Prices, Inflation/Deflation, Interest Rates & The Fed

Arado

Pelican
Gold Member
Shrinkflation heats up


Companies discussing potential squeeze on profits due to rising costs


I thought this interview was interesting - both agree that the macro/tech/demographic outlook is deflationary, but with a sufficiently large sized bazooka of spending and QE, can douse those forces and cause inflation. Eric doesn't think the dollar is really doomed until there's a clear alternative.

 

Coja Petrus Uscan

Crow
Orthodox Inquirer
Gold Member
Screenshot at 2021-08-13 14-03-18.png

Query -

What do you think normies' reception to central bank digital currencies will be?

Will they be demonising anyone who doesn't want to use it? As they are doing with COVID.

Will they parrot whatever they are told by MSM?

How will they respond to things we have from the horse's mouth, like expiring money and greater ease to turn off your ability to make transactions?

Given people's conception of the banking system it seems a harder sell, with less priming for them to take the bait.
 
Everyone finally realize the inflation narrative was all BS? Lumber prices crashing back to pre-pandemic levels too.


As shown in the chart below, most Treasury bills through the 1Y tenor are yielding less than 0.05%, the yield on the Fed's Reverse Repo facility.
 

Max Roscoe

Pelican
Orthodox Inquirer
Housing prices up 25% here from last year. The health food cafe I am eating at now has raised the price of their salad from $12 to $16.
The fed injected 33% more dollars into the economy. This means the value of any dollar is being diluted by 1/3, or another way to say this is the prices of things denominated in dollars will be increasing.

Remember money is nothing but a way of assigning relative proportions of the limited resources in the world. If I have a certain share of the total dollars in a society, I can command that same proportion of its economic goods. That's really all prices are. A way of allocating resources. Changing the number of dollars there are changes the numerical prices, but not the allocation.
 
The fed injected 33% more dollars into the economy.

You're missing an operative word: the global economy. This makes all the difference and this is why you aren't seeing inflation. In a dollar shortage...you need more dollars not less!

Housing prices are up because the market has collapsed. Your cafe is charging more because they're bankrupt and trying to stem the tide.
 

BURNΞR

Pelican
You're missing an operative word: the global economy. This makes all the difference and this is why you aren't seeing inflation. In a dollar shortage...you need more dollars not less!

Housing prices are up because the market has collapsed. Your cafe is charging more because they're bankrupt and trying to stem the tide.

We are seeing inflation. Housing going up 25% in a year is inflation in the price of property. Of course if you were an economist, Fed, or person in the media your job would be downplay it by simply not including it into the basket of commodities included in the CPI.

Housing prices are up because the market has collapsed? You'll need to explain this better because if I can't understand this I doubt the majority of the people will. Are you saying the price has gone up dramatically because they were previously undervalued? If it goes up another 25% next year?

Maybe cafe's are pricing goods higher because their costs are going up?
 

Bannic

Sparrow
Houses keep going up. Because banks are still loaning. The moment they stop loaning market goes down. Probably 2026. Commodities prices are high because they are artificially destroying supply chains. Supply goes down. Demand remains steady. Prices go up. They will destroy further the supply chains creating more inflation and thus having an excuse to raise interest rates and blow up debts.
 

budoslavic

Eagle
Orthodox
Gold Member

The Shortages Are Going To Get Worse Later This Year As Global Supply Chains Increasingly Falter​

Have you noticed that it is a lot harder to get certain things these days? Just recently, someone in my local area was surprised when her appointment to get the windshield on her vehicle fixed was canceled because it wasn’t possible to get a replacement windshield. This was a windshield for a very common vehicle, and normally that wouldn’t be a problem at all. But these are not normal times. Thanks to several factors that I will detail in this article, global supply chains are now under more strain than we have ever seen in the post-World War II era, and unfortunately it appears that things are going to get even worse as we approach the holiday season.

I know that most of you probably don’t want to hear that the shortages that we are experiencing now are going to get worse.

So you may be tempted to stop reading this article now because you don’t want to see the bad news.

But it is imperative that you understand what is ahead, and so I urge you to keep reading.

Let’s take this one step at a time. Right now, local news outlets all over the country are doing stories about the shortages in their local areas. Here is one example.

Have you recently gone to the grocery store and found some of the shelves empty? If so, you aren’t alone.

Many people can’t find some of their favorite and essential items since the pandemic started.


As that article points out, the stores are trying to order the products that they need.

They just can’t get them.

This is happening all across the United States, and as a result the inventory to sales ratio for U.S. retailers has been pushed to the lowest level on record.

In April, May, and June, the inventory-sales ratio of around 1.08 – or about 33 days’ supply – was at the lowest point in the data going back to 1992. In the years before the pandemic, the overall ratio was around 1.5, providing 45 days of supply.

So why is this happening?

Well, the truth is that there are several contributing factors, and one of them is fear of COVID.

When a single worker recently tested positive for COVID, China shut down one of the busiest port terminals in the entire world “indefinitely”

One of the world’s busiest ports partially closed this week after an employee tested positive for Covid-19. The closure raises fears of new disruptions to world trade that could slow the global economy’s recovery.

Meishan, a key terminal at China’s Ningbo-Zhoushan port, closed indefinitely Wednesday after a 34-year old worker tested positive for Covid-19. A member of the board of the Ningbo Port Group Company—which operates the port—also resigned Wednesday, citing personal reasons, reported China’s Securities Daily.


This wouldn’t be such a problem if we had not become so dependent on goods from China.

Other nations are severely overreacting to outbreaks of COVID as well, and this is making it harder and harder to move goods around the world on an efficient basis.

Another major factor that we are dealing with is a historic global shipping container shortage.

The demand for shipping containers greatly exceeds the supply, and this has pushed global shipping container rates to levels we have never seen before.

And once shipping containers are delivered to U.S. ports, there isn’t enough port workers to unload them all.

It can now literally take months for products that are made in China to get to the U.S. retailers that originally ordered them.

Of course if those products contain computer chips, they may never arrive at all.

The global shortage of computer chips is deeply affecting thousands of other industries. For instance, it is being estimated that the global auto industry will produce 7.1 million fewer vehicles this year because of the chip shortage.

VW’s main plant in Wolfsburg is only going to be running on its early shift after summer break due to the lack of supply, Bloomberg reported this morning.

Its plant in Wolfsburg is the “world’s biggest car plant” and employs about 60,000 people. Audi is also pausing production temporarily, extending its summer break by one week, the report notes.

Global shortages of semiconductors could wind up cutting worldwide production of autos this year by about 7.1 million vehicles, Bloomberg predicted this morning.

Now we are moving into the holiday season, and many in the retail industry are anticipating a complete and utter disaster.

Reuters surveyed nearly a dozen suppliers and retailers of everything from toys to computer equipment in the United States and Europe. All expect weeks-long delays in holiday inventory due to shipping bottlenecks, including a global container shortage and the recent COVID-related closure of the southern Chinese port of Yantian, which serves manufacturers near Shenzhen.

One executive that was interviewed by Reuters said that we are heading for “a major, major mess”.

“It’s going to be a major, major mess,” said Isaac Larian, chief executive of Los Angeles-based MGA Entertainment Inc, which sells LOL Surprise, Bratz, Little Tikes and other toy brands to Amazon, Walmart and Target.

And another executive openly admitted that it is “too late” to save Christmas.

“It’s too late for Christmas,” said Thompson, founder of Washington-based Plugable Technologies.

This is what the immediate future of the U.S. economy looks like even if nothing else goes wrong.

So what is going to happen if another major crisis suddenly erupts in the middle of all this?

As inventories get tighter and tighter, prices are rising to compensate. One area that I am particularly interested in is the price of food.

According to the FAO, the global price of food is 31 percent higher than it was a year ago.

Whether at supermarkets, corner stores, or open-air markets, prices for food have been surging in much of the world, forcing families to make tough decisions about their diets. Meat is often the first to go, ceding space to less expensive proteins such as dairy, eggs, or beans. In some households, a glass of milk has become a luxury reserved only for children; fresh fruit, once deemed a necessity, is now a treat.

Food prices in July were up 31% from the same month last year, according to an index compiled by the United Nations’ Food and Agriculture Organization.


Have global paychecks risen 31 percent over the past year to keep up?

No way.

As a result, many are having a much harder time buying the food that they need and more people are going hungry. Needless to say, this is setting the stage for the sort of global crisis that I have been warning about.

There was so much optimism during the first half of 2021, but now everyone is starting to realize which way all the needles are pointing.

Very choppy seas are ahead, and those at the helm do not seem to know what they are doing.

 
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We are seeing inflation. Housing going up 25% in a year is inflation in the price of property. Of course if you were an economist, Fed, or person in the media your job would be downplay it by simply not including it into the basket of commodities included in the CPI.

Housing prices are up because the market has collapsed? You'll need to explain this better because if I can't understand this I doubt the majority of the people will. Are you saying the price has gone up dramatically because they were previously undervalued? If it goes up another 25% next year?

Maybe cafe's are pricing goods higher because their costs are going up?

I paid less for my beer this week. They gave me a free one too. Therefore we are in SUPERDEFLATION.

/sarc
 

Arado

Pelican
Gold Member
So far no slowdown in inflation trends and supply chain bottlenecks continue, while the government continues to print away - more money chasing fewer goods and services.





The key question is when does the market realize that either the Fed keeps printing and bonds are a total loser bet, or the Fed stops printing and the S&P crashes hardcore. Either way the junk bond market has to fail.
 

Max Roscoe

Pelican
Orthodox Inquirer
Houses keep going up. Because banks are still loaning. The moment they stop loaning market goes down.
This doesn't make sense. Banks are always making loans.
Banks made loans for every year since I've owned my house, but it didn't cause 25% increases before.

If banks stopped making loans prices would decline, sure. But that hasn't happened and it doesn't prove the inverse effect we are discussing. That's like looking at a typhoon coming and saying sea levels are rising because it keeps raining... well, yeah if it never rained again I guess the water level would fall but that doesn't mean rain caused a giant floodwave.

Banks were making loans last year, when prices went up 25%, as well as the year before, when prices went up 3%.
Interestingly, those are roughly the levels of dollar devaluation that happened in those years as well. The price is merely adjusting to the amount of dollars in circulation. (There is also a very large effect due to interest rates but that's not what we are discussing here)

Toyota stock is up 12% year to date, despite Toyota just announcing it will cut its production by 40%.
How can a company producing almost half of what it normally does be more valuable?
It can't. Houses and stocks and everything else aren't "worth" any more.
They are selling at higher prices because the value of each dollar is 20 to 30% less than it was a year ago.
(Meaning that Toyota's value has really declined about 15-20% on this news, in real terms)

These devaluations are largest with big assets like houses and stocks, primarily because huge corporations are the ones who received the vast majority (95 to 97%) of the dollar printing, and they don't buy milk or candy bars, they buy assets and investments. The price inflation will trickle down to consumer goods gradually, and to a lesser degree, but it will still be severe.
 

budoslavic

Eagle
Orthodox
Gold Member




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"A Sudden Negative Change In The Economy": Consumer Spending Slides As Economic Growth Hits A Brick Wall​

Today's UMich Consumer Sentiment report was a painful eye-opener: as we noted earlier, following UMich's sentiment slump in July, analysts expected a further (modest) slide in Americans' confidence in preliminary August data this morning but they were very wrong as sentiment crashed in early August data according to UMich Sentiment survey with the headline plunging from 81.2 to 70.0 - that is weaker than the April 2020 COVID crisis lows, while expectations collapsed too.

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As UMich economist Richard Curtin observed over the past half century the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy: the only larger declines in the Sentiment Index occurred during the economy’s shutdown in April 2020 (-19.4%) and at the depths of the Great Recession in October 2008 (-18.1%).

Furthermore, the sentiment shift wasn't confined to just one demographic: the losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the losses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment.
 
Nope. Still no inflation.


Lumber prices have fallen 75% since the all-time high of $1,686 per thousand board-feet on May 7, 2021. All the price gains since the summer of 2020 have been given back, and at under $500 per thousand board-feet the front month futures price is actually below the average price of lumber back to 2017.
 

Easy_C

Peacock
If banks stopped making loans prices would decline, sure. But that hasn't happened and it doesn't prove the inverse effect we are discussing. That's like looking at a typhoon coming and saying sea levels are rising because it keeps raining... well, yeah if it never rained again I guess the water level would fall but that doesn't mean rain caused a giant floodwave.

 

Bannic

Sparrow
Money creation in the modern economy
(1)
This article explains how the majority of money in the modern economy is created by commercial banks making loans.
Money creation in practice differs from some popular misconceptions—banks donotactsimply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
Theamountofmoneycreatedintheeconomyultimatelydependsonthemonetarypolicyofthe central bank. In normal times, this is carried out by setting interest rates. The central bank can also affect the amount of money directly through purchasing assets or ‘quantitative easing’.
By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.
Overview
In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.
The reality of how money is created today differs from the description found in some economics textbooks:
Ratherthanbanksreceivingdepositswhenhouseholds save and then lending them out, bank lending creates deposits.
Innormaltimes,thecentralbankdoesnotfixtheamount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.
Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Prudential regulation also acts as a constraint on banks’ activities in order to maintain the resilience of the financial system. And the households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance.
Monetary policy acts as the ultimate limit on money creation. The Bank of England aims to make sure the amount of money creation in the economy is consistent with
low and stable inflation. In normal times, the Bank of England implements monetary policy by setting the interest rate on central bank reserves. This then influences a range of interest rates in the economy, including those on bank loans.
In exceptional circumstances, when interest rates are at their effective lower bound, money creation and spending in the economy may still be too low to be consistent with the central bank’s monetary policy objectives. One possible response is to undertake a series of asset purchases, or ‘quantitative easing’ (QE). QE is intended to boost the amount of money in the economy directly by purchasing assets, mainly from non-bank financial companies.
QE initially increases the amount of bank deposits those companies hold (in place of the assets they sell). Those companies will then wish to rebalance their portfolios of assets by buying higher-yielding assets, raising the price of those assets and stimulating spending in the economy.
As a by-product of QE, new central bank reserves are created. But these are not an important part of the transmission mechanism. This article explains how, just as in normal times, these reserves cannot be multiplied into more loans and deposits and how these reserves do not represent ‘free money’ for banks.
Click here for a short video filmed in the Bank’s gold vaults that discusses some of the key topics from this article.

 
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