The US Fed has dramatically changed its language: it now says inflation is too low.
QEII (the second burst of “quantitative easing”) is steaming up the Potomac and will dock at the Eccles Building (Fed HQ) in November.
The question is, will it work? Or will it simply display the Fed’s impotence in the face of an economy with too much capacity, too little spending and no desire to borrow. Despite colossal amounts of liquidity already, lending continues to contract because the price or supply of credit is not the issue: the great deleveraging of the US economy has only just begun.
No wonder the Federal Open Market Committee’s hand wringing has become more urgent, more fretful.
Even back in June 2003 when the economy was clearly flirting with deflation and the Fed funds rate was cut to 1%, the statement accompanying that move said only that the probability of an “unwelcome fall in inflation” exceeds that of a rise.
After last month’s meeting that left the Fed funds rate at 0-0.25%, the statement said inflation “is likely to be subdued for some time”.
By switching the language last night to a statement that inflation is now “at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability”, the Fed is signalling for the first time that it’s worried about deflation.
Markets didn’t know what to make of this, and went sideways. Obviously the clear message that the Fed stands willing to “provide additional accommodation” was welcome, but the apparent warning about deflation was unnerving.
Prices are not falling across the board in America yet, but it’s very close. The Cleveland Federal Reserve produces a median CPI as an alternative to the main CPI published each month by the Bureau of Labor Statistics. Instead of weighting and averaging all prices, the researchers at the Cleveland Fed say this provides a better picture of the inflation trend than either the all-items CPI or the core CPI, excluding food and energy.
In August the median CPI was 0.1% higher than July. The month-on-month number has been 0.1% or below for 12 months; in April, amusingly, it was minus zero, before recovering to plus zero in May.
The year-on-year trend for this measure of inflation in the United States is 0.5%.
Pricing power in the US is simply melting away. According to a recent analysis of the August CPI by Dave Rosenberg, of Gluskin Sheff, most industries are losing pricing power and only a few are gaining it: autos, tyres, hotels, jewellery, computers and utilities. Everyone else is finding that their pricing power is vanishing.
That’s because US consumers are on strike. They’re sick of burdening themselves with debt to support the world’s manufacturers and service providers with stuff they don’t need.
The bond market is signalling that this is not a short-term change of attitude, by accepting 2.58% interest on 10-year Treasury bonds. In fact that yield could fall even further since bond pricing at the moment includes an inflation expectation number of 1.8%, which looks high against the median CPI.
Can the US fall into outright deflation whatever Ben Bernanke does? As Barack Obama might say, yes it can.
*This article originally appeared on Business Spectator.
I’m not so au fait with statistics, but how can massive, unprecedented indeed, mind bogglingly stupendous increases in liquidity (money supply) end well?
Has it ever before?
This is particularly the case where the money is being created to ‘paper over’ bad management. How can this possibly end well?
The question of all of it revolves around the most successful criminal enterprise of all time of which the ‘Fed” is but one of it’s offices. The matters of inflation, deflation and debt could be fixed by a change to the money system…which will inlude depriving the richest family on earth of its gold and its ownership of pretty much all the world’s currency. With this might it controls politicans everywhere, causes wars for profit and political gain, created the so called “global melt down”…which could have been fixed overnight in the USA at a fraction of what it has cost. These “used car salesmen ” which run the international funding and deprivation of funding to achieve massive profit and political adjustment are as bad in Australia as in USA. ..but a country who’s government would allow the inflicting of incompetents to lord it over Aussies at massive salaries…and Trajillo was certainly one clearly has no wit to stand up and say “enough”.
The greatest causers of inflation are not considered and some are real estate, stamp duty, interest rates,taxation,overseas aid,question time and most of the politicians we have, pop concerts and of course in recent times the billions spent “saving” Australia from the “global melt down” which none of us actually needed to bear. It has achieved however what it set out to achieve, massive debt, massive profit, political shifts, obfuscation of the genocides it has created in Iraq Afghanistan and Palestine….the owner of almost all the world’s currency creates strife and hatred and then when it blows up, shells out for all sides in a conflict and then decides who will lose., as it did in WW1 and WW11 to name but the big ones.
The only two people which decided to bypass the banking criminals (which charge 23 to 36% on absolutely secure taxpayer funded loans to Governments…whilst ripping off all and sundry) were Lincoln and Kennedy. Lincoln was assassinated as was Kennedy. Immediately the debt free dollar was off the agenda.
The pitiful aspect is that media stick their heads in the sand or somewhere darker and smellier over this issue. Scant attention was paid even to the “melt down” conspiracy, which after a couple of trial runs went beautifully and made the filthy even filthier rich. Rockefeller explained in 1994 when speaking of the Bilderbergers of which Murdoch is also one…(paraphrased) ” I must than the media for keeping its silence (as promised) concerning our actions over the last 40 years. We have been able to advance our cause in a way we would never have been able to do if people knew of our actions. Without that silence we would never have been able to advance the new order as we have done. What we need to have now is a massive catastrophe which will see people willing to accept a single world government by Bankers. Murdoch, the prompter of serfdom, has openly been reported as saying ” what is needed is a new order governned by bankers and intellectuals” .(like “himself”one supposes). The ownership of money is now so concentrated that funds are not available (in NSW even to pay tax returns) to deal benevolently with “the people”. Though the capital banks control the governments and the military and the media it will certainly come to pass that scores of millions will die trying to dispossess these covetous vermin of their wealth. It could be done politically but that would take real courage and a willingness to take the chance in being that one after the other will be assassinated. Few realise that the “axis of evil” postualted by the truly evil GW Bush who claimed (obviously his wife doesn’t watch him publicly) that “I get my instructions directly from God via his angels”…Maybe the CIA’s/Mossad’s drug lord partner Norriega who supplied the cocaine they both imported into USA and Israel had blown some angel dust at him….were (three are now “gone” ) the countries whose central banks were not then under the control of the Central banking sociopathic criminals. Don’t take my opinion…go look for yourselves but be eclectic places like Wikipedia and whitewash centres for these criminals. Ask yourself “who was Silversteins partner in the twin towers rort” and then “what happened to the money laundering charges of only $70 million against him” Start to get educated instead of believing the contrived “truth”.
Tinfoil hats after an Alan Kohler article!
Wonders will never cease, well not until the Freemasons/Illuminati/Trilateral Commission/New World Order/Men in Black/Thetans order it.
P.S. – Sorry if I left any of you out, we do appreciate your work!