11/18/10 Baltimore, Maryland – The Great Correction…still in business…
The latest news suggests that we’ve been right all along. Housing starts are down a surprising 12% – with house prices still soft or falling in most areas.
Jobs? Forget it. Joblessness continues to be a major headache…with no significant relief in sight.
And both consumer and producer prices are flatter than expected. In fact, the core CPI reading is at a record low. For all the talk of “inflation” – there isn’t any. Ben Bernanke is right, at least about “core” inflation. Prices for people who neither eat, nor travel, nor heat their houses are flat.
Yes, dear reader. We’re in a great correction. We just don’t know what it intends to correct. Not yet.
“US inflation moves close to zero,” says the BBC.
And here’s Bloomberg, with the details:
The cost of living in the US probably rose for a fourth month in October, led by higher gasoline and food prices that aren’t filtering through to other goods and services, economists said before reports today.
The consumer-price index increased 0.3 percent after a 0.1 percent gain the prior month, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department report. Excluding food and fuel, so-called core costs may have increased 0.7 percent from October 2009, matching a record low. Another report may show housing starts last month fell to the lowest level since July.
We were watching the descent of consumer prices this past spring. It looked like the CPI would approach zero by the end of the summer…and then head into negative territory.
But then, with all the excitement around quantitative easing, we kind of lost track. The feds were printing money intentionally, right out-in-the-open and without even a “sorry” or an “excuse me.”
Everyone knew it was “inflationary.” And it was – to the extent that it inflated the monetary base. But it didn’t inflate consumer prices. Why not?
“It’s the economy, stupid.”
When an economy is de-leveraging you get a phenomenon that John Maynard Keynes described as “pushing on a string.” You can push money into the system. But the other end of the string…where you find consumer prices…doesn’t move.
And now, it looks like Keynes was right. The Fed is pushing in $600 billion. Consumer price increases are still going down.
So we might be tempted to think that the feds can push on the string all they want; they’ll never get consumer prices to rise.
But it’s not that simple. It may be true that you can’t increase consumer prices simply by putting money into the banking system. But the Fed is now going one step further. It’s funding the US budget deficit – practically the whole thing. That frees all the money that would have gone into US Treasuries to go elsewhere. Where? Darned if we know.
But just look at cotton prices. And gold. And farmland in Iowa and Indiana. Farmland yields (not crop yields…financial yields, from renting out the land) are at an extreme low. Prices have been bid up – thanks to record low interest rates and record high agricultural output prices.
And look at prices of Indian stocks. They’re selling near record levels too.
All over the world, prices are going up – especially in emerging markets, where economies are growing fast.
But in America, consumer prices – when you take out food and energy – are going nowhere.
Just what you’d expect in this strange correction.
Bill Bonner
for The Daily Reckoning
Bill Bonner
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010.
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Of course as everyone yells about inflation and prices going up, they forget to mention that they are still less then prices were 3 years ago. Most commodities indexes are about 70% of what they were in 2008 .Also housing cost being most peoples biggest expense are still falling so I would say I see more deflation then inflation.
Inflation… deflation… neither is good news for the U.S. economy or for the rest of the world. As an avid research and survival enthusiast, it’s time we prepare for the future, all of this bad news surfacing daily is only leading up to a very dire situation. Check out http/survivalist-hub.blogspot.com/ for information on preparedness and http://www.gearupcenter.com for related survival products. Inflation/deflation is very real and is on its way. I see food and clothing prices beginning to rise and its only going to escalate rapidly. My suggestion: Purchase your “emergency products” such as survival food and freeze-dried food NOW, I would also suggest purchasing your clothing and outdoor apparel, some survival gear, survival supplies and even an emergency kit. You just never know what’s going to happen! A peace of mind is synonymous with emergency preparedness! Good luck.
the author is misrepresenting the us monetary system. the fed is not monetizing the debt. when it purchases bonds it never does so directly from the government. It’s buying from the public mostly banks. the fed buys and sells bonds to influence the interest rate. the government spends first by issuing reserves and the fed/treasuy remove reserves buy selling bonds. it is just interest rate maintenance. if the government stopped issuing debt it would not impact the governments ability to spend. the interest rate would fall to zero. it is in no way shape or form a financing operation. on the first day of government how could you collect a tax a dollar of your own issue if you did not issue it first? think about what is really happening here. spending does come first. either politicians are not smart or they are hiding this from us. if people knew how it really worked they would demand more change. if we areall convinced were broke they can take away our entitlemnts and sell them to us for profit(wall st,health and insurance industries. these are parasites)