12/17/10 Baltimore, Maryland – Here’s the latest report from Bloomberg:
Industrial production in the US increased more than forecast in November and consumer prices slowed, indicating the recovery is gaining momentum without generating inflation.
Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, after a revised 0.2 percent drop in October, a Federal Reserve report showed today in Washington. The consumer-price index climbed 0.1 percent in November after a 0.2 percent gain the prior month, the Labor Department said.
Assembly lines are speeding up as business investment and exports grow and consumer spending accelerates, helping to buoy an expansion that Fed policy makers said yesterday isn’t strong enough to reduce a jobless rate hovering near 10 percent. Price increases that are below central bankers’ goal will boost the case to maintain the Fed’s purchases of $600 billion in securities through June to spur growth.
Fed Chairman Ben S. Bernanke “is unlikely to withdraw accommodation until he sees a clear upward turning point in core inflation and a downward turn in unemployment.”
Hold on.
Are you telling us that after the Fed increases the core money supply by 300%…and says it is going to up it another 100%…consumer prices are still flat?
Yes? Hmmm…
And are you saying that slowing consumer price increases show that the “recovery is gaining momentum?”
Are you kidding?
Oh, dear reader… What claptrap! What nonsense! What balderdash!
The feds make the biggest stimulus effort in history. The Fed pumps $1.7 trillion into the banking system…with a promise of $600 billion more.
And consumer prices don’t even budge? What happened to the most fundamental laws of finance? Have they been suspended? Have we entered some perverse, parallel universe?
Or does this mean what we think it means…that the downward tug of the Great Correction is so strong it overwhelms all the feds’ efforts…the zero percent prime lending rate…the $700 billion stimulus bill…the $1.3 billion federal deficit…QE I, QE II…
That’s no success story. That’s a disaster.
Of course, all this money has to go somewhere. And there’s no mystery about where it has gone. Commodities are hitting new highs. Oil seems headed back to $100 a barrel. Gold was over $1,400 an ounce.
Even US stocks are up about 25% this year.
As predicted, the feds’ easy money has gone into speculative assets…not into the real economy. That’s why one out of 10 people in the workforce is officially unemployed…and why, unofficially, it’s probably more like one out of every 5.
And it’s why consumer prices are NOT rising. Imagine what would happen if this were a real recovery? Imagine that the Fed increased the core money supply by 4 times. Imagine what would happen to consumer prices!
Poor Ben Bernanke must be tired of imagining. He will keep printing money – or so Bloomberg concludes – until he doesn’t have to imagine anymore. He’ll print until he reads about inflation in the paper!
But when will that be? How much wood pulp will Ben Bernanke have to chuck into the printer until consumer prices rise and unemployment falls?
We’ll find out!
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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Bill you say:
Of course, all this money has to go somewhere. And there’s no mystery about where it has gone. Commodities are hitting new highs.
Now Bill, that sounds reasonable… unless, that is, one thinks about it a bit
When someone buys oil or Gold or anything else, the money doesn’t “go” any place. It just gets transfered around. Agreed though it pushes up prices.
But it is interesting to think about the fact that in itself, creating money does not change the amount of resources or goods and services in the world. Rather it just tends to push up prices as you say. But again, the money does not “go” anywhere.
I honestly don’t know enough about how money is created and destroyed to say much. But I am pretty certain that if I buy Gold, the seller gets my money and so the money still exists.It’s not Gone.
Reckon on that Bill.
I realy like your articles! I am from The Netherlands and one of the few here that sees were the world economy is going to. People sometimes think I’m crazy when I show them the next housing problem in 2011 and other financial problems. The world is just looking at what the media is saying but have a suprice comming… Looking forward for your next article!
“…I honestly don’t know enough about how money is created and destroyed to say much.”
Q.E.D.
that’s pretty funny!
somebody blogging here and pretending, maybe, that mr. bonner, while walking on water, probably, hadn’t “[thought] about it a bit.”
…or reckoned well enuf to REALly undestand.
yup! that’s a good one!
YOUR WRITINGS ARE ALWAYS INTELIGENT, AND, INFORMATIVE. HOWEVER, REGARDING INFLATION, IT IS INSTRUCTIVE TO LOOK AT JAPAN, WHERE THE GOVERNMENT PURSUED A FISCAL POLICY SIMILAR TO THAT THE US GOVERNMENT IS NOW PURSUING.
PRICES OF FOOD, ENERGY AND OTHER NECESSITIES WENT UP DRAMTICALLY IN JAPAN DURING THE 1990′S, BUT, INTEREST RATES REMAINED NEAR ZERO, AND THE YEN REMAINED STRONG RELATIVE TO THE DOLLAR.
THE AMERICAN GOVERNMENT IS BETWEEN A ROCK AND A HARD PLACE. HAVING BAILED OUT THE REAL GOVERNMENT CONSISTING OF THE MONEY CENTER BANKS, AND MULTI- NATIONAL CORPORATIONS, THEY NOW CAN ONLY HOPE FOR A MIRACLE TO RESTART GROWTH.
IN THE 1990′S JAPAN REMAINED MIRED IN STAGNATION, WITH AN INCREASING DEFICIT. THE SIMPLE FACT IS, THIS IS AN ERA OF STAGNATION WHICH BEGAN AROUND 2000, AND, WILL PROBABLY END AROUND 2020. THE USA RECIPIENTS OF THE BAILOUT NO THIS, JUST AS THEIR COUTERPARTS IN 1990′S JAPAN.
THOSE BAILOUT RECIPIENTS ARE CONTENT TO HOLD ONTO THE MONEY THAT HAS MADE UP FOR THEIR LOSSES, AND, NOT RISK IT BY LENDING IN AN ERA WHERE CONTRACTION AND STAGNATION ARE THE NORM. THIS IS CONFIRMED BY THE FACTS YOU HAVE SO CORRECTLY STATED. THE BANKS ARE BUYING TRASURIES ON LEVERAGE, AND, SPECULATING IN COMMODITITES WITH THE BAILOUT MONEY. THIS WILL EXACERBATE, AND PROLONG THE CURRENT CONTRACTION, UNTIL, AS HAS ALWAYS BEEN THE CASE, THE ECONOMY FINALLY BOTTOMS OUT, AND STARTS TO SLOWLY EXPAND.
THE FUTURE BODES FOR LOWER STOCK AND COMMODITY PRICES OVER THE NEXT 5-10 YEARS WITH VIOLENT RALLIES INTERSPERSED BETWEEN TODAY’S PRICES, AND THE ULTIMATE LOWS WHICH LIE YEARS AHEAD.
RESPECTFULLY
BOBBY JOHNSON