Mish's Global Economic Trend Analysis |
- "Stand With Rand, Not Jeb"
- Inflation Targeting Revisited; Three Major Fed-Sponsored Bubbles; Who Benefits From Inflation?
- Sweden Officially in Deflation (As Measured by CPI)
- Expression of the Day: "Ducks are Fat at the Back"
- Obama's Promised Transparency: Where the Hell is It?
| Posted: 13 Mar 2013 03:47 PM PDT Jeb Bush is Back in the Spotlight this week with a new book, wall-to-wall television interviews, and a round of public speaking engagements. In regards to the 2016 election, Jeb Bush told MSNBC's Chuck Todd: "I'm not saying yes. I'm just not saying no." Unfortunately, that sounds too much like "yes" to me. I suggest, it's time to move on. The last election proves just that. Looking ahead ...
My context is different. I suggest Jeb should go back into hiding until he is ready to "Stand With Rand" for the 2016 election. This country seriously needs a change, not another Bush. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Inflation Targeting Revisited; Three Major Fed-Sponsored Bubbles; Who Benefits From Inflation? Posted: 13 Mar 2013 11:57 AM PDT A post on deflation in Sweden (which its central bank does not want) got me to thinking about inflation targeting once again. Sweden's central bank, the Riksbank, has an inflation target of "2 per cent as measured by CPI." Bernanke has a similar target, as do many central banks. The first major problem with inflation targeting is that increases in money supply and credit (the true measure of inflation) frequently appear in the form of asset bubbles, not consumer prices. Even if that were not the case, it's easy to show why 2% inflation targeting is a bad thing. Inflation Targeting at 2% a Year  click on any chart for sharper image Real Disposable Income  Real Disposable Income Per Capita  Real Disposable Income Per Capita Detail  As long as wages and income keep up with inflation targeting, and as long as asset bubbles do not form, central banks can get away with their highway robbery tactics. At some point however, asset bubbles do form and that's where big problems start. The Fed has sponsored three major bubbles in recent history. Three Major Fed-Sponsored Bubbles
In the wake of the dot-com bust, the Fed (via loose monetary policy) sponsored a housing and credit bubble that caused the global financial crisis. The Fed did not see the housing bubble partially because prices are not in the CPI, but primarily because Bernanke and Greenspan have the common sense of a rock. Following the housing/credit bubble bust, the Fed's "too big to fail" policy bailed out the banks at taxpayer expense. The Fed's subsequent QE to infinity policy created yet another major stock bubble that few see (simply because it has not yet burst). All the while, price inflation marches on, even if credit inflation does not (roughly the current state of affairs). Thus, in addition to the asset bubble problem, the second sad moral of this story is simple: Pursue price inflation long enough, then jobs move elsewhere and real wages are guaranteed to not keep up. Starting in a major way in the year 2000, jobs and capital moved overseas because US wages were uncompetitive globally. Let's not stop there because it gets even worse. Income Gap Discussion In addition to the "Income Gap" one must also consider "Income Skew". Under the Fed's inflationary policies, a select few percent have done exceptionally well, another few percent have done well, and another (perhaps slightly larger group) have barely kept up. The bottom 80 percent or so have fallen much further behind than the above per capita charts suggest. Income Skew I explained why the rich get richer and the poor get poorer in Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions In response to that article a Reader Asked Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else) CPI Percent Change From Year Ago  click on any chart for sharper image Except for a brief period in 2009, price inflation has been positive. The question is "Who Benefited?" I claim it is those with "first access to money" namely banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives will prove my point. Real US Household Incomes  In "real" (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let's dig a litter deeper. Growth in Real Household Income by Quintile  The above chart shows percentage income growth by quintile since 1967. Since 1988, the bottom, 4th and middle quintiles (a combined 60% of households) have negative real income growth. The next chart shows the same thing in a different way. Real Household Income by Quintile  No matter what your timeframe, only the top quintile did well. And from 1980 until 2000 the top 5% got the lion's share of income gains. Inflation is Theft Inflation is an insidious hidden tax that benefits those with first access to money (the banks and the already wealthy), and government (via sales taxes, property taxes, and income taxes). Government bureaucrats take your money and redistribute it primarily for wasteful pet projects in their districts or to those who contribute to the politicians' campaigns. In spite of the often-heard mantra that "inflation wipes away debt", I suggest otherwise. Income typically does not keep up with expenses, and most have too few assets to inflate. The poor (last on the credit totem pole) overpay for their assets with cheap credit given to them at precisely the wrong times (as happened right before the housing bust). Inflation Clobbers Those on Fixed Income In case you missed it, please consider Hello Ben Bernanke, Meet "Stephanie", my response to a reader on fixed income attempting to live on Social Security plus interest on a $16,000 CD. If routine price inflation did not benefit the banks and the wealthy at the expense of everyone else, we probably would not have it. Simple Solution (Easier Said than Done) Conceptually, the way to eliminate the problem is simple: abolish the Fed and get rid of fractional reserve lending. In practice, the idea is easier said than done, because the wealthy are in control of the system and they are the ones who benefit from inflation. Wine Country Conference I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease). Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease. To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013 Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Sweden Officially in Deflation (As Measured by CPI) Posted: 13 Mar 2013 10:45 AM PDT Reader Kenneth from Stockholm, Sweden informs me that Sweden is Officially in Deflation. Current Inflation RateThis is good news for consumers in Sweden, but the clowns at the Riksbank (and the clowns at every other central bank including the Fed) see things differently. "The Riksbank's target is to maintain inflation at a rate of 2 per cent when measured by CPI." In a separate article I will go over, once again, why inflation targeting is a bad idea. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Expression of the Day: "Ducks are Fat at the Back" Posted: 13 Mar 2013 09:14 AM PDT I was intrigued by a quote in the Financial Times by former German Chancellor Gerhard Schröder who won a standing ovation when he returned to remind his supporters of their ancient triumphs. Schröder's message for the party was to persevere in this year's general election, with a real chance of beating chancellor Merkel's centre-right coalition in the final weeks of the campaign.Fat Ducks Are Always at the Back OK. What does "The fat ducks are always at the back" mean? Reader Bernd from Germany, with whom I have been exchanging emails explains ... Hi Mish,Google translates "Hinten sind die Enten fett" as "back, the fat duck", which is even more confusing than the Financial Times translation.  Image courtesy of wandtattoo4you. The above, slightly different phrase translates as "behind the duck fat" even though the difference between "sind" and "ist" is the difference between "are" and "is". This type of problem is one I frequently encounter when I do all of these Google Translates. I often have to make my own revisions, but this phrase I never would have gotten correct without asking. A tip of the hat to reader Bernd for a comprehensive in-context explanation. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
| Obama's Promised Transparency: Where the Hell is It? Posted: 13 Mar 2013 01:17 AM PDT When president Obama took office he promised transparency and open government. The question at hand is "Where the Hell is It?" I have the answer: Obama's transparency is Where the Sun Don't Shine. President Obama has failed to deliver on few promises as miserably as his vow to create a more transparent and open government. Shortly after being sworn into office, he sent a memo to federal agencies promising, "We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration."Paul D. Thacker writing for Slate has a compelling story. I took a lengthy snip but there is much more to see. Inquiring minds will take a look. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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