Nevertheless, the Federal Reserve and many commentators have dismissed concerns about inflation. Instead, much of the economic mainstream continues to call for massive government spending programs to rescue the economy from the specter of "deflation" or a "liquidity trap."
But with consumer prices rising for almost a full year, it's hard to see worrying about deflation as anything but a delusion.
A pattern has developed this year: The Bureau of Labor Statistics issues its report on the Consumer Price Index (CPI) for the previous month, and the headlines blare: "Prices Rise Modestly, But Inflation Outlook Still Tame." The irony is that for most months, the price rise was not modest -- being well above a 2% annualized rate.
All along, one of the key facts to "prove" inflation was still not a problem was the year-over-year decline in consumer prices. In other words, the CPI in a given month was lower than it had been in the same month the previous year.
For example, in October consumer prices were about 0.3% higher than they were in September, but even so they were still about 0.2% lower than they had been back in October 2008. The average reader of the financial press would get the impression that prices are always bouncing around somewhat, but with unemployment so high the trend has been downward. Yet this isn't true. Consumer prices have been on an upward trend all year... Read the rest... Bob Murphy ad MarketWAtch.com
OK after browsing through his archives circa 2005, I must retract my earlier criticism of Paul Krugman. For sure, Krugman did identify the housing bubble before many other analysts (including me), and so he's not bluffing when he says nowadays that he called it. Also, people who comment at his site should be a little more nuanced instead of saying things like, "None of you Keynesian wizards saw this coming, so why should we listen to you now? Only Peter Schiff and the Austrians predicted the crash."
Last apology: I also was suspicious in the previous post that Krugman didn't point to any of his own articles (for proof that he had called the bubble), but instead linked to a 2005 article which in turn referred to Krugman's 2001 articles--when those articles came 95% close to recommending that Greenspan create a housing bubble!! In retrospect, I think Krugman probably did that to show, "Hey, I know I was calling this back in 2005, and here are people attacking me for saying so--therefore I clearly was making loud noises about the bubble!" (Also, it's possible there is a typo in that article critical of Krugman; I could never find his article that they were talking about.)...
So yes, Krugman did identify that there was a housing bubble in progress in 2005, but it was akin to a doctor thinking a cancer patient was reacting very severely to aggressive chemotherapy. The Fed-induced housing bubble wasn't poison, as far as Krugman was concerned, just medicine that was having unfortunate negative consequences. His recommendation wasn't for the government to stop tinkering and fueling new booms, but rather to search for something else to inflate. Read the rest... Bob Murphy from his blog (scroll down)
"...over the last several decades, the feds have been infusing their data with optimistic biases to make the economy seem far rosier than it really is. His site reruns the numbers using the original methodology. What he found was not good."
ShadowStats.com founder John Williams explains the risk of hyperinflation. Worst-case scenario? Rioting in the streets and devolution to a bartering system. Interview HERE
From Bob Murphy's blog (scroll down to Wenzel Flips):
A few readers want to know what I think of this provocative post by Robert Wenzel, in which he says Bernanke conned a bunch of us (bold mine):
This is big. It is going to knock for a big loop all those concerned about the inflationary consequences of the soaring monetary base. The Federal Reserve Bank of New York today released a report, "Why Are Banks Holding So Many Excess Reserves?".
Fed economists Todd Keister and James McAndrews state that while the high level of reserves in the U.S. banking system during the financial crisis reflects the large scale of the Federal Reserve’s policy initiatives, it conveys no information about the effect of these initiatives on bank lending or on the level of economic activity. This is another way of saying what I have been saying right along, watch the money supply, not the monetary base...
So here are my quick reactions:
(1) I think those Fed economists are wrong. I think we are going to get big-time price inflation, and when we do, people will look back at those who were blowing off a tripling of the monetary base in a little more than a year and think, "Wow, that's as inconceivable in hindsight as the people who said we weren't in a housing bubble." And incidentally, two of the people who said we weren't in a housing bubble were Fed economists at the height of the boom. How do I know? Because Robert Wenzel told his readers about it.
(2) It's true that Wenzel was the first guy I saw who was warning that Bernanke had put the brakes on M1 and M2 growth back in March or so. But it was also Wenzel who taught me that the Fed won't be able to simply reverse its injections of reserves, because the assets it purchased on the way up won't fetch the same price on the way down. I.e.the Fed can't simply reverse its actions and "suck the liquidity out of the system," because it may have seriously overpaid for a bunch of the MBS, Freddie and Fannie debt it added to its balance sheet.
So I don't view the Wenzel quotation above as a shot against me; if it is, it's only because of views that I literally learned directly from Wenzel himself.
(3) One final thing: I am going to be really peeved if everything I have been saying turns out true--namely that those excess reserves start finding their way out into the hands of the public (through various mechanisms we have been discussing on this blog), and then when price inflation breaks 10% Wenzel says, "See? M2 is up 28% year-to-date. A lot of economists were flipping out last year because of the huge monetary base, but only EPJ readers knew that the monetary base wasn't the story, M2 was. You need to read my blog to know what's up." Read it here: Wenzel Flips
On April 28, 2004 these five Americans pictured above, Paul Atkins, Cynthia Glassman, William H. Donaldson, Harvey J. Goldschmid and Roel C. Campos, all Securities Exchange Commission (SEC) commissioners, along with Christopher Cox, then Bush-appointed SEC Chairman, and Annette L. Nazareth, director of market regulation at the SEC, put into motion a relaxation of reserve requirements for five investment banks, an action which doomed the American economy.
These five Securities & Exchange Commission commissioners sealed the future fate of the American economy on that day in 2004 when they approved an appeal by five investment banks (Goldman Sachs, Lehman Brothers, Merrill-Lynch, Bear Stearns and Morgan-Stanley) to expand their reserve ratios – that is, take greater risks with the public’s money. This was done by consent of the regulators and their politically-appointed bosses during the Bush II administration. (Would any of you now care to fund a Presidential library for the man who was in charge during this wholesale theft of your money?)
Only one voice stood in opposition to this expansion of risk, a consultant who writes financial software for the securities industry, Leonard C. Bole.
The widening of reserve ratios by investment banks would be permitted with the prerequisite that advanced computer technology be employed to signal any downturn in the economy at an early point so a collapse of the economy could be corrected before it would occur.
Bole wrote a letter to the SEC that the computer models the SEC would now rely upon to provide information, in advance of any financial collapse, were flawed. You can listen to the live testimony of these SEC commissioners and learn more about Mr. Bole’s letter to the SEC at an online video report prepared by The New York Times.
The aftermath of expanded leverage and exorbitant bonuses
To better comprehend wayward modern banking practices, readers here would benefit from understanding how these expanded leverage ratios (reserves of assets or cash in relation to amount of loans) have been mischievously used. The expanded leverage used by the bankers was then translated into huge bonuses for bankers and bank stock holders, which is described by Edmund Conway, economics editor for the online edition of The Telegraph(UK)... Read the rest...
Now I’ll go into the preliminaries. Goyette gives up the goods in a methodical way. The book is divided into four sections: “Where we are”, “How we got here”, “What happens next”, and “What to do".
Jeff Tucker reminded me that the PPI came out today (CPI tomorrow!). From the BLS' news release:
The Producer Price Index for Finished Goods rose 1.8 percent in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a 0.3-percent advance in October and a 0.6-percent decrease in September. In November, at the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 1.4 percent, and the crude goods index rose 5.7 percent. On an unadjusted basis, prices for finished goods moved up 2.4 percent for the 12 months ended November 2009, their first 12-month increase since November 2008.
So yes, producer prices are up 2.4% over the past year--doesn't sound like we're stuck in a liquidity trap to me--but that doesn't really mean much, since it was the first such 12-month increase in a year!
I guess now we see one framing trick that the government and media can use, to keep the public thinking that inflation is nowhere on the horizon.
UPDATE: In fairness, I should relay I just checked and the headline and blurb from the main page at CNBC (which has now switched to something else) said something like, "WHOLESALE INFLATION HEATS UP: The BLS reported that producer prices recorded their first year-over-year gain since November 2008..."
"A comprehensive and clear-eyed depiction of how the US dollar ended up losing almost 100% of its value on the Fed’s watch, and how Washington enabled the theft. By outlining likely scenarios and identifying alternative currencies and investment strategies, Charles Goyette has written an economic survival manual for the everyman, filled with practical information on protecting your assets during he coming dollar unwind."
First under the Bush Administration and even more so under President Obama, the federal government has been seizing power and spending money as it hasn’t done since World War II. But as bold as the Executive Branch has been during this financial crisis, the innovations of Fed chairman Ben Bernanke have been literally unprecedented. Indeed, it is entirely plausible that before Obama leaves office, Americans will be using a new currency.
Bush and Obama have engaged in record peacetime deficit spending; so too did Herbert Hoover and then Franklin Roosevelt (even though in the 1932 election campaign, FDR promised Americans a balanced budget). Bush and Obama approved massive federal interventions into the financial sector, at the behest of their respective Treasury secretaries. Believe it or not, in 1932 the allegedly “do-nothing” Herbert Hoover signed off on the creation of the Reconstruction Finance Corporation (RFC), which was given billions of dollars to prop up unsound financial institutions and make loans to state and local governments. And as with so many other elements of the New Deal, FDR took over and expanded the RFC that had been started under Hoover.
In the past year, the government has seized control of more than half of the nation’s mortgages, it has taken over one of the world’s biggest insurers, it literally controls major car companies, and it is now telling financial institutions how much they can pay their top executives. On top of this, the feds are seeking vast new powers over the nation’s energy markets (through the House Waxman-Markey “Clean Energy and Security Act” and pending Kerry-Boxer companion bill in the Senate) and, of course, are trying to “reform” health care by creating expansive new government programs.
For anyone who thinks free markets are generally more effective at coordinating resources and workers, these incredible assaults on the private sector from the central government surely must translate into a sputtering economy for years. Any one of the above initiatives would have placed a drag on a healthy economy. But to impose the entire packageon an economy that is mired in the worst postwar recession, is a recipe for disaster. Read the rest... Bob Murphy at The American Conservative
This is an article that I could have written a few months ago, when the Bank of England stated its intention to begin ‘queasing’. But it has become rather more relevant now that one of the pronouncements of the G20 summit is that the International Monetary Fund (IMF) will itself begin to ‘print’ additional SDRs (Special Drawing Rights, effectively the IMF’s own currency) which its contributor countries can draw down in the shape of dollars, euros, etc.
Note my use of the word ‘print’ in the above paragraph. The days when first world countries used the printing press to increase the volume of money in circulation have long gone, assigned to eras such as Weimar Germany. Paper and ink are still heavily in use in Zimbabwe, of course, but for countries like the UK, where the notes and coins in circulation account for only about three percent of the total ‘money’ in the system, we’re really talking about digits on a computer screen.
Even so, while the phrase ‘quantitative easing’ sounds nice and strategic, in reality it has a similar effect to printing additional bank notes and throwing them out of the Bank of England’s window into the street.
To take a step back for a moment, let’s look at the main blunt instrument used by policy-makers to control the velocity of money and the rate of growth of an economy: interest rates. Set the base rate low, goes the received wisdom, and people will ‘invest’ their money rather than leaving it idle in a bank account earning nothing (or, depending on the level of true inflation, less than nothing). If the economy starts to run away from itself and bubbles form in a particular investment market, interest rates can be raised, increasing the appeal of saving and reducing the relative gains to be made by investing in speculative markets.
So much for the theory. This only works if interest rates are used properly, if they take into account all asset classes in which inflation is occurring and if the Bank of England or the government is seen as credible when it warns about the need for rates to rise. Quite obviously, in the past ten years that has not been the case, with the property asset class hitting bubble territory and being stoked ever larger by unrealistically low interest rates.
I’m not expressing my opinion here: it doesn’t matter what I think about property prices. It’s now widely accepted by economists and politicians (though perhaps not the property-ramping mainstream media) that interest rates were far too low for far too long, and that the resulting inequilibrium and subsequent bursting of the bubble led directly to the current financial crisis. Read the rest... Economonkey.com
WHO: Charles Goyette, author, The Dollar Meltdown, the New York Times Best Seller!
And very special guest, Steve Benson, Pulitzer Prize winning editorial cartoonist with the Arizona Republic!
WHAT: Wine and cheese reception, presentation by Goyette on how to protect your assets in this volatile environment, book signing and FREE, SIGNED caricature by Steve Benson for each person who purchases a book.
WHY: Fun, food, festivities, financial information, and the opportunity to get a very unique holiday gift!
WHERE: Desert Foothills Library 38443 North School House Road, Cave Creek (link)
WHEN: Wednesday, December 9
5:45 - 6:15: Wine and Cheese Reception 6:15 - 7:15: Presentation 7:15 - 8pm - Book signing
THIS WEEKEND: Congressman Ron Paul, Charles Goyette, Thomas Woods, and More!
It's the 2009 FREEDOM SUMMIT!
From FreedomSummit.com: The Freedom Summit conference offers a highly distinguished assortment of the best, brightest, and most entertaining people in the freedom movement today! Itis a stimulating periodic update on the current status of freedom in our world from several varied perspectives. Rather than seek to present either an optimistic or pessimistic outlook, the Freedom Summit strives to present an honest and very straightforward assessment of the current status of our freedom.
Congressman Ron Paul, Charles Goyette, Thomas Woods, John Taylor Gatto, Judge John Buttrick, Adam Kokesh, Professor Butler Shaffer, Bud Burrell, Boston T. Party, Joel Skousen, Ernest Hancock, Marc Victor... IN PHOENIX THIS WEEKEND!
Senators from both sides of the isle took aim at Ben Bernanke Thursday, criticizing him for helping both inflate the housing bubble and mishandling its aftermath.
"You are the definition of a moral hazard," Sen. Jim Bunning (R, Ky.) told Bernanke. "I will do everything I can to stop your nomination and drag out this process as long as I can."
But the Fed chairman has the support of Senate Banking Committee Chairman Christopher Dodd (D, Conn.) and is widely expected to win reappointment.
That would be a mistake, according to Brian Wesbury, chief economist at First Trust and author of It's Not as Bad as You Think.
"If I were a Senator I would vote not to reconfirm Ben Bernanke," Wesbury says. "And it really isn't necessarily about what's gone on in the past six months but literally what's gone on in the past 6 or 7 years."
Like many, Wesbury says Bernanke must share some of the blame for the Fed's ultra-easy monetary policies that followed 9/11 and the bursting of the tech bubble. As a member of the Fed's board of governors, Bernanke provided the intellectual rationale for the 1% fed funds rate the Greenspan Fed kept in place for more than a year, starting in 2003.
"The Fed was at the heart of our housing bubble and I don't think Ben Bernanke has come clean about that," he says. "Until he does, I don't think we're going to resolve these problems; we will continue to have them over and over and over again."
In addition to not admitting the Fed's role in the housing bubble - Bernanke has cited a "global savings glut" - "now they've gotten even more easy," Wesbury laments, suggesting Bernanke has failed as Fed chairman judging by the steep rise in the price of gold.
"The Fed has baked a lot of inflation into the cake," the economist says. "That's what commodity prices and the weak dollar are telling us. They need to be pulling back right now."
Unlike some other of Bernanke's critics, Wesbury does not, however, advocate getting rid of the Fed. Rather, he believes the Fed should adopt some specific inflation targets like the ECB, or return to the gold standard, rather than leaving monetary policy to the whims of "a bunch of people at the Fed who make major mistakes." Yahoo Finance
"Shut up," Jack screamed at the crows, waving his arms wildly. "Shut up, shut up!"
Only he really didn’t utter a sound. And he didn’t dare flail about either. But gawd, he hated crows. And he hated hearing their grating "caww, caw" sound twice a week from the vacant lot next to the commissary.
One really didn’t dare cause a disturbance in line, Jack knew. He felt uncomfortable even talking to people, much less screaming at crows. You really can’t risk being labeled a "disrupter," especially with a family and kids. Ever since the "commissary incidents" two years ago there were T.O.’s – Tranquility Officers – everywhere. Even if you couldn’t see them, you knew they were watching. So Jack bottled it up and just closed his eyes tightly for a second. When he opened them he shot a look of hate across the lot where the crows were perched in the bare tree above the frozen patches of ice in the empty lot. Maybe he could come back on the weekend. Maybe it would be sunny. Jack sure hoped so. And maybe the crows wouldn’t be there reminding him of the endless gray winter. But then again, maybe they would. Besides, he thought, he’d already been waiting 45 minutes and he was almost at the corner and from there it would only be another half-hour. Jack pulled his coat a little tighter and kept quiet.
Besides the thought would occasionally occur to Jack while waiting in life’s endless succession of lines, that maybe it wasn’t really the crows he hated with all his might. Maybe they were just a convenient focal point, caught in the crossfire of desolation and deprivation. Maybe it was really the "groat," the government rolled oat bread he hated. No, there was no maybe about that part. Cold, tough, stale and flavorless, two loaves twice a week. Jack knew he hated groat. From time to time he wondered why they couldn’t have real bread made out of flour like people used to eat in when he was a kid.
But that’s why there was a Food Czar, Jack knew, to figure that stuff out. He remembered watching the first Food Czar almost twelve years ago explain that sending wheat to rich Asian countries was only for the duration of the crisis, and that it was the patriotic thing to do during these times. Well, Jack thought, he was as patriotic as the next guy...
