Stacy Summary: First, here is a link and commentary to our last episode of On the Edge from Mish Shedlock, who is a great source of information especially on the inflation / deflation debate. You can go join that discussion there if you would like. In the meantime, here are the headlines I am looking at . . .
- The great ‘output gap’ masks the real threat of inflation (Breakingviews)
UPDATES:
- ZeroHedge has also linked to the Paul Craig Roberts interview. That makes both of our two favorite finance blogs (other than our own!) in the same day.
Max&Stacy needs to get REAL AIR TIME on the MSM on prime time and NOW!
But we all know that aint gonna happen.
The news in England that everyone has missed is that the Gov of the BOE wanted to part the banking system:-
Banks that do normal banking
&
Casio banks
The Casio banks would NOT be backed by State, they fail, well ok they go bust.
Darling killed that idea yesterday……..The British people will be on the hook.
Mike
The great failure of common sense is what I’ve been calling this lately, and it’s on a global scale.
I agree with the thesis that “even a modest uptick in growth could provoke inflation” but not necessarily on this Gap theory which I don’t understand anyways. Somebody has to explain it to me again.
Inflation now is very low cause oil and other raw materials decreased in price due to the economical crises desroying demand. If the demand increases a little we will see an immediate rise in oil and raw material prices. In fact we could see this recently in the rise of copper for instance when China, the only buyer on the market now, wanted to hoard some commodities also as hedge against the failing dollar.
I expect the biggest inflation comming from oil if the economy tries to go up again also because of the fact, which many economist have warned us about, that a lot of investments have been prosponed or even cancelled in the oil industry and eleswhere. The price of oil affects every product directly or indirectly in transportation costs for instance.
The Peak oil scam is based on making people believe there is no oil anymore and this will help to skyrocket oil prices by creating artificial shortages which has been the plan all along. The same with food.
An other aspect, not much talked about, is the Multiplier effect. You don’t have a Multiplier effect in a shrinking economy but this will change when the economy is on the rise again. This means that even if your Monetary money volume isn’t that big (hypothetical) with a high Multiplier it will have the same effect on the inflation number.
But Inflation or not the economy is going down the drain with huge unemployment numbers and destroying taxpayers money in the money expansion scam. Everybody can understand that even if you believe in the money expansion theory of Greenspan this only will work in a growing economy not in a totally fucked up economy in decline cause nobody needs or wants money in that situation. That’s why these politics do nothing at all for the real economy only for the banksters gangsters to fill there pockets with fees, bonusses, interest rates all payed for out of the taxpayer treasuries.
It’s all a big delusional scam which still suprises me every day cause even a layman economic could understand this but not the so-called real economical experts? This scam started with this “To big to fail” fairy tail which I condemned from the beginning. The answer would have been the Tulip Mania one in which all banks would have been restructured from the beginning and in which we would have been in an economical upturn allready but not with these bankers scam politics.
Maybe Max & Stacy can explain this Gap theory in their next residence cause I don’t understand it at all?
Morning all. Just read “The great ‘output gap’ masks the real threat of inflation”
Found it fairly heavy going, but eventually realised that what this wordy article is saying is that, should growth pick up even a little we are poised for higher prices, storages (because output gap is not sufficient to take up new demand) and higher unemployment due to permanent output lose.
This nicely shows how governement policy to kick start growth, instead of allowing the recession to run its course, is going to lead to hyperinflation.
@M. I agree with completely. It’s great that this article is in MSM, but written in such a way that it hides how bad the message is, as opposed to M&S explaining in plain English – we’re f******
@Youri Carma you indentify another, quite separate, inflationary pressure in raw material prices. You’re right, but to explain, the output gap is the next step. The output gap is the spare production capacity in the economy. Production obviously turns raw materials into comsumable products. If there is no spare capacity there will be a shortage of the things we need to buy if demand goes up. So a shortage of production is inflationary, as is a shortage of raw materials.
As for the multiplier effect – I’m wondering about what will happen if the banks are forced to hold a greater fractional reserve. Even a small increase in the reserve the banks need to hold will massively reduce the multiplier effect. There is talk of this:
http://uk.biz.yahoo.com/25062009/323/boe-says-banks-look-healthier-tougher-rules-needed.html
This would be deflationary
Oh No!
“I bought a pasty on my way to work this morning which was 85p. It was 70p last autumn.”
http://news.bbc.co.uk/1/hi/business/7556847.stm
Here just a small example how investmenst have been hampered by the crises: Pickens’ pullback could signal shift in the wind
http://tinyurl.com/l4rsnq
@NicAbbo77
you think you’ve got problems – pasties are €1.65 here in Ireland!
Hey Max, the Pope’s got your back.
Pirate my Pope!
Pope Benedict XVI encyclical letter denounces excessive zeal for assertions of intellectual property rights in knowledge
http://tinyurl.com/nngozp
with regards to the BoE. the Tories want the BoE as the single regulator for the city
.
@NicAbbo77 …. INFLATION : “I bought a pasty on my way to work ”
75p is cheap .
DIY Builder’s Markets in German are ripping us off here !
This morning, I took a defect rain-container back which I bought in August 2008, 11 months ago for 19 Euros. The price now is 27 Euros.
Has anyone noticed that building materials are becoming a real ripoff ?
Simple Fassade-paint for a house costs up to 70 Euros for 10 Litres. Or you can buy the “no name” for 16 Euros.
Guess what .. 40 years ago they didn’t have all those fancy and expensive brand names and the houses didn’t fall down.
Of course they’ll tell you the “no name” is “no good” ..LOL .. so I bought it !
It’s even difficult to find corrigated iron roofing here .. all special and expensive PVC and other plastics that sag badly when the rain hits them.
Even spades and pick-axes are rubbish these days … they break or bend when you use them “seriously” !
I now visit the local junk sales at the weekend to pick up old screw-drivers and other tools for 1 Euro per piece.
Last week, I bought 3 wire brushes for 4 Euros each for my electric “Dremel” type of tool .. the DIY Markets want 20+ Euros EACH !
My order of priority for shopping :
#1 Junk markets
#2 Ebay
#3 Internet websites
#4 DIY markets .. if I’m in a hurry !
And to rant on and on … JFYI…
I bought a 52cm. chain saw (new) on Ebay last year with 3 horse-power for 50 Euros. Works brilliantly.
The same costs ca. 180 Euros in DIY markets.
I bought a log-splitter ( 7 tons pressure ) for 120 Euros on Ebay. Have split some 30 tons of wood so far.
The “cheap copy” in the DIY Market costs ca. 250 Euros !
I could go on and on … but just wanted to say that as much as people dislkie Ebay ( especially high.street retailers ), I think it does a great service of pressuring prices down.
Ebay “Germany” ‘s Revenue for the month of December a few years ago was over 1 Billion Euros … 1 month !
My PC Dealer-friend has hated Ebay for the last 10 years and claims everything there is rubbish. He is now also setting up an Ebay shop … rather than going out of business !
I remember the old IT days when a Qume VDU ( RS232 ports etc. ) cost ca. 2000 DMs each in Germany . They made them in Taiwan at ca. <100 DMs cost, distributed them to the European countries with a “buying in” price of ca. 800 Euros, then resold to dealers for ca. 1200 Euros until the End-Customer pays 2000 Euros !
My point ? …
… the Internet is “flattening the world’s food-money chain” …cutting out those middle men that could make money just because the had enourmous amounts of capital.
The change means less parasites, less revenue for all those “resellers” , and is a problem generally for the European nations of shop-keepers.
As much as the change will hurt us all – due to declining money-flows betweens the resellers – I think it is right and fair that the so.-called 3rd. world countries can now get a fair deal, thanks to the internet.
In Germany, the “old” big household names like Kaufhof, Quelle, Karstadt are all going to the wall.
CU later .. sorry for the OT rant.
Darling, Brown, Balls et al are Fabians and more importantly are all signed up to the ‘Common Purpose’ one world governance thing. Even those that have discovered it is run by the oligarchs and aristocrats, and it will be a technocratic fasicst nightmare for the majority, which will involve a cashless surveilence state and no privacy as well as active depopulation are going along for fear of their own and their families death for speaking out.
The next bubble is deliberate. It is the inflation of national and municipal debt to completely enslave all the populous for generations and further to bankrupt the state so all the assets can be stripped and sold to the globalist corporations and the banks that finance them. This is no accident.
You will be chipped, vaccinated and employed by the all seeing eye of the state. Well either that or we have decades of turmoil to overthrow these creatures.
The Chinese loan frenzy just shows how ‘western’ their economics have become. Since Washington sanctions bank dishonesty, the thing plays even there.
Then again they don’t really have a lot of options. Their domestic economy is not broad enough to generate or even sustain the kind of ‘growth’ they’re ‘banking’ on. At best they can hope that they’re only temporarily in denial – that all this ‘confidence’ will breed honest trade.
The petulance with Rio Tinto shows that when push comes to shove, China can’t wait for bulldoze. Yeah, Crapitalism, it’s best run by a government – especially against smaller, less cohesive interests.
You can run from G20, but you can’t hide…
Clearly some pretty frayed nerves back there among the Mandarins.
@Mike2liverpool
Who are the British people? The average 750k leaving every year?
Pasty here 98p, nasty pasty.
@Starstrike, Christopher Story has a mad take on Common Purpose, that is part of a communist plot:
(Warning! Barking mad website link)
http://worldreports.org/
Like to add an other point to the whole reserve currency discussion one that has been grossly underestimated and deserves more media attention. What about the amount of trade done whitout any money! Iran traded oil for Thai rice for instance. A very large, very underestimated proportion of world trade is done this way. Countries who have this possibility and don’t want to stick their necks into the “dollar guillotine” are going to increase this way of trading.
Cdawg
You make a good point, under the last Labour goverment (late 70′s) we had what was called the “Brain drain”……………our smartest people said they were not going to pay insane taxes & left the land. Mrs T had to offer tax free offshore banking…………….which the Labour did away with afew years ago.
Mike
Bank of England reports banks still not lending to business, 17 June 2009 (Telegraph.co.uk) http://tinyurl.com/ku8xsb
Nice Pictures
Not only Silvio Berlusconi shown sympathy and support for a earthquake town, I cant help but like his seance of humour.
LOOK New World Currency gold coin presents for the G-8 leaders and a nice book, on Canova,
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http://www.thetreeofliberty.com/vb/showthread.php?p=636751
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He also took them site seeing in earthquake destroyed Italian L’Aquila . You don’t think there is a statement here?
Earthquakes are destructive perhaps, and it can take along time to rebuild?
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http://www.g8italia2009.it/G8/Home/Media/Foto/G8-G8_Layout_locale-1199882116809_1246708060200.htm
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http://www.spotinflation com a daft idea for Max
Here is a idea? Why not have a inflation spotting web site where you have to photograph the price and item and date it with an attached comment and what it was before and date it. Like a random sampler. Stupid idea really.
I guess you could list things that you would want sampling and have a table that populates an ongoing graph?
@Gerry
I think the biggest problem that the Chinese have is to convert their outward directed economy into a more domestic oriented economy. China has 4x the U.S. population so an enormous potention in economical growth which the autosales figures of today proved again. (Chinese Auto Sales Skyrocket http://tinyurl.com/nr2nsq )
But this requires a completely different mindsetting for the Chinese government. They no longer have to concentrate on keeping their product prices low for the American consumers since they won’t succeed anyways with this everlasting sliding dollar. Instead they have to increase the purchasing power of their domestic consumers which will pull the Baron von Munchhausen out of this currency swamp holding on to his own long hair.
They no longer would have to worry about the dollar since it’s now only used to prop up the Weaponary Industry. In a very sick way the Chinese pay for their own encirclement so much wanted by crazy Brezinski who allready has Iran encircled in a pre-stage China encirclement. So, why should the Chinese stimulate this anyaways?
But China is like a big oil mammoth tanker, if you want to make a turn you had to start steering one mile back.
I have been writing about it here http://tinyurl.com/klbzj8 with the difference that I now think that China has no use at all keeping it’s wages low. China still thinks that the U.S. will learn it the soft way but will discover some time that the States is like a woonded wolf looking for blood. Homo Homini Lupus.
@YouriC
Agreed China would love to lift wages, ramp up consumer spending! But that in turn pushes up production costs, invites a vicious spiral. No one wants to be left behind when it comes to profit margins.
China’s big appeal for foreign investment has been cheap labour and no-questions-asked or ‘streamlined’ infrastructure. Once they’re no longer competing quite so well there internationally, it makes it doubly hard for domestic investors, even with fiat currency.
There already are massive problems in social cohesion there, because of the unbalanced distribution of wealth and a political system that’s no longer communism, even as an ideal, and not exactly democracy as it’s known in any of its western models. For some time observers have been saying the boom will eventually tear China apart at the seams. It is a corrupt or rotten system, repaying a centralist elite, and it can only have engineered it’s exploitative labour market on these terms. To try and turn that around and spread the wealth a little more at some point must injure vested interersts. This is where the rubber meets the road, as they say, quite apart from all the environmental and macro-economic positioning, there is a real problem with the size of a disaffected opposition. And it’s not as if they don’t know about revolutions now.
World-wide depressions famously are remedied by war, (there’s an excellent post by Jesse on this) but you could argue the wars start as revolutions.
“…even a modest uptick in growth could provoke inflation. The authorities should then be encouraging everyone to get used to slower growth and higher unemployment – almost the opposite of the current policy of encouraging companies and consumers to spend more.” – The great output gap.
If the above quote corresponds to a true situation, then the ranks of said “authorities” need to be reduced into line with the bleaker economic realities on the ground. Also, no Solon should have access to any special retirement or healthcare program which is not readily available to the average citizen. Further, Solons should not have the authority to control their own pay – their pay levels should be determined by voters through the means of a periodic ballot. It is apparent that Solons are less a part of the value-added process, and more of the converse – and they should be treated accordingly by the electorate.
Since 72% of the American economy is driven by consumerism, and all job growth since 2000 has been reversed, the consumer-driven paradigm has obviously not been supported by major decision makers. The un-and-under-employed worker can no longer be a significant consumer of the discretionary goods that fuel econobooms. The paradigms of globalisation and automation have failed to ensure a reasonable prosperity for workers. And yet, our fearful leaders are trying to combat the rising temperature of failure via the same nostrums that got us into this mess in the first place.
The old rhubarb, “the second kick of a mule is not educational” is still true, today.
Some of the reasons some economists are fearing deflation over inflation are as follows: 1) excess capacity abounds in every productive nation – how many more strip malls, fast food restaurants, clothing stores, cell phone brands, housing divisions, etc. do we now need?; 2) the manufacturing engine of growth has been outsourced to third world nations – in the 1970s manufacturing accounted for 40% of the economy, now it is only 9%!; 3) since the stock market and housing prices are well off their highs, these ATM machines are no longer available to support rampant consumerism – we have become a nation of savers, overnight!; 4) there is a tremendous debt overhang that will have to be resolved – and serviced – which will effectively dampen future demands upon output. Inflation can only arise under present conditions if the Fed is able to blow another significant bubble of some kind – which is not likely under a regime of high structural unemployment.
Ends of Empires are always somewhat distasteful for the person in the street – much like a vegetarian being forced into a Haggis-eating contest. The best prescription is to garner as much marketable education as possible, avoid debt, stock up on canned goods, and actively cultivate the art of self-protection in all of its forms.
And now a rollicking song in honour of the passing of a major pop star who was associated with a few bizzare habits, practices, and fantasies:
SEX BUST AT THE PARK
(An Irish drinking song)
By William H. Shakesrear
When night falls at the monkey cage
Four fiends come to the park.
They try to find young strapping lads
With whom to have a lark.
They line ‘em up behind the wall,
Then make ‘em hunker down,
And then there comes the big surprise
With hopes no one will drown!
O, rumppa-pumppa, rumppa-pumppa,
Let the good times run!
Go call the mop and bucket brigade
To clean up all the fun!
That ancient fossil was a sot
Who did some shaky steppin’.
His crime was known both far and wide –
Assault with a dead weapon!
The chubby guy was full of talk –
He liked to bend your ear –
But when a young boy came around
He tried to bend his rear!
O, rumppa-pumppa, etc.
Them other two that made the team
Were suffrin’ loads of stress.
But they relieved their tensions by
Creatin’ gobs of mess!
The young lads got corrupted from
Free beer which flowed like wine.
And so, were willing victims of
Those rude, light-loafered swine!
O, rumppa-pumppa, etc.
There was a sex bust at the park:
Cops caught the lechers four!
These sorry gents in chains and ‘cuffs
Cried, “We won’t sin no more!”
They got stuffed in the monkey cage
Where they felt right at home.
And if you come to view this lot –
Please don’t step in the foam!
O, rumppa-pumppa, rumppa-pumppa,
Let the good times run!
Go call the mop and bucket brigade
To clean up alllll theeeee fuuuuuuuuun!
China Debt Auction Falls Short as Central Bank Tightens Policy http://tinyurl.com/lux9bq
Catherine Auston Fitts linked to Zerohedge’s link to Max with Dr. Paul Craig Roberts.
http://solari.com/blog/
@Mark Bailey: greetings! I have been reading Christopher Story’s www,worldreports.org since 2007….Can you amplify on whether he has a solid reputation for the information he writes about…ie.: Wantagate????