Inflation: While Americans Struggle, The Fed QE Policy Makes It More Expensive to Eat & Buy Clothing

Many of you may remember my thread on margin collapse and what that means to our economy. Margin collapse is what happens when the price of raw goods is confronted by a buying public that cannot tolerate price hikes.

I posited that eventually they would either resort to laying people off or raise prices or both. It looks like they have opted to raise prices, in my opinion, due to the Federal Reserve's QE policy. Margin pressure is what happens when the company can no longer absorb losses. Nike is a prime example of this economic phenomenon:
Nike to raise prices sharply as costs hit gains

Starbucks is also doing the same thing. Coffee is the second most traded commodity in the world. Second ONLY to oil.
Starbucks says raising bagged coffee prices

Meanwhile mainstream economists continue to ignore the reality of margin pressure and the effect that monetary policy has on this phenomenon. They infer that higher prices as represented in the CPI is a reflection of increased economic activity, when in fact, it is a product of the Quantitative Easing policy of the Federal Reserve and the increased monetization of government debt:

Consumer prices turn higher, economy gains steam

While the CPI is going up and being touted as increased economic activity, the PPI(producer price index) is another inflationary indicator and in the same breath is being touted as inflationary squeeze. After data I've collected, I believe the latter explanation is correct for both metrics:

Inflation pressure bubbles, home building dives

Home building is taking a dive because it COSTS TOO MUCH TO BUILD NEW HOMES. And there is still a bank created glut of empty homes sitting on the market as we speak.

Stocks are are the strongest indicator of pre"real economy" inflationary pressure:
World stocks hit 30-month high

You'll notice the Fed comes up in article after article trying to get a head of the story before anyone can tell the truth about their dollar destroying policies. This, combined with what I believe will be an enormous strain on our bond market due to the Japanese Crisis things are about to take a serious nose dive. I believe the peak is being reached and it won't be long before the dollar crashes.

For some perspective, the Zimbabwean stock market is among the best performing stock markets in the world. That's what happens when you have inflation rates at 79,600,000,000%(as of November 2008 which is the last measurable reading). I hope this helps to put things in perspective. Stock up on food, ammo, and any basic necessities.

reply to post by projectvxn


LOL good observation but,...
They only raised the prices because most of the folks who could be cut from employement have already been cut.
If too many more folks are cut then the banksters will have to start minding their own shops.
Imagine bill gates in a Best Buy uniform selling Computer software or hardware, Imagine warren Buffet selling Coke and a Hot dog from a cart with one o them cool paper hats.
I recall reading somewhere that after the plague destroyed Europe it was not uncommon to see the noble in the fields side by side with their peasants.

reply to post by g146541


It's not about jobs it's about margin squeeze and industry inability to further absorb PPI increases without going out of business or having to borrow money. No one wants to get into a NEGATIVE liquidity trap.

The moral of the story is, those who already are out of work, and on food stamps, will be hit the hardest by these increases.

Originally posted by projectvxn
reply to post by g146541

 

The moral of the story is, those who already are out of work, and on food stamps, will be hit the hardest by these increases.

For food and essential items most definitely but not for things like Nike and Starbucks. Those are non essentials, almost luxuries by today's standards. However people selling those products could soon be unemployed as a result too. I think your right about the Japan crisis and being the tipping point. Wait until what's left of the auto industry encounters massive part shortages or consumers fearful of their products.

With Japan being a large holder of US Treasuries, how does that factor in? They are already in massive debt and pumping truckloads of money to keep their markets afloat.

** just saw your Japanese Crisis link with more details and answers to my questions. Thanks.

brill

reply to post by brill


I was using those two companies as metrics as they use the same raw materials discount producers of these goods do(It's all about how PPI relates to CPI and price increases in the "real economy"). GM, as you seem to already know, has had to shut down a plant due to parts shortages already due to the crisis of mass destruction in Japan.

Things are looking VERY UGLY.

U.S. cost of living hits record, passing pre-crisis high-USA Today

One would think that after the worst financial crisis since the Great Depression, Americans could at least catch a break for a while with deflationary forces keeping the cost of living relatively low. That’s not the case.

A special index created by the Labor Department to measure the actual cost of living for Americans hit a record high in February, according to data released Thursday, surpassing the old high in July 2008. The Chained Consumer Price Index, released along with the more widely-watched CPI, increased 0.5 percent to 127.4, from 126.8 in January. In July 2008, just as the housing crisis was tightening its grip, the Chained Consumer Price Index hit its previous record of 126.9.

July of 2008 we were already seeing the unwinding of ten years worth of market pumping by the Fed through the housing market. The difference is we now have a much larger debt to GDP ration(100%) and we have tens of millions out of work, are under employed, and are on government assistance.

Recovery my ass.

THIS is why building of new housing and commercial properties are in a major pinch.

Rising material costs pressuring U.S. contractors-Daily Commercial News and Construction Record

Financial pressures on U.S. contractors grew worse in February as prices for key construction materials rose sharply even as prices construction firms charge for completed projects remained stagnant, according to an analysis of producer price index figures released by the Associated General Contractors of America (AGC).
Association officials said the price squeeze will make it harder for the construction industry to recover and urged federal officials to act on a series of recovery measures the group recently outlined.


“With construction spending hovering near a 10-year low, contractors are holding bids steady even while being hit with staggering price increases for key inputs,” said Ken Simonson, the association’s chief economist.
“That combination threatens to add to an already appalling toll of laid-off workers and shuttered construction firms.”

Have fun on your trip to Rio Obama.

To put it in a more illustrative perspective, deregulation has resulted in a business environment that is patchwork of building plans and techniques with no central planning, and no repercussions for poor workmanship.

As people consume less and less goods and services, those high management costs become ever more expensive. Slowly the system collapses.

reply to post by poet1b


That makes no sense at all.

What deregulation? Agencies and the past congress extended thousands of new financial regulations. The only thing that remains unrestrained is the government in their profligate spending and the Feds loose monetary policy.


Why do we need central planning of business? And how does poor workmanship factor into inflationary pressure which is the premise of this thread?

We have PRICE inflation due to margin pressure caused by inflation in the cost of raw materials. Management costs? Are you sure you're posting in the right thread?

Dollar Depressed by OPEC Slashing Treasury Holdings by 9%(March 14-Bloomberg)

Here's a bit of news that didn't make it to the wire.

This would be OPEC trying to deliberately depreciate the dollar.
We are facing inflationary pressure from EVERYWHERE. Here's an Excerpt:

Oil-exporting countries are cutting holdings of U.S. government debt as energy prices rise, helping depress the dollar, the worst-performing major currency of the past six months.

Treasuries owned by oil producers and institutions such as U.K. banks that are proxies for Middle East nations fell 9 percent in the second half of 2010 to $654.6 billion, the first decline in the final six months of a year since the Treasury Department began compiling the data in 2006. The sales may continue, if history is any guide, because Barclays Plc says Middle East petroleum exporting nations have traditionally placed only 25 percent of their savings in dollar-based assets.

“Middle Eastern oil exporters are now getting this extra windfall of dollars and the question is on the margin what they want to do with that,” said Jeffrey Young, the head of North American foreign-exchange research at Barclays in New York. “It’s dollar negative” unless political risks around the world increase and spur demand for the safety of U.S. assets, he said.

The appeal of the dollar has diminished as the Federal Reserve keeps interest rates at almost zero, prints cash to purchase $600 billion of bonds in a policy known as quantitative easing and the budget deficit holds above $1 trillion. The currency fell to 61.3 percent of global foreign-exchange reserves in the third quarter, from a peak of 72.7 percent in 2001, the latest International Monetary Fund data show.

No jobs, rising costs for consumers and businesses. Not Good.

reply to post by projectvxn


Newt Gingrich's contract on America deregulation that created our current economic crisis!!!!!!!!!!!!


Why do you blame the Federal Government for what the Financial sector has done.

You need to wake up to the reality that you have been completely bamboozled by corporations with the whole free market concept, and stop blaming the federal government for the misdeeds of corporations.

reply to post by poet1b


Corporations didn't create the national debt. Government did. Corporations aren't driving up inflation, Government is. Corporations didn't cause the housing bubble, the Fed did with loose monetary policy, and FHA did by creating incentives to create ridiculous loan contracts like subprime.

For the last year and a half the financial sector has been operating under thousands of new regulations, unnecessary regulations. Regulations that don't even address the criminality that government turned a blind eye to, and continues to turn a blind eye to today.

You can blame the free market all you want, but so long as the government keeps subsidizing failure, there is no free market. Government laid the ground work for lawlessness, and you expected lawful behavior? I want government small and incapable when it comes to the economy because all they seem to do is create the problem and blow it up just in time to come in and blame the free market that isn't there, and then offer up the "solution".

This thread, mind you, isn't about free market vs. whatever you're going on about. It's about inflationary pressure.

One could argue that it also was the people who bought the houses that they knew they couldn't afford are partially to blame for the housing bubble.

reply to post by dwmjr1985


Of course, there are always two sides to the fraud in this case.

But without the free money policies of the Fed, the HUD, and FHA
gearing policy in this direction the housing collapse would not have happened because the bubble would not have been blown. Cheap money creates bubbles because that money has to go somewhere. The Fed and government officials usually pick a place for it to go.

The Dot Com bubble was inflated similarly through bank loans and government low interest loans for people to attract investors.

There were whole dot com stocks that were worth hundreds of millions of dollars and had not produce ONE single product or service It was a free money frenzy, and it was no surprise that it came crashing down. The housing bubble was inflated to control what would have been a massive crash. Again, the money has to go somewhere, and it did.

Government policy along with the Feds ridiculous money printing(or digitizing) scheme create these bubbles. In order to keep these bubbles inflated you have to encourage a certain level of lawlessness. In comes the Subprime loan stage right, the CDS, and MBS..The rest is history.

I know a few people who received government loans from the USDA (rural program) to buy houses. None of them ever saw a government official they all went to private banks. Is that not giving the banks free reign of the money, and sort of putting both Private banks loosely giving out this money and government not really doing their job and regulating it at all?

reply to post by dwmjr1985


Regulation seems to be a joke to government.

I avoid the notion of "regulation" because I want companies to fail for doing bad business. What you and I refer to as regulation is enforcement of fraud laws, enforcement of contracts, so on and so forth. What the government refers to as regulation is micromanagement, manipulation, and favoritism.

the middle east, is now trying to drop the dollar as the standard for selling oil....


Lets not forget whats going to happen when the US dollar is no longer the worlds reserve currency..........

Like many countries are now getting out of..........


Once that bottom drops out.........its game over, we will have nothing to keep value in our currency

reply to post by projectvxn


Agreed. It's not that there is a lack of regulation, its that there is a lack of Enforcement. Much like how the whole reason the oil spill happened was because office Land management wasn't Enforcing the already existing laws/"regulation" on the books. What is your thoughts on government officials taking "Campaign Contributions" From the largest corporations, and both republicans and democrats putting former CEO's of companies in control of regulating units of the industries they where once in, and have close ties to them. Favoritism is bound to happen, especially in these cases.

reply to post by dwmjr1985


One story that was recently on Stossel(Fox Business-John Stossel is a hardcore Libertarian) is how Microsoft faired without lobbying the government. And they didn't for YEARS.

They were HUGE, sure, but they were honestly marketing a product and moving along the internet revolution. Microsoft single handedly made billions of dollars for their shareholders(anyone who bought MS stock or had their 401k involved in MS stock did VERY well). At the end of it all the government dragged them to court in a bid to break them up.

Today they have to lobby government in order to stay in business. Otherwise you wind up on their hit list. You either line the pockets of the politicians, or they nail you.

Other companies are less of a sob story. Many companies, like GE has been in the pocket of politicians for decades. It is how the drive competition down, and maximize their "share" of the market without actually providing any innovation.

Fact is, the regulatory structure in this country is not geared toward protecting anything but the bottom lines of companies and politicians. It is a stacked card game. If you make billions honestly and without kissing political ass, you're a target. If you fleece the tax payer and grease the government goons, you're safe.

This must change. And there's only one way to do that. Cut the size of government to something manageable, repeal the thousands of regulatory statues that only serve to allow the most powerful and connected to game the system, and replace those laws with something SIMPLE.

Tax code is at the top of that list for me. 80,000 pages of tax code and we wonder why it all seems unfair. It's a great tool for anyone trying to game the system or foment class warfare, but anyone who is just trying to make it by honestly gets ground up.

reply to post by projectvxn


Too many loopholes in the tax code. You would agree that Some regulation can be good if properly enforced right? If you take away too many rules you get Monopolies that can destroy their opposition before they even have a chance to compete and control the industry, like de beers.