tagged w/ Inflation
There is more than one way to rob and fleece savers.
EUROPE’S leaders have once again managed to make a drama into a crisis by, at least at first, agreeing to a 6.75% levy on insured Cypriot depositors as the price of a bail-out. The plan to rescue Cyprus has quickly turned into another botched job.
An overnight raid on savings is a shock. But savers in other developed countries have also seen a hit to their purchasing power in the form of negative real interest rates, a type of financial repression. The clever thing about this approach is that it erodes the purchasing power of savers’ capital slowly but steadily, rather than dramatically, and thus tends not to provoke much protest.
Americans who invested in six-month bank certificates of deposit earned 3.2% between 2009 and 2012, before tax, whereas consumer prices rose by 6.6%. The financial-repression levy was therefore 3.2%.
In Britain even savers who put cash in the best tax-free “individual savings accounts” (which have modest annual limits) would have earned a cumulative 11% between 2009 and 2012, during which time consumer prices rose by 13.4%. Outside that tax shelter, middle-class savers who pay a marginal tax rate of 40% would have earned a net return of 6.6%. In real terms, their savings would have declined by 6%, not far short of the original Cypriot deposit levy.
True, British and American savers have had the option of putting their money in the stockmarket (which has rebounded since 2009) or into property. But most people like to keep their rainy-day money in a savings account. And many investors are highly suspicious of the stockmarket, which has suffered two big bear markets this century, and of property, which took a hit in 2007 and 2008.
You could also make the case (although best not to try it in a bar in Nicosia) that Cypriot savers could have taken evasive action. The problems of the Cypriot banks have been known for a long time, and a deposit guarantee is only as good as its guarantor: the Cypriot state needs foreign help to make good on its pledge. If British or American savers were supposed to be far-sighted enough to switch money into the stockmarket, prescient Cypriots should have bought German shares, or gold, or simply stuck their money under the mattress. All those approaches would have avoided any levy.
In the developed world total debt (including that of the financial sector, consumers and companies, as well as governments) is so high that it is implausible that it can be repaid via the fruits of economic growth. The debt must either be written off (defaulted on) or slowly inflated away. That means inflicting pain on someone: sorting out the crisis has been so difficult because no one wants to take the hit.
The Cypriot deal is a very clumsy attempt at a write-off. Your humble deposits are banks’ debts. So taking the deposits and using the proceeds to recapitalise the banks is a roundabout way of defaulting. But any form of outright default creates the potential for contagion.
Because it is more subtle, financial repression is more successful. It was the way that many countries reduced their debt burdens after the second world war. It takes advantage of the phenomenon of money illusion: people get confused between nominal and real numbers.
The danger is that savers will eventually get wise to the erosion of their spending power. In the post-war era capital controls stopped them from moving their money abroad. Now there are no such controls, but with most developed countries having the same rock-bottom interest rates, there is little incentive to shift.
Will savers instead indulge in a portfolio switch, putting more of their money into risky assets? Or will they regard saving as a waste of time and help the economy by going on a spending spree? The evidence from the 1970s—the last prolonged period of negative real rates—is “no” on both counts. Britons ended the decade with more of their savings in deposits (40%, compared with 33% in 1969) and increased their savings rate relative to the 1960s, when inflation was lower and real rates were positive.
There are two plausible explanations. Perhaps savers have some ideal figure for a nest-egg in mind, and step up their savings if they are eroded by inflation. That, however, would suggest they are immune to money illusion....
http://www.economist.com/news/finance-and-economics/21574041-there-more-one-way-savers-lose-out-financial-repression-levyThere is more than one way to rob and fleece savers. EUROPE’S leaders have... more
Mike Maloney covers the history of money and talks inflation, gold, silver, sound money and more.
http://youtu.be/DyV0OfU3-FUMike Maloney covers the history of money and talks inflation, gold, silver, sound... more
The University of Michigan consumer sentiment index for January was preliminarily reported to have declined to 71.3 from a final December reading of 72.9 http://bit.ly/WyMPCtThe University of Michigan consumer sentiment index for January was preliminarily... more
On Friday I wrote that a fiscal cliff deal that would appeal to enough GOP House and Senate legislators to provide a winning margin, particularly in the House, would invite a flanking movement from the left. 1 That may indeed be brewing. Today’s reports2 portray Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell at impasse over both the $250,000 income ceiling for maintaining the Bush era tax rates, and the proposal sought by all Republicans and some Democrats (including the President) to use a new inflation indexing equation when adjusting social security benefits and tax rate income levels, the so-called Chained CPI. Dylan Matthews at the Times perfectly summed up its real attraction to our punch drunk pols this . . .
http://latestbloomer.uskoa.com/fiscal-cliff-countdown-unchain-us-senator-reid-from-chained-cpi/On Friday I wrote that a fiscal cliff deal that would appeal to enough GOP House and... more
Chicago Fed National Activity Index (CFNAI) consistent with weak recovery and no sustained inflation accelerationBased on the 3-month average of the index, a sustained reading of above +0.20 that follows a period of recession has historically signaled the end of the recession. A sustained reading of greater than +0.70 more than two years into an expansion has signaled an increasing likelihood of a sustained acceleration in inflation. A sustained reading of less than -0.70 following a period of economic expansion is indicative that a recession has begun. The current signal is..... http://bit.ly/V16B9oBased on the 3-month average of the index, a sustained reading of above +0.20 that... more
Lies, Dsamned Lies, RomLies
http://mytinyspot.blogspot.com/2012/10/debate-autopsy-seven-romney-lies-in-his.html#axzz277NLPFg6Lies, Dsamned Lies, RomLies... more
Sounds like a trick to me but you decide for yourself.
Another haywire week on Planet Earth in 1973.
Did you know that if you kept all your savings in silver and then purchased goods and services today, that prices have actually deflated over the past several decades? But if you’ve used dollars over this same time period the prices of goods and services have actually gone up. Confused?
http://youtu.be/bYsYMsB29ywDid you know that if you kept all your savings in silver and then purchased goods and... more
(FOX19) - There is so much talk right now about gas prices.
Who's at fault? Is it President Obama for not drilling enough? Is it OPEC for price fixing? Could it be greedy oil companies?
There are many reasons being floated as to why gas prices are so high but there is one that you aren't going to hear from most media and it is tied directly to the value of the dollar in your pocket.
Ben has the Reality Check.
Copyright 2012 WXIX. All Rights Reserved.
http://www.fox19.com/story/17051124/reality-check-the-fiat-dollar-is-the-real-reason-for-high-gas-prices(FOX19) - There is so much talk right now about gas prices. Who's at... more
The ISM Prices Index registered 61.5 percent in February, 6 percentage points higher than the 55.5 percent reported in January. This is the second consecutive month this index has reflected an increase in the price of raw materials.
Notice the percent of industries reporting higher prices is steadily climbing, while the percent reporting lower prices is declining dramatically.
Prices %Higher %Same %Lower Net Index
Feb 2012 31 61 8 +23 61.5
Jan 2012 30 51 19 +11 55.5
Dec 2011 21 53 26 -5 47.5
Nov 2011 19 52 29 -10 45.0
Thirteen industries report paying increased prices during the month of February in the following order:
Nonmetallic Mineral Products;
Fabricated Metal Products;
Plastics & Rubber Products;
Primary Metals; Machinery;
Printing & Related Support Activities;
Furniture & Related Products;
Electrical Equipment, Appliances & Components;
Computer & Electronic Products;
Food, Beverage & Tobacco Products.
The only industry reporting paying lower prices on average during the month of February is Paper Products.
As far as specific commodities, Commodities reported up in price were
Aluminum Products; Caustic Soda; Copper Products; Ethylene; Forgings; #2 Fuel Oil; HDPE Products; Plastic Resins; Polypropylene; Propylene; Stainless Steel; Steel ; Steel Bar; Steel — Cold Rolled; Steel — Hot Rolled; Scrap Metal; and Titanium Dioxide.
Commodities Down in Price
Natural Gas is the only commodity reported down in price
The Manufacturing ISM Report On Business® is based on data compiled from purchasing and supply executives nationwide. Membership of the Manufacturing Business Survey Committee is diversified by NAICS, based on each industry's contribution to gross domestic product (GDP). Manufacturing Business Survey Committee responses are divided into the following NAICS code categories: Food, Beverage & Tobacco Products; Textile Mills; Apparel, Leather & Allied Products; Wood Products; Paper Products; Printing & Related Support Activities; Petroleum & Coal Products; Chemical Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Primary Metals; Fabricated Metal Products; Machinery; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Transportation Equipment; Furniture & Related Products; and Miscellaneous Manufacturing (products such as medical equipment and supplies, jewelry, sporting goods, toys and office supplies).
http://www.economicpolicyjournal.com/2012/03/serious-evidence-of-developing-price.html?m=0The ISM Prices Index registered 61.5 percent in February, 6 percentage points higher... more
Rep Ron Paul, one of four remaining GOP candidates seeking the nomination for president, returned to Capitol Hill this morning to attend a hearing with one of his chief rivals – the chairman of the Federal Reserve, Ben Bernanke.
Paul, a passionate critic of the Fed who has made its demise a cornerstone of his campaign, was recognized by the chairman of the committee, Rep. Spencer Bachus, as Bernanke’s “thorn in your flesh.”
“I guess over the last 30 or 40 years I have criticized the Fed on occasion,” Paul, R-Texas, admitted as he began his opening remarks. “But the Congress deserves some criticism too. The Federal Reserve is a creature of the Congress.”
The 12-term Republican said that the financial crisis is a sign of the “end stages of a grand experiment” on currency that derives its value from government regulation or law. Instead, Paul once again made the case for returning to the gold and silver standard.
“They’ve been debating currencies for hundreds if not thousands of years and they always end badly, they always return to market-based money, which is commodity money – gold and silver,” Paul said. “People keep arguing from the other side of this argument that [the Fed] is working, it’s doing well, and yet from my viewpoint and the viewpoint of the free market economists, all it is doing is building a bigger and bigger bubble.”
Paul said that the Federal Reserve has “a responsibility to protect the value of the dollar” but without a consensus on the “definition of a dollar,” the dollar’s value cannot be sustained.
“Every single day it buys less the next day. To me it’s sort of like…a builder had a yardstick that changed its value every single day. I mean, just think of the kind of building we would have,” he wondered. “We have a debt-based system. The more debt we have, and the more debt the Federal Reserve buys, the more currency they can print, and they monetize this debt. And no wonder we’re in a debt crisis.”
Paul predicted that eventually the market will vindicate his position.
“I am betting that the market is smarter, commodity money is smarter,” he told Bernanke. “Nobody is smart enough to have central economic planning.”
Bernanke was invited to testify at the House Financial Services committee hearing today to discuss the Federal Reserve’s semiannual monetary policy report, which he presented to Congress today.
The Tea Party favorite and Fed chairman enjoyed a lengthy exchange about inflation, which Paul said is aggravated by the Fed when it increases the money supply.
http://www.youtube.com/watch?v=H4uL6CSiGrURep Ron Paul, one of four remaining GOP candidates seeking the nomination for... more
I have been comparing the U.S. Dollar to monopoly for years now. However, I have been doing Monopoly Money an injustice because it has actually skyrocketed against the U.S. Dollar in the past 75 years!
https://www.youtube.com/watch?v=ofIEGVLBoP0Seriously I have been comparing the U.S. Dollar to monopoly for years now. However,... more
I have always been dead set against the federal reserve. I think the cartel should be completely abolished. Today. The banks that make up the federal reserve have done nothing but take the wealth of the nation and used it to destroy the lives of millions of people around the world and their day has come. We need to go back to the days of the "greenback" of Lincolns day and send the federal reserve packing.
That's where this gets really weird. On a whim I Googled "glenn beck federal reserve" and I found this video where Glenn Beck came out with the facts about the fed. I can't believe Faux News let this go out on the air.
I really hate Glenn Beck and his general agenda but he hit the nail on the head with this. I'm still wondering why he did this and how it actually got on the air with the Murdoch family running the show.
http://www.youtube.com/watch?v=eChJd9DobbwI have always been dead set against the federal reserve. I think the cartel should be... more
Some things never change - never ever.
How do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of Economic Analysis (BEA) uses its own GDP deflator for this purpose, which is somewhat different from the BEA's deflator for Personal Consumption Expenditures and quite a bit different from the better-known Bureau of Labor Statistics' inflation gauge, the Consumer Price Index.
Now that we have the second update on Q2 GDP, I've updated my charts showing quarterly Real GDP since 1960 with the official and three variant adjustment techniques. The first chart is the official series as calculated by the BEA with the GDP deflator. The second starts with nominal GDP and adjusts using the PCE Deflator, which is also a product of the BEA. The third adjusts nominal GDP with the BLS (Bureau of Labor Statistics) Consumer Price Index for Urban Consumers (CPI-U, or as I prefer, just CPI).
As we might expect, the two deflators from the BEA produce similar results. The average (arithmetic mean) Real GDP for the first and second charts is the 3.1%. But note the variation from quarter-to-quarter and especially the weaker GDP since the end of the Great Recession in the PCE-adjusted version.
The CPI comes from a different government agency, the Bureau of Labor Statistics, and is calculated quite differently. As an inflation measure, it is much better known than the GDP and PCE deflators, and its growth rate has been higher than the two BEA metrics (see this illustration). If we use CPI as the deflator to compute Real GDP, we see series with a significantly lower mean, higher volatility, and Q2 Real GDP at a stunningly negative -3.4%.......
For more charting, continue at:
http://advisorperspectives.com/dshort/updates/GDP-Deflators.phpHow do you get from Nominal GDP to Real GDP? You subtract inflation. The Bureau of... more
Starvation! Working or not-inflation-recession... calls for a sacred moment with Jesus Christ. Exclusive gospel channel: http://tinyurl.com/exclusive-gospel-channelStarvation! Working or not-inflation-recession... calls for a sacred moment with Jesus... more
In lieu of sanity - this day in history from 1978.