Tag Archives: Prices

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

Posted on July 16, 2021 | Leave a comment

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.

Continue reading→

Leave a comment

Posted in Banking, Business, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Government

Tagged ,

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

Posted on June 11, 2021 | Leave a comment

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.

Continue reading→

Leave a comment

Posted in Banking, Business, Economics, Economy, Governments

Tagged , ,

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

Posted on April 11, 2021 | Leave a comment

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.

Continue reading→

Leave a comment

Posted in Banking, Business, Currencies, Debt, Economics, Economy, Governments, Money

Tagged ,

Statistics, lies and the reservoir effect, by Alasdair Macleod

Posted on May 31, 2020 | Leave a comment

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.

Continue reading →

Leave a comment

Posted in Banking, Business, Debt, Economics, Economy, Government

Tagged , , , ,

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

Posted on April 29, 2020 | Leave a comment

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.

Continue reading→

Leave a comment

Posted in Banking, Business, Debt, Economy, Energy, Government

Tagged , ,

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

Posted on November 15, 2019 | 2 comments

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.

Continue reading→

2 Comments

Posted in Business, Government, Medicine

Tagged , ,

The Many Ways Governments Create Monopolies, by Mike Holly

Posted on December 2, 2018 | Leave a comment

Almost all effective monopolies are created, blessed, and sustained by governments. From Mike Holly at mises.org:

Politicians tend to favor authoritarianism over capitalism and monopoly over competition. They have directly created monopolies (and oligopolies) in all major industrial sectors by imposing policies favoring preferred corporations and preferred special interests.

In 2017, University economists Jan De Loecker and Jan Eeckhout found monopolies behind nearly every economic problem. They have slowed economic growth and caused recessions, financial crises and depressions. These monopolies restrict the supply of goods and services so they can inflate prices and profits while also reducing quality. In addition, monopolies have decreased wages for non-monopolists by decreasing the competition for workers. This has led to wealth disparity, underemployment, unemployment and poverty

Monopolies have also led to many societal problems. Unlike truly competitive firms, institutions that enjoy monopoly power have more freedom to discriminate against outsiders, especially women and minorities. They block innovation, the key to long-term prosperity. Monopolies have led to imperialism and wars .

Continue reading →

Leave a comment

Posted in Business, Capitalism, Cronyism, Economics, Economy, Education, Governments, History, Medicine, Technology, Trade

Tagged , , ,

Central Planning Failed in the USSR, but Central Banks Have Revived It, by Vitaliy Katsenelson

Posted on September 21, 2018 | Leave a comment

The fallacy that economies can be efficiently planned and guided by bureaucrats from above just won’t let go, even after such planning and guidance have repeatedly failed. From Vitaly Katsenelson at mises.org:

The Federal Reserve’s changing of the guard — the end of Janet Yellen’s tenure and the beginning of the Jerome Powell era — has me remembering what it was like to grow up in the former Soviet Union.

Back then, our local grocery store had two types of sugar: The cheap one was priced at 96 kopecks (Russian cents) a kilo and the expensive one at 104 kopecks. I vividly remember these prices because they didn’t change for a decade. The prices were not set by sugar supply and demand but were determined by a well-meaning bureaucrat (who may even have been an economist) a thousand miles away.

If all Russian housewives (and house-husbands) had decided to go on an apple-pie diet and started baking pies for breakfast, lunch, and dinner, sugar demand would have increased but the prices still would have been 96 and 104 kopecks. As a result, we would have had a shortage of sugar — a common occurrence in the Soviet era.

Continue reading →

Leave a comment

Posted in Banking, Debt, Economics, Economy, Financial markets, Government, History, Uncategorized

Tagged , , ,

The Great Fall Of China Started At Least 4 Years Ago, by Raúl Ilargi Meijer

Posted on November 19, 2015 | 2 comments

From Raúl Ilargi Meijer at theautomaticearth.com:

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light.’

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

44 months is a long time. And March 2012 is a long time ago. Oil was about at its highest since right before the 2008 crisis took the bottom out. And if you look closer, you can see that producer prices started ‘losing it’ even earlier, around July 2011.

To continue reading; The Great Fall Of China started At Least 4 Years Ago

2 Comments

Posted in Business, Debt, Debtonomics, Economics, Other Views

Tagged ,