Inflation has a big effect on the future value of our nest egg. As we begin to think about retirement we dream of our "magic number" that amount of money that we will need to retire comfortably. But with the rate of inflation constantly changing in is like trying to take aim at a moving target. To make matters worse it's not just the value of the money that is changing it is also the amount of interest you can earn on that money. With the FED actively working to keep interest rates low your savings often earn virtually "Nil" in the way of interest and to make matters even worse once inflation and taxes take their bite your nest egg might actually be shrinking. In today's article Dennis … [Read more...]
Pushing on a String, Velocity of Money and Money Multiplier Conspire Against the FED
Under certain circumstances such as high national indebtedness, fear of bad economic times or when interest rates approach zero, monetary policy becomes ineffective in enticing consumers into spending more money. Economists refer to this as "Pushing on a String" because if the basic demand doesn't exist to induce people to spend money, it can't be forced through monetary policy. Prime examples of this are during the Great Depression in the United States and in Japan since the 1990s. And as Lacy Hunt explains we are once again facing this problem in the United States since 2008. ~Tim McMahon, editor Federal Reserve Policy Failures Are Mounting By Lacy H. Hunt, Ph.D., Economist The Fed's … [Read more...]
BLS Recovering From Shutdown
The government shutdown is over and the U.S. Bureau of Labor Statistics is recovering from their unscheduled vacation. The United States federal government shutdown of 2013, lasted from October 1 to 17, 2013. Unemployment data for the month of September was due to be released on October 4th i.e. four working days into the shutdown. So the employment data is now scheduled for release on October 22nd. And the Consumer Price Index which is used to calculate the September inflation rate, which was scheduled for release on October 16th is now scheduled for release on October 30th. Although the shutdown inconvenienced vacationers wanting to see National Monuments and the National Zoo, did it … [Read more...]
Consumer Price Index Definition
What is the Consumer Price Index? The Consumer Price Index is simply a basket of goods that is used by the Bureau of Labor Statistics to gauge how much price inflation the economy is experiencing. It is "weighted" based on how much of each good the average family uses. Therefore if 41% of your expenses are related to the housing category and 3.6% of your expenses are related to the apparel category and Apparel goes down by 1% and housing goes up by 1% your overall expenses will still be going up. In other words, if you spend $820 on rent a month and $72 on clothes a 1% increase in your rent would add $8.20 to your monthly rent expenses while a -1% would only save you $0.72 on … [Read more...]
What’s So Bad about Shutting the Government Down?
It all seems a bit silly. On Monday the National Park Service declared that the open-air Veterans Memorial would be closed during the shutdown. After all they have to prove there is some "pain" involved in shutting down the government. But a bunch of 80-90 year old veterans would have none of it and they tore down the blockades. So the park service made a 180-degree turn and declared their visits now constitute protected “First Amendment activity” . Basically they had no choice, what were they going to do? Shoot the old war heroes? Put them all in jail? It's like a bit of a joke. No their backs are against the wall, somehow they must impress on us common rabble how important the … [Read more...]
Taper Caper: The Consequences of Institutionalizing Q.E.
By Ben Hunt, Ph.D. Previously, we discussed the Bureaucratic Capture of the FED and the institutionalizing of QE. QE is adrenaline delivered via IV drip ... a therapeutic, constant effort to maintain a certain quality of economic life. This may or may not be a positive development for Wall Street, depending on where you sit. I would argue that it’s a negative development for most individual and institutional investors. But it is music to the ears of every institutional political interest in Washington, regardless of party, and that’s what ultimately grants QE bureaucratic immortality. It is impossible to overestimate the political inertia that exists within and around these massive … [Read more...]
Taper Caper: Has the FED Been “Politicized” or “Captured”?
By Ben Hunt, Ph.D. Two things happened this week with the FOMC announcement and subsequent press conferences by Bernanke, Bullard, etc. – one procedural and one structural. The procedural event was the intentional injection of ambiguity into Fed communications. As I’ll describe below, this is an even greater policy mistake than the initial June FOMC meeting when “tapering” first entered our collective vocabulary. The structural event ... which is far more important, far more long-lasting, and just plain sad ... is the culmination of the bureaucratic capture of the Federal Reserve, not by the banking industry which it regulates, but by academic economists and acolytes of government … [Read more...]
The Mystery of the Missing Taper
Taper Caper: Conspiracy Theory Last Thursday, prior to the FOMC announcement, I was invited to come sit with another group of friends and traders everyone was sure there would be some type of tapering. That message had been clearly communicated to the markets. When the announcement came, the telephones went off and everyone erupted with various forms of surprise. I fully admit to being speechless. I kept waiting for some kind of explanation, and none came. The more we talked about it and the more I thought about it later, the more convinced I became that this was one of the more ham-handed policy announcements from the Fed in a very long time. Why would you go to the trouble of getting the … [Read more...]
How States Stack Up
If you have ever considered moving to improve your income or lifestyle the following info-graphic might help clarify your choices. It covers median household income by state ( the yellow states have the highest median income and the orange states have the lowest). It also covers Housing costs, number of millionaires, poverty rate, well being index, employment rate, tax burden, minimum wage and GDP. By clicking on an individual state you can see all its results at once in the right hand column. See also: Cost of Living, State Employment and Unemployment Rates and Minimum Wages vs Unemployment. … [Read more...]
How The Federal Reserve is Making Us Poorer
In today's article Lacy Hunt looks at the Federal Reserve's economic model and a few important questions regarding their policy, including, "How accurate have the FED's previous predictions been?" and "Has the Fed facilitated errant fiscal policies?" and "Is the Fed relying on an outdated understanding of how the macro-economy works?". He also shows how because of (not in spite of) FED actions, "real income of the vast majority of American households fell" and "worsened the income/wealth divide". In other words the FED has made us poorer. ~Tim McMahon, editor The Federal Reserve (FED) By Lacy H. Hunt, Ph.D., Economist In May 22 testimony to the Joint Economic Committee of Congress, … [Read more...]