Tag Archives: Inflation

The Greatest Game, by Jeff Booth

Posted on April 7, 2021 | Leave a comment

This article will stretch your brain a bit, but can’t we all use some mental exercise? From Jeff Booth at medium.com:

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete”

— Buckminster Fuller

Breakthroughs, that step-change our lives for the better, invariably come from something that most people couldn’t see. Our belief of how the world should exist and operate is shaped from looking backwards, not forward, so it makes sense that new paradigms that change everything — face resistance in our minds. Because most people don’t see them, breaking through an existing paradigm needs to provide enough compelling value for users to disrupt an old paradigm. Apple’s iPhone for instance, didn’t copy the market leader, Research in Motion’s Blackberry design of needing a keyboard or selling to businesses who required RIM’s security. It created a digital interface when that wasn’t ‘needed’ and created an entirely new platform that changed the industry as a result. Along the way, the Blackberry died, unable to compete with the value for users, that was now increasing exponentially on Apple’s platform.

That process describes “Creative Destruction” a paradoxical term first coined by Joseph Schumpeter in 1942 to describe how Capitalism works in a “free market.” Entrepreneurs innovate and “create” value for society — and that value gained by society also often “destroys” the former monopoly power. That process and its importance is at the centre of how all modern economies have evolved and given rise to most of the benefits to society we take for granted today. New winners become so valuable that they disrupt existing market power or structures. It is all driven from a near-constant flow of innovative entrepreneurs with bold ideas and the capital backing them that go up against the status quo and are only successful, “if’’ they create value for society.

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A Trillion Here, a Trillion There, by Clifford F. Thies

Posted on April 7, 2021 | 1 comment

You get nothing of real value by inflating your currency. From Clifford F. Thies at aier.org:

The late Everett Dirksen, a long-serving Minority Leader of the Republicans in the U.S. Senate, is famously quoted as saying a billion here, a billion there, and soon we’re talking real money. That was back in 1969. At the time, a billion dollars was about one-tenth of 1 percent of GDP.

What about today?

During 2020, the federal government provided a total of $3.2 trillion of Covid relief, starting with a mere $8.3 billion, then adding $104 billion, then adding $2.2 trillion, and finishing off the year with another $900 billion.

We’re now three months into 2021, and the federal government has provided yet another $1.9 trillion in Covid relief; and, the Biden administration has just asked for $2 trillion for infrastructure.

To put these amounts into perspective: A trillion dollars is today about 4 percent of GDP.

Back in 1969, Ol’ Everett was being funny when he referred to a billion dollars. Back then, a billion dollars was already real money. In 1969, the newest nuclear-powered aircraft carrier, the USS Enterprise, cost $451 million, not even $1 billion. The cost of the Apollo 11 mission to put the first man on the moon wast $335 million, not even $1 billion. Only two companies made more than $1 billion in profits (General Motors $1.7 and Exxon Mobil $1.3). A billion dollars, representing one-tenth of 1 percent of GDP, was a fantastic amount of money. Ol’ Everett’s statement that a billion here and a billion there and soon we’re talking real money was a wild understatement.

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The Inflation They Can’t Hide, by Eric Peters

Posted on April 3, 2021 | 1 comment

If you’re a regular grocery shopper, you see it over and over: same price, smaller package. From Eric Peters at ericpetersautos.com:

 
 
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You can’t reduce the size of a 4×8 sheet of plywood to hide the rising cost of one – or shave some length off a 2x4x8 – without it being not only obvious but an issue, functionally. Try siding a house with 4×7.4 sheets of plywood, for instance.

So, instead, the price goes up. Which is really a measure of the value of your money going down.

The same has been happening for some time at supermarkets, less noticeably. Or at least in a way that makes many people not notice it because that pack of bacon they just bought still costs about the same as it cost a year ago.

Only now it’s 12 ounces instead of 16.

Fewer rolls of paper towels – but the price seem unchanged. Such illusions of economic stability are to be found in practically every aisle and on every shelf of the grocery store – the happy spell only broken when you check out your handful of stuff and discover it cost you $100 – or more – for what used to cost you $60 or less.

 

But the destruction of the value of money – manifested by its ominously decreasing purchasing power – is becoming impossible to not notice when it comes to products that can’t be skimmed, put less of into the same size packages.

A very objective measure of how fast things are slipping – by observing how fast things are rising – is what you could call The 4×8 Plywood Index. About two years ago – in the fall of 2018 – the average national cost of a sheet of 4×8 construction-grade plywood was just $10 or so.

Fast-forward two years and that same sheet of plywood now costs $25 or more (depending on the finish). Some cost $40 per sheet. Have a look for yourself. Or do a fly-by of your local Lowes or Home Depot.

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“Inflation Is Always A Political Choice”, by Tyler Durden

Posted on March 30, 2021 | Leave a comment

Governments and their central banks are always and everywhere responsible for inflation. And what drives governments and central banks? Politics. From Tyler Durden at zerohedge.com:

As Jim Reid leaves the Deutsche Bank credit desk for the next few weeks (“I’ll be taking holiday and sending the kids to Easter holiday camp and playing golf every day as courses in the UK open on Monday for the first time in 3 months”), his last Friday “chart of the day” covers an especially sensitive topic: inflation.

As Reid writes, “there is clearly a lot of talk about inflation at the moment and a lot of talk about whether the Fed and ECB (amongst others) will meet their respective targets” However, for Reid personally, and a statement we wholeheartedly agree with, “inflation is largely a political choice in the fiat currency world that we’ve been in since 1971” and he explains why:

When you have full control over how much money you can print and spend, rather than the money supply be fixed to Gold, you can always create inflation if the inclination is there regardless of demographics, digitalisation, globalisation or weak growth.”

Appropriately, today’s CoTD shows average inflation for all the 87 economies that DB has data on going back to 1971 when the US (and with it the vast majority of rest of the world) cut ties to gold. What is remarkable, is that no economy has managed to keep average annual inflation below 2% since, with Switzerland (2.1%), Japan (2.3%), and Germany (2.5%) the closest. Only 28 out of 87 managed to keep inflation below 5% over the full period. The US is at 3.8%.

So, as Reid concludes, “inflation is a choice in a fiat money world. The question is whether politicians will choose it or not, advertently or inadvertently.”

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How To Fight Price Inflation At Home, by Samantha Biggers

Posted on March 21, 2021 | 1 comment

This may the most nuts-and-bolts helpful article SLL posts all year. From Samantha Biggers at peakprosperity.com:

Inflation is a big topic right now.

The $trillions in fresh worldwide stimulus are causing the price of nearly everything we depend on to rise sharply in price, as this chart from February shows:

price inflation table

(Note how both Bitcoin and Ethereum have increased a further ~50% since this chart was made just a month ago.)

Adam has had a number of excellent interviews recently with highly experienced economists, analysts and investors — like Ed Butowsky, Grant Williams, Jim Rogers, Jim Bianco, Luke Gromen, Steen Jakobsen and others — who are extremely concerned of the secular era of rising inflation they see us headed into. And these interviews contain a lot of valuable guidance about how to position your portfolio accordingly.

But I’d like to offer some guidance that everyone, regardless of net worth, can follow to help insulate their home budget against the threat of rising prices.

I offer 29 steps below — some big, some small — that my husband and I are implementing in our own life. And while these steps save money, they don’t sacrifice quality of life. No one (including me!) wants to lower their living conditions if they don’t have to.

Start by looking for hidden inflation at the grocery store

Remember when sugar came in 5 lb bags? Now that same sugar comes in a 4 lb bag but costs the same. Orange juice containers have had ounces shaved off, too.

This is an easy way for manufacturers to make up for rising costs without raising the actual sticker price at the grocery store. People don’t notice as quickly or protest as much as they would if their grocery bill suddenly shot 20% higher.

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“Things Are Out Of Control” – There Is A Shortage Of Everything And Prices Are Soaring: What Happens Next, by Tyler Durden

Posted on March 20, 2021 | Leave a comment

Accelerating inflation looks like as close to a sure thing as you ever get in economics. The question then becomes when do rising interest rates torpedo massive debt and nominal growth? From Tyler Durden at zerohedge.com:

In Wednesday’s press conference, Jay Powell confirmed that the Fed is setting off on a historic experiment: welcoming a conflagration of red-hot inflation for an indefinite period of time in an overheating economy, with the underlying assumption that it’s all “transitory” and that inflation will return to normal in a few years, and certainly before 2023 when the Fed’s rates will still be at zero.

There is a big problem with that assumption: while FOMC members, most of whom are independently wealthy and can just charge their Fed card for any day to day purchases of “non-core” CPI basket items, the vast majority of the population does not have the luxury of having someone else pay for their purchases or looking beyond the current period of runaway inflation, which will certainly crush the purchasing power of the American consumer, especially once producers of intermediate goods start hiking prices even more and passing through inflation.

Many readers may not recall, but one such instance of “transitory” inflation that proved to be anything but and led to the infamous Volcker Fed and its double digit rate hikes, was the price of oil which took off in the Arab oil embargo and then refused to come back for over a decade.

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Money and statistical delusions, by Alasdair Macleod

Posted on March 5, 2021 | Leave a comment

Much of this article will be tough sledding for noneconomists. For the short version and the upshot of the article, skip to the last section, GDP Fallacies. From Alasdair Macleod at goldmoney.com:

I can prove anything with statistics, except the truth

— Lord Canning, c. 1819

Does Canning’s aphorism still hold true, given that data collection and statistical analysis have progressed beyond all recognition in the last two hundred years? This article tests that proposition.

It is still true, because of the interests for which statistics are deployed. We know, or should know, that CPI indexation of prices fails to reflect the true rate of decline in the purchasing power of fiat currencies. That is at least a simple case of governments saving money on indexation. But being economical with the statistical truth is a far wider practice encompassing input suppression, misleading deployment, and their use to support beliefs and preferred outcomes instead of backing up properly reasoned economic and monetary a priori theory.

This article finds that the application of all these methods corrupt monetary statistics, including the three principal components of the equation of exchange. This analysis is sparked by recent changes to the definition of M1 money supply in the US.

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The Global Inflation Nightmare That You Have Been Warned About Is Here, by Michael Snyder

Posted on March 4, 2021 | 1 comment

Inflation means inflation whatever passes for the money supply. Inflation has varying effects on the general price level and on specific prices. That said, if you inflate the money supply like developed world governments and their central banks have been doing the last year, it’s a pretty good bet that it will drive up most prices. From Michael Snyder at themostimportantnews.com:

If you thought that authorities all over the planet could print, borrow and spend money like there was no tomorrow without any consequences, you were being delusional.  Since the beginning of the COVID pandemic, we have witnessed the greatest monetary binge in world history.  Of course that was going to cause enormous problems.  Of course that was going to cause nightmarish inflation.  Anyone with an ounce of common sense should have been able to see that.  When the value of money is tied to nothing, “more money” is always such a tempting solution for those in power.  But as history has demonstrated over and over again, going down that path almost always leads to tragedy.

In our case, it will be the poorest people on the planet that suffer the most.  According to Bloomberg, basic food staples are dramatically spiking in price all over the globe…

Global food prices are going up, and the timing couldn’t be worse.

In Indonesia, tofu is 30% more expensive than it was in December. In Brazil, the price of local mainstay turtle beans is up 54% compared to last January. In Russia, consumers are paying 61% more for sugar than a year ago.

And as Albert Edwards has pointed out, annual inflation in cereals has hit 20 percent, which represents “the highest annual rise since mid-2011 when the Arab Spring was in full flow!”

If prices continue to rise like this, it is just a matter of time before we see widespread food riots all over the globe.

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Doug Casey on Robinhood, Hedge Funds, and Class Warfare

Posted on February 17, 2021 | Leave a comment

The Federal Reserve has turned financial markets into casinos so we’ll see more “all in” crazy action like we saw with GameStop and Robinhood. From Doug Casey at internationalman.com:

International Man: We seem to be entering a new paradigm in the financial markets. Social media has allowed a large number of small investors to band together and move markets in ways that were previously inconceivable.

What are your thoughts on this and what lies ahead?

Doug Casey: To start with, most of the people on Robinhood are ultra-unsophisticated—mostly unemployed kids living in their mothers’ basements. A lot of the money that the government sent them—the COVID checks—went into the market.

Of course, Robinhood itself is somewhat problematic with its commission-free trading and no minimum trade size. How can a company make money if it doesn’t charge its customers anything? It does so by having cozy arrangements with hedge funds. In essence, you get what you pay for, and if you don’t pay anything, you can expect to be treated like you’re a product, not a customer. I don’t have any problem per se with Robinhood’s business model, but Robinhood’s real customers are probably the hedge funds, not the public.

I don’t have any sympathy for anybody involved in this—hedge funds, the brokers, or the public. In the markets, eventually, everybody gets what they deserve. Still, the fact that some hedge funds have lost billions is front-page news. And the stock running from like $3 before collapsing from $450 to under $50 at the moment means plenty of late-arriving small fry will have been wiped out on the way down.

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By Big Government For Big Government, by MN Gordon

Posted on February 14, 2021 | Leave a comment

Inflation is a tool of big government. From MN Gordon at economicprism.com:

One of the notable byproducts of the current age of unreason is the popularity of lies as a matter of public policy.  We’ll clarify this claim in just a moment.  But first, some context is in order…

On Wednesday, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) increased 0.3 percent in January.  Not bad, so long as you didn’t have to drive anywhere.  If you did, you may have noticed your dollars didn’t get you as far.  The gasoline index increased 7.4 percent in January.

What’s going on?

Over the last 10-months the price of oil has quietly recovered from an extreme negative in April of 2020 to over $58 for a barrel of West Texas Intermediate (WTI) crude.  And the UN Food and Agriculture Organization’s food price index is at its highest level since July 2014.  The main factors contributing to its rise are increases in grain prices.

Our hunch is that consumer prices will rise much further and faster in 2021 than the bean counters at the Bureau of Labor Statistics anticipate.  In the interim, manufacturers of consumable products can mask price inflation by reducing product size, while keeping price the same.  The ruse of shrinkflation is not new to the marketplace.  However, when governments over issue their currency it becomes much more prevalent.

Just last week, for instance, Nutella confirmed that it will reduce its 400 gram jars to 350 grams due to rising production costs.  But that’s not all.  In 2020, packages of Nathan’s Pretzel Dogs were reduced from five hotdogs to four.

Other common products that shrunk in 2020 include: Downey Unstoppables (10 oz to 8.6 oz), Charmin Ultra Strong (286 sheets to 264), Dawn (small bottle, 8 oz to 7 oz), Lay’s Potato Chips (party bag, 15.25 oz to 13 oz), Keebler Club Crackers (13.7 oz to 12.5 oz), Charmin Mega roll (reduced by 20 sheets), Powerade (32-oz to 28 oz), Puffs (56 tissues to 48), and Hershey’s kisses (family size bags reduced from 18 oz to 16 oz).

Of course, manufacturers are just playing the hand they’ve been dealt.  They know consumers are more likely to limit purchases due to a rise in price verses a reduction in weight.  They’re merely reacting to the rising price of raw goods and materials.  But what’s driving this?

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