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...]
FED Looks for New Ways to Crank Up Money Supply
With all the talk about "Tapering" you'd think the FED was actually considering reducing it's money pumping. But in actuality that is not it at all. The FED is afraid that it is creating a a bubble in the stock market so it is looking for ways to continue its pumping but shift it enough so that the money goes somewhere besides just to the stock market. In other words, it is still worried about the economy and realizes that it is doing more harm than good but feels trapped, so it is looking for new ways that might work better. If the FED can figure out how to free up the log jam of "excess reserves" held by the banks, liquidity could be sloshing around the economy before you know it and … [Read more...]
Understanding Inflation and What to Do About It
Inflation erodes our purchasing power causing manufacturers to have to raise prices or reduce quantities in order to make the same profit margin. Neither consumers nor manufacturers benefit, so who does? Why is inflation so prevalent? Yes, the level of inflation will vary and may recede briefly but the erosion continues. To say that low inflation is better than high inflation is like saying a death of a 1000 cuts is preferable to beheading. Either way you are dead, one just takes longer. With low inflation however you may not notice the cuts since they are so small. Unfortunately, just because the government says the cuts are small doesn't mean that they actually are. See Can We Trust … [Read more...]
The Language of Inflation
Just the other day I was thinking about language and how it molds our thought processes. In some aboriginal tribes they don't have words for past, present and future tense. They would just say "I go home" this could mean "I went home", "I am going home" or "I will go home". It has been proven that in societies like this the concept of time is very muddled if almost non-existent. How can you plan for your future if you don't understand the concept of time? Lest we English speakers get all smug about the superiority of our language, ancient Greek was more precise than English in many aspects such as the word Love with at least three different words that we translate as "Love". And Eskimos are … [Read more...]
Deflationary Forces Overpower FED
Despite Bernanke's famous helicopter speech the FED's powers really are not unlimited. There is only so much they can do to stimulate the economy. After all they can't force people who are concerned about their future to borrow money. Just like a turtle people naturally recoil and pull back when times are uncertain. And even if they wanted to borrow bankers are reluctant to lend in uncertain times. This results in a phenomenon called Pushing on a String where no matter how hard the FED tries very little force is exerted on the economy. Robert Prechter believes that this is exactly what has been happening over the last few years where the FED has been trying to stimulate the economy but the … [Read more...]
Inflation and Your Retirement Nest Egg
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...]
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...]
A Monetary Master Explains Inflation
Today we'd like to host a discussion between Terry Coxon, a senior editor of The Casey Report and David Galland, a partner in a research firm employing about 40 analysts. David says... Terry is my go-to guy. He cut his teeth working side by side for years with the late Harry Browne, the economist and prolific author of a number of groundbreaking books, including the 1970 classic, How You Can Profit from the Coming Devaluation. The timing of Harry's book should catch your eye, because his analysis that the dollar was headed for a big fall was spot on. Anyone paying attention made a lot of money. As coeditors of Harry Browne's Special Reports, Terry and Harry made a formidable team for … [Read more...]
