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“What the hell?!” – President Joe Biden, June 16, 2021

Out of Control

American workers are trying to make their way in an economy that’s rigged against them. We made this claim many years ago. Today, for fun and for free, we revisit this assertion…starting with the latest from those doing the rigging.

This week, after a two day meeting, the Federal Open Market Committee (FOMC) released their statement. Nothing material changed. The Fed will continue to hold the federal funds rate near zero. The Fed will also continue to create at least $120 billion per month from thin air to buy Treasuries and mortgage-backed securities.

Bond yields spiked and the price of gold dropped because 13 Fed officials now plot dots that project two hikes to the federal funds rate in 2023. Fed Chair Jay Powell also mentioned the Fed is “talking about talking about” bond tapering. These technocrats likely know – though they won’t admit – they’ve already lost control.

Consumer price inflation is ‘officially’ rising at a 5 percent annualized rate. However, the ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 13 percent. This rate of inflation is remarkably destructive to household budgets.

‘Talking about talking about’ tapering and telegraphing federal funds rate increases some two years from now will do little to contain consumer price inflation. The fact is, it has already veered out of control. We expect gas prices to top $5 per gallon in California this summer. Many Americans are not prepared for sustained, unrelenting price inflation.

Here’s the hard, back of the napkin math they are facing…

Sour Grapes

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

It Gets Ugly: Dollar’s Purchasing Power Plunged at Fastest Pace since 1982. It’s “Permanent” not “Temporary,” Won’t Bounce Back

June 15, 2021

It Gets Ugly: Dollar’s Purchasing Power Plunged at Fastest Pace since 1982. It’s “Permanent” not “Temporary,” Won’t Bounce Back

The Consumer Price Index jumped 0.6% in May, after having jumped 0.8% in April, and 0.6% in March – all three the steepest month-to-month jumps since 2009, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 2.0%, or by an “annualized” pace of 8.1%. This current three-month pace of inflation as measured by CPI has nothing to do with the now infamous “Base Effect,” which I discussed in early April in preparation for these crazy times; the Base Effect applies only to year-over-year comparisons.

On a year-over-year basis, including the Base Effect, but also including the low readings last fall which reduce the 12-month rate, CPI rose 5.0%, the largest year-over year increase since 2008.

In terms of the politically incorrect way of calling consumer price inflation: The purchasing power of the consumer dollar – everything denominated in dollars for consumers, including their labor – has dropped by 0.8% in May, according to the BLS, and by 2.4% over the past three months, the biggest three-month plunge in purchasing power since 1982:

On an annualized basis, the three-month drop in purchasing power amounted to a drop of 9.5%, and this eliminates the Base Effect which only applies to year-over-year comparisons.

That plunge in purchasing power is “permanent” not “temporary.”

Yup, the current plunge in purchasing power is permanent. And the plunge in purchasing power in the future is also permanent.

The only thing that might make a small portion of it “temporary” is if there is a period of consumer price deflation, which has happened for only a few quarters in my entire life, for example in the last few months of 2008, which is indicated in the chart above. So I’m not getting my hopes up.

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

Core Consumer Prices Surge At Fastest Rate Since 1992

June 10, 2021

Core Consumer Prices Surge At Fastest Rate Since 1992

With the world’s eyes having moved on from China’s rip-roaring PPI (and post-data decision to unleash price controls), this morning’s CPI print has been heralded as the arbiter of “is it transitory or not” with some (BofA) even suggesting we are nearing a period of “transitory hyperinflation.” The answer for now is – inflation’s still accelerating as headline CPI soared 5.0% YoY (hotter than the +4.7% expected). That is the highest level of inflation since Aug 2008.

Source: Bloomberg

But it is core CPI that is the huge outlier, soaring 3.8% YoY – the hottest level of inflation since 1992…

Source: Bloomberg

Goods prices are up 6.5% YoY – the highest since 1982 – and services prices are also accelerating significantly.

Source: Bloomberg

Under the hood, many of the same indexes continued to increase, including used cars and trucks, household furnishings and operations, new vehicles, airline fares, and apparel. The index for medical care fell slightly, one of the few major component indexes to decline in May

The index for used cars and trucks continued to rise sharply, increasing 7.3 percent in May. This increase accounted for about one-third of the seasonally adjusted all items increase.

The household furnishings and operations index increased 1.3 percent in May, its largest monthly increase since January 1976.

The index for new vehicles rose 1.6 percent in May, its largest 1-month increase since October 2009. The index for airline fares continued to increase, rising 7.0 percent in May after increasing 10.2 percent the prior month. The apparel index also rose in May, increasing 1.2 percent.

The index for car and truck rentals continued to rise, increasing 12.1 percent after rising 16.2 percent the prior month (and more than doubled over the past 12 months, rising 109.8 percent).

Finally, rent/shelter inflation remains subdued

MoM: The shelter index rose 0.3 percent in May. The index for rent rose 0.2 percent and the index for owners’ equivalent rent increased 0.3 percent
YoY: The shelter index increased 2.2 percent over the last 12 months.

So, Transitory or not?

Where Will The Next Deflationary Shock Come From?

May 30, 2021

Where Will The Next Deflationary Shock Come From?

View as PDF

“Whenever I hear numbers like this, I look back to my childhood growing up in Hungary, where…[the] value of money meant nothing. I’m very worried this is an unstoppable situation because the longer the Fed waits, the more they will have to raise rates. So, we’re basically painting ourselves into a box, and I don’t see how we’re going to get out of it.”
– Thomas Peterffy, chairman and founder of Interactive

______________________________________________________________________________________________________

Introduction

It seems as though wherever one looks, soaring prices are in the news. Everything from the rising price of lumber to oil, to housing, to food is dominating headlines. This week, key inflation data was released, and let’s just say it wasn’t pretty. The Consumer Price Index (CPI), which measures a basket of goods as well as energy and housing costs, rose 4.2% year-over-year, surpassing expectations from a Dow Jones survey that anticipated a 3.6% increase. The month-to-month gain was also much higher than expected – at 0.8% versus 0.2%. Additionally, the Producer Price Index (PPI) – another key inflation indicator – spiked 6.2% for the 12 months ended in April, which marked the largest increase since the Bureau of Labor Statistics started tracking the data in 2010. The PPI rose 0.6% month-over-month, which was twice the rate expected in a FactSet survey.

Markets were rattled by the data – as nearly everything sold off on Wednesday after CPI data was published. Markets gained back some of the losses on Thursday morning, before selling off slightly mid-day when PPI data was released. Despite these key inflation indicators signaling trouble ahead, economists and policy makers have attempted to quench fears by signaling that the rising prices are “transitory.” Federal Reserve Atlanta Fed President Raphael Bostic said Wednesday that he expects bouts of inflation volatility through September…

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

LOUIS-VINCENT GAVE, evergreengavekal, deflation, price inflation,

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

May 30, 2021

Fed’s Favorite Lowball Inflation Gauge is Red-Hot, Not Seen in Decades, Even Without the “Base Effect”

The majestic inflation overshoot has arrived.

The Fed’s favorite inflation measure, generally the lowest inflation measure the US government provides — tracking a lot lower than even the Consumer Price Index which already understates actual inflation — and therefore our lowest lowball inflation measure, and therefore the Fed’s favorite inflation measure, was released this morning, and it was a doozie, despite being the most understated inflation measure the US has so far come up with.

The Personal Consumption Expenditures Price index without food and energy, the “core PCE” index, jumped by 0.7% in April from March, after having jumped by 0.4% in March from February, according to the Bureau of Economic Analysis today. Those two months combine into an annualized core PCE inflation rate of 6.4%, meaning that if price-increases continue for 12 months at the pace of the past two months, then the annual inflation would be 6.4% as measured by the lowest lowball measure the US has.

This was the highest two-months annualized rate since 1985. And it shows to what extent inflation has suddenly heated up in March and April.

Over the past three months – so April, March, and February – the annualized increase of core PCE inflation was 4.9%, the highest since 1990.

The annualized PCE index eliminates the legitimate issue of the “Base Effect” that is now getting trotted out to brush off the inflation data (I discussed the Base Effect in early April to prepare for what would be coming).

The Base Effect applies only to year-over-year comparisons. In March last year, the core PCE price index dipped by 0.1% from February, and in April it dipped by 0.4% from March. So comparing today’s PCE index to that dip in April (the lower “base”) would include the Base Effect.

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

Suffering a sea-change

May 30, 2021

Suffering a sea-change

There is an established theoretical relationship between bonds and equities which provides a framework for the future performance of financial assets. It would be a mistake to ignore it, ahead of the forthcoming rise in global interest rates.Price inflation is roaring, and so far, central banks are in denial. But it is increasingly difficult to see how monetary policy planners can extend the suppression of interest rates for much longer. There can only be one outcome: markets, that is to say prices determined by non-state actors, will force central banks to capitulate on interest rates in the summer.

Hardly noticed, China is deliberately putting the brakes on its economy, which will cause an inflationary dollar to collapse, unless the US defends it by putting up interest rates. Deliberate? Almost certainly, as part of its strategy, China is taking the financial war with the US into the foreign exchanges.

Bond yields will rise, with the US Treasury 10-year bond leaving a 2% yield far behind. Equity markets will sense the danger, and it might turn out that the month of May marks a peak in financial asset values — following cryptocurrencies into substantial bear markets.
Introduction

There is an old stock market adage that you should sell in May and go away. It has already proved its worth in the case of cryptocurrencies, with Bitcoin more than halving at one point, and Ethereum losing 57% between 10—19 May. A sea-change in cryptocurrencies’ market sentiment has taken place.

As for equities, it could also turn out that 10 May, which so far has marked the S&P 500 Index’s high point, will mark the beginning of their decline. But it’s too soon to tell…

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

Surging Inflation Might Be the Rumblings of an Economic Tsunami

May 22, 2021

Surging Inflation Might Be the Rumblings of an Economic Tsunami

神奈川沖浪裏 or The Great Wave off Kanagawa, by Katsushika Hokusai, 1831

Inflation in the U.S. is on the rise, may have started heating up last year, and is now on the cusp of spiraling out of control.Gasoline prices pushing $5 per gallon are concerning bad, and will strain family budgets across the country following on the heels of the COVID-19 pandemic.

The 400% increase in lumber prices isn’t helping either, and as Business Insider reports: “Certain food items, household products, appliances, cars, and homes are all seeing prices surge” thanks to supply chain issues.

So the economic situation is already pretty dicey.

But what if the situation is much worse?

What if the Fed has played such a good “shell game” with inflation that something bigger is actually brewing?

Former Treasury Secretary Larry Summers is worried because of how fast inflation is heating up:

“I was on the worried side about inflation and it’s all moved much faster, much sooner than I had predicted,” Summers said in an interview with David Westin on Bloomberg Television’s “Wall Street Week.” “That has to make us nervous going forward.” [emphasis added]

And this fast-rising inflation still seems to be flying under the Fed’s radar. Robert Wenzel didn’t mince any words, calling Chairman Jerome Powell’s Federal Reserve “clueless.”

Based on Powell’s previous track record, Wenzel’s comment might be reasonable. That Powell seemed to be “ignoring” parts of the entire story behind inflation last year further supports Wenzel’s argument, and adds uncertainty.

Inflation surging and the Fed failing to even acknowledge it, let alone live up to their inflation-control mandate? This is a recipe for a frightening situation. Bloomberg spotlighted one fact that raises at least one serious question:

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

Monetary Inflation’s Game of Hide-and-Seek

May 19, 2021

MONETARY INFLATION’S GAME OF HIDE-AND-SEEK

The May 12, 2021, press release from the Bureau of Labor Statistics reporting on the Consumer Price Index (CPI) for the month of April sent the stock markets tumbling for two days and generated fodder for the news pundits with the announcement that the CPI measure of the cost-of-living had increased 4.2 percent at an annualized rate, or nearly 62 percent higher than in March when the annualized rate was 2.6 percent. The era of relatively low rate of price inflation was feared to be ending.

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

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

Peter Schiff and Tucker Carlson: The Financial Crisis Will Be Worse Than the Pandemic

May 19, 2021

Peter Schiff and Tucker Carlson: The Financial Crisis Will Be Worse Than the Pandemic

Consumer Price Index (CPI) data for April came in much hotter than expected. Year-on-year, inflation is up 4.2%. The big number even prompted Federal Reserve Vice Chairman Richard Clarida to say, “We were surprised by higher than expected inflation data.”

Peter Schiff appeared on Tucker Carlson’s show to talk about the consequences of more printed money chasing fewer goods. Peter said inflation is going to hit the middle class harder than the pandemic.

Peter said this hot CPI print is a cause for concern and ultimately it is a tax.

It is the inflation tax. And if you look at how much the cost of living went up, measured by the CPI in the first four months of this year, it’s 2%. So, if you triple that to annualized it, we have consumer prices rising at 6% annually. But if you look at the monthly numbers, every month it accelerates. So, if you extrapolate the trend of the first four months of this year for the entire year, you’re going to get a 20% increase in consumer prices in 2021.”

VIDEO

Tucker asked a poignant question. If the value of the US dollar is falling as quickly as the CPI suggests, why would any country want to invest in US bonds? Doesn’t this threaten to cause a shake-up?

Peter said they won’t want to invest. They’ll be selling US Treasuries.

Anybody that can connect these dots is going to be selling US Treasuries. And the problem is there’s a lot of US Treasuries to be sold.”

Peter noted that a lot of people are talking about a shortage of goods.

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

Spiking Inflation, Rate Hikes, and Debt Defaults in Latin America

May 16, 2021

Spiking Inflation, Rate Hikes, and Debt Defaults in Latin America

Mexico and Brazil, having seen the economic destruction that high inflation can wreak, don’t want to see it again.

Latin America will soon be hit by a wave of business bankruptcies and defaults, according to Jesús Urdangaray López, the CEO of CESCE, Spain’s biggest provider of export finance and insurance. CESCE insures companies, mainly from Spain, against the risk of their customers not paying due to bankruptcy or insolvency. It also manages export credit insurance on behalf of the Spanish State.

CESCE’s biggest clients are large Spanish companies with big operations in Latin America. For many of those companies, including Spain’s two largest banks, Grupo Santander and BBVA, Latin America is its biggest market. CESCE’s three biggest shareholders are the Spanish State and, yes, Spain’s two largest banks, Grupo Santander and BBVA.

BBVA, which is heavily invested in Argentina, warned about the worsening situation in the country. If Argentina’s economy continues its inflationary spiral, it could end up affecting BBVA’s overall performance and financial health, the Spanish bank said.

Argentina’s government is once again trying to restructure its foreign-currency debt with the IMF, having already defaulted on the debt once since the virus crisis began.

Ecuador was first to default on its foreign currency debt, followed by Argentina, then Surinam, Belize, and Surinam twice more — six sovereign defaults so far in 13 months.

Latin America has been hard hit by the virus crisis. But the region’s cash-strapped governments with weak currencies and surging inflation cannot afford to provide the sort of financial support programs being rolled out in more advanced economies. Fiscal response has added just 28 cents of extra deficit spending for every dollar of lost output…

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

Karl Marx’s Road to Hell is Paved with Fake Money

May 15, 2021

Karl Marx’s Road to Hell is Paved with Fake Money

“The way to Hell is paved with good intentions,” remarked Karl Marx in Das Kapital.

The devious fellow was bemoaning evil capitalists for having the gall to use their own money for the express purpose of making more money.

Marx, a rambling busybody, was habitually wrong. The road to hell is paved with something much more than good intentions. Grift, graft, larceny, corruption and fake money are what primarily composes the pavement. Good intentions are merely dusted in to better the aesthetic.

If you want to understand what’s going on with exploding price inflation then you must understand this…

Right now in the United States we have a scam currency that’s controlled by central planners. Specifically, we have what Marx envisioned in Plank No. 5 of his Communist Manifesto:

“No. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed a ‘national bank’ and it politically manipulates interest rates and holds a monopoly on legal counterfeiting in the United States.

Without the Fed’s policies of mass credit creation the U.S. government could have never run up a national debt over $28 trillion. Without the Fed’s policies of extreme credit market intervention the U.S. trade deficit for March of $74.4 billion – a new record – would have never been possible. Without the Fed’s printing press money the U.S. government could have never run annual budget deficits over $3 trillion.

The fact is centralized credit in the hands of a central bank always leads to money supply inflation. Asset price inflation and consumer price inflation then follow in strange and unpredictable ways.

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

It’s Getting Serious: Dollar’s Purchasing Power Plunges Most since 2007. But it’s a Lot Worse than it Appears

May 13, 2021

It’s Getting Serious: Dollar’s Purchasing Power Plunges Most since 2007. But it’s a Lot Worse than it Appears

Fed officials, economists “surprised” by surge in CPI inflation, but we’ve seen it for months, including “scary-crazy” inflation in some corners.

The Consumer Price Index jumped 0.8% in April from March, after having jumped 0.6% in March from February – both the sharpest month-to-month jumps since 2009 – and after having jumped 0.4% in February, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 1.7%, or by 7.0% “annualized.” So that’s what we’re looking at: 7% CPI inflation and accelerating.

Consumer price inflation is the politically correct way of saying the consumer dollar – everything denominated in dollars for consumers, such as their labor – is losing purchasing power. And the purchasing power of the “consumer dollar” plunged by 1.1% in April from March, or 12% “annualized,” according to BLS data. From record low to record low. Over the past three months, the purchasing power of the consumer dollars has plunged by 2.1%, the biggest three-month drop since 2007. “Annualized,” over those three months, the purchasing power of the dollar dropped at an annual rate of 8.4%:

Folks in the business of dealing with inflation, such as economists and Fed officials, such as Fed Vice Chairman Richard Clarida, came out this morning in droves and said they were “surprised” by the red-hot CPI inflation.

There was nothing to be surprised about. We have been documenting red-hot inflation boiling beneath the surface for months, with “scary-crazy inflation” in used vehicles and in commodities, such as lumber, and surging factory input costs that are getting passed on because the entire inflation mindset has now changed.

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

US Producer Prices Surge Most On Record

May 13, 2021

US Producer Prices Surge Most On Record

After consumer prices exploded higher yesterday – and were immediately rejected by establishment types as ‘transitory’, despite the market’s obvious disagreement – all eyes were on this morning’s producer prices for signs of more pressure. Many were fearful of a repeat of last month’s debacle delay (and there were rumors of a softer PPI print leaked earlier today)

The rumors were wrong as April Producer Prices exploded 6.2% YoY (well ahead of the 5.8% expected) which was clearly impacted by the base effect of last year’s collapse, but even sequentially, the PPI print was shockingly hot, rising 0.6% MoM (double the +0.3% expected). Excluding food and energy, so-called core PPI advanced even more, or 0.7%.

Source: Bloomberg

That was the biggest YoY jump on record:“There is more inflation coming,” Luca Zaramella, chief financial officer at Mondelez International Inc., said on the food and beverage maker’s April 27 earnings call.“The higher inflation will require some additional pricing and some additional productivities to offset the impact.”

jumped 0.7% from the prior month and increased 4.6% from a year earlier.
Michael Hsu, chief executive officer at consumer-product maker Kimberly-Clark Corp., said in April that the maker of Scott toilet paper and Huggies diapers is “moving rapidly especially with selling price increases to offset commodity headwinds.”

Digging below the surface further, ex-food, energy, and trade, producer prices soared 4.6% YoY, the most on record also.

Source: Bloomberg

Some more details at the final demand level:

Final demand services: Prices for final demand services rose 0.6 percent in April, the fourth consecutive advance. Half of the broad-based increase in April is attributable to the index for final demand services less trade, transportation, and warehousing, which moved up 0.5 percent. Margins for final demand trade services also rose 0.5 percent, and the index for final demand transportation and warehousing services jumped 2.1 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.)

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

The Inflation Monster Has Been Unleashed

May 10, 2021

The Inflation Monster Has Been Unleashed

The monster known as inflation has been unleashed upon the world and will not easily retreat into the night. This is reflected in soaring commodity and housing prices. Due to the stupid and self-serving policies of the Fed, we are about to experience a massive shift in the way we live. Bubbling up to the surface is also the recognition the Fed has played a major role in pushing inequality higher. This means that inflation is about to devour the purchasing power of our income and the savings of those that have worked hard and saved over the years.

Over the months we have watched Fed Chairman Jerome Powell time and time again cut rates and increase the Fed’s balance sheet. This has hurt savers, forced investors into risky investments in search of yield, damaged the dollar, encouraged politicians to spend like drunken sailors, and increased inequality. The greatest wealth transfer in history has already begun and the next crisis will only accelerate the process. Sadly, the same policies that dump huge money into larger businesses because it is an easier and faster way to bolster the economy give these concerns a huge advantage over their smaller competitors.For decades the American people have watched their incomes lag behind the cost of living. To make matters worse, the official numbers of the so-called Consumer Price Index (CPI) have been rigged to understate inflation and not to reflect the true impact it was having on our lives. Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia..

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

Relation Between Inflation and Deflation

May 8, 2021

RELATION BETWEEN INFLATION AND DEFLATION

For most commentators inflation is about persistent increases in the prices of goods and services. However, is this the case? For example, the definition of human action is not that people are engaged in all sorts of activities as such, but that they are engaged in purposeful activities–purpose gives rise to an action.

Similarly, the essence of inflation is not a general rise in prices as such but an increase in the supply of money, which in turn sets in motion a general increase in the prices of goods and services in terms of money.

Consider the case of a fixed stock of money. Whenever people increase their demand for some goods and services, money is going to be allocated towards these goods and services. In response, the prices of these goods and services are likely to increase– more money will be spent on them.

Since we have here an unchanged stock of money, less of it can be now allocated towards other goods and services. Given that the price of a good is the amount of money spent on the good this means that the prices of other goods will decline i.e., less money will be spent on them.

In order for there to be a general rise in prices, there must be an increase in the money stock. With more money and no change in the money demand, people can now allocate a greater amount of money for all goods and services.

According to Mises,

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check…

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

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