The current round of massive Corona Virus easing began Monday March 16th, 2020, with the FED buying $40 billion in Treasuries and then buying another $50 billion in Treasuries on Tuesday. By Thursday morning, it had upped the plan to $75 billion PER DAY and added $10 billion in mortgage securities. By Friday morning, the Fed had decided to buy $107 billion worth of Treasuries and mortgage-backed securities. In its first week, the FED purchased $317 billion worth of assets, which is slightly faster than the Fed balance sheet grew at the height of the 2008-2009 financial crisis. Initially, the Federal Reserve estimated purchases of $500 billion but FED chief Jerome Powell said the initial … [Read more...]
Inflation: The Hidden Tax
The media and the Central Bank (i.e. The U.S. Federal Reserve aka. the "FED") tells us that a little bit of inflation is a good thing. Inflation gets the ball rolling, greases the wheels of commerce, and stimulates the economy. The FED sets as a goal 2% inflation, so inflation must be good for us, right? Two Forms of Inflation Well, it is good for someone but not necessarily for you i.e. the consumer. The first problem comes because there are two different types of “inflation” and by interchanging them we end up with a form of Orwellian “double-speak”. The first kind of inflation is “monetary inflation” i.e. an increase in the overall money supply. This is accomplished by a complex process … [Read more...]
November Annual Inflation Jumps Up But…
The U.S. Bureau of Labor Statistics (BLS) released its November Inflation report on December 11th, 2019, for the 12 months through the end of November 2019. November Inflation is Up Annual inflation in November was 2.05% up from October's 1.76%. The last time inflation was this high was in April. Inflation has been in a narrow range through much of 2019. 1.79% in May, 1.81% in July, 1.65% in June, with a high of 2.00% in April. Inflation peaked at 2.95% in July 2018. The CPI-U index in November was 257.208 down from 257.346 Monthly Inflation for November was -0.05% much higher than -0.33% in November 2018. Next release January 14th The CPI index itself actually … [Read more...]
Modern Monetary Theory
Recently Freshman Congresswoman Alexandria Ocasio-Cortez (AOC) thrust Modern Monetary Theory (MMT) into the popular limelight by suggesting that MMT was how the U.S. could pay for her "Green New Deal". What is MMT and how is it different from good old "Money Printing"? History is rife with examples of countries that tried to print money without any “governor” on the quantity of money printed. Recent examples include Argentina, North Korea, Zimbabwe, and Venezuela. See: 27 examples of hyperinflation from ancient Egypt through modern-days. In today's article Charles Hugh Smith of Daily Reckoning looks at why Modern Monetary Theory Won't Work. We've reprinted the following article by … [Read more...]
Investing to Fight Inflation
While inflation has been low in most developed countries over the last decade, there are places where it is starting to pick back up, with stronger growth outlooks for several major economies. As we can see from the chart below the OECD is projecting massive inflation in 2020 for both Turkey and Argentina at 12.6% and 22.7% respectively. The average of all OECD countries is a low 2.4%. The OECD Inflation projection for the European Union (EU) is also surprisingly low. Who would have thought that countries like Italy, Spain and Portugal could maintain such low inflation rates, with the highest being Hungary at 3.8%. Back in June 2019, the Telegraph published an article about how the … [Read more...]
If Everything Big is Increasing in Cost at Some Rate Faster than Inflation Why Hasn’t Inflation Risen to Match?
I recently answered this question on Quora. And I thought I would share an expanded answer with you as well. Whenever a question starts with an assumption you need to examine whether that assumption is in actuality true. If the assumption is vague enough it can be fairly difficult to determine and we might be tempted to go with the basic assumption. In this case, the assumption is that "everything" "big" is increasing in price faster than average. We have no clue what he means by "everything" (I'm sure he isn't being literal) and what does he mean by "big"? Large as in houses, and cars, or expensive like Yachts and Lamborghinis, or things that are a large portion of the average person's … [Read more...]
How Does Inflation Affect Businesses?
The fallout from inflation doesn’t always receive a balanced, informed portrayal from the media. This is somewhat understandable since, unless inflation makes a drastic move, its slow steady erosion of purchasing power is not considered newsworthy. However, as with most economic forces, not everyone “loses” when inflation boosts the everyday cost of living. Inflation can actually either benefit or destroy American businesses, and individual preparation for its eventual, inevitable impact often decides how detrimental or beneficial it is. Foreign Exchange International purchases become more costly as inflation diminishes the dollar’s purchasing power relative to other currencies. This … [Read more...]
July Inflation Report
The U.S. Bureau of Labor Statistics (BLS) released their July Inflation report on August 13th 2019, for the 12 months through July 2019. Annual Inflation is Up Annual inflation in July was 1.81% up from June's 1.65% almost identical to May's 1.79% and March's 1.86% but below April's 2.00%. CPI Index in July was 256.571, June was 256.143, May was 256.092. April's was 255.548 and March was 254.202. Monthly Inflation for July was 0.17%, June was virtually zero at 0.02%, May was 0.21%, April was 0.53%, March was 0.56%. June 2018 was 0.16%. Quantitative Tightening (QT) continued but the FED says it is stopping. Check it out here. What is Quantitative Tightening? Next release … [Read more...]
How Does Inflation Affect Foreign Exchange Rates
Inflation affects every consumer, business person and investor in some way or other. Inflation is one of the key factors that affect consumer prices, financial markets including Stocks, Bonds and Forex. As such, it is important for consumers, investors and traders to get a deeper understanding of what is inflation and what causes it. What is Inflation? Understanding inflation is often complicated by the fact that the cause and the effect are often muddled together in people's minds due to the lazy way we often refer to inflation. The effect of inflation is what people see when they go shopping and see increases in the general price of goods and services. When the individual prices of just … [Read more...]
How Inflation and Interest Rates Relate
In addition to sounding similar interest and inflation are amazingly inter-related. And in effect interest rates incorporate a "negative feedback loop" into inflation. When people think of the word inflation they generally think of how inflation affects them. They see rising prices of common commodities like gasoline or food and worry about the rising cost of living. But that is simply the effect of inflation and it is technically referred to as "price inflation" but the cause of price inflation itself is actually much more complicated. In the short run, prices can rise due to a shortage in supply, such as a gasoline shortage caused by a refinery having to shut down due to a … [Read more...]
