Driving Miss. Inflation

5.5.2011 Leave a comment

DOE Gas Price Chart

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And the coaster plunges down, down, down….

5.5.2011 Leave a comment

Mike Whitney reports that:

A bleak jobs report sent stocks and commodities tumbling on Wednesday, while new signs of distress gripped the service industries index. An updated report from the ADP showed that private sector hiring slowed more than expected from March to April as companies struggled to meet rising raw material costs and flagging consumer demand. The service industry index (ISM) –which “ranges from utilities and retailing to health care, finance and transportation”–slumped to its lowest level since August signaling widespread deceleration and a progressive deterioration in the fundamentals. The turnaround has forced economists to rethink their projections for 2nd Quarter GDP and to watch more vigilantly for signs of contraction.

The problem, of course, is a demand-constrained economy. There is simply not enough money in the hands of consumers for them to purchase goods in such a quantity that the firms who supply those goods will increase their productive capacity to meet the demand. Whitney continues:

The dollar strengthened for the third straight session, in spite of the Fed‘s zero rates and $600 billion bond buying program. Trillions of dollars in monetary and fiscal stimulus have jolted stocks back to life, but debt-deflation dynamics in the broader economy are as strong as ever. Unemployment remains stubbornly high, consumer retrenchment has reduced discretionary spending, and housing continues its inexorable nosedive. The stock market continues to inch higher buoyed by central bank liquidity and margin debt, but investors are increasingly skittish and searching for direction.

High unemployment (well above 20% according to SGS), a comparatively anemic real wage, massive consumer debt and rising energy costs (an effect produced by peak-oil, the Fed’s loose money policies and commodity speculation) make consumers hesitant to spend on goods they might truly need (food, shelter, clothing, health and transportation) and certainly hesitant to spend on goods they may want. Generally speaking, America’s standard of living is declining, and economic techniques intended to promote asset inflation are useless tools to rely on when the real economy is in such a state.

Left critics of the Bush and Obama’s economic policies can always crow that they warned the Presidents of what would happen if they followed their inclinations and their advisors. But such words amount to a pyrrhic victory given the current trend that ends with another deep recession.

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He’s shocked, simply shocked to find….

4.27.2011 Leave a comment

USA Today reports:

An investigation into possible manipulation of gasoline prices has uncovered “disturbing” revelations, Attorney General Eric Holder said today.

“There are a couple things that … are disturbing,” Holder said, declining to elaborate.

About the only findings that would disturb someone aware of the world and its ways are: Holder and his investigators found no evidence whatsoever of oil price speculation and, as David Dayen points out:

It’s disturbing that a well-known issue about over-speculation and imbalance in the oil markets goes years without any attention. Better late than never, I suppose, with the fraud task force, but it’s pretty late. And while I’m sure fraud plays a role, CFTC has the tools right now to stop this by setting high margin requirements that would rein in speculation in the commodity markets. The hedgers in the oil markets have gotten completely out of control. It’s disturbing that they are still allowed to operate.

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Bankers running amok

4.20.2011 Leave a comment

Economist Dean Baker points to the world-befouling relationship between a modern and minimalist democracy and a modern central banking system:

The worst part of this story is that these fundamental decisions about economic policy are made by a small, secretive clique operating largely outside of the public’s purview. Central bank decisions on interest rates are likely to have far more impact on jobs and growth than any of the policies that are debated endlessly be [sic] elected parliaments. Yet, these decisions are made largely without democratic input.

In fairness, politicians bear much of the blame for this situation. They established institutional structures that largely place central banks beyond democratic control. There is probably no bank that is as insulated from the democratic process as the ECB, in large part because of its multinational structure, but all the central banks in wealthy countries now enjoy an extraordinary degree of independence from elected governments. In many countries they are even more independent than the judicial system.

Even worse, the politicians have actually mandated many central banks, like the ECB, to pursue an inflation target to the exclusion of other considerations. This gives the central bankers a license to throw millions of people out of work in order to chase their obsession with inflation.

Giving the central bankers free rein to chase inflation targets could perhaps be justified if they had a track record of success, but they don’t. The world economy stands to lose more than $10 trillion in output because of the central banks’ failure to stem the growth of the dangerous housing bubbles.

Baker’s story identifies more than a democracy deficit. It also points to a multifarious accountability deficit. Who, after all, policies the world’s central bankers? Anyone? They are not even constrained by the markets they would govern, at least they ignore the market system in the short-term. Over the longer-term….

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