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Is Inflation Beginning To Raise Its Ugly Head!

Michael Redbourn — Mon, 13 Apr 2009 16:00:29 +0000

By flooding the financial system with money, Federal Reserve Chairman Ben S. Bernanke is seemingly betting that the country’s highest jobless rate in 25 years, combined with the most idle factory capacity on record, will hold down inflation, and it’s textbook Keynesian economics.

If Bernanke’s gamble pays off, then he and the whole Obama administration will be viewed as saviors, but if instead, Milton Friedman’s theories prove correct, and the country lurches from the present financial crisis into rampant inflation, then they will not be so kindly remembered.

Several statements that have recently been made by experts suggest that Bernanke is batting on a very sticky wicket, and many of them have stated on record, their belief that reflation is still in its early stages, and they have pointed out that there are already signs of growing inflation.

John Brynjolfsson, who is the chief investment officer of the hedge fund Armored Wolf, said in a recent TV interview, “We’ve got at least nine innings of reflation ahead of us, ultimately ending with probably double-digit inflation”.

Allan Meltzer who is the Fed historian, and a professor of political economy at Carnegie Mellon University in Pittsburgh says, “If history is any guide, then the effort will end in tears and inflation will get higher than it was in the 1970s”.

Consumer prices rose at a year-over-year rate of 13.3% at the end of the ‘70s, mainly because political pressure from Richard Nixon’s White House prevented Chairman Arthur Burns from removing liquidity as quickly as was then necessary.

Former Fed economist John Ryding, who is the founder of RDQ Economics LLC in New York, concurs with Melzer and says that the central bank will be slow to withdraw all the excess cash it has injected into the financial system. “They pay lip service to inflation being a monetary phenomenon, but they’re too much concerned with the Keynesian explanation of inflation”.

The signs that are said to be pointing strongly to inflation are;

• A swelling Fed balance sheet that has climbed $1.2 trillion in the past year to $2.09 trillion.

• M2, which is a broad measure of the money supply that includes checking accounts and money-market mutual funds, rose in the last six months at an annual rate of 14% which is up from 6.3% a during the last decade.

• Copper is now at a five-month high and platinum reached a six-month peak on April 9th and there are those that expect oil prices to double from the present price of $52 a barrel now.

Moreover, Ken Mayland, who is the president of ClearView Economics LLC says he sees, “oil prices increasing to “$80, $90, $100 before the end of next year. All that money is going to find a home”.

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Our Economy – When Even The Ugly Looks Pretty.

Michael Redbourn — Sat, 28 Mar 2009 06:05:45 +0000

The American consumer cut back so much during the last quarter of 2008, that two recent reports showing that a slight leveling off had occurred in February and March caused many supposed economic pundits to suggest that a bottoming out had occurred and that it was possible to see a light at the end of the tunnel.

The cause for such jubilation?

The Commerce Department announced a rise of 0.2% in consumer spending in February, and the University of Michigan’s index of consumer confidence edged up slightly in March, whilst remaining at near historic lows.

Richard T. Curtin, who has run the University of Michigan survey for decades, said in a just published report, “The good news is that the free fall in confidence has ended. The bad news is that consumers expect their financial situation to remain dismal for the rest of 2009″.

Not only were the increases miniscule, but there were obvious reasons for them. Spending was higher due to higher gasoline prices, and the fact that personal income fell by 0.2% in February got scant attention, even though it most likely means that consumers will have to cut back even further on purchases.

House prices are still falling, the stock market is way down for the year and unemployment continues to rise, but there are a number of economists who believe that consumers who are still delaying the purchase of major items such as a house, a car, or new appliances will soon be forced into buying them, which will in turn create a bounce in the broader economy.

It is totally unclear to me however why the consumer will suddenly feel that he must buy a new car, a new house or a new appliance etc. and I would strongly agree with Howard Davidowitz, who is the chairman of the retail consultancy Davidowitz & Associates who said, “When you’ve got exploding job losses like we have, how would that lead to any improvement in consumer spending? If you don’t have jobs, you cannot possibly have a change in psychology”.

Perhaps ironically, if the consumer’s confidence and appetite do grow, it could well create new problems because the purchasing of big-ticket items in large numbers could create a snap-back in gross domestic product, followed by another recession because of business conditions that are still extremely weak, companies that are still not investing, and weakness in the rest of the world’s economies.

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The U.S. And The E.U. Are On An Economic Collision Course.

Michael Redbourn — Tue, 24 Mar 2009 23:03:14 +0000

Just one day after his government collapsed because of a parliamentary vote of no-confidence, Czech Prime Minister Mirek Topolanek, told the European Parliament that President Barack Obama’s massive stimulus package and banking bailout “will undermine the stability of the global financial market”.

Topolanek whose country currently holds the EU presidency said, “the United States did not take the right path”, and he criticized America’s widening budget deficit and protectionist trade measures, saying, “all of these steps, these combinations and permanency is the way to hell. We need to read the history books and the lessons of history and the biggest success of the (EU) is the refusal to go this way. Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the stability of the global financial market”.

The Obama administration hopes to spend its way out of the present deepening recession by means of a $787 billion economic stimulus plan, of tax rebates, health and welfare benefits, along with energy and infrastructure spending.

In an attempt to get banks to lend again, the treasury will pump $1 trillion into the U.S. financial system and will buy up treasury bonds and mortgage securities in an effort to rid banks of the “toxic assets” (devalued and untradeable assets) that presently appear on their balance sheets.

Obama insisted on Tuesday, March 25th, that his massive budget proposal will move the nation down the right path and will get the ailing economy growing, “This budget is inseparable from this recovery, because it is what lays the foundation for a secure and lasting prosperity”.

Most European leaders favor tighter financial regulation, whereas the U.S. is pushing for huge and fast growing economic stimulus plans, and Topolanek’s comments suggest that the E.U. is on a collision course with Washington over how to deal with the global economic recession.

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Do You Want The Good News Or The Bad News First?

Michael Redbourn — Tue, 03 Feb 2009 04:37:00 +0000

The good news, if we can call it that is that most financial crises end within two years and according to the NBER (National Bureau of Economic Research) the present recession began in December 2007 which means that we should start coming out of the present one in December 2009 or thereabouts.

The not so good news however is that many Wall Street pundits claim that the real recession only started in September 2008 which would mean that we still have a long way to go!

The Bad News!

The current crisis is global and if one compares the present one to recent ones in other countries such as,

· Spain 1977
· Norway 1987
· Finland 1991
· Sweden 1991
· And Japan 1992

one finds that the parallels are astounding and according to a large number of macroeconomic indicators we are in for a very bumpy ride, and perhaps the most worrying trend from a U.S. point of view is the rise in government debt that can be expected.

Using data gleaned from the crises in the above countries we can expect U.S. government debt to rise around 85% during the first 3 years of a recession which in America’s case would mean between $8 and $9 trillion!

The unemployment problem is generally much greater in richer countries because of their higher levels of wage insurance and stronger worker protection policies so it’s likely to worsen for at least another two years and may last up to five years and reach double digits at its midway point.

House prices in the U.S. peaked in 2005 so it’s quite likely that we won’t see them bottom out until the end of 2010 and based on our earlier models their inflation adjusted prices will fall around 36% which would mean a further drop of about 8-10% in real house prices from their current levels.

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Obama Placates The Middle East At America’s Expense

Michael Redbourn — Thu, 29 Jan 2009 18:33:00 +0000

As we now all know or should do by now, President Obama is an Afro-American, the son of a Muslim father and a one-time resident of Indochina which is predominantly Muslim.

The upside to this of course is that it makes it much more difficult for the Islamic world to typecast him as a son of the “Great Satan” especially because his middle name is Hussein.

Rightly or wrongly however, President Barack Obama is getting a lot of praise heaped on him right now by much of the Muslim world because he chose the Saudi-owned Arabic TV news channel Al-Arabiya on which to make his first formal television interview.

So what’s wrong with that?

Well when you give interviews to foreigners that are basically hostile to your country it’s probably not a great idea to firstly criticize your own country and secondly praise the one that despises you, but that is what Obama basically did.

He said,

“All too often the United States starts by dictating and in the past on some of these issues we didn’t always know all the factors that were involved. So let’s listen. Well, here’s what I think is important. Look at the proposal that was put forth by King Abdullah of Saudi Arabia. I might not agree with every aspect of the proposal, but it took great courage to put forward something that is as significant as that. I think that there are ideas across the region of how we might pursue peace”.

The U.S. was previously dictatorial and the Saudi king had been courageous.

Obama went on to say,

“But if you look at the track record, as you say, America was not born as a colonial power, and that the same respect and partnership that America had with the Muslim world as recently as 20 or 30 years ago, there’s no reason why we can’t restore that. And that I think is going to be an important task. So what we want to do is to listen, set aside some of the preconceptions that have existed and have built up over the last several years. And I think if we do that, then there’s a possibility at least of achieving some breakthroughs. But I think that what you’ll see is somebody who is listening, who is respectful, and who is trying to promote the interests not just of the United States, but also ordinary people who right now are suffering from poverty and a lack of opportunity. I want to make sure that I’m speaking to them, as well”.

So even though America did the following praiseworthy things Obama gave the impression to haters of the U.S. that America had only been bad!

” American saved Kuwait.
” Spoke out against Russia on behalf of the Chechens.
” Tried to save the Somalis.
” Bombed, Christian European Serbia to save the Kosovan and Bosnian Muslims.
” Helped the Afghans fight the Soviets.
” Is still fighting the Taliban.
” Overthrew Saddam Hussein and is still fighting in Iraq.
” Invested billions fighting disease in Africa much of which is Muslim.
” Aided tsunami victims.

And the list goes on and on and Bush can list many things to his credit.

” The U.S. was not hit by terrorists for seven years.
” Pakistan’s nuclear proliferation was stopped.
” Libya gave up its nuclear program.
” Syria mostly left Lebanon.
” Al Qaeda’s leadership is scattered and less effective.

Throughout the almost two years of political campaigning it was tacitly understood that mentioning Obama’s ancestry and middle name were off-limits.

Obama however does not feel himself limited by this tacit understanding,

“Now, my job is to communicate the fact that the United States has a stake in the well-being of the Muslim world, that the language we use has to be a language of respect. I have Muslim members of my family. I have lived in Muslim countries. The largest one, Indonesia. And so what I want to communicate is the fact that in all my travels throughout the Muslim world, what I’ve come to understand is that regardless of your faith, and America is a country of Muslims, Jews, Christians, non-believers, that regardless of your faith, people all have certain common hopes and common dreams.

The bottom line is that Presidents Ford, Carter, Reagan, Bush, Clinton and Bush all tried hard to promote peace in the Middle East but amongst the major obstacles to peace are religious intolerance, illiberality, violent aggression and complicity in the promotion of terror by Syria, Iran, Hamas, Hezbollah, Pakistan, Saudi Arabia and Yemen.

The above mentioned countries know only too well the role that they’ve played for their own political reasons and Obama knows it too but he has already set out to placate them with the downside being that he will mostly likely make a bad situation far worse.

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U.S. House Prices And Starts Drop The Most On Record

Michael Redbourn — Fri, 23 Jan 2009 06:15:00 +0000

A Commerce Department report released yesterday states that house prices in the U.S. fell by the most in over eighteen years with November prices declining by 8.7 percent from a year earlier.

Moreover, housing starts fell 16 % last month to an annual rate of 550,000 which is the lowest since the government started compiling statistics in 1959.

A major cause is reckoned to be the record number of foreclosures and the highest jobless claims in over twenty six years.

The U.S. lost more than 2.6 million jobs in 2008, the most since 1945, and U.S. stocks had their worst performance since the ‘Great Depression’ and the number of U.S. houses in foreclosure last year rose to an all time high of 2.3 million.

The West Coast which includes California showed the sharpest declines in the house price index and the value of homes there fell by 22 %.

Furthermore, there’s no sign that the housing market has hit rock bottom and many observer believe that data will continue to show a worsening trend until at least 2010.

Shares in construction companies fell 76% over the last three years and builders are slashing their margins to compete with the prices of foreclosed properties which always sell at steeply discount prices and this fact offers perhaps one of only upsides to all the gloom and despair.

There are now some incredible deals available to those that can qualify and banks need to loan money to stay in business so provided you believe that you’ll keep your job this might be a great time to consider purchasing a property.

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1.9 Million Jobs Lost In Eleven Months!

Michael Redbourn — Thu, 08 Jan 2009 04:53:00 +0000

Private employers cut payrolls at a much faster pace in December, threatening to send the unemployment rate to levels unseen in at least a quarter of a century.

According to as yet unconfirmed sources, private companies cut an estimated 693,000 jobs in December which, if true, would be the highest since ‘ADP Employer Services’ began its gauge based on payroll data in 2001.

Obama said at a press conference in Washington, “We are facing a crisis in our economy, one that requires immediate and decisive action to spur the creation of new jobs”, and House Speaker Nancy Pelosi added that “a failure to act quickly can only lead to more job losses” and predicted action on the recovery package by mid-February.

“Unemployment is going to rise to 8.5 percent by mid-year and our hope is that it stops there.

It’s taking away labor income from consumers and that’s going to be a further drag on consumer spending. If you’re not generating enough demand, it’ll entail further cuts in production”, said Michael Feroli who is an economist at JPMorgan Chase & Co. in New York.

And according to a recent survey, “The Labor Department is likely to report that employers cut jobs in December for a 12th consecutive month, putting total job cuts at 2.4 million for 2008″.

The number of online help-wanted advertisements in the U.S. fell by 507,000 in December from a month earlier and vacancies decreased in forty nine of the fifty states and the total number of ads fell below 4 million for the first time since July 2006.

The government is expected to report on January 9th that total payrolls fell by 500,000 last month and that the unemployment rate rose to a fifteen year high of 7 percent.

The bottom line is that the economy lost 1.9 million jobs in the first eleven months of last year!

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Obama, “Trillion Dollar Deficits For Years To Come!”.

Michael Redbourn — Wed, 07 Jan 2009 09:50:00 +0000

President Elect, Barack Obama prophesized yesterday that the nation would see “trillion-dollar deficits for years to come”, and added that the country will need to continue spending taxpayer dollars in order to get the economy back on track.

Obama, who was speaking to reporters at his Washington transition office, admitted that he didn’t want to get into specific budget numbers because his proposal is still to be worked out with lawmakers and has yet to be submitted for debate, but he did caution that he expects a trillion-dollar deficit before the next fiscal-year budget is even proposed.

“We’re already looking at a trillion-dollar budget deficit or close to a trillion-dollar budget deficit, and that potentially we’ve got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point”.

When asked to answer to the numerous concerns related to increased deficit spending, Obama said, “We know that we’re going to have to spend money to jump-start the economy”.

Obama added that he is plans to establish an oversight board that will meet publicly and then issue reports to Congress on how the money is being spent.

This is the first time for sixteen years that Democrats have controlled both houses of Congress and we might finally see a somewhat fruitful session if Obama is able to muster Republican support for his initiatives and House Speaker Nancy Pelosi, D-Calif., promised on Monday as she welcomed Obama to her office, “We will hit the ground running, to address the pain being felt by the American people”.

Democrats will soon attempt to use their bolstered majority to push through several changes to House rules which include a repeal of the six-year term limit for committee chairmen which is a rule that was imposed when Republicans took control of the Congress in 1995.

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Can Capitalism Be Saved?

Michael Redbourn — Tue, 23 Dec 2008 10:09:00 +0000

For at least five years, I have told people that capitalism would soon collapse but was nearly always mockingly asked, “and what will replace it?’, to which I had and still have no real answer.

I did, and do know however that you can’t base an economy on debt and expect it to last and that is exactly what the U.S. economy is based on.

Just today I read that California is 42 billion dollars in debt and yes you read that right, billion and not million.

Many people find Barak Obama charismatic which I personally don’t but I do believe that he is very smart.

But is he smart enough to save capitalism?

In January, Obama will gain the authority to run the government of the United States of America, but its presidents cannot simply remain charismatic symbols but must also tackle its problems and America and the world have many of them right now.

When Obama began his journey to the presidency, the war in Iraq was first and foremost in a great many people’s minds but that is no longer the case and he will be judged by how he handles the world’s economic crisis.

The U.S. is still by far the biggest driving force behind the world’s economy so Obama’s first task will be to restore confidence to Americans who are deeply pessimistic about their near future!

People are not borrowing and most financial institutions aren’t lending and if that doesn’t change then the economy is doomed as perhaps it was from its inception?!

Simply exuding confidence will not be enough regardless of how much charisma you have and Obama may be forced to reform the system itself.

In recent months the U.S. government has taken on a huge number of obligations in the private sector …

Ownership in banks.

Guarantees of commercial debts.

And loans to the automobile industry.

Sadly and perhaps most seriously no exit strategy exists and the Obama administration will have to find one because that is exactly what it will be judged on!

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Supposing Obama Follows In Rice’s Footsteps

Michael Redbourn — Fri, 14 Nov 2008 18:50:00 +0000

Condoleezza Rice Criticizes Cheney For "Cheap Shots," Insists She …

You guys better sit down for this: According to Condoleezza Rice, Dick Cheney is kind of an a******! Of course, the former secretary of state is far too classy to say it outright, but she's obviously rather pissed at Cheney for …

Publish Date: 09/02/2011 17:00

http://jezebel.com/5836840/condoleezza-rice-criticizes-cheney-for-cheap-shots-insists-she-never-cried

portland imc – 2011.09.11 – Condoleezza Rice Speaking at PSU

Condoleezza Rice Speaking at PSU. On Wednesday, Oct 19th, Former Secretary of State (during the Bush reign) will be giving a keynote speech at PSU. You may recall that this is a lady who had an oil tanker named after her …

Publish Date: 09/11/2011 21:41

http://portland.indymedia.org/en/2011/09/410188.shtml

Following Obama’s election to the presidency so much has been written about “equality” and “America having finally come of age” etc. but few have questioned if it’s true or even thought to ask what will happen if he fails.

Would Obama have won if the Republicans had been able to put up a more viable candidate.

The answer is probably ‘no’.

Huge numbers of Republicans failed to vote and many that might have voted Republican didn’t vote because of McCain’s age and other factors.

If you question the above then just consider how popular Palin’s rallies were even though her beliefs and stances offended so many.

After her nomination she not only attracted bigger crowds than McCain but often bigger ones than Obama a well.

Just over three years ago Condoleezza Rice was seriously considered in many circles as a possible candidate for the Presidency and we heard similar comments to those that we’re hearing now about Afro-Americans.

But judged by any yardstick, Rice was a disaster.

Whereas I wish Obama well he has little likelihood of success and every chance of failure because the odds are heavily stacked against him.

Even if he does everything ‘right’, Americans will not be feeling any relief from the economic crisis even two years from now and they will have watched people losing their houses and jobs for those two long years.

The result of this prognosis should be plain.

The Democrats would be cast out and Obama would in all likelihood follow them and finish his first term in ignominy.

The question that then begs and answer is, “How long would it then take before America saw another Afro-American Secretary of State or President?”.

I imagine that this so called ‘equality” would be once again delayed for many decades because America was so slow to experiment a first time one can fairly safely assume that it would be much slower to experiment a second time.

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