Posted on 09/18/2010 2:45:14 PM PDT by blam
DEFLATION? Who Are They Kidding? Commodities Prices Are Going Through The Roof
Henry Blodget
Sep. 18, 2010, 11:55 AM
A few weeks ago, everyone began to agree that the US was headed for a decade of Japan-style deflation. The banks weren't lending, consumers weren't borrowing, the Fed's desperate attempts to create inflation weren't working, the country was awash in excess manufacturing and labor capacity, and so on.
And most of those things are true. In the United States.
[snip]
Several billion people in China and India and elsewhere have recently discovered the joys of capitalism, and, as a result, they're getting richer by the day. They're also not up to their eyeballs in debt, the way Americans are. And their economies are humming along, so there are plenty of jobs. And the jobs are making them richer. And as they get richer, they buy more stuff. And as they buy stuff, the price of that stuff--and the raw materials used to make it--goes up.
In other words, now that the global economy isn't collapsing anymore, the rest of the world is buying more stuff.
And that demand is driving the price of raw materials sky-high. (See chart below).
Will the the soaring prices of raw materials eventually lead to real inflation in the United States
[snip]
The chart was forwarded by reader David Jensen, who adds the following:
The onset (return) of inflation in raw materials in the CRB Spot Index is visible in the graph below.
The bovine scatology re. “deflation” and that Fed policy is not inflationary because the banks aren’t lending or monetary velocity is low is just that. Note that many components of the spot index are non-futures traded and thus paradoxically less vulnerable to price manipulation.
Image: Commodities Research Board
[snip]
(Excerpt) Read more at businessinsider.com ...
Why is this a surprise?
China, Brazil, India & Russia (BRIC’s) are booming.
All of them are going more capitalistic. We are going
more socialistic, which is why there is job deflation here.
There are yet elements of deflation in this economy. as long as a year ago, some of us here at free republic came to the conclusion that there was deflation and the governments response (printing money to “inflate”) would lead to the kind of inflation known as “stagflation” whereby everything is expensive and nobody has any money to buy anything. I think that is panning out right now.
Christ, I knew Blodget was a fraud and huckster.
I didn’t know he was quite this stupid, however.
Well, now we know.
Grab a pot of coffee and page through this and tell me where the inflation is:
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
Then go look at the FRED charts of TIPS interest rates and show me where the buyers of Treasury debt are pricing in inflation.
http://research.stlouisfed.org/fred2/categories/47
Because even if the Fed wants to turn a blind eye to inflation, the private sector doesn’t have to, but the yields at Treasury auctions and the TIPS rates show that the private sector isn’t pricing in inflation either.
The CRB is a nice index basket of commodities, but the price of ag softs, grains and base metals can go up due to either a) too much money (ie, easy credit) chasing a limited supply of goods (which is inflation), or b) a supply scarcity (or perception thereof) of a good, or c) increased competition from outside our sphere of control for a supply of a good, which could be due to failures of supply in their own markets.
Only (a) qualifies as inflation. Right now, we have either increased competition (from offshore) for some goods (eg, cotton) and perceived/projected diminished supply in others (eg, corn).
Right now, in corn, we have (b). Maybe.
And even IF corn goes to $6/bu (which would be a wild jackpot for corn farmers this season), that still less than HALF of the inflation-adjusted price for corn in 1973. If corn (and other grain) prices had merely kept up with inflation since the early 70’s, they’d be at levels more than double where they are today.
Of course, Blodget would never know that, being the city slicker Ivy League huckster that he is.
I’m starting my own commodities business and I daresay that I already have a facilitator and two serious buyers who are interested in buying some oil. A company sends me dossiers on their products and I am now “taking orders” and have a few clients already. This is freaking GREAT!
Right now,the beast in the room is housing. Thats driving inflation more than anything.
What's the problem here?
Stagflation? Like Carter?
We really need to file Bankrupt and start over.
"This is neither inflation nor a symptom of inflation, but rather a symptom of an overwhelming deflationary trend coupled with foolhardy government regulation in a completely unbalanced economy."
-- Mike "Mish" Shedlock
Blodgett and many others are way off the mark with these inflation calls - credit was a much bigger piece of the total money supply than money. Now that credit has been utterly destroyed, it will take a long time for any significant inflation to appear. But you'll know it's here when your paychecks start getting bigger. :)
... you’ll know it’s here when your paychecks start getting bigger.
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I’d love to know what would cause that to happen. Most I know are not expecting raises anytime soon.
This is really it in a nutshell. I am not a “bling” buyer. I don’t put money into wasteful enterprises (big flat tv’s, rhinestone covered cell phone holders,
“named” handbags or shoes, granite counter tops etc) I buy most of my clothes at goodwill/thrift stores, have a sensible vehicle, no cable, a small house and its furnished from goodwill,garage sales, and some walmart stuff.
EVERYTHING I buy, and EVERYWHERE I shop, prices have been going up for a couple of years. I buy necessities. I very rarely buy extras. There is massive inflation in necessities, massive deflation in luxuries. I cannot imagine where this is going to go. We have not yet experienced such an indulged, materialistic society from the “poor” all the way through the uber rich. This incessant need for 50 pairs of fancy shoes, 100$ pants and shirts, tv’s in every room, cars that drive themselves, houses so big you could fit my house in the garage, not to mention all the money spent making little kids “cool” and have everything under the sun has driven our consumer economy off a cliff. So much of this “niche” marketing is done for and never coming back. Excess is the word.
I can't put my finger on it, but that that site appears to let the veil slip every now and then.
perhaps, there is another reason prices for commodities are rising at such a rapid clip...a speculation bubble. Bubbles don’t really disappear, they just move from one sphere to another. It’s the nature of the investor beast.
WOW. You....Hit it out of the Park!!!! Could not agree more.
It isn’t just commodities - it’s also the case of the incredible shrinking package at the grocery store. Narrower toilet paper. 16 oz is now 14. 14 is 12. They hide the price increases by reducing the quantity while keeping the price the same.
Makes sense - demand for necessities is inelastic, whereas demand for luxuries can change a great deal. The economy stinks, and the future is bleak under commie/democRAT control so people naturally tend to shy away from such purchases.
I love how it only works one way:
When home prices were skyrocketing and gas prices went from $1 a gallon to $3 a gallon, the Fed insisted that it was NOT inflation....but if you let the price fall to where the market will bear, then we can’t allow that, because it’s “deflation”.....
They didn’t care about rising home and gas prices at all....or inflation at all-—until the unemployment rate nationally went below what they WRONGLY call “full employment” at under 5% unemployment rate-—and they tried to kill the demand for labor to keep wages from rising for FEAR of inflation from rising wages as demand for labor began to exceed supply.....
Instead of letting markets work or increasing the supply of labor....eg, people move from one state without jobs to states with jobs.....eg, and more people go into the workforce as wages rise.....
The Fed raised the Fed Funds rate over 400% between 2004 and 2006 and one year later, it all began to crash....
To finish the point.....the Fed should let prices fall same as they let them rise.....then we get back to normal, hit bottom, and the economy grows again....because
the fact is that prices ran well ahead of wages...and need to be allowed to fall back again...
plus, you cannot put humpty -dumpty together again.
Next time the Fed should be more careful when price of gas and homes goes up so much in a few years....keep money tight.....instead of tightening to prevent labor markets from working in a great economy....
Greenspan didn’t have a clue and neither does Bernanke.....
The press called Greenspan careful because he’s only raise or lower the Fed Funds rate by a quarter point every 6 weeks or so-—but he was so careful because he had no idea what to expect.....
His predictions were off just as much as Bernanke’s.
Bernanke made predictions for 2007.2008, and 2009 that made people confident that the boom would continue......he didn’t have a clue about housing and recession....even though HE is the one who is supposed to know because he controls monetary policy and provides oversight for banks and lending.
Greenspan had interest rates exactly BACKWARD if you listened to him talk about “conundrums”.. He thought he controlled long term interest rates directly by the Fed Funds rate, ie you raise it and they go up...you lower them and they go down.....but
in fact, the Fed Funds rate affects inflation, thus affects
long term interest rates inversely......lower Fed Funds rate means MORE inflation and higher long term rates, whereas a higher Fed Funds rate brings down inflation and long term interest rates with it.....Bernanke is under the same misconception....
And that’s why some people are screaming for the “Taylor RULE”, which sets the Fed Funds rate according to what is the inflation rate.....
Paul Volcker raised the Fed Funds rate to 20% when the inflation rate hit 13.5% in 1980.....
Anyway...Greenspan didn’t understand that the effects of his incremental rate cuts or increases was CUMULATIVE....because markets don’t work as fast ......eg,
if you raise the Fed Funds rate from 1% to 5.25% in two years...you destroy the housing market-—despite the fact you you did it a little at a time......what does it matter...when the increase was over 400%???
Imagine raising taxes a little at a time over 2 years.......so what if they are up over 400% incrementally!!!!?????
The toilet paper is not just narrower; the cardboard tube that forms the hole is twice as large as it was 50 years ago. Not just my imagination, I definitely know the hole was much smaller in the old days, and was a tighter fit on the holders. Toilet paper rolls definitely lasted longer back then.
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