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The Real Inflation Rate May Signal That the U.S. Economy is in a Death Spiral

The Real Inflation Rate May Signal That the U.S. Economy is in a Death Spiral

real inflation us economy collapse

Just like a car with a bad cooling system, the U.S. economy may be overheating, and could break down soon. Why?

Aside from trade wars, geopolitical tension, and debt, inflation might stand center-stage as the final nail in the U.S. economic “coffin”.

According to Torsten Slok, the Chief International Economist at Deutsche Bank, inflation “is the mother of all risks here”.

You see, the floundering U.S. dollar, tight labor market, Quantitative Easing and trade wars have all paved the way for rising inflation. And, in a recent survey of global fund managers conducted by Bank of America, 82% expect the CPI index to keep climbing over the next year.

But the “inflation nation” might be overheating, as reported by CNBC:

Earlier this month, inflation numbers came in hotter than anticipated, signaling inflation pressures could be mounting. The Labor Department reported its CPI rose 2.4 percent year on year, its fastest annual pace in 12 months.

Even if you factor out energy and food — factors which the U.S. Government likes to leave out to make the CPI inflation rate more appealing — it’s still 2.1%.

That’s the fastest rise since February 2017, higher than the benchmark of 2%, and still rising. Which begs a serious question…

“What is the real inflation rate?”

The Consumer Price Index (CPI) is a set of methods that track the inflation rate, monitored by the Bureau of Labor and Statistics (BLS).us inflation higher matrix

It was designed to help businesses, individuals and the government adjust for the impact of inflation. It worked well until politicians started messing with the methodology in the 1990’s.

In 2011, John Melloy reported on the “real” inflation rate, calculated with the methodology used before 1980 (bolding ours):

Inflation, using the reporting methodologies in place before 1980, hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.

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

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

Some time ago, Deutsche Bank’s chief international economist, Torsten Slok, presented several charts which showed that  Canada is in serious trouble” mostly as a result of its overreliance on its frothy, bubbly housing sector, but also due to the fact that unlike the US, the average Canadian household had failed to reduce its debt load.

Additionally, the German economist demonstrated that it was not just the mortgage-linked dangers from the housing market (and this was before Vancouver and Toronto got slammed with billions in “hot” Chinese capital inflows) as credit card loans and personal lines of credit had both surged, even as multifamily construction was at already record highs and surging, while the labor market had become particularly reliant on the assumption that the housing sector would keep growing indefinitely, suggesting that if and when the housing market took a turn for the worse, or even slowed down as expected, a major source of employment in recent years would shrink.

Fast forward to last summer, when the trends shown by Slok three years ago had only grown more acute, with Canada’s household debt continuing to rise, its divergence with the US never been greater…

… making the debt-service ratio disturbingly sticky.

And yet despite all these concerning trends, virtually all of these red flags have been soundly ignored, mostly for one reason: the “wealth effect” in Canada courtesy of its housing market grew, and grew, and grew

Looking at the chart above, Bloomberg recently said that:

On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.

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

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

“Canada Is In Serious Trouble” Again, And This Time It’s For Real

Some time ago, Deutsche Bank’s chief international economist, Torsten Slok, presented several charts which showed that Canada is in serious trouble” mostly as a result of its overreliance on its frothy, bubbly housing sector, but also due to the fact that unlike the US, the average household had failed to reduce its debt load in time.

Additionally, he demonstrated that it was not just the mortgage-linked dangers from the housing market (and this was before Vancouver and Toronto got slammed with billions in “hot” Chinese capital inflows) as credit card loans and personal lines of credit had both surged, even as multifamily construction was at already record highs and surging, while the labor market had become particularly reliant on the assumption that the housing sector would keep growing indefinitely, suggesting that if and when the housing market took a turn for the worse, or even slowed down as expected, a major source of employment in recent years would shrink.

Fast forward to today, when the trends shown by Slok two years ago have only grown more acute, with Canada’s household debt continuing to rise, its divergence with the US never been greater…

… making the debt-service ratio disturbingly sticky.

Making matters worse, recent trends in average hourly earnings show that if the US Federal Reserve is concerned with US wages, then the Bank of Canada should be positively terrified.

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

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