Posts Tagged ‘Inflation’
BEING PART OF THE PROBLEM, NOT PART OF THE SOLUTION
As the country struggles to come to grips with inflation at a level not seen since the dying days of the deeply flawed Lange Labour government their nice Mr Robertson, in an astonishing outburst of chutzpah, declared there was nothing to see here … that our economic fundamentals were sound. Cynics might suggest that the Titanic too was declared unsinkable.
The sixth Labour government has distinguished itself by its wholehearted and enthusiastic embracing of Social Credits A + B theorem and the notion that the country can print its way to prosperity. And now they’ve been caught out, possum like in the headlights, and reduced to saying ‘its not our fault’.
When you live by the sword you die by the sword and the day of reckoning is fast approaching. This government has no solutions (only band aide ones). It’s failing on just about every metric that matters … the economy, on health, an education system going backwards, on productivity, on competitiveness and on law and order with the result that our best and brightest are lining up to flee the country for a better life. It is a reactive government, devoid of ideas, presiding over a bloated bureaucracy, driven by inertia.
It is truly part of the problem, not part of the solution.
Misty Mountain Hop
Starting with something beautiful, let’s keep going on that before we plunge into the ugly realities of our world.
As I explained in a post back in January, I hate these people, and with every passing day the hate deepens as their desire to control the rest of us deepens, literally.
They even have their own police.
Among their other plans they’re big on “sustainable farming” – which means that you need to eat much less meat for a start and you may even end up loving various bug-based meals!
This is why the following is not just a flailing, failing US President trying to gaslight people about inflation, but about the same themes as the WEF; you won’t need to worry about inflation on beef, pork and chicken.
The gaslighting isn’t working, at least not for Biden. That poll result – lower than Trump – has to burn, and I don’t think Biden’s reached bottom yet.
I’m not sure that the WEF does opinion polls about themselves because I don’t think they care what anybody thinks of them or their ideas so long as global leaders like Trudeau, Biden, Ardern, Albanese and company love them.
However, unlike the WEF, politicians do have to face the voters sooner or later and there’s only so much gaslighting that can be done before reality breaks through.
More to come; the additional subsidies for Obamacare that were slotted into the Covid-19 spending bills will expire just in time for the mid-term elections, and premiums are already looking ugly. If you ever wondered why US Health Insurance companies supported Obamacare, now you know.
It’s actually hard to see any policies or anything that the Biden Administration has done that has been positive.
I wonder how many American voters (and other idiots around the globe) remember this:
The Internet does – and it has the receipts.
It’s so bad that he’s even started blaming his staff, which is why they’re leaking to their friends in the MSM, leading to that NBC report, which can barely spin it any more.
You do wonder where the bottom is for this senile old fool and his Democrat Party, but increasingly the message from Democrat insiders is “SAVE US”.
Of course some of his MSM pals are still doing their best, with the pitiful Newsweek taking Biden’s Big Soundbite and helpfully incorporating it into a story that’s not about the Republicans at all.
So in addition to the classic “Republicans Pounce” (yes, they’re so unaware of Interwebby Memes that they used that phrase) they also acted as ventriloquists for the phrase, “MAGA Republicans” that Biden first claimed he’d thought up himself – before it was revealed that Democrat focus groups had developed – and after months of “work” to boot. Like their other solutions this one fell flat, with GOP activists eagerly and proudly making it their own. Once again it’s Democrat fluff vs. the brutal reality of their man’s profound inadequacies that can be turned against him on any issue.
It’s also obvious that there’s not much talent they can draw on to replace Biden in 2024, judging by the following.
No aircraft carriers were under attack at Pearl Harbour because they were all at sea that day, especially not the USS Intrepid because it wasn’t commissioned for another two years. Adams is ignorant and more to the point, likely doesn’t care about being ignorant. Rumour has it that Adams has Presidential ambitions and he may be a good match for Democrat voters.
BEWARE OF GREEKS BEARING GIFTS
I guess many eyes will be on the Reserve Bank when it announces the new OCR on Wednesday. It is projected to rise anything between 50 and 100 basis points. We’ll be generous … lets assume it comes in at the midway figure. That means that every Kiwi family with the average mortgage debt assessed at $260,000 (Stats NZ as at Jun 2021) could/will end up paying an additional $1.950 per annum in interest repayments.
Brings into sharp contrast the $350 ‘cost of living’ payment for those earning <$75,000 announced in the budget … and we won’t even talk about increases to the price of petrol or basic food items let alone the rest.
Roberston’s band-aid solution to inflation out of control is revealed for what it is … the King Canute approach to taming inflation. $6b dollars of new spending in the budget and all of that predicated on borrow and hope … Labour has redefined economic orthodoxy (and unorthodoxy) to new levels believing that you can spend your way out of inflation without any impact.
Economic neanderthals all.
Death, taxes… and inflation
Tomorrow will see the release of the latest inflation stats for New Zealand, and they are expected to be bad.
Inflation is not a new phenomena created by the Industrial Revolution, paper money, or digits in a computer, whether backed by a central bank or a decentralised cryptocurrencies. No, even back in ancient times money was being debased:
Evea our kinsman Gratidianus failed on one occasion to perform what would be a good man’s duty: in his praetorship the tribunes of the people summoned the college of praetors to council, in order to adopt by joint resolution a standard of value for our currency; for at that time the value of money was so fluctuating that no one could tell how much he was worth.
That was the Roman statesman and philosopher Marcus Tullius Cicero and he wasn’t writing an economic analysis but about some Roman magistrate taking credit for the work of others. Still it was an interesting, if vague and obscure, reference to possible financial problems in that Roman period (44 BC) and the frustrating thing was that there was not other evidence to support it.
In part of an ongoing project, Butcher and colleagues analyzed the composition of the coins minted during these years. They used minimally invasive sampling techniques to prevent damaging the precious silver relics, bearing the heads of gods and Roman leaders, that were first introduced as currency in 211 BCE, valued at ten bronze assēs coins.
The researchers found before 90 BCE the denarius was composed of pure silver, but that dropped 10 percent only five years later.
“The denarius first dropped to under 95 percent fine, and then it fell again to 90 percent, with some coins as low as 86 percent, suggesting a severe currency crisis,” concludes University of Liverpool archeologist Matthew Ponting.
There were also other quantitative measures:
A massive increase in coin production also took place in 90 BCE, with 2,372 dies – the molds to make the coins – compared to 677 the previous year, and 841 the following.
You have to wonder what they’d have done with computers!
Still, it comforts me somehow to know that Grant Robertson is following in the footsteps of the Romans. Perhaps he should wear a toga during his press interviews tomorrow. Sadly we cannot expect anything from him as dramatic and effective as the solutions obtained from Gratidianus.
“It is all the more noteworthy that around the time Gratidianus published his edict, the standard of fineness rose sharply, reversing the debasement and restoring the denarius to a high-quality currency.”
ROBERTSON HAS NO ANSWER
Finance Minister Robertson’s wringing of his hands on Morning Report acknowledging that ‘we’ can expect inflation to increase further over the next two quarters suggests he has no answers and what will be will be. The country expects/demands leadership and here we have the man in charge of the levers with no answers and nothing to offer other than to continue to borrow and hope.
Nicola Willis is right on the money with her recipe for easing inflationary pressures …. (1) stop adding extra costs to businesses that are being passed on to consumers and (2) stop wasteful government spending and (3) expedite the entry of skilled workers back into the country.
But no … all Labour can do is point to increased new spending in the upcoming budget … all on borrowed money … spending ones way out of inflation is an interesting concept.
Meanwhile Kiwi families at the coalface struggle to make ends meet.
Food
For a guy who is basically in the business of making food I’m embarrassed to say that this news got away from me until now.
The Return of the Third Horseman
As viewed from an agricultural point of view, the world’s largest wheat exporter invaded the world’s fourth-largest wheat exporter. That alone condemns the Middle East to its most volatile and violent period in at least the last century.
One should always be leery of people making apocalyptic predictions; they usually don’t come true.
However in this case there’s a lesson from the recent past:
In 2010, dry weather across Western Siberia prompted concerns about the Russian wheat crop. In preparation for a poor harvest, Russian President Vladimir Putin ordered temporary export limitations for wheat, Russia’s primary agricultural product. Within weeks global wheat prices had doubled; Prices tripled in Russia’s primary export market, the Middle East. Those increases contributed to the series of protests, riots, coups, revolutions and wars we now know collectively as the Arab Spring and the Syrian Civil War.
What’s happening now in Russian and Ukraine is a lot worse than that. Farmers are simply not getting Spring wheat planted, whether for reasons of war (Ukraine) or financial problems caused by the war (Russia). However, the article looks at another aspect, fertilisers, three in particular.
Phosphate: China is the largest producer and they’ve banned its export because they need it for a massive increase in their rice crop to compensate for the massive cut in the number of pigs due to the Swine Flu Epidemic a couple of years ago. They culled as many pigs as the rest of the world has in total.
Nitrogen-based fert. Produced using natural gas. Guess who is the largest supplier? Russia. So a threat to supply, which has already boosted the cost, especially in Europe, where it’s increased five-fold.
Potash: Russia and Belarus have 40% of the global supply.
All of these things can be worked around, but that can take years as new supply chains are created; building new pipelines, factories and so forth – all massive expenditure with the knowledge that if/when the Ukraine War ends and if/when sanctions against Russia end, the availability and price of these things might rapidly return to the 2020 status quo.
I’ll take Manic Pixie Dream Girl for 5% inflation, Alex
The latest statements out of the dairy companies show the biggest monthly leap in payout prices that I can recall, greater even than the big boom of 2013/14.
And farmers vividly recall what happened next; the biggest crunch dairy farmers have ever experienced, which is why I’m looking at their forecasts of similar pricing into 2023 and taking those with a grain of salt.
Everybody likes to see a steady increase in value for what they produce, a steady growth in wage and salaries or other income.
But nobody, at least nobody with a sense of the future, wants to see these sorts of rises because they’re not real in the sense of steady increases in the number of your customers or their increased valuation of your product or service, or perhaps just their steady increase in wealth that makes them less penny-pinching.
No, these sorts of price increases mean that something is very wrong with the system. That money is floating around out there and being thrown at assets and commodities because in our bones we know it can’t last.
Milk is not in that graph but it should be. Farmers had a good sense of what was coming before most economists did, when we saw the price pressures building in 2021. We know from our history that we’ll benefit from inflation before anybody else because commodities go first – but we also know that it will bite us (and everybody else) in the ass later on, as the pressure feeds into the costs of fuel, fertilisers and a hundred other things needed to run a modern farm. Today’s bumper profits and excess cash flow can vanish real fast under those circumstances.
Still, it’s better than being in the situation of a wage and salary earner, especially in the lowest brackets. Those poor bastards are getting screwed right now and it is going to get worse and all the increased minimum wage and WFF kerfuffle is not going to count for much.
That note about the suspension of trading in Nickel forwards is not due to some fundamental problem obtaining Nickel but because some Chinese billionaire and his giant Nickel processing company found himself stuck with an $8 billion loss on short positions he took.
This is going to get worse before it gets better and I hate to tell you this, but in the short-term there’s not much that governments can do about it. They have lit the fuse, as usual, but the it’ll be the marketplace that clears the crap out of the way in its usual, brutal fashion.
“The US currency will fall to zero”
Over the next hundred years. At least that’s the working assumption they’re using for investment strategies over at the famous Berkshire Hathaway investment fund, (fund net worth $US 700 billion) according to the Vice Chairman of it, Charlie Munger.
This comment came in the middle of an interview that focused on the current inflation crisis in the USA.
Also this:
“Eventually the whole damn Roman Empire collapsed…. It’s the biggest long-range danger we have probably apart from nuclear war.”
Now I have to admit that Munger is not a figure I admire much, if at all, on the basis of his approval of the way things get done in China:
The Chinese Communists did the right thing. They just called in Jack Ma and said, “You aren’t gonna do it, sonny.”
Jack Ma is a former Chinese schoolteacher who co-founded the gigantic Albaba e-commerce firm. I wonder how Munger would feel if a US President did the same thing to him?. To be fair, in that 2021 interview he did say that he didn’t want the Chinese “system” in the US, just the financial bit of it, although he doesn’t seem to recognise that the CCP would probably “solve” inflation the same way they solve all their problems; repression.
But when it comes to things economic we should probably listen to him.
Then there’s this news, which is a surprise to me considering how productive the US housing construction market is.
As a result of these policies, a shockingly large price bubble appears to have formed in the real estate market. The average sales price of a home in the fourth quarter of 2021 was $477,900, compared to $403,900 in the fourth quarter of 2020 and $384,600 in the fourth quarter of 2019. That’s a $93,300 increase in just two years, by far the biggest increase ever recorded in just 24 months.
We all know what happens to bubbles right?
Stock up on gold perhaps? Plus food, fuel and ammo! 😉
The Dying Dollar
That’s a hell of a title for an article but it’s hard to argue with the points made in it, especially when you consider the games played with the Consumer Price Index (CPI) over the years:
The methodology of the Consumer Price Index used to be a fixed basket of goods, now the basket is dynamic, allowing them to take out goods that increased significantly in price and replace them with substitutes that have more modest price increases or even price declines. According to economist Peter Schiff, the original CPI methodology would today show an inflation rate of around 15 percent.
That last figure seems correct when you look at the price increases of ordinary things in the USA that people buy every day, as opposed to iPads. And it’s ordinary people who get screwed the most and the fastest by inflation, which is a tax you can’t avoid:
The wealthy hold assets and debt so they’re relatively protected, but the middle and working classes face penury. Remember the World Economic Fund slogan “You Will Own Nothing and Be Happy”? That dystopian vision is what runaway inflation is accelerating us towards. Wage workers won’t be able to afford down payments on property, credit will be tightened and rates will be raised to combat inflation.
I think we’re seeing that here in NZ also. One of the many reasons the young friends of my kids gave for voting Labour in 2017 was that they saw little hope of being able to afford a house much before they hit their forties. Now they don’t even want to talk about it, so bleak have the prospects become, although their parents assure them they’ll help out.
Back in the USA there are some geo-political realities that must be accounted for because of the US dollar’s status as the ultimate reserve currency:
It backs all but a handful of other currencies around the globe and as such, its depreciation can lead to depreciation of other countries’ currencies, compounded by those countries’ own central bank inflation. The reserve currency status of the dollar is chiefly responsible for America’s standard of living being as high as it is. The entire American economic model is built on the dominance of its currency. We are able to sustain a perpetual trade deficit with the world because of it. We export dollars and we get cars and electronics and food in return. On the fiscal side, inflation is a tax paid not just by Americans who hold dollars, but by dollar-holding foreign countries, companies, and citizens as well.
Countries tolerate this trade-off because of the anti-inflation credibility built over the past 40 years by hawks at the Fed like Paul Volcker.
Ah yes. The Federal Reserve of the USA. With them lies the solution. There’s just two huge problems with them providing a solution.
First is that they’ve enabled this bullshit to happen in the first place. Sure, the Federal government, especially in the hands of the Democrats, have reached unseen levels of insanity with spending. But it would not be possible for them to do this were it not for the Fed. When it comes to inflation, it’s the Fed, stupid:
Figure 2 (below) shows Real M2, adjusted for inflation (with 1982-84 dollars serving as the base), from 1959 to the present day. Here too, we see the line take a vertical turn in 2020. If those graphs do not alarm you, they should.
There are other equally scary graphs in that link, of things like the Fed Balance Sheet and Funds Rate, covering the infamous Quantitative Easing and Zero Interest Rate Policy (ZIRP) of the last decade since the GFC. The QE back then did not cause inflation, despite fears that it would. Why the difference now?
That [2008-2014] money never entered the real economy and did not even count as part of M2.
…
By the end of Bernanke’s term in January 2014, M2 was $11 trillion. In over five years’ time, the money supply increased 42%.Powell’s Fed, since March 2020, has superintended a 37% increase in M2 – in only a third of the time that it took Bernanke’s Fed to witness similar growth.
Second, all this is piled on top of an already terrifying debt level of $28 trillion, more than 100% of GDP, which means that it’s going to be almost impossible to repeat what Volcker did starting in 1979:
Despite historically low interest rates, the federal government is projected to have spent $300 billion this year on interest payments on the national debt. Even a mild increase in interest rates would increase government expenditures on interest payments by hundreds of billions of dollars.
…
The Federal Reserve’s hands are tied, as evidenced by their decision to keep interest rates between 0.00 percent and 0.25 percent, even while removing “transitory” from their vocabulary. Increase interest rates quickly and significantly enough to curb inflation and the entire market melts down along with the federal government’s fiscal budget.
What then will Fed Chairman Powell do? My bet is nothing for at least another year:
[He} faces a Sophie’s Choice scenario: continue to allow inflation to spiral out of control by keeping interest rates low—which would result in all manner of civil unrest and possibly even a real insurrection—or raise interest rates, which would crash the stock market and force Congress to cut spending, ensuring the complete and total destruction of Congressional Democratic majorities, the likes of which the country has never seen.
So wait until the GOP takes control of Congress in 2022, possibly with large majorities, and let them take the hits along with Biden. But the Democrats might not care; Biden – and their own policies – are millstones around their necks that are drowning them right now. Perhaps losing in 2022 will be the best thing that can happen to the Democrat Party? Promise an end to the pain in 2024 with lots of soothing government programs and win it all back?
The first article ends on an even more cynical note than I’m capable of:
The more 3D printed suicide pods I see the less I believe in mere coincidence. What I do know is that the ultra-wealthy and the banks have the most to gain from this and they are the ones who have most encouraged the policies that have brought us to this. It seems that they are well-positioned to buy up the remaining assets of middle and working class Americans at fire sale prices, after they have finished setting fire to the economy. But then again, it could just be incompetence. That is one commodity that there is no scarcity of among those who occupy the commanding heights of power in America.
One thing I can say with confidence is that the government will not act. It will do too little, too late. There isn’t the courage left in our political class to make hard decisions. There are no more Jimmy Carters. We have to begin thinking about what comes next.
Lastly this article has more up-to-date figures, and a better way of framing the impact on the US fiscal budget from increased interest rates:
The federal government will spend around $413 billion in 2021 on debt interest alone, according to the Congressional Budget Office. Debt service was a comparably reasonable $197 billion in 2010.
…
But remember that is at about one percent interest. Each one-percent interest-rate increase costs another $413 billion. More precisely, each one-percent interest-rate increase costs American taxpayers another $413 billion (and climbing.)
If the Fed was serious and raised rates to five percent—which still may not be enough—that would be close to $2 trillion in interest the federal government would need to pay annually. That’s half of the entire federal budget. Americans will be outraged to discover that Social Security, Medicare, defense spending, infrastructure, and everything else will need deep cuts in order to pay interest on money long spent by craven, irresponsible politicians.
Meh. Let the GOP deal with that; they’re always boasting about being better with budgets and spending than the Democrats. Let them cut all those areas in 2023 when they’re in charge of Congress. By the same token the GOP will have to hope that Biden refuses to sign such cuts, going against his grain as it would be, as well as letting him be the fall guy for those millions of Americans who think the President is in charge of this stuff.
Inflation heading this way in 2022
In effect we’ve already been seeing inflation in New Zealand for a year now, as the huge flush of government created / borrowed money, designed to keep businesses and people afloat, has flowed into a New Zealand economy that could not absorb it thanks to lockdowns and other restrictions imposed by the government to fight the great Chinese Xi Snot pandemic. It’s just that our inflation has mainly been in the form of insane increases in house prices across the nation, none more so than in Auckland (Refer to the chart at the end of this article).
But in the US inflation is not showing up in house prices – yet. Over there it’s crashing into people’s consciousness in the prices they’re paying for everyday products.
Inflation hit 6.8% for November, which is the worst mark since 1982 when the country was still recovering from the Jimmy Carter years.
That’s just the generic figure and its calculation quite deliberately misses some everyday things. For ordinary people the following is the real inflation they’re facing.
Incidentally that article points out that this shocking piece of economic news is the likely reason why the following happened…
Earlier in the week, news broke that the White House had been colluding with mainstream media outlets in order to change the narrative surrounding Joe Biden’s fledgling economy. That collusion quickly produced results, with outlets such as CNN, MSNBC, and CNBC complaining that the administration was being treated unfairly.
Inflation for some of these things are already flowing into NZ, starting with the price of petrol. But the rest will be along soon enough to add to our already unaffordable homes, as pointed out by Mr Reddell at Croaking Cassandra:
If house price inflation slowed to 1 per cent per annum, year in year out and incomes rose by 2.6 per cent per annum, in 20 years time the nationwide price/income ratio would be 5.85.
…
And if by some chance you think a price/income of 6 doesn’t sound too bad. well (a) you’ve just too used to latter day New Zealand, and (b) check the table on page 15 of the Demographia report for the metropolitan areas (most of them) with ratios lower than 6, in lots of cases much much lower. New York – never really thought of as a cheap place to live – shows at 5.9, Montreal at 5.6, Manchester (UK) at 4.8, Nashville at 4.2, Edmonton at 3.8, and on downwards.
Graph from an older post, A Distorted Economy:
No Minister 
