Inflation - Destroying America

Gipper

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Thanks to liberalism and Keynesian economic policies, we are headed for economic disaster. Get ready...you will soon need a wheel barrel full of dollars to buy a loaf of bread.

This is an interesting article.

http://markets.financialcontent.com/stocks
There is a misconception in America that wages have risen at the same rate as price inflation, when this is simply not the case. The median household income in the U.S. was $11,800 in 1975 and today is $49,777. If you go by the government's CPI, $11,800 in 1975 dollars equals $47,208 in today's dollars. If the government's CPI is to be believed, Americans are earning higher real incomes today than 35 years ago. However, the truth is, once you discount the effects of geometric weighting and hedonics, the median household income in 1975 of $11,800 actually equals $154,000 in today's dollars. This explains how in 1975, a father was able to support a family on just one income and college students were able to afford their own tuition with just a part-time summer job. Today, both parents need to work and families need to get deeply into debt just to survive.

The U.S. government is currently printing money just to survive. The Federal Reserve has held the Fed Funds Rate at 0-0.25% for nearly two years and just announced that it will be printing an additional $600 billion in new U.S. dollars by the end of June 2011. Since the beginning of September until now, just in anticipation of the Fed's upcoming quantitative easing, we have experienced the largest ever short-term increase in the history of agricultural commodity prices with corn rising by 32%, soybeans rising by 32%, orange juice rising by 12%, coffee rising by 19%, and sugar rising by 66%. These agricultural commodity price increases will begin to work their way into grocery stores nationwide in the weeks and months ahead, as food manufacturers and retailers are forced to raise their prices.

Food manufacturers and retailers who don't immediately raise prices and pass their rising costs on to U.S. consumers will likely go out of business. Sara Lee just announced yesterday that their first quarter profit fell 32% as price increases it enacted during the quarter were not enough to cover steep increases for agricultural commodities. Dean Foods saw their stock decline 18% yesterday to a new 52-week low due to escalating costs for butterfat, a key ingredient in its creamers and ice creams. Dean Foods' butterfat costs were up 70% over the same 2009 period.

The U.S. has no way of paying off its $13.7 trillion national debt and $80 trillion plus in unfunded liabilities without printing the money and creating massive price inflation. China's Dagong Global Credit Rating Co. lowered its credit rating for the U.S. to A+ from AA on Tuesday with an outlook of "negative", saying the Fed's plan to buy government debt will erode the value of the dollar and "entirely encroaches" on the interests of creditors. The Fed, by buying U.S. treasuries, is effectively monetizing the debt. In fact, Federal Reserve Bank of Dallas President Richard W. Fisher admitted yesterday that the Fed is monetizing the debt, saying in a statement, "For the next eight months, the nation's central bank will be monetizing the federal debt."
 
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Yeah. And back during Gerald Ford's (talk about a weak president!), presidency, they blamed it all on the unions. Nowadays, the unions have relatively little power and are not demanding higher wages.
 
A post of mine from a financial blog that explains the economic how the taxpayers got left holding the bag for this reckless gov mortgage bubble.

I am opposed to gov monetization. Let me explain why this has happened.

The best way to fix debt is to turn it into equity. For example a bank has bond holder debt, and share holder equity. But the debt is very large due to mortgage failures. What should be done is take say half of the bondholder debt and convert it to stock or equity. Thus the bond holders own the bank and bear the risk.

This would immediately fix the balance sheets and banks could be well capitalized. Plus, a healthy well capitalized bank would be a lender and would seek profits through loan expansion.

What has happened however is that the bondholders who have a lot of political influence, did not want to convert to equity. They wanted the gov to buy the bad assets and hang the taxpayers with the burden. The result was poorly capitalized banks that hoarded the gov money and stopped loaning basically assuming the Zombie position.

There can be no expansion of earnings without lending but there is no lending when tier capital requirements rest on government buying debt.

The rhetoric is astonishing now. Everyone knows this monetization is not working. Look at Obama... he makes a speech that no bank is too big to fail. Then the policies are exactly the opposite to create these zombie banks which are no more solvent than the day they got in trouble. There is absolutely no reason for this other than those who set gov policy favor bondholders and have no scruples about unloading debt on the taxpayers.

Look at the operation of the companies behind this idiocy. Goldman. What'st the goldman model? They sell bonds but if you look at the company a huge amount of its income goes to compensation, not shareholders. So it is more of a political institution than stock company. It has virtually unlimited gov influence.

Reorganization as I have discussed is the way it should be done. All this mess would have been cleared up long ago but instead, amazingly, we follow the failures of Japan, directly along the same line.... and somehow expecting different results. Zombie businesses are Zombies.

My big concern is that public debt is like welfare and people on welfare get accustomed to being lazy and doing nothing. These Zombie banks are the same. The gov will keep on buying debt and removing all risk from these Zombie banks. So the lip service that no bank is too big to fail is absurd. They are saying the opposite with monetization.

Ultimately in my mind, the printing of money will leach into the money supply and at some point, there is likely to be a massive inflator. The game Bernanke is playing here is that "public debt" which was once private debt, has value but will not mingle with the money supply M1. In other words, Bernanke is implying that the money the Fed is using to buy debt will never actually touch the Money Supply. It will reside in sort of a vacuum jar of debt.

But this leads to all kinds of perception problems. So back to my model of the poker players where the gov this time is printing money under the table but only using that money to reduce the debt of the bad players. They are not actually giving them the money to squander. They are buying the debt and saying to them, when your car game improves you should be able to pay off your debts. So we will just keep your creditors happy with our guarantees and you keep playing.

What has happened here is that no money has been put into the game. So the gov says it has not increased the money supply on the table so this will not add to inflation.

The big problem with this approach is you create Zombie poker players instead of throwing the bum out of the game and playing without him or letting somebody new come in to play. So the fundamental business structure is lost and we have this oddball gov. monetization inflicting itself on interest rates. This is because the risk has been removed from the game. The Zombie players can play indefinitely. RISK of capital has been removed.

In Sum: The right way to fix debt is to convert it to equity. The wrong way is through the political machine of monetization which removes RISK. Once Risk is removed, you have Zombies that have no business survival instinct. The net result is zero growth.

But there are unforeseen consequences already arising. These include the perception that printing money will lead to inflation. So commodities are spiking and bond yields are flat. And why the money managers are so euphoric over more QE II is simply beyond my comprehension. Stock Markets are houses of equity and Risk. To promote zombie business is like saying our goal in America should be to get 60% of the population on welfare. It makes no sense.

Bernanke in case you have not noticed is something of and egoist. Well so's Obama. So once these guys take a path, they take it to the Hitler conclusion or in this case maybe the Goldman conclusion.

Think about it... who has really thrived during this economic crisis? Small business? Nope. Billionaires, Bankers, Bondholder, and wall street shysters. Everybody else is virtually underwater, and unemployed. So the answer is more QE II, and as you can see from the mechanics of monetization, it will not do anything more than reduce RISK and increase Zombieization. The debt will further sink the taxpayer, push housing down, and do nothing for job creation.

regards
Doug
 
Bernanke is pursing a course that is potentially deadly for the economy. Now he want to devalue the dollar and cause inflation as a means of "stimulsting" the economy. That is not the way inflation works, it kills economies just like Argentina and converted South Africa into the wasteland it is today.

The world is supposed to look at this and say the recession is over. We keep getting fine news of great earnings and the rosy picture and her is bernake, the guy that never saw the recession and liquidity crisis though he was a fed governor since 2002 and the chief in 2005. He never saw a bubble in real estate. He simply didn't see it. But he and the billionaires are telling him to load up the bin with more money. They enjoyed a great financial crisis while the public has been nearly destroyed with debt, underemployment, and an endless attack on real estate.

Things must be so bad underneath the economy that all this tinkering is necessary. But is it?

China as no debt, they are doing fine. Australia has no debt and they missed the entire recession because Rudd instead of lowering interest rates raised them preserving a strong Australian dollar. Unemployment stayed low.

Then we get to the US the greatest debtor nation, shackling the entire mortgage mess on the taxpayer who never had a thing to do with it. My God there is no justice.

Nothing that bernanke has done has worked. Yet we look at Asia and Australia and the opposite has worked very well.

All this euphoria is pending fed action. So no really large sums have been added. What we do know is that a ton of money left the markets in August an it won't be coming back. And we know if they inflate, then the bonds will tank. Stocks are very mixed in inflation some up some down.

If commodities go up in price, the demand drops. If oil goes high enough all economies stop. It took Volker years to drive inflation out of the system but it will take bernanke only minutes to bring it back.

Hedge funds do not have enough money to push the Dow up another 500 points. So all they can do now is churn the market and try to get the bond market to purge out holders and buy inflated stocks from the willing hedge funds. The citizen seeking safety in Treasury bond after their homes failed them and their 401Ks failed them and next they will be fleeced again by the kindly billionaires like buffett, the ultimate snake calling bondholders to sell and buy his GE stock.


Just ranting
Doug
 
Yeah. And back during Gerald Ford's (talk about a weak president!), presidency, they blamed it all on the unions. Nowadays, the unions have relatively little power and are not demanding higher wages.

Agreed...at least regarding the progressive Gerald Ford.

But, you could not be more wrong about unions. The government unions have considerable power and own the D party hook, line, and sinker.
 
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Benson’s Economic & Market Trends

An Inflationary Cocktail in the Making

September 30, 2010

The interesting part of growing older, that my wife and I have noticed, is the appearance that time speeds up. As each month that passes turns into years, as a 60+-year-old I’m feeling the passage of time quite differently than a child would; a year to me feels more like a month, whereas a month in a child’s life feels like a lifetime. Needless to say, I’m still encouraged to continue my favorite pastime of tracking the fluctuations in the cost of living, and my fascination with prices and values has not waned one bit. Also, my wife’s frugalness and aversion to throwing food away has made me very curious about commodity prices, so recently I did some research and discovered the facts weren’t pretty. Below are some Commodity Price increases over the past year:


Yep, looking at key raw material prices compared to last year, the recession is over. These prices are getting loaded into the system now and will flow through to the consumer in higher prices to come at the supermarket and elsewhere.

But it’s not just raw materials soaring; it’s everything. One example is my health insurance bill that came with the usual 20 percent annual increase. With Obamacare starting to take effect, insurance companies are rushing to push in price increases to cover expanded care and no caps on total payouts. Airline fares are already up 14 percent from last year, and if you plan to book a flight over the holidays, the rates have been jacked up to total price gouging levels. Don’t believe the Wall Street hype, either, about being consumer-friendly and adding efficiency when it comes to the announced mergers of United and Continental Airlines, Southwest and AirTran, and Hertz and Avis bidding for Dollar Thrifty. The real reason mergers are done is to cut workers, destroy competition, and stick it to the consumer with higher prices, while Wall Street reaps huge profits.

Great news.
 
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