Breakfast inflation

One of the least discussed and at the same time most important aspects of this economic crisis is the discrepancy between official inflation measures used by the FED, the Consumer Price Index( CPI) and, specially, Personal Consumer Expenditures (PCE), and the real inflation experienced by real people. One example of this last real inflation is the cost of a breakfast as measured by the Breakfast Beverage Index, that is at its highest level in 2 years. If you want to learn more about how inflation is mismeasured and misrepresented in the USA, visit Shadowstats.

Source: Bloomberg

TYReads “One hundred years is long enough. End the Fed”

On the 100th anniversary of the creation of the Federal Reserve (FED), designed in secrecy by a group of Wall Street bankers and voted into existence by the American Congress on december 23 1913, Ron Paul publishes this article arguing that its creators have succeeded beyond their wildest dreams, and that the FED has taken total control of the american economy, and not for the good.

To illustrate Ron Paul’s message we include 2 charts. In the first one we can see the loss in purchasing power of the US Dollar from around 1900 until today. In the second one we can see the percentage silver content in the Roman Denarius from around 180 AD to 280 AD, after the government of the Antonines, when Rome went into rapid decline.

devaluation_dollar1

devaluation_denarius

The article:

After 100 Years Of Failure, It’s Time To End The Fed!

A week from now, the Federal Reserve System will celebrate the 100th anniversary of its founding. Resulting from secret negotiations between bankers and politicians at Jekyll Island, the Fed’s creation established a banking cartel and a board of government overseers that has grown ever stronger through the years. One would think this anniversary would elicit some sort of public recognition of the Fed’s growth from a quasi-agent of the Treasury Department intended to provide an elastic currency, to a de facto independent institution that has taken complete control of the economy through its central monetary planning. But just like the Fed’s creation, its 100th anniversary may come and go with only a few passing mentions.

Like many other horrible and unconstitutional pieces of legislation, the bill which created the Fed, the Federal Reserve Act, was passed under great pressure on December 23, 1913, in the waning moments before Congress recessed for Christmas with many Members already absent from those final votes. This underhanded method of pressuring Congress with such a deadline to pass the Federal Reserve Act would provide a foreshadowing of the Fed’s insidious effects on the US economy—with actions performed without transparency.

Ostensibly formed with the goal of preventing financial crises such as the Panic of 1907, the Fed has become increasingly powerful over the years. Rather than preventing financial crises, however, the Fed has constantly caused new ones. Barely a few years after its inception, the Fed’s inflationary monetary policy to help fund World War I led to the Depression of 1920. After the economy bounced back from that episode, a further injection of easy money and credit by the Fed led to the Roaring Twenties and to the Great Depression, the worst economic crisis in American history.

But even though the Fed continued to make the same mistakes over and over again, no one in Washington ever questioned the wisdom of having a central bank. Instead, after each episode the Fed was given more and more power over the economy. Even though the Fed had brought about the stagflation of the 1970s, Congress decided to formally task the Federal Reserve in 1978 with maintaining full employment and stable prices, combined with constantly adding horrendously harmful regulations. Talk about putting the inmates in charge of the asylum!

Now we are reaping the noxious effects of a century of loose monetary policy, as our economy remains mired in mediocrity and utterly dependent on a stream of easy money from the central bank. A century ago, politicians failed to understand that the financial panics of the 19th century were caused by collusion between government and the banking sector. The government’s growing monopoly on money creation, high barriers to entry into banking to protect politically favored incumbents, and favored treatment for government debt combined to create a rickety, panic-prone banking system. Had legislators known then what we know now, we could hope that they never would have established the Federal Reserve System.

Today, however, we do know better. We know that the Federal Reserve continues to strengthen the collusion between banks and politicians. We know that the Fed’s inflationary monetary policy continues to reap profits for Wall Street while impoverishing Main Street. And we know that the current monetary regime is teetering on a precipice. One hundred years is long enough. End the Fed.

TYR watches “Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence”

Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence @ Peak Prosperity

Chris Martenson interviews Jim Rogersan American investor and author. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI). In the interview Jim Rogers draws attention on this unique moment in financial history where most central banks engage in “money printing”, wiping out the western world’s saving class, and creating the foundations for a potentially devastating future.

“For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don’t know.”

“Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.”

“In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.”

Bernanke & Hockey Stick Inflation

Yesterday, in his biannual testimony to the USA Congress, the president of the Federal Reserve, Ben Bernanke, asserted that inflation under his and Mr. Greenspan’s mandate was no more than 2% a year. While this might be “true” using Bureau of Labor Statistics (BLS) data, please check ShadowStats for a true picture of inflation in the USA. Even using BLS data, it is very informative to check a chart of inflation of the USA from 1775 until 2012. Please note 2 dates: the creation of the Federal Reserve in 1913 and the decoupling of the US Dollar from gold under the Nixon administration in 1971.

Inflation under 2% per year? Look again

InflationChart

24 January 2013 TYR reads: Apparitions in the Fog

Apparitions in the Fog @ The Burning Platform In this apocalyptic article, Jim Quinn exposes the foundations of the present economic “system”. With the assistance of a series of charts, it is convincingly argued that: the economic recovery is a mirage, that the middle class is being destroyed in the USA, and by extension in the western world, and that a bigger crisis, not only economic but social also, is unavoidable. From this, he draws apocalyptic conclusions that might or might not come to happen. Actually, one could think of apocalyptic scenarios quite different from Quinn’s. Think “1984” squared. If you concentrate on the charts and what they mean though, you’ll not go wrong as to the nature of the present economic and social situation. Some excerpts and many charts:

“Real GDP, using a dramatically understated inflation rate, has barely grown by 1% in 2012. Using a true measure of inflation, the GDP was -2% during 2012.”

“The number of people who have left the workforce since last December (2.2 million) almost matched the number of newly employed (2.4 million), as the labor participation rate has collapsed to a three decade low of 63.6%. The propagandists attempt to peddle this dreadful condition as a function of Baby Boomers retiring. This is obliterated by the fact the 55 to 69 age bracket has added 4 million jobs since Obama became president, while the younger age brackets have lost 3 million jobs. The working age population has grown by 13 million since 2007 and there are 4 million less people employed.”

“Another 1.5 million Americans were forced onto food stamps during 2012, bringing the total increase to 17 million since Obama assumed office.”

“Real average hourly earnings were flat in 2012, and have fallen 1.5% since Obama became president. The average middle class worker is making less than they were forty years ago.”

Jan2_Real Wages

“The reason Bernanke, Geithner, Obama, Wall Street, corporate titans, and media pundits focus their attention on the stock market is because they are looking out for their fellow 1%ers. The working middle class, once the backbone of this country, own virtually no stocks.”

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“The storyline of austerity and deleveraging perpetuated through the mainstream media mouthpieces is unequivocally false, as consumer debt has reached an all-time high of $2.77 trillion, driven by a surge in subprime auto loans and subprime student loans.”

The enslavement of our children in student loan debt and handing them the bill for $200 trillion of unfunded entitlement liabilities will be the spark that ignites the worst part of this Crisis.

Student Loan Projections

“Those in power realized very quickly that without continued credit growth, their entire corrupt, repugnant, fiat currency based debt system would implode and they would lose all of their fraudulently acquired wealth. That is why total credit market debt is at an all-time high of $56 trillion, and 350% of GDP. The National Debt of $16.5 trillion is now 103% of GDP, well beyond the Rogoff & Reinhart level of 90% that always leads to economic crisis and turmoil.”

“A critical thinking human being (this rules out 95% of the adult population) might question how corporate profits could surpass pre-collapse levels when the economy has remained stagnant.”

“Shockingly, the entire profit surge was driven by Wall Street.”

Make nominal spending the new target? We hope not.

In the January 2 2013 edition of the Financial Times Mr. Scott Summer, economics professor at Bentley University, publishes an article titled Make nominal spending the new target, where he argues for the revolutionary, and increasingly MSM-pushed idea of making Nominal GDP Targeting (NGDPT) the official policy of central banks in most western countries. This policy was already hinted last December at a conference in Toronto by the present governor of the Bank of Canada (BoC), and future governor of the Bank of England (BoE), Mark Carney.

This in an article fraught with ideas that, if implemented, will permanently transform the nature of western economies and pave the way for structurally high inflation, potential hyperinflation, economic misallocation of resources, moral hazard (savers, wage earners and pensioners being punished), and general impoverishment of the population except for the few taking advantage of it thru their access to cheap financing: financial institutions and überwealthy individuals.

Mr. Scott Summer states: “Once a central bank sets an inflation target, they have essentially set a path for aggregate demand. In that case, what possible role can there be for fiscal stimulus? But as the past few years have shown, stimulus advocates and opponents are as vociferous as ever. And despite a widespread perception that most developed economies would benefit from more demand, central bankers seem unwilling or unable to deliver that growth.”

TYR states: This paragraph foreshadows the huge amounts of half-truths and outright lies that conform the article. It sets the stage for the assertion that a central bank’s main role is to foster “demand”, foster growth. This has never been the role assigned to monetary policy, whose main aim is, and should be, to preserve the purchasing value of the currency, that is , to keep inflation low. By positing that central banks should aim at fostering demand, the author conveniently ignores the fact that nominal GDP growth comes at the expense of inflation, that by debasing the currency in order to reach a theoretical NGDP target, no real growth is achieved, only the appearance of it, since that growth is basically inflation. This has been well-known since roman emperors clipped their silver coins. A not so obvious harm that such a policy would cause is a further misallocation of resources in the economy. By artificially fostering some sectors of the economy that depend on cheap financing (finance, housing) thru monetary policy, the same misallocation that was an important cause of the 2008 crisis is being perpetuated.

Mr. Scott Summer states: “Inflation targeting failed in two ways. First, it was a poor indicator of the adequacy of aggregate demand. Second, it is susceptible to “liquidity traps”, a period of near zero interest rates where central banks’ favourite tool – interest rate targeting – is rendered ineffective”.

TYR states: Inflation targeting was never intended to be an indicator of aggregate demand, but a (bad) tool to control inflation, the main aim of the guardians of the currency, central banks. Liquidity traps, a Keynesian and non-scientific term, is not caused by inflation targeting, but by debt overhangs, resulting in crisis, like the one in 2008, originated in  previous monetary laxity, precisely what the author recommends as future policy.

Mr. Scott Summer states: “This problem occurs because when the economy is very weak, even a 2 per cent inflation target might not be high enough to generate the sort of bullish expectations needed to stimulate demand. There’s already plenty of money in the system – we need higher spending growth expectations to push that money into circulation.”

TYR states: The author ignores the reasons behind the weakness in the economy, too much debt and misallocation of resources in the economy with some sectors overrepresented, housing and finance.

Mr. Scott Summer states: “Mark Carney’s speech on December 11 in Toronto demonstrated the growing interest in replacing inflation targeting with nominal gross domestic product level targeting, even among central bankers. The central bank would set a growth path for nominal GDP of perhaps 4 per cent or 5 per cent per year, and commit to return to that trend line when spending falls short or overshoots. Nominal GDP targeting would moderate the business cycle by being more contractionary than inflation targeting during a boom and more expansionary during a recession. And NGDP could do this while still delivering roughly the same long-run rate of inflation.”

TYR states: It is a huge mistake to assume that there is a “natural” nominal GDP growth rate, where is the scientific proof for this assumption? For centuries, GDP growth was very low, until the First Industrial Revolution speeded it up. What does that have to do with monetary policy? GDP growth depends basically on population growth and productivity, and productivity depends on availability of resources, capital and technological innovation, none of which are by any means affected by monetary policy.

Mr. Scott Summer states: “And there are many other advantages. If investors had known in 2008 that any declines in NGDP would be quickly made up, then asset prices would have fallen much less sharply, and demand would also have been more stable. The current prices of stocks, commodities and property are strongly influenced by their expected prices several years out. The severe asset price decline of late 2008 reflected the belief that central banks would fail to take decisive action to restore NGDP to the trend line.”

TYR states: Do we have to conclude that the inflated asset prices of 2008 should have been allowed to remain inflated for the sake of mantaining an arbitrarily determined nominal GDP level? In what way is this different from a centrally planned, fascist-soviet economy? What role does the cleansing mechanishm of failure have under such an economic system? This is certainly not capitalism.

Mr. Scott Summer states: “Some fear that inflation will become unanchored if we move to NGDP targeting. In fact, most of the problems that people associate with inflation are more closely linked to high and unstable NGDP growth. Wages tend to follow growth in national income. As long as NGDP growth is low and stable, wages and core inflation will remain well anchored.”

TYR states: Wages do not necessarily follow growth in national income. This has not been the fact in the last 40 years where wages have reduced their share as a percentage of GDP from 53% to 44%. It is corporate profits that have benefited the most from the covert inflation we’ve had since the USA dollar was unlinked from gold in 1971. But even if the author was right in this assumption, assume for example that we have a NGDP growth rate of 5%, an inflation rate of 5% and a wage growth of 5%…do we have any real GDP or income growth at all? No.

Mr. Scott Summer states: “A stable path for NGDP growth will also produce better policy decisions in other areas. Fiscal spending will have to be justified on a cost-benefit basis, once it is no longer expected to boost nominal demand. The cost of bailing out failed companies will be more transparent, as it will be obvious that more jobs in the rescued company are offset by fewer jobs elsewhere. Those claiming that Chinese exports cost jobs will have to provide a mechanism other than “less demand”, and won’t be able to do so. And, most importantly, countries will be able to address the public debt problem, as they should, without fear that austerity will cost jobs.”

TYR states: Here the author assumes that failed companies will be bailed out (moral hazard and misallocation of resources again) and that there will be fiscal prudence just because some mumbo-jumbo cost benefit analysis will conclude that any further spending does not contribute to nominal GDP growth. Central planning, covert economic fascism again. Finally, the author seems to assume that by central banks financing government deficits “countries will be able to address the public debt problem, as they should, without fear that austerity will cost jobs.”. Does anybody believe that by making deficits immune to their collateral negative effects, increase in interest rates and the associated recession, government deficits will be tackled?

Make nominal spending the new target? We hope not.

TYR 20 December 2012 reads

Why Reported Inflation Seems Different Than Reality @ StreetTalkLive In this article Lance Roberts explains clearly how and why reported inflation understates real inflation, by a wide margin, and how this is one of the main factors contributing to the ongoing reduction in the standard of living in America.

Amazing Chi Energy “Iron Shirt” Demonstrations @ Washington’s Blog yes, amazing.

 

TYR 4 December 2012 reads

Still Not Spreading the Wealth Around @ Azizonomics This article compares the evolution of the percentages of GDP that both wages and corporate profits have had in the USA from the 1940s until 2012. Data shows that corporate profits have never been higher, around 11% of GDP, and wages have never been lower, around 43.5% of GDP. This trend has accelerated since 2008, because of the extreme and biased policies of the FED and the Federal Government, bailing out banks and corporations and, at the same time, forcing inflation and lower wages to the population. The article ends: “And the growing gap between the rich and the poor is steadily beginning to resemble neofeudalism.

Lighthouse Investment On The ‘N’-Word In Monetary Policy @ Zerohedge Zerohedge publishes and comments a report from Lighthouse Investment on the likely next inflationary tool from the FED: Nominal GDP Targeting (NGDPT). The report, titled “Monetary Policy: the N-Word”, clearly explains how potential GDP (PGDP) is calculated and how the FED will use this concept to “sell” to the public the “reasonableness” of NGDPT. The trick lies in assuming that PGDP is invariant thru time (false assumption) and that, if real GDP (RGDP) is lower than PGDP, then it is reasonable, warranted, to “stimulate” the economy until NGDP = PGDP, conveniently forgetting that NGDP includes an inflation component (NGDP = RGDP + Inflation). How is that achieved? Through printing money, of course. The endgame of such a policy is hyperinflation and the replacement of the currency. This replacement, Lighthouse Investment assumes, would be Gold.

TYR 19 November 2012 reads

Global Shadow Banking System Rises To $67 Trillion, Just Shy Of 100% Of Global GDP @ Zerohedge In case you assumed that 4 years after the onset of the present global financial crisis risks are at least gradually decreasing, please look again. The Financial Stability Board (FSB) in its latest report on the Shadow Banking System (SBS) has increased the global estimate for the size of the SBS by some $5 to 6 trillion in aggregate, bringing the 2011 estimate from $60 trillion with last year’s narrow coverage to $67 trillion, virtually the same as global GDP of $70 trillion at the end of 2011.

The Three “Financial Structure” Paradigms Of Modern Finance @ Zerohedge Please note how the second, “massive shadow banking system financing”, and third, “Central Bank finance based system”, paradigms are gradually displacing the traditional first paradigm, “conventional banking deposits as the main financing source”. As Zerohedge remarks…”the coordinated central bank cartel becomes the one and only source of money. And not just any money, but the definition of ‘Gresham Law’ money, as creeping central planning and ubiquitous monetization, means very soon only central banks will be the source of any incremental leverage, while all ‘good credit’ is slowly but surely driven out of the system”….”It is this third paradigm that is the preamble to the final collapse, because just before the endgame, it will be every central bank against everyone else, and against itself, whereby the only way to get ahead is to destroy your own currency of exchange as fast as possible, at first on a relative basis, by devaluing against all other currencies in a closed loop, then on an absolute, by devaluing against hard assets.”

“….this is nothing less than legalized plunder of the american people”

“The Fed’s sole purpose: keeping the banks afloat” – G. Edward Griffin @ Casey Research says Casey Summit speaker G. Edward Griffin, author of The Creature from Jekyll IslandHe talks about the Fed’s real role in the US economy and why – contrary to common belief – it is not this banking cartel’s mission to act in the best interest of the American public.

The origin of the FED can be traced to the early years of the 20th century. After the failure of the, first and then second, Bank of the United States, the banking cartel managed to get Woodrow Wilson’s agreement, allegedly in exchange for financial support for his presidential campaign of 1912,  for a bill that would lead to the formation of a central bank for the United States.

“In 1910, a secret meeting took place on the Morgan estate on Jekyll Island, Georgia. Aldrich met with representatives of prominent banking firms. Such men included Henry Davison (senior partner of J.P. Morgan Company), Frank Vandelip (President of the National Bank of New York associated with the Rockefellers), Charles D. Norton (president of the Morgan-dominated of First National Bank of New York), Benjamin Strong (representing J.P. Morgan), and the primary architect of the Act, Paul Warburg (representing Kuhn, Loeb & Co.)”

“Over a period of ten days they drafted the Federal Reserve Act that was voted on in Congress on Monday 22 December 1913….It passed through the Senate the following morning and Woodrow Wilson signed the bill into law later that same day at 6:02 pm. This Act transferred control of the money supply of the United States from Congress as defined in the U.S. Constitution to the private banking elite.”

“The deceptive terminology of the name was carefully chosen because the American public did not want a central bank similar to those in Europe. The Federal Reserve is not a federal governmental entity nor is it a reserve, such as a governmental treasury, backing up its currency. The Federal Reserve is a legalized cartel of the money supply owned by private national banks, operating for the benefit of the few under the guise of protecting and promoting public interests.”

“The meeting on Jekyll Island remained unknown to the public until Forbes magazine founder Bertie Charles Forbes wrote an article about it in 1916, three years after the Federal Reserve Act was passed.”