FedUpUSA

Archive for the ‘prices’ Category

The Federal Reserve is one of the most mysterious organizations in the world.  What they don’t hold back on however is their intentions for the American saver.  They are one of the biggest key players in the financial bailouts yet very little is ever discussed about this organization on national or even cable television.  The actions taken by the Fed during the grand financial bailout are subtly punishing American savers.  Policy will dictate market action.  The Fed is trying to corner American savers so they are left with two options, both risky and problematic in the long-term.  The American middle class is slowly sliding into oblivion thanks to the Federal Reserve and their favorable banking bailouts.  Our economy is largely driven by massive consumption.  Saving money especially in more traditional savings accounts is good for you, but not necessarily the economy.  This is the paradox of thrift and the Federal Reserve is determined to punish savers and pave the road to conspicuous and financially dangerous consumption.  The Fed agenda is clear and this is what American savers can expect for years to come.

Contrary to what is being poured out over the airwaves the Federal Reserve wants you to spend every single penny you have.  The Fed has grown its balance sheet by a factor of three since late 2008 thanks to major financial bailouts:

If the crisis is now over, why is the Fed balance sheet still near peak levels?  That is because the Fed is still holding onto trillions of dollars of toxic loans likely backed by residential and commercial real estate.  We say likely since we do not have a full accurate view of what is on their books.  So why does this mean the Fed wants you to spend every green dollar in your wallet?  First, since we now live in a debt based money system, access to debt has become a new form of pseudo-wealth.  As the Fed takes on more debt it slowly debases the value of the currency thus making your dollars worth less and less as each day goes by.  Don’t believe this?  Just look at the US dollar chart for the last few decades:

The dollar has lost over 50 percent of its purchasing power since the 1980s thanks to actions taken by the Fed.  You might say, well I’ll simply put my money away in a savings account to avoid the evils that come from inflation.  That is unlikely to help as well:

The typical savings account in the US is paying slightly above zero percent and is basically a brick and mortar mattress. By simply keeping your money in a savings account you are losing value as the dollar debases and inflation rears its ugly head.  This is not accidental but a purposeful strategy set up by the Fed.  They want you to spend or stuff your money into the extremely volatile stock market.  Good luck competing with connected banks with purchased politicians or battling it out with high frequency trading boxes.

Read the rest at My Budget 360

This is some sort of joke, right?

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent in February on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.

The gasoline index rose sharply in February, accounting for over 80 percent of the change in the all items index. The gasoline increase led to a 3.2 percent rise in the energy index despite a decline in the index for natural gas. The food index was unchanged in February, with the food at home index unchanged for the second month in a row as major grocery store food indexes were mixed.

But remember, nobody needs any food and especially any energy.  And while natural gas is diving, gasoline is going up faster.

The big table (Table 1) remains amusing; Rick Santelli was on CNBS with a very legitimate screed about the CPI, one that I wrote about extensively in Leverage.  Specifically, the weighting is only “valid” for the “average” consumer.  But of course incomes are rarely average.  A lower-income person uses an extraordinary amount of their income for food, shelter and energy compared to higher-income people.  This means that costs in those areas have a wildly disparate impact on poorer Americans, and the poorer you are the worse it is.

Then there’s hedonics.  Rick needs to use a better example; I like the television one since everyone can relate to it (we all have idiot boxes, right?)  The government claims that a LCD TV is “better” by a material amount — 70% in fact.  This is true, of course — a LCD TV does have a sharper picture, uses less energy and is physically smaller.  As such since the government says that a LCD TV is 70% “better” than a CRT one, if the price is 70% higher there is no “inflation” since you’re getting the same utility value for the money spent.

That would be a decent argument if you could still choose to buy a CRT TV!  But you can’t because they’re not made any more.  Your options are to spend 70% or get nothing, and yet this is not called “inflation.”

If you want to watch TV and yours just broke, I suspect you disagree.

There’s a number of other interesting claims in the table too.  For example, “food away from home” is listed as up 3.1%.  One wonders what’s going on there as I’ve noticed both price increases and negative changes in quality and quantity in eateries that are vastly more than 3% in the last year.  When you actually notice it the change is typically somewhere between 10-20% — consider that a 3% change in a $20 check is sixty cents.  It’s highly unlikely that you would note the cost of eating out going up at that rate, or the quality of the food going down — unless it was dramatically more than 3%.

There are other problems for lower-income citizens as well.  Water, sewer and trash collection services are up (according to the table) 4.7% over the last year.  That’s non-trivial.  Fuel oil of course is up big (as is gasoline, up 12%.)  Apparel is up sharply as well, as is transportation, with the largest cost increases coming in the form of fuel.

In the final analysis however the report did not surprise, and the market pretty-much ignored it.  Then again the TNX (10 year Treasury yield) says “no mas” on these figures as it continues its march higher, now over 2.3% and up 2.2% on the day.

May you live in interesting times.

The Market-Ticker

A shadow inflation hits shoppers through economic sleight of hand:  Inflation and the hidden side of finances.

Anyone that shops realizes that the price of goods has only gone up.  Yet by how much is deceiving by economic chicanery.  The Federal Reserve has taken a baseball bat to the US dollar and the purchasing power of what Americans carry in their wallet.  Yet many Americans have been duped into thinking inflation has only been occurring at a moderate pace.  Those that already know about the insidious side of a crushing dollar are college students and those having to pay medical bills.  However shoppers at grocery stores are seeing the hidden cost of inflation through innovative ways of repacking items and giving you less while trying to convince you psychologically that you are still getting the same.  The cost of high fuel is being passed on through the supply chain channels and a lower dollar simply means you have less purchasing power.  How much less is a matter of how carefully you look at the label.

The shadow inflation through the US dollar

The Fed has been on a mission to crush the US dollar.  This isn’t some kind of hidden agenda.  It is right out in the open:

The US dollar has lost 50 percent of its purchasing power since 1985.  What has made the pain much more real is that most Americans have seen a decline in their wages and their overall net worth.  The above is a logical extension of the Federal Reserve digitally creating money out of thin air.  Today debt equals money.  If you keep increasing money (aka debt) what do you think will happen?  The Fed balance sheet now stands above $2.8 trillion in questionable debt assets.  The decline in the US dollar is simply what occurs when you spend way more than you earn.  Our $15 trillion national debt is a testament to that.

Since the average household doesn’t have the ability to print money out of thin air or create debt instruments with a few keystrokes, they typically pick up the bill on this shell game.  There literally is no free lunch when it comes to inflation.  Take a look at this:

Nabisco’s offers a Fresh Stacks package that contains 15 percent fewer crackers than the previous package listed on the bottom.  If you got 15 percent less for basically the same price, would you not call this a price rise?  Of course the BLS measures a basket of goods and doesn’t really pick up these tiny changes.  Or take for example cans of tuna:

Chicken of the Sea now typically comes in 5-ounce cans versus the traditional 6-ounce cans.  This is over a 16 percent reduction for the same price.  You can understand why the average household even though they may spend the same or more at the grocery store is really getting a good amount less for their dollar.  Well of course, the US dollar has lost 50 percent of its purchasing power since 1985.

The supply chain is enormous and the rising cost of fuel is typically passed all the way down to the consumer.  Since the average American makes $25,000 a year and many are now frequenting dollar stores for their shopping, companies realize they can only hike prices up by so much.  Instead companies have been savvier about passing costs by reshaping their packaging.  So the cost of the item may remain but the true cost has actually gone up.

Read the rest at My Budget 360

Ronald Reagan once famously declared that inflation is a tax, but sadly most Americans did not really grasp what he was talking about.  If the American people truly understood what inflation was doing to them, they would be screaming bloody murder about monetary policy.  Inflation is an especially insidious tax because it is not just a tax on your income for one year.  It is a continual tax on every single dollar that you own.  As your money sits in the bank, it is constantly losing value.  Over time, the effects of inflation can be absolutely devastating.  For example, if you put 100 dollars in the bank in 1970, those same dollars today would only have about 17 percent of the purchasing power that they did back then.  In essence, you were hit by an 83 percent “inflation tax” and all you did was leave your money in the bank.  So who is responsible for this?  Well, the Federal Reserve controls monetary policy in the United States, and the inflationary monetary policy that the Fed has gotten all of us accustomed to is taxing the living daylights out of us.  This is madness, and it needs to stop.

In previous articles I have discussed how the Federal Reserve creates money.  If you have not read those articles yet, you can find a few of them here, here and here.

The Federal Reserve system is designed to have the U.S. money supply expand indefinitely.

And that is exactly what has happened since 1913.

But when the money supply expands, there are very serious consequences.

Every time more money comes into existence, the dollars that you and I are already holding become less valuable because now there are more dollars chasing the same amount of goods and services.

Right now, the U.S. government says that the annual rate of inflation is somewhere around 2 percent.  Those of you that have to buy food and gas on a regular basis realize how much of a joke that is.

Thankfully, there are others out there that keep track of these statistics as well.  According to John Williams of shadowstats.com, if inflation was measured the same way that it was back in 1980, the annual rate of inflation would be more than 10 percent right now.

But let’s use the doctored government numbers for a moment.  Using the doctored numbers, what inflation has done to all of us is still absolutely horrific.  Just check out the chart below.  This is what the Federal Reserve was designed to do.  It was designed to constantly expand the money supply and create inflation that never ends….

Most of us have been living in an inflationary environment for so long that we have come to accept it as normal.

Most Americans believe that prices are supposed to just keep going up as time goes by.

Unfortunately, we have now entered an era when prices are going up much faster than wages are.  Family budgets are being squeezed tighter and tighter as the inflation tax keeps taking a bigger and bigger toll on all of our paychecks.

I remember the days when I could go into the grocery store and get a large bag of brand name potato chips for 99 cents.

I remember the days when I could get all the groceries that I needed for an entire week for 20 bucks.

Unfortunately, those days are long gone.

Have you been to the grocery store lately?

When I go to the grocery store these days I almost get the feeling that someone is going to ask me to fill out a credit application.

When I get to the checkout counter I almost get the feeling that the cashier is going to ask me if I want to pay with an arm or a leg.

But food is not the only thing going up.  Electricity bills in the United States have risen faster than the overall rate of inflation for five years in a row.  There are millions of American families that are keeping the heat really, really low this winter in an attempt to make ends meet.

Health care is another thing that has become ridiculously expensive.  During the Obama administration, worker health insurance costs have risen by 23 percent.

Has your paycheck increased by 23 percent?

Of course we all know what is happening with the price of gasoline.  The average price of a gallon of gasoline in the United States is now up to $3.72.  It has increased by more than 90 percent since Barack Obama became president.

This is why so many economists get so upset when the Federal Reserve starts printing money like there is no tomorrow.  Inflation is a tax that is very cruel to average American families.  It destroys their wealth and it destroys the purchasing power of their paychecks.

Unfortunately, this is always what happens when a society adopts fiat currency.  Our dollars are just pieces of paper backed by absolutely nothing.  When more pieces of paper are printed up, the value of the pieces of paper already in existence goes down.

This is one of the reasons why so many people out there are talking about “real money” like gold and silver.  Unlike fiat currency, precious metals tend to hold value over a very long period of time.

For example, it will take you about three times as much U.S. currency to buy a gallon of gasoline in 2012 as it did back in 1990.

But an ounce of silver will actually buy you more gasoline today than it did back then.

Back in 1990, an ounce of silver would buy you about 4 gallons of gasoline.  Today it will buy you more than 8 gallons of gasoline.

Talk about holding value.

We see the same kind of thing happening with gold.

When Barack Obama first took office, an ounce of gold was selling for about $850.  Today an ounce of gold costs more than $1700 an ounce.

It is not that gold is becoming so much more valuable.  It is just that the U.S. dollar is losing value on a continual basis.

So why don’t the U.S. government and the Federal Reserve quit flooding our economy with more paper money?

That is a very good question.

Sadly, our leaders seem to have a never ending addiction to more paper money and the American people are not demanding change.

On Wednesday, Federal Reserve Chairman Ben Bernanke told Congress that the Federal Reserve may have to implement even more stimulus measures in order to help the economy.

Of course such talk is utter insanity considering what Bernanke and his cohorts have already done to the monetary base over the past few years….

Thankfully, the vast majority of that money is still trapped in the financial system.  If all of that money was floating around on the street inflation would be far worse.

Those of you that think that the surging stock market is a sign of “economic recovery” should realize that the market has been pumped up by huge amounts of funny money from the Federal Reserve.  Just because the number of dollars circulating has increased does not mean that things are getting better.

There is much more to all of this of course, but what is important for the man and the woman on the street is the fact that when the Federal Reserve expands the money supply it is a tax on all of us and it makes all of us poorer.

So what do you think about the inflation tax and the reckless monetary policy of the Federal Reserve?

The Economic Collapse

Does it cost you hundreds of dollars just to get to work each month?  If it does, you are certainly not alone.  There are millions of other Americans in the exact same boat.  In recent years, the price of gas in the United States has gotten so outrageous that it has played a major factor in where millions of American families have decided to live and in what kind of vehicles they have decided to purchase.  Many Americans that have very long commutes to work end up spending thousands of dollars on gas a year.  So when the price of gas starts going up to record levels, people like that really start to feel it.  But the price of gas doesn’t just affect those that drive a lot.  The truth is that the price of gas impacts each and every one of us.  Almost everything that we buy has to be transported, and when the price of gasoline goes up the cost of shipping goods also rises.  The U.S. economy has been structured around cheap oil.  It was assumed that we would always be able to transport massive quantities of goods over vast distances very inexpensively.  Once that paradigm totally breaks down, we are going to be in a huge amount of trouble.  For the moment, the big concern is the stress that higher gas prices are going to put on the budgets of ordinary American families.  Unfortunately, almost everyone agrees that in the short-term the price of gas is going to go even higher.

When you are on a really tight budget and you are already spending several hundred dollars on gas each month, you certainly do not want to hear that gas prices are going to increase even more.

A lot of Americans are moving or are getting different vehicles just because of these outrageous gas prices.  The following comes from a recent Mercury News article….

Katherine Zak, of South San Jose, is searching for an apartment near her new job at Facebook in Palo Alto, partly to cut down the cost of driving. Jeff Benson, of Raymond in the Sierra foothills, typically drives 60,000 to 70,000 miles a year and has traded in his 19 mpg Ford Taurus for a Fusion that gets 33 mpg. And David Thomas says his commute from San Jose to San Francisco is getting so expensive that he and his fiancee are hunting for a house near a BART station in the San Mateo-San Bruno area to shorten his commute and lower his $400-a-month gas bill.

The price of gas is going even higher even though energy consumption is sharply declining in the United States.  Just check out the charts in this article by Charles Hugh Smith.  Americans are using less gasoline and less energy and yet the price of gas continues to go up.

That is not a good sign.

Certainly any decrease that we are seeing in the U.S. is being more than offset by rising demand in places such as China and India.  As emerging economies all over the globe continue to develop this is going to continue to put pressure on gas prices.

So just how bad are gas prices in the U.S. right now?

Just consider the following facts….

-The average price of a gallon of gasoline in the United States is now $3.53.

-The average price of a gallon of gasoline is already higher than $3.70 in Connecticut, Washington D.C. and New York.

-In California, the average price of a gallon of gasoline is $3.96 and there are quite a few cities where it is now above 4 dollars.

-In mid-January 2009, the average price of a gallon of gasoline in the United States was just $1.85.

-The average price of a gallon of gasoline in the United States has risen 25 cents since the beginning of 2012.

-Never before in U.S. history has the price of gasoline been this high so early in the year.

-The Oil Price Information Service is projecting that the price of gas could reach an average of $4.25 a gallon by the end of April.

-The price of oil just keeps going up.  The price for West Texas Intermediate is about 19 percent higher than it was one year ago.

-The price of gasoline is also reaching record highs in many areas of Europe as well.  For example, the price of diesel fuel in the UK recently set a brand new record.

-In 2011, U.S. households spent a whopping 8.4% of their incomes on gasoline.  That percentage has approximately doubled over the past ten years.

But the price of gas is not the only thing making driving much more expensive these days.

All over the country, our politicians have been putting up toll booths.  Most of the time these toll booths are going up on roads that have already been paid for.

After paying an outrageous amount for gas and after paying the outrageous tolls on many of these toll roads, many Americans wonder if it is even worth it to get up in the morning and go to work.

Unfortunately, a couple of new bills in Congress right now would reportedly allow even more highways to be made into toll roads.

It is almost as if they want to force us all to stop driving our cars.

America used to be the land of the open road, but that era is rapidly coming to an end.

Another thing that could put upward pressure on the price of gas is the situation in the Middle East.

Iran has already stopped selling oil to companies in the UK and France, and there is the potential that war could erupt in the Middle East at any time.

If war does erupt, or if commercial traffic through the Strait of Hormuz was interrupted for even a brief time, that would send the global price of oil through the roof.

Approximately 20 percent of all oil sold in the world passes through the Strait of Hormuz.  If the flow of oil was halted, that would change the global economy almost overnight.

So is there any good news?

Well, there is one thing that would likely bring down the price of gas substantially.

A global recession.

Remember what happened back in 2008.

Just like we are seeing right now, the price of gas really spiked early in that year.

Eventually, the price of oil hit an all-time record of $147 a barrel in mid-2008.

But then the financial crisis struck and the price of oil fell like a rock as you can see from the chart below….

So could that happen again?

Certainly.

There are a ton of other parallels between 2008 and 2012.

In both years, we saw global shipping start to slow down dramatically.

In both years, the U.S. was getting ready to hold a presidential election.

In both years, many economists were warning that a great financial crisis was about to strike.

Back in 2008, the epicenter of the financial crisis was on Wall Street.

This time, the epicenter of the financial crisis will probably be in Europe.

Keep your eye on Europe.  A disorderly default by Greece (and potentially even an exit from the eurozone) is looking increasingly likely.

But the problems in Europe are not going to end with Greece.  The entire eurozone is going to be greatly shaken by the time this thing is over.

So yes, if we see another major global recession that will be great news for the price of gas, but it will be really bad news for the millions of people that lose their jobs and their homes.

Unfortunately, we live at a time when the world is becoming extremely unstable.  The great era of peace and prosperity that we have been enjoying is coming to an end.  The global financial system is going to experience a tremendous amount of chaos in the years ahead and that is something we will all need to prepare for.

For now, the price of gas is a major concern for millions upon millions of American families.

Someday, however, we will wish desperately that we could go back to these days.

The Economic Collapse

Yes, stupidity.

Release Date: December 13, 2011

For immediate release

Information received since the Federal Open Market Committee met in November suggests that the economy has been expanding moderately, notwithstanding some apparent slowing in global growth. While indicators point to some improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but business fixed investment appears to be increasing less rapidly and the housing sector remains depressed. Inflation has moderated since earlier in the year, and longer-term inflation expectations have remained stable.

Really?  You didn’t talk to Texas Instruments or listen to them (or Dupont for that matter) did you?

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate. However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

Oh really?  You mean like this sort of “non-inflation”?

If you’re not real sharp you might miss it — those are “cases” that are in fact 20 packs instead of 24.

To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.

The Committee also decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Voting against the action was Charles L. Evans, who supported additional policy accommodation at this time.

And what would Evans have done?

The problem here is the lack of available collateral — that is, there’s too much debt and servicing it is sucking up too much production.  This means that there’s not enough left once you pay the service to both cover the mandatory costs (which as the name implies are not optional) and form capital.

This is when the credit ponzi dies — when there is no longer economic surplus produced from more debt.  Put another way, the marginal utility of more deficit spending no matter who’s running the deficit is now negative — the more borrow the worse the economy gets!

This is the inevitable outcome of two exponential functions that you do not allow to come back into balance.  It is not complicated and it cannot be avoided — no matter what you do.