Tag Archives: Prices

Peter Schiff: Too Much Money; Not Enough Stuff

Too much money, courtesy the Federal Reserve, chasing to little stuff, courtesy the massively overblown Covid reaction, produces rising prices, colloquially known as inflation. From Peter Schiff at schiffgold.com:

For the first time in nine months, the government CPI data came in under expectations. Prices rose by 0.3% last month, just below the 0.4% projection. Year on year, the CPI was up 5.3%. Core inflation, stripping out more volatile food and energy (for those of you who don’t eat or use energy) was up 0.1%. Core inflation is up 4% on the year.

In his podcast, Peter Schiff took a deeper dive into the numbers and explained why this doesn’t prove inflation is “transitory.” He also drilled down to the root cause of rising prices – too much money chasing not enough stuff. Given the current monetary policy, that doesn’t appear set to change anytime soon.

Focusing on the headline number of 0.3%, a lot of people were relieved because we finally got a cooler than expected inflation read. In the minds of many, it also validated the Federal Reserve’s narrative that inflation is “transitory.” But as Peter put it, “One month does not transitory make.”

First of all, 0.3% in one month, in-and-of-itself, is still a lot of pricing pressure. Because if you annualize 0.3, well, that’s almost 4% per year. So, if we got this ‘good number’ 12 months in a row, that’s a 4% gain in consumer prices, which is almost double what the Fed claims it wants, which is a rate slightly above 2%. Well, 4% isn’t slightly above 2%. It’s almost double 2%. So, this is not a great number in-and-of-itself.”

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Americans Expect their Earnings to Get Whacked by Red-Hot Inflation, Blow Off Fed’s Sermons about “Temporary”, by Wolf Richter

There are millions of Americans that are a lot smarter than the house-broken economists and media airheads who keep bloviating about “transitory” and “temporary” inflation. From Wolf Richter at wolfstreet.com:

And those who experienced the 1970s & 1980s inflation as adults expect 6.0% inflation a year from now.

The Fed keeps discussing consumer inflation expectations as one of the key metrics in assessing the path of inflation in the coming years. Inflation expectations suggest to what extent consumers might be willing to accept price increases, thereby enabling inflation. Consumer price inflation is thought to be in part a psychological phenomenon, similar to market prices. When the inflationary mindset takes over, consumers accept higher prices instead of going on buyers’ strike as they infamously did with new cars in 2008 through 2013, when demand collapsed and stayed down for years.

Consumers’ median inflation expectations for one year from now jumped to 5.2% in August (red line), the highest in the survey data going back to 2013, and the 10th monthly increase in a row, according to the New York Fed’s Survey of Consumer Expectations today. The survey also tracks consumers’ expectations of their earnings growth. And that combo became a hoot (more on that in a moment).

Inflation expectations for three years from now jumped to 4.0% (green line), the highest in the survey data. People are starting to blow off the Fed’s endless sermons about this inflation being “temporary” or “transitory.”

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The Everything Shortage & Price Hikes Plastered All Over Fed’s “Beige Book,” by Wolf Richter

How long does transitory inflation have to last before it becomes non-transitory inflation? From Wolf Richter at wolfstreet.com:

“We need lower consumer demand to give supply chains time to catch up… recover efficiency… and break this vicious circle”: CEO of Maersk’s APM Terminals, one of the largest container port operators.

Today’s release of the Fed’s “Beige Book“ – an informal narrative of the economy as told by small and large companies in the 12 Federal Reserve districts – listed “shortage” 77 times, up from 19 times in January.

Shortages of nearly everything, with labor-related shortages being the most prominent. These shortages “restrained” growth, and companies were “unable to meet demand” because of these shortages. Here are some standouts:

  • “Extensive,” “widespread,” “intense,” “acute,” “persistent,” “broad,” and “ongoing” “labor shortages.”
  • “Worker shortages”
  • “Workforce shortages”
  • “Shortages of drivers”
  • “Truck driver shortage”
  • “Chassis” shortage
  • “Ongoing microchip shortage”
  • “Pervasive resource shortages”
  • “Material shortages”
  • “Inventory shortages” from retailers to housing.
  • “Supply chain shortages”
  • “Supply shortages”
  • “Shortages of parts”
  • “Shortages of inputs and labor”
  • “Increasingly severe shortage of auto inventories”
  • “Shortages of parts for farm equipment”
  • “Restaurants reported severe supply and staffing shortages”
  • “Nursing shortages”
  • “Raw material shortages”
  • “Shortages of labor and other raw materials” that delayed construction
  • “Persistent materials shortages”
  • “Shortages and higher costs for both labor and non-labor inputs”
  • “Retailers noted shortages of and increased lead times for merchandise, particularly on foreign-made goods”

The labor shortages came with “turnover,” and employees leaving their jobs to work somewhere else, which confirms the data in the report on job openings and quits in the most distorted labor market ever.

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Peter Schiff: Fake Economic Growth and Stealthy Government Default

Economic growth bought with fake money is fake economic growth. From Peter Schiff at schiffgold.com:

Inflation continues to run rampant and it’s distorting the entire economy.

In a recent podcast, Peter Schiff explains how rising prices create the illusion of economic growth. And they are also allowing the US government to stealthily default on its massive debt. This is not a sign of a strong economy.

GDP growth for the second quarter of the year came in lower than expected. Even so, the economy still appears to be experiencing solid growth. But a deeper dig into the numbers reveals a lot of smoke and mirrors.

The media’s focus was on the 6.5% number, so-called “real” growth. That number is adjusted for inflation. Minus inflation, the nominal GDP gain was about 13%. Peter said the divergence between these two numbers really puts the inflation level into perspective.

The deflator used in the GDP calculation was about 6.4%. That means almost half of the nominal GDP growth was due to inflation and not actual economic growth.

Comparing the GDP deflator with CPI reveals that “real” growth may even be overstated. If you add up Q2 CPI and annualized it the same way they calculate GDP, you get 9.35%. So, if you use the CPI as a deflator, you get annualized GDP at a mere three-and-a-half percent.

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What Happens When the Chickens Come Home to Roost? by MN Gordon

Chickens coming home to roost is a colorful way to say actions have consequences, and the consequences when the everything bubble pops will be epochal. From MN Gordon at economicprism.com:

What happens when the chickens come home to roost?

This is today’s question.  But what is the answer?  In just a moment we’ll offer several thoughts and ruminations.  First, however, we must take stock of the chickens…

This week, for example, the chicken counters at the Bureau of Labor Statistics reported consumer prices, as measured by the consumer price index, increased in June at a year over year rate of 5.4 percent.  This marks the fastest pace of rising consumer prices since 2008.  And if you exclude food and energy, prices in June rose year over year by 4.5 percent…the fastest surge since November 1991.

In reality, consumer prices have increased much higher.  The ‘unofficial’ rate of consumer price inflation, as calculated using methodologies in place in 1980, is about 14 percent.  This rate of inflation is exceedingly caustic to retirees, savers, and wage earners.

Still, the Federal Reserve doesn’t think it’s a problem.  On Thursday, Federal Reserve Chair Jay Powell told the Senate Banking Committee he’s “not concerned” with rising cost of living.  He’s still asserting price inflation is transitory; that soon the price of used cars will abate and inflation will fall below the Fed’s 2 percent annual target.

We’ve all heard Powell’s fictions before.  If you recall, the Fed’s once ballyhooed normalization of 2018-19 was a great big sham.  Sure, $700 billion was contracted from the Fed’s Balance sheet between October 2017 and August 2019.  But that was in the wake of a $3.5 trillion expansion.  And it was quickly followed by another $4.3 trillion balance sheet expansion from September 2019 through the present.

What to make of it…

Layers of Dumbassery

Price inflation, like coronavirus or fentanyl, is a man-made scourge.  It’s a product of central bank directed money supply inflation.  And it’s made possible by debt based paper money.

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“Supply Bottlenecks” as an Excuse for Inflation, by Daniel Lacalle

The real cause of inflation is monetary, not supply bottlenecks. From Daniel Lacalle at mises.org:

One of the arguments most used by central banks regarding the increase in inflation is that it is because of bottlenecks and that the recovery in demand has created tensions in the supply chain. However, the evidence shows us that most commodities have risen in tandem in an environment of a wide level of spare capacity and even overcapacity.

If we analyze the utilization ratio of industrial and manufacturing productive capacity, we see that countries such as Russia (61 percent) or India (66 percent) are at a clear level of structural overcapacity and a utilization of productive capacity that remains still several points lower than that of February 2020. In China it is 77 percent, still far from the 78 percent prepandemic level. In fact, if we analyze the main G20 countries and the largest industrial and commodity suppliers in the world, we see that none of them have levels of utilization of productive capacity higher than 85 percent. There is ample available capacity all over the world.

Inflation is not a transport chain problem either. The excess capacity in the shipping and transport sector is more than documented and in 2020 new capacity was added in both freights and air transport. Ships delivered in 2020 added 1.2 million twenty-foot equivalent units (TEUs) of capacity, with 569,000 TEUs of capacity on ultra large container vessels (ULCV), ships with capacity for more than 18,000 TEUs, according to Drewry, a shipping consulting firm. International Air Transport Association (IATA) chief economist Brian Pearce also warned that the problem of capacity was increasing in calendar year 2020.

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Expect Inflation to Accelerate? Here’s 8 Reasons to Expect Decelerating Inflation, by Mike “Mish” Shedlock

There’s been a chorus of commentators and economists predicting big increases in inflation, and SLL has been part of that crowd. However, we don’t mind posting well-reasoned contrary viewpoints. Here’s an analysis of why the crowd might be wrong, from Mike “Mish” Shedlock at thestreet.com:

Lacy Hunt at Hoisington Management has some interesting thoughts regarding the inflation debate.
Case for Decelerating Inflation

In its Quarterly Review and Outlook for the First Quarter of 2021 Lacy Hunt makes a case for decelerating inflation.

Contrary to the conventional wisdom, disinflation is more likely than accelerating inflation. Since prices deflated in the second quarter of 2020, the annual inflation rate will move transitorily higher. Once these base effects are exhausted, cyclical, structural, and monetary considerations suggest that the inflation rate will moderate lower by year end and will undershoot the Fed Reserve’s target of 2%. The inflationary psychosis that has gripped the bond market will fade away in the face of such persistent disinflation.

After declining 5.2% in 2020, or the most since World War II, world-wide real per capita GDP is estimated to rise 4.7% in 2021. The United States will perform even better, rising 6.2%, after a contraction of 4.9% in 2020. The U.S. growth rate this year could be the fastest since 1984 and possibly even since 1950 (Chart 1).

Five considerations suggest that such growth is not likely to lead to sustaining inflation.

Lacy said 5. I added a 6th bullet point from his discussion, then added 2 more points of my own.

Six Reasons to Expect Disinflation

  1. Inflation is a lagging indicator, as classified by the National Bureau of Economic Research. The low in inflation occurred after all of the past four recessions, with an average lag of almost fifteen quarters from the end of the recessions. (Table 1 Inflation Troughs Below)
  2. Productivity rebounds in recoveries and vigorously so in the aftermath of deep recessions. This pattern in productivity is quite apparent after the deep recessions ending in 1949, 1958 and 1982 (Table 2 Below). Productivity rebounded by an average of 4.8% in the year immediately after the end of these three recessions and unit labor costs were unchanged. The rise in productivity held down unit labor costs.

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Statistics, lies and the reservoir effect, by Alasdair Macleod

This article is a little denser than usual, but like everything Alasdair Macleod writes, is well worth plowing through. From Macleod at goldmoney.com:

This article debunks the misconception that GDP represents economic health. It explains how monetary flows have led to markets in financial assets inflating while non-financials in the GDP bucket are in deep distress. And why, at a time of rapid monetary expansion, all attempts to quantify the effects of monetary policy on the real economy become even more meaningless.

Financial markets are acting like an inflation reservoir. And when the dam bursts bond yields will rise substantially, undermining values of other financial assets. The non-financial GDP economy will then face the full force of monetary depreciation, with calamitous consequences for ordinary people: the unemployed (of which there will be many), the low-paid and retirees living on meagre pensions and savings.

Macroeconomics have led state planners in all high-welfare economies headlong into policies of monetary and economic destruction from which there is no politically acceptable means of escape. 

Introduction

Only those with a lack of perception are unaware that their nation’s economy is in deep trouble. It is far worse than just a pandemic-induced disruption in our lives which in a little time will return to normal. Lest we forget, liquidity strains had already appeared in the US repo market and forced the Fed to reverse its policy of reducing its balance sheet before the coronavirus even existed. And before that, the trade tariff war between the US and China had led to international trade grinding towards a halt.

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Game Over for Oil, The Economy is Next, by Art Berman

Most people don’t realize what a huge role the oil industry plays in the US economy. From Art Berman at artberman.com:

It’s game-over for most of the U.S. oil industry.

Prices have collapsed and storage is nearly full. The only option for many producers is to shut in their wells. That means no income. Most have considerable debt so bankruptcy is next.

Peggy Noonan wrote in her column recently that “this is a never-before-seen level of national economic calamity; history doesn’t get bigger than this.” That is the superficial view.

Coronavirus has changed everything. The longer it lasts, the less the future will look anything like the past.

Most people, policy makers and economists are energy blind and cannot, therefore, fully grasp the gravity or the consequences of what is happening.

Energy is the economy and oil is the most important and productive portion of energy. U.S. oil consumption is at its lowest level since 1971 when production was only about 78% of what it was in 2019. As goes oil, so goes the economy…down.

The old oil industry and the old economy are gone. The energy mix that underlies the economy will be different now. Oil production and price are unlikely to regain late 2018 levels. Renewable sources will fall behind along with efforts to mitigate climate change.

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In Shock To $3.5 Trillion Healthcare Industry, Trump Admin Will Force Hospitals To Disclose “Secret” Insurance Rates, by Tyler Durden

It’s about time. From Tyler Durden at zerohedge.com:

In a move that will send shockwaves across the $3.5 trillion US healthcare industry, on Friday the Trump administration unveiled a plan that would – for the first time – force hospitals and insurers to disclose their secret negotiated rates, the WSJ reported.

In hopes of bringing some transparency and openness to a pathologically opaque industry, one which many have blamed for being behind the explosion in US underfunded liabilities to more than $100 trillion, administration officials said the final rule will compel hospitals in 2021 to publicize the rates they negotiate with individual insurers for all services, including drugs, supplies, facility fees and care by doctors who work for the facility. The White House would also propose extending the disclosure requirement to the $670 billion health-insurance industry. Insurance companies and group health plans that cover employees would have to disclose negotiated rates, as well as previously paid rates for out-of-network treatment, in computer-searchable file formats.

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