependency presents an increased possibility of problems spreading across the world.Currently, the biggest source of demand comes from governments and not working people earning a living or businesses growing. If you remove all the money being spent on Covid-19 vaccinations, tests, and a slew of inefficient spending that has created little long-term benefits to the economy the GDP would fall like a stone. The money flowing from the central banks and governments has created the so-called “pent up demand” we have been hearing about and predictions of 5% or more GDP growth next year. In truth, capacity utilization is down even while trillions of new dollars pour into the system. This is the logic behind saying a depression may be in the wings.

China’s Economy Shows Signs Of Slowing

Recently several articles have appeared indicating the big boost China experienced post-Covid-19 has come to an end. China’s economy was the first to recover from the Covid-19 collapse due to trillions of credit pumped into the economy at home as well as Americans rushing out to buy imported goods using stimulus money…

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

 

Jerome von Havenstein: Inflation Or Bust

Jerome von Havenstein: Inflation Or Bust

This week brought forth new evidence that – to be perfectly frank – we’re all screwed.

On Thursday, the yield on the 10 year Treasury note topped 1.55 percent.  Subsequently, the Dow Jones Industrial Average, after hitting an all-time high on Wednesday, dropped 559 points.  Wall Street must not be listening to Federal Reserve Chairman Jerome Powell.

Earlier in the week, Powell, in testimony to the Senate Banking Committee, confirmed that the central bank would keep the federal funds rate near zero until maximum employment is achieved.  In addition, the Fed, in its recently released semiannual Monetary Policy Report, confirmed it would continue to create credit from thin air to buy $80 billion per month of Treasuries and $40 billion per month of mortgage backed securities (MBS).

What’s more, the Report specified the Fed’s purchases of Treasuries and MBS “…will continue at least at this pace until substantial further progress has been made toward its maximum employment and price stability goals.”  The operative words being, “at least.”

What to make of it…

Central banking is a form of central planning.  And central planning is a form of state control.  And state control, as practiced in the United States, pertains not so much to the economics of producing income; but, rather, the methods for redistributing it.

State control, through inflationism, takes money saved and earned by individuals and covertly redistributes it to the central authority – i.e., Washington.  There it is consumed by ever expanding government social programs and colossal pentagon budgets.  What remains is wasted away by the endless array of bureaucracies and agencies.

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

 

‘Brace For Rampant Inflation’: Hedge Fund Billionaire Stunned At “Market Craziness”, Sees “Trouble Ahead”

‘Brace For Rampant Inflation’: Hedge Fund Billionaire Stunned At “Market Craziness”, Sees “Trouble Ahead”

In 2012 Elliott Management’s Paul Singer correctly warned that financial system leverage and technology would “serve as an accelerant in the next crisis”:

“The major message that I want to give you (and I’ve invited challenge on both parts of my thesis here and I’ve never had anybody challenge it): The major financial institutions in the US and around the globe are utterly opaque; and The next financial crisis will happen faster, more suddenly.

Risk did indeed happen fast, numerous times since.

In 2014, Singer went more aggressively after the central banks and their arrogant largesse:

“There is no reason to suppose that they [central bankers] understand the modern financial system and economy to any greater extent than they did in 2007 (that is to say, not at all). Nevertheless, they plow ahead, expressing total confidence that what they are saying and doing is wise and not dangerous drivel.”

“It is unlikely that these unprecedented and experimental government policies of such gargantuan scope will actually create the desired result and allow themselves to be able to be unwound without great shock and disruption to the global financial system.”

His solution at the time:

“Although the levitation of financial assets has yet to levitate gold, we will grit our collective teeth on that score and await either ‘asset price justice’ or the ‘end times,’ whichever comes first.”

Justice was to come a couple of times since.

Interestingly, 2014 was when Singer began to warn about inflation and the potential for social unrest:

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

 

Michael Burry Warns Weimar Hyperinflation Is Coming

Michael Burry Warns Weimar Hyperinflation Is Coming

Update (1815 ET): one day after the Weimar tweetstorm below, and shortly after our article came out, Burry tweeted the following:

People say I didn’t warn last time. I did, but no one listened. So I warn this time. And still, no one listens. But I will have proof I warned.

Indeed he will.

* * *

One week ago, Bank of America hinted at the unthinkable: the tsunami of monetary and fiscal stimulus, coupled with the upcoming surge in monetary velocity as the world’s economy emerges from lockdowns, would lead to unprecedented economic overheating… or rather precedented as BofA’s CIO Michael Hartnett reflected back on the post-WW1 Germany which he said was the “most epic, extreme analog of surging velocity and inflation following end of war psychology, pent-up savings, lost confidence in currency & authorities” and specifically the Reichsbank’s monetization of debt, and extrapolated that this is similar to what is going on now.

There is, of course, another name for that period: Weimar Germany, and because we all know what happened then, it is understandable why BofA does not want to mention that particular name.

Of course, others have been less shy – in 1974, Jens Parsson wrote a fascinating, in-depth historical analysis of the hyperinflationary collapse of Weimar Germany under the original money printer, Rudy von Havenstein, “Dying of Money: Lessons of the Great German and American Inflations” one which we periodically remind readers is absolutely critical reading in preparation for what comes next.

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

A Market Crash AND High Inflation?

Imagine for a moment that the price of all your investments — your stocks, your retirement portfolio, your house — suddenly drop in half this year. Now imagine that on top of that inflation suddenly picks up, making your cost of living skyrocket.

That would be pretty awful, right?

Well, this might not be just some theoretical thought exercise.

Highly respected financial researcher Jesse Felder warns us that these twin dangers of a market crash and higher inflation actually could indeed happen in the near future.

For many months now we’ve been sharing the mounting abundance of data points revealing that today’s markets are historically unprecedented levels of over-valuation. To our list, Jesse adds record margin debt levels, which have NEVER been higher compared to GDP than they are now:

Margin Debt to GDP chart

Margin debt is a measure of how speculative the investing environment is: the more margin debt outstanding, the more speculative the time. So we are now living in the most speculative moment EVER.

Like many of our recent past guest experts like Grant WilliamsJim RogersSteen Jakobsen and Jim Bianco, Jesse foresees high inflation as the biggest existential threat to markets and the economy going forward. That by itself would puncture the euphoria supporting today’s asset prices.

So, ugly as it is to contemplate, we may be dealing with declining markets and rising inflation as 2021 progresses.

Which is why now, more than ever, is the time to partner with a financial advisor who understands the nature of the risks and opportunities in play, can craft an appropriate portfolio strategy for you given your needs, and apply sound risk management protection where appropriate:

 [ Watch & Download This Video on Vimeo ]

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

 

The Foundation for Potential Price Hyperinflation is Being Laid

The Federal Reserve sure seems to have a tough time finding and reporting signs of rising inflation — especially when it’s hidden in other sectors like a lack of demand for energy.

A recent example of the Fed’s “inflation blindness” comes from a speech Chairman Jerome Powell gave to the Economic Club of New York. According to a MarketWatch piece that reported on that speech:

Powell said he doesn’t expect “a large nor sustained” increase in inflation right now. Price rises from the “burst of spending” as the economy reopens are not likely to be sustained.

It’s odd that Powell would say he doesn’t expect a sustained increase in inflation, because food price inflation has consistently run 3.5 to 4.5 percent since April last year. That sure seems like a sustained increase in food prices.

What Powell seems to have “forgotten” is that some of the overall inflation includes negative energy price inflation (as low as negative 9 percent at one point). But now that the demand for fuel is returning, the official gasoline index rose 7.4 percent in January.

It will be much more challenging for Powell to keep downplaying the risk of hyperinflation once energy price inflation rises back to “pre-pandemic” levels.

In fact, Robert Wenzel thinks the main inflation event is “just about to hit.” If it does, and inflation does rise past Powell’s two percent target, it isn’t likely to stop there. Jim Rickards thinks that’s when hyperinflation can gain momentum:

If inflation does hit 3%, it is more likely to go to 6% or higher, rather than back down to 2%. The process will feed on itself and be difficult to stop. Sadly, there are no Volckers or Reagans on the horizon today. There are only weak political leaders and misguided central bankers.

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

 

Fed’s Near-Zero Rates Might Sound Good (Until This Happens)

But it’s much different when your retirement savings depends on getting a return on investment (ROI). In that case, near-zero interest rates can put pensions and other retirement accounts in serious jeopardy.

The Fed dropped interest rates to 0-0.25% starting last September. And according to the Wharton School of the University of Pennsylvania, those near-zero rates could stick around for a while:

Expects to hold interest rates near zero at least until 2023 because of the pandemic. That spells lower returns for retirement accounts, and it adds to the underfunding of pensions that has worried retirees for many years now.

“Low returns from the market are essentially a tax on retirees,” said Olivia Mitchell, Wharton professor of business economics and public policy.

Then there are real interest rates, which are measured by the difference between 10-year treasuries and Fed inflation expectations. We figure this out by comparing the yields on Treasury inflation protected securities (TIPS) to 10-year Treasury yields. Here’s a comparison of real interest rates (2000-present) from the official Cleveland Fed chart:

Ten-year TIPS yields vs real yields

You can see that since 2012, the real rate has struggled to get to 1%, and recently dipped into the negative.

Low rates mean low returns

According to an op-ed on MarketWatch, the drop in real interest rates isn’t a good thing:

This persistently low-rate environment means workers will have to contribute significantly more to their 401(k), or invest in riskier assets, than they did at the turn of the century.

Many of the assets retirement savers have relied on for decades, including Treasury bonds, CDs, annuities, money market accounts, even the humble savings account, cannot preserve your purchasing power any more.

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

interest rates, fed, us federal reserve, central banks, birch gold group, inflation

Dollar’s Purchasing Power Drops to Record Low, Despite Aggressive “Hedonic Quality Adjustments”

Dollar’s Purchasing Power Drops to Record Low, Despite Aggressive “Hedonic Quality Adjustments”

Spiking prices for new and used vehicles under the microscope.

The “Purchasing Power of the Consumer Dollar” – part of the Bureau of Labor Statistics’ Consumer Price Index data released today – is the politically incorrect mirror image of inflation in consumer prices, as measured by the Consumer Price Index (CPI). By wanting to increase consumer price inflation, the Fed in effect wants to decrease the purchasing power of the consumer dollar, to where consumers have to pay more for the same thing. Thereby it wants to decrease the purchasing power of labor paid in those dollars.

And that purchasing power of the dollar in January dropped by 1.5% year-over-year to another record low:

Note how the purchasing power of the dollar recovered for a few months during the Financial Crisis, when consumers could actually buy a little more with the fruits of their labor. The Fed considered this condition a horror show.

Inflation in durable goods, non-durable goods, and services.

The overall CPI for urban consumers, the politically correct way of expressing the decline in the purchasing power of the dollar, rose 1.4% in January, compared to a year earlier.

Each product that is in the basket of consumer goods tracked by the CPI has its own specific CPI. And all these products fall into three categories: durable goods (black line), nondurable goods (green line), and services (red line), with services accounting for 60% of the overall CPI. Here they are, with discussions below:

The CPI for services (red line) – everything from rent to airfares – increased mostly between 2% and 3% year-over-year for the last decade, but dropped during the Pandemic as demand for services such as hotels, flights, and cruises collapsed. For example, in January, year-over-year, the CPI for:

  • Airline tickets: -21.3%
  • Hotels: -13.3%
  • Admission to sporting events: -21.4%.

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

 

Historical lessons in prosperity vs. poverty

Historical lessons in prosperity vs. poverty

As the grandson of Genghis Khan, Kublai Khan had a lot to prove.

So he set his eyes on the biggest prize in the known world at the time: southern China.

Kublai Khan completed his conquest of China in 1279, forging a new empire and creating the Yuan dynasty.

The Mongols were known for their expensive habits— they liked war and women especially. So when the money started to run out, administrators in the Yuan dynasty started printing paper money.

Yuan officials weren’t the first to come up with this idea; the government from the prior Song dynasty had also printed paper money. But there was a huge difference—

Paper currency from the Song dynasty, known as guanzi, was backed by copper, silver, and gold coins.

The Yuan currency, however, was backed by nothing. So whenever the government started to run out of money, they simply printed more.

By 1350, Kublai Khan had been dead for decades. But the Yuan dynasty’s economic overseers were still printing paper money like crazy. And it was causing severe hyperinflation across China.

People’s lives were turned upside down by the government’s fiscal irresponsibility, and rebellions broke out across the country.

By 1368, the Yuan dynasty had completely collapsed, and a destitute peasant farmer-turned-monk named Zhu Yuanzhang rose up to become Emperor and found the new Ming Dynasty.

To stimulate the economy ravaged by inflation, the Ming dynasty created an unprecedented level of economic freedom.

Markets and industries were deregulated; the government abandoned its monopoly on salt production, for example, and merchants were encouraged to allow market competition to set prices.

In time, the government stabilized the currency and reintroduced metallic coins. And by the 1500s Ming officials even allowed foreign currencies like the Spanish Silver Dollar to circulate in China.

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

The U.S. Dollar Could Be Nearing Its “End Game”

From foreign countries trying to dethrone the dollar’s hegemony as global reserve currency, all the way to rising inflation weakening it… the U.S. dollar is in trouble.

Pundits like Jim Rickards said (back in 2016): “The dollar won’t lose its reserve currency status overnight” — and he was right. But a new and disturbing signal could finally be revealing the end game.

You can see the dollar’s loss of about 10% value against other currencies and its persistent downward trend since March 2020 reflected in the dollar index chart below:

dollar index chart from March 2020-February 2021

To get an even better idea of that persistent downward trend, we need to look all the way back to 2002, when the dollar index (DXY) peaked around 117. Not only is today’s dollar worth 10% less than last year’s – it’s 25% weaker than in 2002.

In fact, one forecast reported on Bloomberg in June 2020 called for a 35% decline in value by the end of 2021, which would leave the dollar index at 65. If that plays out, the index would be reporting its lowest value in at least 35 years.

In addition, a new Bloomberg report gave three reasons why the “dollar is now trading at the lowest level against its peers since 2018”:

1) Sharp widening in the U.S. current-account [trade] deficit.
2) Rise of the euro.
3) A Federal Reserve that would do little in response to any weakness in the greenback.

There is no doubt the trade deficit is a problem. According to the Bureau of Economic Analysis, the gap between imports and exports is at its widest since 2006. That won’t help the dollar recover.

The Fed’s inflation policy isn’t likely to help the dollar much because it “printed” itself into a corner with its loose monetary policy. The same Bloomberg piece further clarifies the Fed’s inflation strategy:

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

 

BoE Keeps Policy Unchanged, Tells Banks To Start Preparing For Negative Rates “If Necessary” But Sees Spike In Inflation

BoE Keeps Policy Unchanged, Tells Banks To Start Preparing For Negative Rates “If Necessary” But Sees Spike In Inflation

The Bank of England kept its stimulus program unchanged on Thursday. The BoE maintained its Bank Rate at 0.1% and left the size of its total asset purchase programme at 895 billion pounds in a unanimous decision, as expected.

Growth and Inflation

On QE, the BOE said that “if needed, there was scope for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase programme” but that is unlikely since the BOE’s growth forecast was far stronger than previously:

  • UK GDP is expected to have risen a little in 2020 Q4 to a level around 8% lower than in 2019 Q4.
  • This is materially stronger than expected in the November Report.
  • While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown.
  • GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report.
  • Global GDP growth slowed in 2020 Q4, as a rise in Covid cases and consequent restrictions to contain the spread of the virus weighed on economic activity. Since the MPC’s previous meeting, financial markets have remained resilient.

The BOE also said that CPI inflation was expected to rise quite sharply towards the 2% target in the spring, as the reduction in VAT for certain services comes to an end and given developments in energy prices. In the MPC’s central projection, conditioned on the market path for interest rates, CPI inflation is projected to be close to 2% over the second and third years of the forecast period.

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

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

“The Fed’s Monetary Punchbowl Is Fueling Rampant Home Price Appreciation”: AEI

“There is no justification” for continuing the purchases of mortgage-backed securities. The Fed is “misdiagnosing its impact on the housing market.” Pressure rises on the Fed to back off, in face of market craziness.

During the press conference following the FOMC meeting last week, Fed Chair Jerome Powell was asked by different reporters about the craziness going on in the stock market, the chaotic thingy with GameStop, corporate debt, and the housing market.

The fact that he was asked several times about the exuberant nuttiness in asset prices shows that by now everyone has picked up on it. And people are increasingly incredulous that the Fed would continue with its monetary policies in face of these markets.

Powell brushed off the GameStop thingy and gave his usual it’s-not-our-fault and it’s-never-ever-our-fault justifications for the exuberant nuttiness in the markets. The near-0% interest rates and $3 trillion in QE in just a few months had nothing to do with anything, but the drivers of the nuttiness have been the “expectations about vaccines” and “fiscal policy,” he said (transcript). “Those are the news items that have been driving asset values in recent months.”

Upon hearing this, people globally were just rolling up their eyes. And a reporter challenged him softly about the housing market – the 9% surge in prices from already lofty levels. “Are you concerned about a bubble forming there yet? And is there a price increase that you’re looking at where it might change the level of mortgage-backed securities the Fed is buying?”

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

Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On

Inflation Galore at Manufactures, amid Massive Shifts in Demand, Supply-Chain Snags, Shortages, Lack of Shipping Capacity. And They’re Passing it On

For now, the story is that it’s just temporary.

For now, the story is that the sudden and massive shifts in the economy in 2020 have caused shortages and distortions in the goods-producing sectors and in shipping and trucking, as consumer spending has shifted from services – such as flying somewhere for vacation and spending oodles of money on lodging and restaurants and theme parks – to goods, particularly durable goods.

The story is that prices are rising because components and commodities are in short supply, and supply chains are dogged by production issues, and are facing transportation constraints, as demand for those goods has suddenly surged. And that all this is temporary.

And the Fed has said it will ignore inflation for a while, that it will allow it to overshoot, and only when it overshoots persistently for some unknown amount of time and becomes “unwelcome” inflation – “unwelcome” for the Fed – that it will try to tamp down on it.

Meanwhile, inflation pressures are building up. Two reports out today show a large-scale surge in price pressures for manufacturers – and they’re able to pass them on to their customers.

The Prices Index “surged dramatically in January” to a level of 82.1%, after an eight-month upward trajectory, the highest since April 2011, “indicating continued supplier pricing power,” said the Manufacturing ISM Report On Business.

In the ISM data, a value above 50 means expansion, and a value below 50 means contraction. The higher the value is above 50, the faster the expansion. January saw the fastest expansion of the Prices Index since April 2011 (data via YCharts):

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

This Potentially Catastrophic Inflation Surge Slipped Under the Radar (Until Now)

FAO Food Price Index hits a three-year high in 2020, following additional gains in December

The FAO Food Price Index (FFPI) averaged 107.5 points in December 2020, up 2.3 points (2.2 percent) from November, marking the seventh month of consecutive increase.

You’ve read about housing market bubblesstock bubbles, and even credit bubbles. But the next bubble you’re about to discover could be even more dangerous, and may have even more far-reaching consequences.

It’s called a food price bubble, and it’s been inflating under our noses since March 2020. You can also see the dangerous trajectory it’s on compared to three previous years in the FAO chart.

The official January 7, 2021 release from the Food and Agriculture Organization explains the chart above in more detail.

And according to a Business Insider piece, grain has risen in price 50% over the last six months while other commodities like industrial metals are starting to drop in price.

In fact, according to an official source, food price inflation has risen each month by at least 3.5% (year over year) since April 2020 both at home and away from home.

And December didn’t show any signs of that trend letting up, with a price increase of 3.9% over December 2019. Keep in mind, we’re talking about food here. Technically this price surge isn’t a bubble ‑ it’s inflation.

This is exactly what we expect to see when the Fed’s loose-money policies support bubbles in the housing, stock and credit markets. An excess of currency chasing a fixed supply of paper assets inflates prices, which isn’t a big problem as long as the feeding frenzy stays contained in the paper asset markets. So long as amateur day-traders stick to playing stock-market roulette with the likes of Tesla and GameStop, the day-to-day world can go about business as usual.

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

Deflation: Friend or Foe?

Deflation is the most feared economic phenomenon of our time. The reason behind this a priori irrational fear (why should we be afraid of prices going down?) is the Great Depression. The most severe economic crisis of the 20th century was accompanied by a massive deflationary spiral that pushed prices down by 25% between 1929 and 1932 (this is equivalent to an annualized inflation rate of minus 7% over that period). Given the impact that the Great Depression had on the social imaginary of the American and European societies, it isn’t surprising that people tend to associate deflation with crises and economic hardship.

Fears of deflation have even led monetary authorities all over the world to set positive inflation targets. The ECB, for instance, defines price stability as an annual inflation rate of “below, but close to, 2%” even though, strictly speaking, price stability should imply that an annual increase in the price level of 0%.  Similarly, the Federal Reserve aims at an inflation rate of 2% over the long run, whereas the Reserve Bank of Australia has an inflation target of between 2 and 3%.

Despite the bad press deflations gets, the historical evidence suggests that deflation isn’t as bad as people may think. Using a sample of 38 countries over the period 1870-2013, four economists from the Bank for International Settlements find that, on average, countries experienced economic growth during deflation years. In fact, if we look only at the postwar era, data reveals that per capita growth has been higher during deflation years as opposed to inflation years.

This isn’t the only piece of evidence that supports the idea that deflation isn’t necessarily detrimental to economic growth. A 2004 paper covering 17 countries show that the Great Depression is the only period in the 19th and 20th centuries in which there is a strong link between deflation and depression…

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

Olduvai IV: Courage
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Olduvai II: Exodus
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