The Federal Reserve The Federal Reserve serves as the Central Bank of the United States, and whether you realize it or not, it plays an active role in the lives of every American. It makes decisions about monetary policy and interest rates that have a direct impact on the market and an indirect impact on everyone. The FED uses inflation targets to determine how much they can devalue (inflate) the currency. Many people believe that they created a massive money printing scheme cryptically called "Quantitative Easing"since QE1 converted almost worthless mortgage backed securities into currency. The Fed regularly issues statements about how inflation isn't really as bad as everyone says it … [Read more...]
Annual Inflation Down in February
Current Inflation Commentary- The U.S. Bureau of Labor Statistics has released the Annual Inflation rate today. For the year ending in February, inflation was 1.13% down roughly 1/3rd from 1.58% for the year ending in January. Monthly inflation was relatively high at 0.37% in January and the same again in February. This is consistent with the historical trend of low inflation in the 4th quarter and high inflation in the first quarter of the year. Click for larger image The Consumer Price Index came in at 234.781 in February which was … [Read more...]
What is the Misery Index?
The misery index was created by economists in an effort to quantify how bad the economy is based on cold hard numbers. In many ways, it can be argued that suffering is not quantifiable, after all how do you measure the pain associated with starvation, sickness, disease, homelessness, war, lawlessness and all the evils of society? But in economic terms economist Arthur Okun developed a simple but brilliant method of determining how miserable people were economically. The Misery Index and Unemployment The first component is unemployment. Okun reasoned that if a lot of people were unemployed, that would make the country as a whole feel poorer and so they would be less well off. Also a side … [Read more...]
U.K. Historical Price Converter Added
This month as a service for our friends in the U.K. we have added a U.K. Historical Price Converter. This handy little calculator will tell you the equivalent value of any prices from 1751 to the present. It is based on the "Retail Prices Index" which was instituted in Great Britain in 1947 in an effort to determine how much the war was affecting prices. The data was later "backdated" to include prices back to 1751 by Jim O’Donoghue, Louise Goulding, and Grahame Allen in a paper entitled ‘Consumer Price Inflation Since 1750’. In it they state that, their article presents: "a composite price index covering the period since 1750 which can be used for analysis of consumer price … [Read more...]
Inflation was Up Slightly in January 2014
Current Inflation Commentary- The U.S. Bureau of Labor Statistics has released the Annual Inflation rate today. For the year ending in January, inflation was 1.58% up very slightly from 1.50% for the year ending in December 2013. Annual inflation is made up of 12 monthly inflation components and although monthly inflation was virtually Zero for December 2013 and rose to 0.37% in January. This fits well with the historical trend of low inflation in the 4th quarter and high inflation in the first quarter of the year. The Consumer Price Index came in at 233.916 in January which was actually … [Read more...]
Commodity Prices Falling Despite QE
Traditional wisdom tells us that when the money supply expands the price of commodities rises. Today Robert Prechter takes a look at what has actually happened to commodity prices since 2008 during a period when theoretically the FED has been pumping up the money supply. ~Tim McMahon, editor Commodities Falling Despite QE: What Does That Mean? Robert Prechter: "Charts tell the truth. Let's look at some charts." By Elliott Wave International During QE3, the latest round of the Fed's quantitative easing, the stock market rose. We all know that. But did you also know that commodities fell? That's right: QE3 had zero effect on commodities -- or maybe even a negative effect. In … [Read more...]
Lawsuit Settlement Inflation
Our society is becoming increasingly litigious with people suing for almost anything. And lawsuit amounts have skyrocketed over the last 50 years. One typical example is in the asbestos litigation category. Although, asbestos use was halted in the 1970s, due to the long period before symptoms of asbestos damage shows up, asbestos related lawsuits are still prevalent. In the United States, approximately 600,000 people have filed suits claiming damages caused by asbestos, and asbestos litigation has become the largest mass tort in history. Despite the decline in the number of people diagnosed with asbestos related diseases (such as mesothelioma cancer) since the 1990s, asbestos litigation … [Read more...]
Current Inflation Commentary for December 2013
Current Annual Inflation Commentary Annual Inflation: Annual inflation rose was 1.24% in November and rose to 1.50% in December. Monthly inflation for December 2013 was -0.01 or virtually Zero. Going by the Consumer Price Index which was 233.049 in December, 233.546 in October and 234.149 in September prices were "rolled back" to below June levels when they were 233.504 but greater than May when they were 232.945. Annual Inflation was 1.50% in spite of the FED buying $85 Billion a month in Bonds lending more credence to Robert Prechter's Deflationary scenario. You can get Robert Prechter's 90 page deflation survival guide free here. Historically monthly inflation rates tend to be … [Read more...]
How “Excess Reserves” and the Money Multiplier Could Trigger Inflation
Banks have $2.5 trillion parked in "excess reserves". This is money on deposit with the FED. The FED pays a miniscule amount of interest on these reserves but the banks are willing to loan it to the FED because it is easy no risk income. But it is also the reason that the money multiplier is falling! And when the money multiplier is falling the FED has a very hard time increasing the money supply. So if the FED really wants to increase the money supply all it has to do is decrease the interest rate it pays on excess reserves and the banks will find some place else to deploy it. Which could trigger massive inflation. ~Tim McMahon,editor A Fed Policy Change That Will Increase the Gold … [Read more...]
Inflation Expectations and the FED
As inflation expectations rise the FED has less and less "wiggle room" to stimulate the economy. But how do you measure "inflation expectations"? In today's article, Chris Ciovacco will show us. ~Tim McMahon, editor Low Inflation Leaves Fed’s No Taper Door Open Fed Lost Control In 2008 In early December, we used Japan as an extreme example of why central banks are terrified of allowing their respective economies to slip into a deflationary spiral. Do the same concepts apply to the United States? They do. The federal government offers standard Treasury bonds (IEF) and Treasuries that provide some protection against inflation (TIP). The law of supply and demand tells us that when demand … [Read more...]