Retail Sales: The Next Chapter of the Financial Crisis

It was a good effort…but “federal debt held by the public would double under the President’s budget,” says the Congressional Budget Office (CBO).

While we were exploring gold storage, junior miners and asset protection in Zurich, the CBO did some heavy lifting on the budget proposal advanced by Mr. Obama on Wednesday.

Even as the president promises to raise taxes, protect consumers and cut spending, the CBO shows the federal portion of the national debt held by the public growing from $10.4 trillion (69% of GDP) at the end of 2011 to $20.8 trillion (87% of GDP) at the end of 2021…adding $9.5 trillion to the nation’s debt in nine years.

“Even if the president could persuade Congress to enact all of his proposed tax increases,” Alan Reynolds from the Cato Institute adds, “in addition to surtaxes already included in [the health care reform bill], the CBO finds we would still face endless budget deficits averaging 4.8% of GDP…”

What kind of solution, we humbly ask, is that?

“We are in a financial no-man’s land,” muses our friend Doug Casey, surveying the landscape. “‘Investing’ is problematic because of a deteriorating economy, unpredictable and increasing regulation, rising interest rates and wildly fluctuating prices.

“Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains.

“Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.

“The next chapter in this sad drama will include a rapid rise in consumer prices. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything.

“Retail prices are generally the last to move,” Doug sums up, citing a couple of themes we’ve been keeping our eyes on, “partly because the labor market will remain soft and keep that component down, and partly because retailers cut their margins to retain customers and market share.”

Retail may, indeed, be moving now. This morning, the Bureau of Labor Statistics (BLS) announced the consumer price index rose 0.5% last month.

The “core” rate that strips out food and energy – the one the Federal Reserve watches to determine whether we have any “inflation” – was a tame at 0.1%. But look these annualized rates of change:

What Doesn't Factor Into Core CPI

The first column of numbers is for the six months ended last September. The second column is for the most recent six months.

Over the last 12 months, the CPI has risen 2.7%, according to the BLS. John Williams at Shadow Government Statistics, who crunches the numbers the way the government did during the Carter presidency, comes up with a slightly higher figure of 10.2%.

“It’s Atlas Shrugged time,” Doug Casey chimes back in…and by that he doesn’t mean tonight’s release of the movie based on the novel.

“Few large fortunes have been made by investing. Most are made by creating, building and running a business. But running an active business is increasingly problematical.

“Sure, there will be plenty of people out there to hire – but in today’s litigious and regulated environment, an employee is a large potential liability as much as a current asset.

“Business itself is seen as a convenient milk cow by bankrupt governments – and it’s much easier to tap small business than taxpayers at large. Unless it’s a special situation, I’d be inclined to sell a business, take the money, and run.” Atlas Shrugged, indeed.

Addison Wiggin
for The Daily Reckoning