Posts filed under “Inflation”
“It is after a trend has been reversed that the full effect of the preceding excesses is felt.” -George Soros
For the last 5+ years we have seen a massive attempt by global central banks to prop up asset prices. The Federal Reserve has spearheaded the effort, increasing their balance sheet from less than $1 trillion in 2007 to over $4 trillion today. One of the main threats that QE allegedly posed was that printing trillions of dollars would lead to runaway inflation, the complete collapse of fiat currency. Now obviously that hasn’t happened, in fact we’ve seen almost the exact opposite. Check out the chart below which graphs Google searches for “hyperinflation.” You’ll notice that fear is abating.
Consider that in 2013, 18 of the 21 biggest economies in the world had inflation rates of less than 2%. Who could have predicted that after 3 rounds of easing and one twist, people would be more worried about deflation than inflation? Bernanke has done a masterful job no doubt; Ray Dalio has gone as far to say that America is experiencing a “beautiful deleveraging.”
The fed is now of the mind that the economy can stand on its own and Janet has begun peeling the band aid off. The market has thus far welcomed the scaling back with open arms; the S&P 500 is up ~6% since December 18 when Bernanke unleashed the Taper.
Asset prices have inflated to be certain, the S&P 500 is up around 115% since the Fed’s first round of “Quantitative Easing”, fine collectors are back collecting, and $80M diamonds are being auctioned off. A key ingredient that has been missing from this recovery is wage growth.
But alas, just last week we saw average hourly earnings increased 0.4%, more than double expectations and up 2.2% y/o/y. Check out the chart below from Deutsche Bank.
In 1987 George Soros said “It is after a trend has been reversed that the full effect of the preceding excesses is felt.” Wouldn’t it be something if we only start to smell inflation after QE has been reversed, after all the hyper inflationistas have crawled back into their cave? Markets have a unique ability to forecast the future, don’t look now you guys, but the CRB commodity index is up 10% YTD.
Expectations Stay Anchored in Spite of Declining Inflation Charles T. Carlstrom and Margaret Jacobson The Federal Open Market Committee (FOMC) has stated that its long-run target for inflation is 2 percent. Inflation does and will always vary around that target, but some observers are worried that the recent decline we have seen in inflation is…Read More
Why Do Measures of Inflation Disagree? Yifan Cao and Adam Hale Shapiro FRBSF Economic Letter December 9, 2013 Inflation as measured by the personal consumption expenditures price index is near historical low levels, below the Federal Reserve’s 2% longer-run goal. Another common inflation measure, the consumer price index, is also historically low, but…Read More
One of my biggest complaints about the media is the lack of accountability. People say things on TV in print an on radio, and then . . . Poof! No consequences. They influence public perception of issues, affect policy debates, drive legislation. This is a perfect example of a stern warning of currency debasement and…Read More
Click to enlarge Source: Economist According to the Economist: “Some modern economic historians dispute Smith’s argument that the discovery of the Americas, by Christopher Columbus in 1492, accelerated the process of globalisation. Kevin O’Rourke and Jeffrey Williamson argued in a 2002 paper that globalisation only really began in the nineteenth century when a…Read More
Commodity Prices and Inflation: The Perspective of Firms Mike Bryan, Brent Meyer and Nicholas Parker July 16, 2013 We’ve been thinking a lot about commodity prices lately. In case you haven’t noticed, they’ve been falling. And with inflation already tracking well under the Federal Open Market Committee’s (FOMC) longer-term objective of 2 percent,…Read More
This is brilliant: The Federal Reserve is awaiting That prices may start re-inflating, So they can foresee Unwinding QE, Whose tapering they’ve been debating. The Fed will not bother to taper Its purchase of Treasury paper ‘Til the jobless rate now And inflation allow An end to their stimulus caper. Bernanke must act with agility…Read More