At 10:00 AM EDT, the Housing Market Index for September will be announced. This index is created from a survey of homebuilders, so it shows the confidence that the sector has in the overall economy and their business.
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Sigh. From time to time, leftists get up on their high horse, and think that they can come up with a single objection to freedom which completely smashes all arguments. Today’s version of that objection may be found on elementropy, where it goes:
I’m thinking that the author is not open to new light, but let me venture to answer today’s unanswerable question: An economy is for people who trade goods and services with other people. Consequently, any interference with trade goes against the best interests of the economy. Government regulation of trade counts as interference. Now, readers of that blog may think I’m INSANE. That’s okay. 240 years ago, nobody thought a country could exist if it didn’t choose a religion for its countrymen. A country without an established religion?? INSANE! Of course, we now know better (although there are some fundamentalist religionists who still disagree). In time, we will be able to convince people that freedom of trade is a civil right along with freedom of association, freedom of speech, freedom of the press, and yes, freedom of religion. Not that I expect this one posting to change anybody’s mind. It takes many drops to turn a wheel, singly none, singly none. As I articulated in a previous commentary, if the Fed stays loose to prop up the bond market, this will only undermine the bond market. In real terms, the bond market tanks. Now the Fed might be able to prop up the bond market in nominal terms, but what this will do is precipitate an exodus from all dollar-denominated securities (e.g. equities and bonds), compelling speculative activity in other asset classes in order to protect themselves against a depreciating currency. As the Fed undermines Tituslandia’s bond market in the process of trying to prop up it up, yields remain artificially low. This compels lenders/investors to seek higher rates of return in other asset classes. I can only conclude, then, that Dina Titus supports wild speculators. South Asia’s Geography of Conflict by Robert D. Kaplan. A big black eye for India’s attempt at being a democracy. Also see Devangshu Datta in the Business Standard on this. Interesting survey evidence in the India Today about how voters are starting to see the UPA differently. Focus on the graph in Nitin P. Shrivasatava, writing in DNA, says that we may finally have cracked a working mechanism to borrow shares in The two decade gap, by Ila Patnaik in the Indian Express. Did you know that Saudi Arabia matches India’s achievements on higher education. Jayanth Varma says that a lot might be going on in terms of INR trading outside India. I updated my India bookshelf page. Eric Bellman in the Wall Street Journal about the growth of McDonald’s in India. Apparently a new outlet in Bhopal has been T. N. Ninan, writing in the Business Standard says we should move to the metric system with million, billion and trillion. I agree! GDP is Rs.55 lakh crore or Rs.55 trillion. The 9% question by Akash Prakash, and Somasekhar Sundaresan in the Business Standard, on India’s middle income trap. Shaji Vikraman in the Economic Times on the outlook for SEBI. Amit Tripathi in the DNA has a story about Bharti Airtel starting a price war in Kenya. Once a telecom firm has learned how William Neuman has an article in the New York Times, which made me think about the appropriate role of the State, and what are Skin by Mark Jacobson in the New York Magazine. Patrick Chovanec speaks with Christina Larson in Foreign Policy, giving a glimpse into one of the last three communist The frontiers of computer warfare, by Fredric Paul in InformationWeek. The great writers of the 21st century: Jonathan Franzen, David Foster Wallace. Tim Harford in the Financial Times on the attacks on economics. A rumination on creativity by Jonathan Lethem, in Harper’s Magazine. See this book review of Mao’s Great Famine (Frank Dikotter) by Jonathan Mirsky, in the Literary Review. Read this great interview with Tom Sargent. In particular, the chunk about how high microeconomic turbulence interacts with the welfare state to generate high and persistent unemployment. Holman W. Jenkins in the Wall Street Journal on Google. Fred Brooks in the New York Times on how little we worry that we are wrong. An interesting book: Better living through Economics, edited by John J. Siegfried. Lawrence Lessig in the New Republic on the difficulties of using a government (through copyright law) to make information David Pogue in the New York Times on the brilliant work at OpenDNS. Patricia Cohen in the New York Times about the world of academic publishing that lies beyond peer review.  At 8:30 AM EDT, the Consumer Price Index report for August will be released. The consensus is that CPI increased by 0.2% last month, with a 0.1% increase in CPI when food and energy are removed. At 9:55 AM EDT, Consumer Sentiment for the first half of September will be announced. The consensus is that the index will be at 70, which would be an improvement of 1.1 points from the level reported in the second half of last month, but is still well below June’s reading of 76.  Join the forum discussion on this post - (1) PostsThe negative effects of inflation on the economy from the Federal Reserve’s monetary policy has been quantitative easing and has exploded the currency supply. But where are the negative effects of inflation showing up in the real world? Likely in the prices of your food and other consumable goods.
COMPETITIVE DEVALUATION As the Federal Reserve has failed with quantitative easing it has led other central banks to competitively devalue their currencies. Bloomberg reports that on 15 September 2010 that for the first time since 2004 the Japanese central bank has begun intervening in the currency markets to manipulate the Yen’s value lower. But for Japan to be successful with their goals they will need to continue intervening because other central banks will be carrying out similar monetary policy. Just look at India with its rupee down but GDP growing extremely fast. But to do so they will be fighting against economic law. Ultimately, they will fail.
These are all predictable negative effects of inflation on the economy.
NEGATIVE EFFECTS OF INFLATION ON ECONOMY Many economists do not have a solid definition for inflation. The traditional definition and that primarily used by the Austrian school of economics is that inflation is an increase in the currency supply and deflation is a decrease in the currency supply. Many court economists, particularly from the Keynesian school, like to define inflation as a rise in prices. But a rise in prices is merely a symptom of inflation much like wet streets are a symptom of rain. But to confuse wet streets for rain is to confuse cause and effect. But these court economists confuse lots of things; particularly their students. Are we in inflation or deflation? But the average person is beginning to feel the negative effects of inflation on the economy in their own life. Commodities are approaching record high prices and these costs are filtering through to consumable goods.
An example would be orange juice. Tropicana has recently changed their 64 ounce container to a 59 ounce container but there has been no corresponding decrease in price. When asked why the customer service representative responded, “Our consumer research shows that most shoppers, when given a choice between a price increase or slightly less contents, prefer to hold the line on prices.” Because wages have not increase approximately 10% therefore the volume decrease of 8% lowers the standard of living for the average American. A lower standard of living is one of many negative effects of inflation that to individuals in the economy.
GOLD IS THE CASH KING During deflation cash is king and gold is emperor. This is because gold is a tangible asset and can never become worthless through the hyperinflation like little colored coupons; Yen, Euros, Dollars, etc.
During The Great Credit Contraction which has only just begun eventually all little colored coupons will return to their intrinsic value which is worthless. Like newspapers, fiat currency, fractional reserve banking and central banks are barbarous relics in the Information Age and there are much more efficient forms of currency that will be invented and adopted. As I wrote about in Gold And The Oil Majors Revisited: At the current price of gold the $54.2B of stock repurchases from five measly companies will only yield about 1,432 metric tons of gold or about 359 less tons than the hypothetical. For comparison Venezuela is the 16th largest holder with 363.9 tons and the United Kingdom is the 17th largest holder with 310.3 tons. Currently, the five oil majors have about $250B in current assets on their balance sheets. That would purchase about 6,232 tons of gold. At least with that much physical gold the oil majors would be assured of making payroll. Why they do not hold any of the precious metals on their balance sheets is truly baffling. PLATINUM IS THE STILL THE DEAL
Gold and silver are within their normal trading ranges and currently of average value. I still really like platinum and it has recently broken out from being cheap to being of average value. But if you are going to buy any of the precious metals right now then I would recommend buying platinum. This next upleg in the precious metals will likely last until early Q2 of 2010 and the gold price could power through $1,500/ounce. CONCLUSION The extremely negative effects of inflation on the economy and the Federal Reserve’s disastrous policies are exacerbating the Greater Depression. Real economic pain is being felt by those who most impacted by the rise in consumable, particularly food, prices. Portions are being reduced, prices are being raised and standard of living is going down while the economy continues to die. These are all predictable negative effects of inflation on the economy and the Federal Reserve’s hand in everyone’s cookie jar. DISCLOSURES: Long physical physical gold, silver, platinum and no position the problematic SLV or GLD ETFs or XOM, CVX, TOT, BP or COP. According to some preliminary estimates (link), China’s trade balance is on the course for a significant surplus this year. IMF’s annual forecast of current account balance predicted China’s trade surplus at $334 billion in 2010 or roughly 6.2 percent of China’s GDP. The IMF’s medium-term forecast suggests a growing trade surplus by 2015 when the surplus is estimated at a little more than 8 percent of GDP. Recently, Dani Rodrik questioned (link) the persistence of China’s mercantilism based on persistently low exchange rate. The partial fixation of the exchange rate then stimulates export-led growth model and, consequently, results in a large trade surplus which translates into foreign exchange reserves, thus enabling China’s central bank to foster exchange rate intervention to defended the targeted yuan exchange rate against the U.S dollar. The implications of China’s growth model extend beyond the scope of effects on country’s economic growth, investment and current account balance. China’s export-led growth model has tremendously affected the macroeconomic performance of developing nations. The exports of developing nations in the European, Japanese and U.S markets basically substitute, not complement, China’s exports to the markets of advanced countries. The persistent lack of the appreciation of renmimbi thus forced the economic policymakers of other developing nations to either adopt the same model of exchange rate intervention or lose the export share in developing countries. This intuition is underlined by the theoretical and empirical support. In 2007, Hausmann, Hwang and Rodrik demonstated (link) that the pattern of specialization by developing countries predicts the subsequent economic growth, suggesting that the share of exports in advanced countries is highly positively correlated with the rates of economic growth. If China shifted the main source of economic growth from export-led model to domestic consumption, the renmimbi would have to appreciate considerably. Contrary to the assertion that China’s exchange rate undervaluation hampers the economic growth, industrialization and development prospects of developing nations, the OECD recently stated that developing countries would be hurt significantly if the renmimbi exchange rate were allowed to appreciate. There is also an empirical support for the particular assertion. The OECD recently estimated (link) that, if China’s output grew by 1 percentage point, the output of developing countries would decrease by 0.3 percentage point. The empirics supports the argument I mentioned earlier – China’s exchange rate misalignment inevitably hinders the growth prospects and industrialization of developing countries. The essential question in the course of economic development is what is the best model of growth for developing countries to boost industrialization and development frontiers. One possibility is the so called surplus model. Historically, growth models of low-income countries were primarily based on exporting natural resources to the rest of the world. Countries such as oil-rich gulf states, Botswana and Argentina became wealthy. Such growth model heavily depends on export demand in other countries. The most notable failure of this growth model is that it doesn’t encourage the diversification of economic activity. Thus, countries such as Libya have sustained relatively high levels of GDP but, at the same time, rather depressing domestic indicators. For instance, Libya’s GDP per capita is at almost the same level as Chile’s GDP per capita, but Libya’s unemployment rate is 30 percent – almost three times the average unemployment rate in countries with the same level of GDP per capita. When foreign demand deteriorates, these countries experience the Dutch disease – an overheating economic activity and overvalued exchange rates that discourage investment, entrepreneurship and typically result in higher unemployment rates. Industrialization and economic development mostly depend on domestic structural change based on the adopting the institutions of macroeconomic stabilization and the rule of law. China’s exchange rate policy of renmimbi undervaluation is a failed temporary growth model that is set on the unsustainable course. Without shifting the major engine of growth from export-boosting exchange rate undervaluation to consumption-based growth, Chinese economy will no longer be able to sustain high productivity growth rates. Letting the renmimbi appreciate by free floating could significantly boost the potential for institutional change in China and other developing nations. Therefore, the systemic abuse of macroeconomic policy by exchange rate undervaluation would no longer be feasible and the costs of failed exchange rate regime for developing countries would diminish substantially. At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 455,000 new jobless claims last week, which would would be an slight increase in claims from last week’s number, which was the lowest level since July. However, some economists believe that the decline in jobless claims was caused by the holiday last week. Also at 8:30 AM EDT, the Producer Price Index for August will be released. The consensus is that the index increased 0.3% over last month, and increased 0.1% when food and energy are excluded. Also at 8:30 AM EDT, the Current Account for the second quarter of 2010 will be released, which will provide information about the international trade balance with the United States. At 9:00 AM EDT, the Treasury International Capital report for July will be released, showing the flow of capital in and out of the United States economy. At 10:00 AM EDT, the Philadelphia Fed Survey report for September will be released. The consensus is that the index will be at 3.8, which would be an increase of 11.5 points from last month’s number of -7.7, which indicated economic contraction. Also at 10:00 AM EDT, Treasury Secretary Tim Geithner will testify on the foreign exchange report before the Senate Banking Committee. At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States. At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy. Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves. Join the forum discussion on this post - (1) PostsIn 2009, the median weekly earnings of workers with bachelor’s degrees were $1,137. This amount is 1.8 times the average amount earned by those with only a high school diploma, and 2.5 times the earnings of high school dropouts (link).
The Mortgage Bankers’ Association purchase index was released at 7:00 AM EDT, and there was a week to week decrease of 0.4% in the Purchase Index and a week to week decrease of 10.8% in the Refinance Index. At 8:30 AM EDT, the Empire State manufacturing index for September will be released. The consensus is that the index value will be 5, which would be an decrease of 2.1 points from August as the new orders index fell into negative territory last month for the first time in over a year. Also at 8:30 AM EDT, the monthly Import and Export Prices index for August will be released, providing some data that can be used to monitor the threat of inflation. At 9:15 AM EDT, the Industrial Production report for August will be released. The consensus is that there will be an increase 0f 0.2% in production and an increase of 0.1% in industrial capacity utilization. At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States. Join the forum discussion on this post - (1) Posts |
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A decrease of about 8% seems to be low. For example, 7-Up decreased their bottle from 20 ounces to 16.9 ounces, or 15.5% decrease, and Scott toilet paper decreased the width of a roll from 4.5 inches to 4.125 inches or about 8.3%.
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