Posts Tagged ‘Money Supply’

Inflation for certain … hyperinflation?

In the past, before the Clinton years, we had an inflation valuation that included such things as food and fuel.

Not so now, the Consumer Price Index has been so manipulated and had core items like food and fuel taken out of it that it has become a useless measure.

Unless you are living in a cave or under a rock or do not have any need for gasoline you will have noticed an ongoing upward trend in gasoline prices.  Nothing so amply shows this than the graph here.

The trend line is unmistakeable, keep in mind this is a GROWTH, year over year.  Since this time last year there has NEVER been a time without a price INCREASE.  Moreover since the start of the year the rate of INCREASE has been INCREASING.

Even the core CPI is calling for an inflation rate of a modest 1.33%, however when taken for the whole year, this increase will exceed the target 2%.  When food and fuel are counted, the rate is more like 3.2% and has a year end projected figure close to 6%.  This means a definite inflation trend.

Hyperinflation becomes visible when there is an unchecked increase in the money supply (see hyperinflation in Zimbabwe) usually accompanied by a widespread unwillingness on the part of the local population to hold the hyperinflationary money for more than the time needed to trade it for something non-monetary to avoid further loss of real value. Hyperinflation is often associated with wars (or their aftermath), currency meltdowns, political or social upheavals, or aggressive bidding on currency exchanges.

Lets quickly examine the associations:

  • Wars – yes at least two that the US is actively engaged in: Iraq & Afghanistan
  • Currency Meltdowns: the world is still struggling with the meltdown of 2008
  • Political or Social upheavals: the Arab spring certainly fits that notion, moreover there have been signs of ongoing division withing the US electorate since the Supreme Court decided who was to be President in 2000.
  • Aggressive Bidding on Currency Exchanges: less clear here, as the T-Bills of the FED are basically being purchased by the FED or proxy of the FED by banks associated to the FED

So most of the trend points needed to have hyperinflation exist, what remains to be seen is if the powers that be in Washington can overcome the force of history and the K-wave Winter that is overdue.

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Welcome to the top of the ride … all downhill from here.

There is an adage in the market that says,

“Sell in May and walk away.”

Well, there are many leading indicators that are now pointing DOWN, way down.

From the Treasury Market Inflation Forecast to the Economic Cycle Research Institute’s (ECRI) Long Leading Index of global industrial growth, these indicators are showing that the “W” of recovery is more likely.

Given that the US housing market has not rebounded as was once hoped, that the QE and QEII have only resulted in a short term bull rally in the stock market and a temporary easing of short term bond rates and not the much touted employment that the bankers and others from Wall Street and DC were promising was ‘on the way’.  Indeed employment numbers are stalled, much like the sense one has in a roller coaster car just as you reach the top of the first ‘hill’ after being released from the lift chains.  We have had a drop and a ‘scare’ now the real ride begins.

Richard Russell, 86-year old author of the Dow Theory Letters commented as follows on the deteriorating market breadth: “This is a bearish picture. The ‘soldiers’ are deserting even while the ‘generals’ continue to march forward. In a war, this would be a prelude to disaster. In the stock market, it may be the same.”

I agree with that sentiment and add in argument that the broader market place is going to go into a panic situation, this summer will be pleasant enough, like the roller coaster car moving gently along the top of the rail in a near flat grade.  By this autumn?  Well Kondratieff Winter will blow in for real with a storm to remember …

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S&P downgrade of US debt is more about next failure!

The S&P downgrade of the US debt is more about a pending failure or another ‘bailout’ than any shot at the stability of the US economy.

One Trillion dollars more may be needed to bail out the ‘too big to fail’ crowd in the next round.

Most interesting is the closeness of S&P to the situation and their understanding of the internal operations, given those factors these revelations are illuminating!

View the interview from the Real News:

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… with enough Viagra …

Q1:What happens after the money runs out?

With enough Viagra anyone can get it up.

Q2: What happens when the Viagra effect wears off?

The QEII (Quantitative Easing round 2) is set to end this summer.  Given the chart seen here, looking at the yellow section, we can see that GDP growth would have been negative but for the stimulus money pumped into the system to ‘get it up’ into positive territory.

There is little sign that the FED or Treasury will restart any sort of stimulus.  This will lead to a negative outlook, of the sort that would have been seen without the stimulus money.

Answers to 1 & 2: A drop off, disappointment.

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The steady retreat

Many have commented about the ‘flat’ of the stock markets and there are continuing signs of financial contagion in European markets.

Asian market trend lines are also going, or already gone flat to down (even Dr. Copper is predicting a reduction in commodity prices).

The controlled retreat from equities and the ‘cash’ marketplace is indicative of a general awareness of the limits of the current ‘currency’ system.

The decoupling of gold from all currencies is underway and this year will see the real ‘gold rush’ get started. There is only one place to shelter value that has stood the test of time for 20 centuries : GOLD.

I am not talking about the GLD index or some other ‘safe keeping certificates’ either, when the situation really goes into overdrive only one thing will matter, “Do you have the physical metal?” If the answer is no then the response to the transaction will likely be the same.

If you have a desire to participate in the gold market at or near ‘spot’ price then contact me at your earliest convenience.

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More Money basket cases are likely

The ultimate ‘bubble’ is yet to burst, thought the pressure mounts day by day.

Noted money writer Niall Ferguson has been on record stating that the US will not be able to print their way out from the crisis and that the US may be in a situation similar to Greece by 2013.

This ultimate inflation generation machine is what may be getting ready to burst.

More and more evidence is pointing to the need to avoid being in a ‘cash only’ position.

Whether it be in stocks that are in growth industries, value priced real estate, collectible art or simply gold and silver the need to preserve capital value via means other than T-bills or worse paper money in ‘bank accounts’ has never been higher.

The vicious cycle of Fiat Currency.

Fiat Currency endgame cycle

We may be moving along this “Implode-o-meter” much faster than anyone can anticipate…

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Commercial Real Estate next dominoe to fall …

Charlie Rose talks with Elizabeth Warren, looking at the regulatory reform in the wake of the TARP decisions.

During the interview she very correctly points out that nearly 3000 of the 8000 regional and smaller banks in the US are about to be having to handle under-water commercial real-estate.

Charlie Rose Interviews Elizabeth Warren

My view of this situation, at a minimum will mean a total cut-off of the lending tap. Anecdotal evidence of this has already come to my attention where successful developers, with stable clients are being told to seek their mezzanine financing elsewhere.

Do not expect leverage to be a tool that can be used to acquire real-estate any time in the near future.

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Proposal to examine FED books

Ron Paul’s efforts to examine the FED books are continuing, see his interview with Forbes here.

The proposal is very populist, however I suspect that little in the important arena of money policy will be changed even if the FED were to be “audited”.

The important connection between the Congress and the FED will not be upset by this, unless the contents of the ‘books’ are accurately represented to the populace and explained completely.  Should the details of the transactions from the TARP funds completed during the end of the Bush and start of the Obama administrations be openly discussed then a shift in awareness regarding the FED ~ Congress partnership will likely result.

Such an open presentation is not likely as the privacy of the FED and its dealings is vital to the Corporate survival of the ‘quasi-governmental’ body.

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