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Bernanke Further Behind the Inflation Curve

On April 8, 2011, in Commodities, Economy, by Tim

Well, truth be told, Fed Chief Ben Bernanke is now so far behind the inflation curve that he’ll have to ask directions to find it, a point that became clear to me when I updated the model portfolio at Iacono Research for the next installment of the newsletter this weekend – it’s now up 8.1 percent for the year and that includes a pretty big cash position.

This chart of the day at Bloomberg tells part of the story that should get more  interesting as we get closer to “The Bernank’s” inaugural post-FOMC press conference later this month.

We now live in a part of the country (Montana) that, fortunately, has some of the lowest gas prices in the nation, but it still seems like inflation is quickly spiraling out of control (thank God – a new set of Costco coupons arrived in the mail today). I can’t imagine what it’s like to be unemployed in, say, California where, you have to pay $4+ a gallon for gas to go look for work when you know the odds are stacked against you.

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CPI-F?

On April 7, 2011, in Economy, by Tim

Now, here’s an inflation chart that any central banker would love, one from the fertile mind of Mr. Juggles over at Long or Short Capital that just might be the solution to an upcoming dilemma at the Federal Reserve about printing up another $600 or $800 billion for the greater good when people are screaming about how much it costs to fill up their gas tank.

The “F” in CPI-F stands for “flat” and this index is calculated by taking the overall consumer price index and excluding more items from it, much in the same way that food and energy have been excluded from “core” inflation, the preferred measure amongst Fed economists.

For CPI-F, those items that are increasing in price at a rate of more than 1.5 percent would be excluded … along with those items that are increasing in price at a rate of less than 1.5 percent and items whose prices are falling. The index currently stands at 1.5 percent.

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ECB Rate Hikes and Oil Prices

On April 7, 2011, in Economy, Europe, by Tim

As a follow up to this item from yesterday in which the similarities in the price of oil between 2008 and 2011 were detailed and, in the comments, it was noted that the ECB (European Central Bank) hiked interest rates with oil prices soaring and the global economy faltering, some thought was given to whipping up a chart to show just how awful the timing of that rate hike turned out to be. But, since they’ve already done that in this story over at Business Insider, it’s much easier to just use theirs instead.

Of course, the reason why this might be relevant is that, earlier today, the ECB hiked interest rates for the first time since, well, July of 2008. Yes, things are quite different today than they were back then, probably the biggest distinction being that, now, all the bad debt is on the books of central banks and governments rather than being held by private banks.

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Most Miserable in Phoenix

On March 30, 2011, in Economy, Housing, by Tim

A new “Misery Index” is detailed in this item at the Wall Street Journal Real Time Economics Blog that, instead of adding just inflation and unemployment as was done in the 1970s, includes the increase in gas prices and the decrease in home prices. Based on this measure, misery in the U.S. has more than doubled in the past year to about 20, however, Phoenix and the Pacific Northwest are much worse.

Since this data set only includes the 20 cities for which Case-Shiller home price data is available, you’d probably get some remarkably low numbers in the upper MidWest where gas is still relatively inexpensive, the unemployment rate is well under the national average, and home prices are fairly steady.

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Similarities Between Weimar and the U.S.

On March 25, 2011, in Economy, Our Culture, by Tim

In this item at Fred Sheehan’s aucontrarian blog, Adam Ferguson’s classic 1975 tome When Money Dies: The Nightmare of the Weimer Hyperinflation is used as the basis for ten similarities between the Weimar hyperinflation in 1920s Germany and the U.S. today.

(1) a high concentration of wealth among those who leverage

(2) the middle- and lower-classes falling behind, but not understanding or knowing it (or – knowing it but not allowing themselves to think about it)

(3) the rise of a gambling culture

(4) including financial speculation on the stock exchange, which spread to all ranks of the population

(5) the blossoming of a financial industry, with quantity crushing quality (Weimar bank tellers became financial advisers since most people were at a loss, and would take any advice, which was often horrible, but probably well-intentioned)

(6) the “striking displays of luxury beside poverty” (quoting Fergusson)

(7) a “growing lack of concern for one’s fellow man” (the difference between greed and the attempt to survive is blurred)

(8) values are distorted, in both senses, the one feeding the other: a wife selling her husband’s gold watch for four potatoes

(9) the quality of goods (and services) collapses (an evolution with consequences to morale and personal dignity)

(10) denial by the central bank that it is in any way attached to the inflation

There’s been a good deal of debate as to whether hyperinflation could ever happen in the U.S. and much of the discussion revolves around how the term is defined – I’ve always maintained that a 15 percent annual increase in the CPI will feel like hyperinflation, neutered as this price gauge has been over the last 30 years. It is striking, however, that so many cultural changes we see today are just like in Weimar Germany.

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Why Dudley’s iPad Comment Flopped

On March 24, 2011, in Economy, by Tim

In this item at the Cleveland Fed, Daniel Carroll provides the graphic shown below that goes a long way in explaining why New York Fed Chairman William Dudley’s tale of a much more powerful iPad 2 for the same price as the original iPad failed to placate an audience in Queens, New York who complained about rising food prices.

It’s a similar situation for the bottom 20 percent when it comes to energy which consumes about 21 percent of income and, while there was nary a mention of iPads in this story, you’d have to believe that Carroll was thinking about them and Mr. Dudley.

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