Every great con game eventually comes to an end. For years, global central banks have been manipulating the financial marketplace with their monetary voodoo. Somehow, they have convinced investors around the world to invest tens of trillions of dollars into bonds that provide a return that is way under the real rate of inflation. For quite a long time I have been insisting that this is highly irrational. Why would any rational investor want to put money into investments that will make them poorer on a purchasing power basis in the long run? And when any central bank initiates a policy of “quantitative easing”, any rational investor should immediately start demanding a higher rate of return on the bonds of that nation. Creating money out of thin air and pumping into the financial system devalues all existing money and creates inflation. Therefore, rational investors should respond by driving interest rates up. Instead, central banks told everyone that interest rates would be forced down, and that is precisely what happened. But now things have shifted. Investors are starting to behave more rationally and the central banks are starting to lose control of the financial markets, and that is a very bad sign for the rest of 2015.
And of course it isn’t just bond yields that are out of control. No matter how hard they try, financial authorities in Europe can’t seem to fix the problems in Greece, and the problems in Italy, Spain, Portugal and France just continue to escalate as well. This week, Greece became the very first nation to miss a payment to the IMF since the 1980s. We’ll discuss that some more in a moment.
Over in Asia, stocks are fluctuating very wildly. The Shanghai Composite Index plunged by 5.4 percent on Thursday before regaining all of those losses and actually closing with a gain of 0.8 percent. When we see this kind of extreme volatility, it is a very bad sign. It is during times of extreme volatility that markets crash.
Remember, stocks generally tend to go up during calm markets, and they generally tend to go down during choppy markets. So most investors do not want to see lots of volatility. Unfortunately, that is precisely what we are witnessing all over the world right now. The following comes from the Wall Street Journal…
“Volatility over the last days has been breathtaking, especially in bond markets,” said Wouter Sturkenboom, senior investment strategist at Russell Investments. He said that it rippled through equity and currency markets, which overreacted.
The yield on the benchmark German 10-year bond touched 0.99%, its highest level since September, before erasing the day’s rise and falling back to 0.84%. The 10-year U.S. Treasury yield, which hit a fresh 2015 high of 2.42% earlier Thursday, recently fell back to 2.33%. Yields rise as prices fall.
Sometimes when bond yields go up, it is because investors are taking money out of bonds and putting it into stocks because they are feeling really good about where the stock market is heading. This is not one of those times. As Peter Tchir has noted, the huge moves in the bond market that we are now seeing are the result of “sheer panic in the market”…
In a morning note before the open, Brean Capital’s Peter Tchir wrote: “It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a ‘risk on’ trade it is a ‘risk off’ trade, where low yields are viewed as a risk asset and not a safe haven.” And Tom di Galoma, head of fixed-income rates and credit at ED&F Man Capital Markets, told Bloomberg, “This is sheer panic in the market from the standpoint of what’s been happening in Europe … Most of Wall Street is guarded here as far as taking on new positions.”
But this wasn’t supposed to happen.
After watching the Federal Reserve be able to successfully use quantitative easing to drive down interest rates, the European Central Bank decided to try the same thing. Unfortunately for them, investors are starting to behave more rationally. The central banks are starting to lose control of the financial markets, and bond yields are soaring. I think that Peter Boockvar summarized where we are currently at very well when he stated the following…
I’ve said this before but I’m sorry, I need to say it again. What we are witnessing in global markets is the inherent contradiction writ large that is modern day monetary policy where dangerously ZIRP, NIRP and QE are considered conventional policies. The contradiction is simply this: the desire for higher inflation if fulfilled will result in higher interest rates that central banks are trying so hard and desperately to suppress.
Outside of the short end of the curve, markets will always win for better or worse and that is clearly evident now. The ECB is getting their first taste of the market talking back and in quite the violent way. In the US, the bond market is watching the Fed drag its feet (its never-ending) with wanting to raise interest rates and finally said enough is enough. The US Treasury market is tightening for them. Since mid April, the 5 yr note yield is higher by 40 bps, the 10 yr is up by 55 bps and the 30 yr yield is up by 65 bps.
And if global investors continue to move in a rational direction, this is just the beginning. Bond yields all over the planet should be much, much higher than they are right now. What that means is that bond prices potentially have a tremendous amount of room to go down.
One thing that could accelerate the global bond crash is the crisis in Greece. Negotiations between the Greeks and their creditors have been dragging on for four months, and no agreement has been reached. Now, Greece has missed the loan payment that was due to the IMF on June 5th, and it is asking the IMF to bundle all of the payments that are due this month into one giant payment at the end of June…
Greece has asked to bundle its four debt payments to the International Monetary Fund that fall due in June so that it can pay them in one batch at the end of the month, Greek newspaper Kathimerini reported on Thursday.
The request is expected to be approved by the IMF, the newspaper said. That would mean Greece does not have to pay the first tranche of 300 million euros that falls due on Friday.
Greece faces a total bill of 1.5 billion euros owed to the IMF over four installments this month.
Of course that payment will not be made either if a deal does not happen by then. And with each passing day, a deal seems less and less likely. At this point, the package of “economic reforms” that the creditors are demanding from Greece is completely unacceptable to Syriza. The following comes from an article in the Guardian…
Fresh from talks in Brussels, Tsipras faced outrage on Thursday from highly skeptical members of his own Syriza party. A five-page ultimatum from creditors, presented by the European commission president, Jean-Claude Juncker, was variously described as shocking, provocative, disgraceful and dishonourable.
“It will never pass,” said Greece’s deputy social security minister, Dimitris Stratoulis. “If they don’t back down, the country won’t be lost … there are alternatives that would cost less than our signing a disgraceful and dishonourable agreement.”
Ultimately, I don’t believe that we are going to see an agreement.
Well, I tend to agree with this bit of analysis from Andrew Lilico…
The Eurozone does not want to make any compromise with the current Greek government because (a) they don’t believe they need to because Greek threats to leave the euro are empty both because internal polling suggests Greeks don’t want to leave and because if they did leave that doesn’t really constitute any threat to the euro; (b) because they (particularly perhaps Angela Merkel) believe that under enough pressure the Greek government might collapse and be replaced by a more cooperative government, as has happened repeatedly before in the Eurozone crisis including in Italy and Greece itself; and (c) because any deal with Greece that is seen to involve or be presentable as any victory for the Greek government would threaten the political positions of governments in several Eurozone states including Spain, Portugal, Italy, Finland and perhaps even the Netherlands and Germany.
Furthermore, it’s not clear to me that the Eurozone creditors at this stage would have much interest in any deal based upon promises, regardless of how much the Greek had verbally surrendered. Things have gone too far now for mere words to work. They would need to see the Greeks deliver actions — tangible economic reforms and tangible, credible primary surplus targets and a sustainable change in the long-term political mood within Greece that meant other Eurozone states might eventually get their money back. That is almost certainly not doable at all with the current Greek government. The only deal possible would be with some replacement Greek government that had come in precisely on the basis that it did want to do a deal and did want to pay the creditors back.
On the Syriza side, I see no more appetite for a deal. They believe that austerity has been ruinous for the lives of Greeks and that decades more austerity would mean decades more Greek economic misery. From their point of view, default or even exit from the euro, even if economically painful in the short term, would be better than continuing with austerity now.
You can read the rest of his excellent article right here.
Without a deal, the value of the euro is going to absolutely plummet and bond yields over in Europe will go through the roof. I am fully convinced that this is the beginning of the end for the eurozone as it is currently constituted, and that we stand on the verge of a great European financial crisis.
And of course the financial crisis that is coming won’t just be in Europe. The global financial system is more interconnected than ever, and there are tens of trillions of dollars in derivatives that are tied to foreign exchange rates and 505 trillion dollars in derivatives that are tied to interest rates. When this giant house of cards collapses, the central banks won’t be able to stop it.
In the end, could we eventually see the entire central banking system itself totally collapse?
That is what Phoenix Capital Research believes is about to happen…
Last year (2014) will likely go down in history as the “beginning of the end” for the current global Central Banking system.
What will follow will be a gradual unfolding of the next crisis and very likely the collapse of the Central Banking system as we know it.
However, this process will not be fast by any means.
Central Banks and the political elite will fight tooth and nail to maintain the status quo, even if this means breaking the law (freezing bank accounts or funds to stop withdrawals) or closing down the markets (the Dow was closed for four and a half months during World War 1).
There will be Crashes and sharp drops in asset prices (20%-30%) here and there. However, history has shown us that when a financial system goes down, the overall process takes take several years, if not longer.
We stand at the precipice of the greatest economic transition that any of us have ever seen.
Even though things may seem very “normal” to most people right now, the truth is that the global financial system is fundamentally flawed, and cracks in the system are starting to appear all over the place.
When this system does collapse, it will take most people entirely by surprise.
But it shouldn’t.
All con games eventually fall apart in the end, and we are about to learn that lesson the hard way.
Since the depths of the last recession, the price of ground beef in the United States has doubled. Has your paycheck doubled since then? Even though the Federal Reserve insists that we are in a “low inflation” environment, the government’s own numbers show that the price of ground beef has been on an unprecedented run over the past six years. In early 2009, the average price of a pound of ground beef was hovering near 2 dollars. In February, it hit a brand new all-time record high of $4.238 per pound. Even just 12 months ago, the price of ground beef was sitting at $3.555 per pound. So we are talking about a huge increase. And this hits American families where they really live. Each year, the average American consumes approximately 270 pounds of meat. The only nation in the world that eats more meat than we do is Luxembourg. If the paychecks of American workers were going up fast enough to deal with this increase, it wouldn’t be that big of a deal. But of course that is not happening. In an article just last week, I showed that real median household income is a couple thousand dollars lower now than it was during the depths of the last recession. The middle class is being squeezed, and we are rapidly getting to the point where burgers are going to be considered a “luxury” item.
The following chart was posted by the Economic Policy Journal on Wednesday, and it incorporates the latest data from the Bureau of Labor Statistics. When I first saw it, I was rather stunned. I knew that the price of ground beef had become rather outrageous in my local grocery stores, but I had no idea just how much damage had been done over the past six years…
The biggest reason why the price of ground beef has been going up is the fact that the U.S. cattle herd has been shrinking. It shrunk seven years in a row, and on January 1st, 2014 it was the smallest that it had been since 1951.
The good news is that the decline appears to have stopped, at least for the moment. According to the Wall Street Journal, the size of the U.S. cattle herd actually increased by 1 percent last year…
The U.S. cattle herd expanded in 2014 for the first time in eight years, offering hope to consumers that beef prices could start to subside after soaring to a series of records.
The nation’s cattle supply increased 1% in the year through Jan. 1 to 89.8 million head, according to data released Friday by the U.S. Agriculture Department, reversing a steady decline fueled by prolonged drought in the southern U.S. Great Plains and industry consolidation that encouraged many ranchers to thin herds.
But an increase of 1 percent is just barely going to keep up with the official population growth rate. If you factor in illegal immigration, we are still losing ground.
And if we have another major drought in cattle country this summer, the cattle herd is going to start shrinking again.
In addition, the price of food overall has been steadily rising for years. Here is a chart that I shared the other day…
It boggles the mind that the Federal Reserve can claim that we are in a “low inflation” environment. Anyone that goes grocery shopping feels the pain of these rising prices every time that they go to the store.
In the list that I put together yesterday, I included the following statistic…
Almost half of all Americans (47 percent) do not put a single penny out of their paychecks into savings.
One of the primary reasons why so many Americans are not saving any money is because many families simply cannot save any money. Their paychecks are stagnant while the cost of living just keeps going up and up.
There simply are not enough “good jobs” out there anymore. Our economy continues to bleed middle class jobs and the competition for the jobs that remain is quite intense.
Do you know what the two most common occupations in America today are?
According to the Bureau of Labor Statistics, they are “retail sales clerk” and “cashier”.
And of course neither of those “occupations” pays even close to what is required to support a middle class family.
On average, a retail sales clerk makes $24,020 a year, and a cashier makes $20,670 a year.
Because the quality of our jobs has declined so much, there are millions of American families today in which both the mother and the father are working multiple jobs in a desperate attempt to make ends meet each month.
But don’t worry, the Federal Reserve says that we are nearly at “full employment“, and Barack Obama says that everything is going to be just fine.
Actually, the truth is that things are about to get a lot worse. At this point, we are even getting pessimistic numbers out of the Federal Reserve. Just this week we learned that the Fed is now projecting that economic growth for the first quarter of 2015 will be barely above zero…
From almost 2.5% GDP growth expectations in February, The Atlanta Fed’s GDPNow model has now collapsed its estimates of Q1 GDP growth to just 0.2% – plunging from +1.4% just 2 weeks ago. The reality of plunging capex and no decoupling is starting to rear its ugly head in the hard data and as the sun warms things up, weather will start to lose its ability to sway sentiment.
We are at a turning point. The bubble of false stability that we have been living in is rapidly coming to an end, and when people start to realize that another great economic crisis is coming there is going to be a lot of panic.
And as far as food prices go, they are just going to keep taking a bigger chunk out of all of our wallets.
As high as prices are already, the truth is that your food dollars are never going to go farther than they do right now.
So let us hope for the best, but let us also get prepared for the worst.
Thanks to the Federal Reserve, the middle class is slowly being suffocated by rising food prices. Every single dollar in your wallet is constantly becoming less valuable because of the inflation the Fed systematically creates. And if you try to build wealth by saving money and earning interest on it, you still lose because thanks to the Federal Reserve’s near zero interest rate policies banks pay next to nothing on savings accounts. The Federal Reserve wants you to either spend your money or to put it in the giant casino that we call the stock market. But when Americans spend their paychecks they are finding that they don’t stretch as far as they once did. The cost of living continues to rise at a much faster pace than wages are rising, and this is especially true when it comes to the price of food.
Someone that I know wrote to me today and let me know that she had to shut down the food pantry that she had been running for the poor for so many years. It isn’t that she didn’t want to help the poor anymore. It was that she just couldn’t deal with the rising food prices any longer. Now she is just doing the best that she can to survive herself.
Perhaps you have also noticed that food prices have gotten pretty crazy lately. In particular, meat prices have become absolutely obscene. For example, the average price of ground beef has risen to a new record high of over $4.09 a pound. Over the past twelve months, that works out to a whopping 17 percent increase…
The average price for a pound of ground beef climbed to another record high–$4.096 per pound–in the United States in September, according to data released today by the Bureau of Labor Statistics (BLS).
In August, according to BLS, the average price for a pound of all types of ground beef topped $4 for the first time–hitting $4.013. In September, the average price jumped .083 cents, an increase of 2.1 percent in one month.
A year ago, in September 2013, the average price for a pound of ground beef was $3.502 per pound. Since then, it has climbed 59.4 cents–or about 17 percent in one year.
The “intellectuals” over at the Federal Reserve insist that “a little bit of inflation” is good for an economy, but the truth is that inflation slowly robs us of our buying power.
In a previous article, I shared a chart that showed how food inflation has risen dramatically since the year 2000. For this article, I wanted to show how food inflation has risen since the 1970s. As you can see, the rise in food prices has been absolutely relentless for more than 40 years…
If our paychecks were going up at the same rate or even faster that would be okay.
But they aren’t.
In fact, CNN is reporting that our paychecks have fallen back to 1995 levels…
Americans also don’t feel any better off. While more people may have jobs, they aren’t bringing home fatter paychecks. Wages and income have remained stagnant for years, making it tough for folks even though inflation is low. Median household income, which stood at $51,939 last year, is back to 1995 levels.
Consumers expect a median income boost of 1.1% over the next year, Curtin said. But that won’t keep up with their inflation expectations of 2.8%.
“American households, on average, are still struggling with their living standards slowly eroding,” he said.
This is one of the primary reasons why the middle class is disappearing in America.
The purchasing power of our dollars is continually diminishing.
And this could be just the beginning. Right now, severe drought is affecting some of the most important agricultural areas around the globe. Most people are aware of the nightmarish drought in California, but did you know that things in Brazil are even worse? Brazil is one of the most important food exporters in the world, and so they definitely need our prayers.
In addition, a “black swan event” such as a worldwide explosion of the Ebola pandemic could quickly drive food prices into the stratosphere.
Just this week, we learned that food prices in the Ebola-stricken regions of Liberia, Guinea and Sierra Leone have already risen by an average of 24 percent…
Infection rates in the food-producing zones of Kenema and Kailahun in Sierra Leone, Lofa and Bong County in Liberia and GuDeckDedou in Guinea are among the highest in the region. Hundreds of farmers have died.
The three governments quarantined districts and restricted movements to contain the virus’ spread. But those measures also disrupted markets and led to food scarcity and panic buying, further pushing up prices, WFP and the Food and Agriculture Organization have said.
“Prices have risen by an average of 24 percent,” said WFP spokeswoman Elisabeth Byrs, adding an assessment of major markets showed the price of basic commodities was rising in Guinea, Liberia and Sierra Leone and in neighboring Senegal.
If you have been storing up food, I think that you will be very happy with your decision in the long run.
Without a doubt, food prices are only going to be going up from here.
But the Federal Reserve continues to insist that inflation is under control.
One of the ways that they make the “official numbers” look good is by playing accounting games. They regularly change the way that inflation is calculated in order keep everyone calm.
You don’t have to take my word for it. Posted below is an excerpt from an article by Mike Bryan, a vice president and senior economist in the Atlanta Fed’s research department…
The Economist retells a conversation with Stephen Roach, who in the 1970s worked for the Federal Reserve under Chairman Arthur Burns. Roach remembers that when oil prices surged around 1973, Burns asked Federal Reserve Board economists to strip those prices out of the CPI “to get a less distorted measure. When food prices then rose sharply, they stripped those out too—followed by used cars, children’s toys, jewellery, housing and so on, until around half of the CPI basket was excluded because it was supposedly ‘distorted'” by forces outside the control of the central bank. The story goes on to say that, at least in part because of these actions, the Fed failed to spot the breadth of the inflationary threat of the 1970s.
I have a similar story. I remember a morning in 1991 at a meeting of the Federal Reserve Bank of Cleveland’s board of directors. I was welcomed to the lectern with, “Now it’s time to see what Mike is going to throw out of the CPI this month.” It was an uncomfortable moment for me that had a lasting influence. It was my motivation for constructing the Cleveland Fed’s median CPI.
I am a reasonably skilled reader of a monthly CPI release. And since I approached each monthly report with a pretty clear idea of what the actual rate of inflation was, it was always pretty easy for me to look across the items in the CPI market basket and identify any offending—or “distorted”—price change. Stripping these items from the price statistic revealed the truth—and confirmed that I was right all along about the actual rate of inflation.
It is all a game to them.
It is all about getting to the “right number” to release to the public.
But anyone that goes to the grocery store knows what has been happening to food prices.
The next time you get to the checkout register and you feel tempted to ask the cashier what organ you should donate to pay for your groceries, please keep in mind that it is not the fault of the cashier.
Instead, there is one entity that you should blame.
Blame the Federal Reserve – their policies are slowly pushing the middle class into oblivion.
The basic necessities in life just keep getting more expensive. On Tuesday, Hershey announced that the price of all of their chocolate bars is going to go up by about 8 percent. That is particularly distressing to me, because I am known to love chocolate. But if it was just chocolate that was becoming significantly more expensive perhaps that would be okay. Last month, it was coffee. J.M. Smucker, one of the largest coffee producers in the United States, announced that it planned to raise coffee prices by about 9 percent. And Starbucks has announced a bunch of price increases across the board on their coffee products. Of course we could all survive without chocolate and coffee, but as you will see below just about every food category is becoming more expensive. If this keeps up, could we eventually see armed guards in grocery stores and on food trucks?
On Wednesday, Robert Wenzel of the Economic Policy Journal shared some new data that has just been released by the federal government about food inflation over the past year. Without a doubt, these numbers are quite startling…
According to the latest data released today by the Bureau of Labor Statistics, year-over-year gains in some food products at the producer level have been truly spectacular.
Eggs for fresh use are up 33.9%.
Pork is up 28%.
Processed turkeys are up 20.4%.
Dairy products are up 10.7%.
Fresh and dry vegetables are up 8.4%.
Fresh fruits and melons are up 7.5%.
Unfortunately, paychecks for most American families are not going up at similar rates.
What that means is more pain when we make our trips to the grocery store. Things have gotten so bad that even the mainstream media is running stories about this. For example, this excerpt comes from a recent CNBC article…
“I try to do all my local errands in one day and go up to the mall,” said Helon Rapfogel of New Jersey. “I used to go maybe twice or three times a week, and now I just go one day a week, if that much. And I try to consolidate things.”
Rapfogel said that higher costs for food and gas are hitting her overall budget.
“You sacrifice things. Like not doing an ice cream run during the week with the kids. [That could] hurt the local retailers, and we don’t want to do that … but we may have to,” she said.
At the grocery store, meat, dairy and fruit prices are all up substantially. People are even paying more for lattes at their local coffee shops. And it’s not just food—gas prices have jumped sharply on geopolitical unrest, and at the moment there’s no relief in sight.
So why is all of this happening?
Well, the truth is that a lot of factors have combined to produce something of a perfect storm.
First of all, we should talk about Federal Reserve money printing. Since the last financial crisis, the Fed has been on an unprecedented money printing spree. This has dramatically pushed up the prices of stocks, commodities and just about everything else. It was naive to think that we wouldn’t eventually see substantial food inflation as well. Just look at what “quantitative easing” has done to M1 since the last recession…
When you have more dollars chasing roughly the same amount of goods and services of course prices are going to go up.
It is just basic economics.
But according to Federal Reserve Chair Janet Yellen, there is absolutely no reason to be concerned. The following is a video of her telling the press her view on inflation that I shared in a previous article…
But crazy Fed money printing is not the only reason why food prices are going up.
The endless drought in the western half of the country is severely hurting food production as well. The size of the U.S. cattle herd has shrunk for seven years in a row, and it is now the smallest that it has been since 1951. And the drought is hitting the state of California particularly hard, and considering the fact that it produces nearly half of all of our fresh produce that is more than a little bit alarming. Yes, we are more technologically advanced that we used to be, but we are not advanced enough to overcome an epic multi-year drought in half the nation.
In addition, we are also dealing with the worst pork virus to ever hit the United States right now. Porcine epidemic diarrhea has already wiped out about 10 percent of the pig population in the U.S., and approximately 100,000 more are dying each week. As you saw above, pork prices are already up 28 percent over the past 12 months, and if a solution is not found to this virus the price increases are going to get much worse.
Down in Florida, citrus growers are facing a horrific outbreak of citrus greening disease. The U.S. Department of Agriculture says that orange production in the U.S. will be down 18 percent compared to last year, and it is expected that this will be the worst crop in close to 30 years.
Another plague known as the TR4 fungus has hit banana production. According to CNBC, this horrible fungus may eventually completely wipe out the variety of bananas that we eat today…
Banana lovers take note: The world’s supply of the fruit is under attack from a fungus strain that could wipe out the popular variety that Americans eat.
“It’s a very serious situation,” said Randy Ploetz, a professor of plant pathology at the University of Florida who in 1989 originally discovered a strain of Panama disease, called TR4, that may be growing into a serious threat to U.S. supplies of the fruit and Latin American producers.
“There’s nothing at this point that really keeps the fungus from spreading,” he said in an interview with CNBC.
While there are nearly 1,000 varieties of bananas, the most popular is the Cavendish, which accounts for 45 percent of the fruit’s global crop—and the one Americans mostly find in their supermarkets.
For decades, Americans have been able to go to the grocery stores and fill up their carts with massive amounts of very inexpensive food.
But just because it has been that way for so many years does not mean that it will be that way in the future.
Right now, there are 49 million Americans that are dealing with food insecurity, and that number will only get worse as food prices go even higher.
It is getting to the point where it is not too hard to imagine desperate people holding up food trucks and robbing grocery stores in order to feed themselves and their families.
Let us hope that we don’t see anything like that any time soon, but we are moving in that direction.
Just a few years ago, the notion that we could ever see armed guards on food trucks or in grocery stores in the United States was absolutely unthinkable.
But now, it is not so crazy.
So what do you think? Please feel free to share your thoughts by posting a comment below…
Have you noticed that prices are going up rapidly? If so, you are certainly not alone. But Federal Reserve chair Janet Yellen, the Obama administration and the mainstream media would have us believe that inflation is completely under control and exactly where it should be. Perhaps if the highly manipulated numbers that they quote us were real, everything would be fine. But of course the way that the inflation rate is calculated has been changed more than 20 times since the 1970s, and at this point it bears so little relation to reality that it is essentially meaningless. Anyone that has to regularly pay for food, water, gas, electricity or anything else knows that inflation is too high. In fact, if inflation was calculated the same way that it was back in 1980, the inflation rate would be close to 10 percent right now.
But you would never know that listening to Federal Reserve chair Janet Yellen. In the video posted below, you can listen to her telling the media that there is absolutely nothing to be concerned about…
And it is really hard to get too upset with Janet Yellen.
After all, she reminds many people of a sweet little grandmother.
But the reality of the matter is that she is simply not telling us the truth. Everywhere we look, prices are aggressively moving higher.
Just the other day, the Bureau of Labor Statistics announced that the price index for meat, poultry, fish, and eggs has just soared to a new all-time high.
This is something that I have repeatedly warned would happen. Just check out this article and this article.
And it isn’t just meat prices that are going up. One of the largest coffee producers in the entire world just announced that it is going to be raising coffee prices by 9 percent…
It took the Fed long enough but finally even it succumbed to the reality of surging food prices when, as we reported previously, it hiked cafeteria prices at ground zero: the cafeteria of the Chicago Fed, stating that “prices continue to rise between 3% and 33%.” So with input costs rising across the board not just for the Fed, but certainly for food manufacturers everywhere, it was only a matter of time before the latter also threw in the towel and followed in the Fed’s footsteps. Which is what happened earlier today when J.M. Smucker Co. said it raised the prices on most of its coffee products by an average of 9% to reflect higher green-coffee costs.
Not that coffee isn’t expensive enough already. It absolutely stuns me that some people are willing to pay 3 dollars for a cup of coffee.
I still remember the days when you could get a cup of coffee for 25 cents.
Also, I can’t get over how expensive groceries are becoming these days. Earlier this month I took my wife over to the grocery store to do some shopping. We are really ramping up our food storage this summer, and so we grabbed as much stuff on sale as we could find. When we got our cart to the register, I was expecting the bill to be large, but I didn’t expect it to be over 300 dollars.
And remember, this was just for a single shopping cart and we had consciously tried to grab things that were significantly reduced from regular price.
I almost felt like asking the cashier which organ I should donate to pay the bill.
Sadly, this is just the beginning. Food prices are eventually going to go much, much higher than this.
Also, you should get ready to pay substantially more for water as well.
According to CNBC, one recent report warned that “your water bill will likely increase” in the coming months…
U.S. water utilities face a critical economic squeeze, according to a new report—and that will likely mean higher prices at the water tap for consumers.
A survey by water-engineering firm Black & Veatch of 368 water utility companies across the country shows that 66 percent of them are not generating enough revenue to cover their costs.
To make up for the financial shortfall, prices for water are heading upward, said Michael Orth, one of the co-authors of the report and senior vice president at Black & Veatch.
“People will have to pay more for water to make up the falling revenues,” he said. “And that’s likely to be more than the rate of inflation.”
Of even greater concern is what is happening to gas prices.
According to Bloomberg, the price of gasoline hasn’t been this high at this time of the year for six years…
Gasoline in the U.S. climbed this week, boosted by a surge in oil, and is expected to reach the highest level for this time of year since 2008.
The pump price averaged $3.686 a gallon yesterday, up 1.2 cents from a week earlier, data posted on the Energy Information Administration’s website late yesterday show. Oil, which accounts for two-thirds of the retail price of gasoline, gained $2.49 a barrel on the New York Mercantile Exchange in the same period and $4.88 in the month ended yesterday.
The jump in crude, driven by concern that the crisis in Iraq will disrupt supplies, may boost pump prices by 10 cents a gallon at a time when they normally drop, according to forecasts including one from the EIA.
And the conflicts in Iraq, Ukraine and elsewhere could potentially send gas prices screaming far higher.
In fact, T. Boone Pickens recently told CNBC that if Baghdad falls to ISIS that the price of a barrel of oil could potentially hit $200.
Of course the big oil companies are not exactly complaining about this. This week energy stocks are hitting record highs, and further escalation of the conflict in Iraq will probably send them even higher.
Meanwhile, a “bipartisan Senate proposal” (that means both Democrats and Republicans) would raise the gas tax by 12 cents a gallon over the next two years.
Our politicians have such good timing, don’t they?
And our electricity rates are going up too. The electricity price index just set a brand new record high and there are no signs of relief on the horizon…
The electricity price index and the average price for a kilowatthour (KWH) of electricity both hit records for May, according to data released today by the Bureau of Labor Statistics.
The average price for a KWH hit 13.6 cents during the month, up about 3.8 percent from 13.1 cents in May 2013.
The seasonally adjusted electricity price index rose from 201.431 in May 2013 to 208.655 in May 2014—an increase of about 3.6 percent.
If our paychecks were increasing at the same rate as inflation, perhaps most families would be able to weather all of this.
Unfortunately, that is not the case at all.
As I wrote about recently, median household income in the U.S. is now about 7 percent lower than it was in the year 2000 after adjusting for inflation.
And if realistic inflation numbers were used instead of the government-manipulated ones, it would look a lot worse than that.
Inflation is a hidden tax that all of us pay, and it is systematically eviscerating the middle class.
So what are prices like in your neck of the woods?
Is your family feeling the pain of inflation?
Please feel free to share your thoughts by posting a comment below…
Do you think that the price of food is high now? Just wait. If current trends continue, many of the most common food items that Americans buy will cost more than twice as much by the end of this decade. Global demand for food continues to rise steadily as crippling droughts ravage key agricultural regions all over the planet. You see, it isn’t just the multi-year California drought that is affecting food prices. Down in Brazil (one of the leading exporters of food in the world), the drought has gotten so bad that 142 cities were rationing water at one point earlier this year. And outbreaks of disease are also having a significant impact on our food supply. A devastating pig virus that has never been seen in the U.S. before has already killed up to 6 million pigs. Even if nothing else bad happens (and that is a very questionable assumption to make), our food prices are going to be moving aggressively upward for the foreseeable future. But what if something does happen? In recent years, global food reserves have dipped to extremely low levels, and a single major global event (war, pandemic, terror attack, planetary natural disaster, etc.) could create an unprecedented global food crisis very rapidly.
A professor at the W. P. Carey School of Business at Arizona State University named Timothy Richards has calculated what the drought in California is going to do to produce prices at our supermarkets in the near future. His projections are quite sobering…
- Avocados likely to go up 17 to 35 cents to as much as $1.60 each.
- Berries likely to rise 21 to 43 cents to as much as $3.46 per clamshell container.
- Broccoli likely to go up 20 to 40 cents to a possible $2.18 per pound.
- Grapes likely to rise 26 to 50 cents to a possible $2.93 per pound.
- Lettuce likely to rise 31 to 62 cents to as much as $2.44 per head.
- Packaged salad likely to go up 17 to 34 cents to a possible $3.03 per bag.
- Peppers likely to go up 18 to 35 cents to a possible $2.48 per pound.
- Tomatoes likely to rise 22 to 45 cents to a possible $2.84 per pound.
So what happens if the drought does not end any time soon?
Scientist Lynn Ingram, who has studied the climate history of the state of California extensively, told CBS News that we could potentially be facing “a century-long megadrought” in California. If that does indeed turn out to be the case, we could be facing huge price increases for produce year after year.
And it isn’t just crops that are grown in the United States that we need to be concerned about. As NBC News recently reported, the price of cocoa is absolutely soaring and that is going to mean much higher prices for chocolate…
As cocoa prices surge to near-record highs on demand for emerging markets, chocoholics brace for a hike in price – and maybe even a different taste, as chocolate makers hunt out cheaper ingredients.
Cocoa futures are up 10 percent so far this year, hitting almost £1,900 on ($3,195) a ton in March. Last year prices rose 20 percent.
In fact, experts are now warning that chocolate may soon become a “high-end luxury item” because it is becoming so expensive.
Meat prices are also starting to spiral out of control.
A virus known as porcine epidemic diarrhea has pushed pork prices up to new all-time record highs. It has already spread to 27 states, and as I mentioned above, it has already killed up to 6 million pigs. It is being projected that U.S. pork production will decline by about 7 percent this year as a result, and Americans could end up paying up to 20 percent more for pork by the end of the year.
The price of beef has also soared to a brand new all-time record high. Due to the drought that never seems to let up in the western half of the country, the total size of the U.S. cattle herd has been declining for seven years in a row, and it is now the smallest that is has been since 1951.
If the overall price of food in this country increases by just an average of a little more than 12 percent a year, it will double by the end of this decade.
What would you do if you suddenly walked into the grocery store and everything was twice as much?
That is a frightening thing to think about.
Meanwhile, all of our other bills just keep going up as well. For example, we just learned that the price of electricity hit a brand new all-time record high for the month of March.
If our incomes were keeping up with all of these price increases, that would be one thing. Unfortunately, that is not the case. As I wrote about earlier this week, the quality of our jobs continues to go down and more Americans fall out of the middle class every single day.
According to CNBC, there are hundreds of thousands of Americans with college degrees that are working for minimum wage right now…
While a college degree might help get a job, it doesn’t necessarily mean a good salary. According to a report released last month by the Bureau of Labor Statistics, some 260,000 workers with bachelor’s degrees and 200,000 workers with associate’s degrees are making the minimum wage.
The federal minimum wage is $7.25 an hour, and the minimum wage for tipped workers is $2.13 an hour. Some cities and states have recently raised their minimum wage, but the BLS report defines only those making $7.25 an hour or less as “minimum wage workers.”
And according to the U.S. Census Bureau, median household income in the United States has dropped for five years in a row.
This is why so many families are financially stressed these days. The cost of living is going up at a steady pace, but for the most part our paychecks are not keeping up. Average Americans are having to stretch their money farther than ever, and many families have reached the breaking point.
So what is going on in your neck of the woods? Are you starting to see prices rise at the grocery stores where you live? Please feel free to join the discussion by leaving a comment below…
There is a reason why every fiat currency in the history of the world has eventually failed. At some point, those issuing fiat currencies always find themselves giving in to the temptation to wildly print more money. Sometimes, the motivation for doing this is good. When an economy is really struggling, those that have been entrusted with the management of that economy can easily fall for the lie that things would be better if people just had “more money”. Today, the Federal Reserve finds itself faced with a scenario that is very similar to what the Weimar Republic was facing nearly 100 years ago. Like the Weimar Republic, the U.S. economy is also struggling and like the Weimar Republic, the U.S. government is absolutely drowning in debt. Unfortunately, the Federal Reserve has decided to adopt the same solution that the Weimar Republic chose. The Federal Reserve is recklessly printing money out of thin air, and in the short-term some positive things have come out of it. But quantitative easing worked for the Weimar Republic for a little while too. At first, more money caused economic activity to increase and unemployment was low. But all of that money printing destroyed faith in German currency and in the German financial system and ultimately Germany experienced an economic meltdown that the world is still talking about today. This is the path that the Federal Reserve is taking America down, but most Americans have absolutely no idea what is happening.
It is really easy to start printing money, but it is incredibly hard to stop. Like any addict, the Fed is promising that they can quit at any time, but this month they refused to even start tapering their money printing a little bit. The behavior of the Fed is so shameful that even CNBC is comparing it to a drug addict at this point…
The danger with addictions is they tend to become increasingly compulsive. That might be one moral of this week’s events.
A few days ago, expectations were sky-high that the Federal Reserve was about to reduce its current $85 billion monthly bond purchases. But then the Fed blinked, partly because it is worried that markets have already over-reacted to the mere thought of a policy shift.
Faced with a choice of curbing the addiction or providing more hits of the QE drug, in other words, it chose the latter.
So why won’t the Fed cut back on the reckless money printing?
Well, as Peter Schiff recently noted, Fed officials seem to be convinced that any “tapering” could result in the bursting of the massive financial bubbles that they have created…
The Fed understands, as the market seems not to, that the current “recovery” could not survive without continuation of massive monetary stimulus. Mainstream economists have mistaken the symptoms of the Fed’s monetary expansion, most notably rising stock and real estate prices, as signs of real and sustainable growth. But the current asset price bubbles have nothing to do with the real economy. To the contrary, they are setting up for a painful correction that will likely be worse than the one we experienced five years ago.
As I have written about previously, the Federal Reserve is usually very careful not to do anything which will hurt the short-term interests of the financial markets and the big banks.
But at this point the Fed is caught in a trap. If it continues to pump, the financial bubbles that it has created will get even worse. If it stops, those bubbles will burst. But as Doug Kass noted recently, it is inevitable that these financial bubbles will burst at some point one way or another…
“Getting in was easy. Getting out—not so much. The Fed is trapped and can’t end tapering or else the bond and stock markets will blow up. The longer this continues the bigger the inevitable burst.”
In essence, we can have disaster now or disaster later.
But most Americans don’t care much about what is happening on Wall Street. They just want economic conditions to get better for them and for those around them. And to this day, the mainstream media continues to sell quantitative easing to the American people as an “economic stimulus” program by the Federal Reserve.
So has quantitative easing actually been good for the U.S. economy?
For example, while the Fed has been recklessly printing money out of thin air, household incomes have actually been going down for five years in a row…
What about employment?
Don’t more Americans have jobs now?
Actually, that is not the case at all. Posted below is a chart that shows how the percentage of working age Americans with a job has changed since the year 2000. As you can see, the employment to population ratio fell from about 63 percent before the last recession down to underneath 59 percent at the end of 2009 and it has stayed there ever since…
So where is the “employment recovery”?
Can you point it out to me? Because I have been staring at this chart for a long time and I still can’t find it.
So if quantitative easing has not been good for average Americans, who has it been good for?
The wealthy, of course.
Just check out what billionaire hedge fund manager Stanley Druckenmiller told CNBC about quantitative easing the other day…
“This is fantastic for every rich person,” he said Thursday, a day after the Fed’s stunning decision to delay tightening its monetary policy. “This is the biggest redistribution of wealth from the middle class and the poor to the rich ever.”
“Who owns assets—the rich, the billionaires. You think Warren Buffett hates this stuff? You think I hate this stuff? I had a very good day yesterday.”
Druckenmiller, whose net worth is estimated at more than $2 billion, said that the implication of the Fed’s policy is that the rich will spend their wealth and create jobs—essentially betting on “trickle-down economics.”
“I mean, maybe this trickle-down monetary policy that gives money to billionaires and hopefully we go spend it is going to work,” he said. “But it hasn’t worked for five years.”
Sadly, Druckenmiller is exactly correct.
Since the end of the last recession, the Dow has been on an unprecedented tear…
Of course these stock prices have nothing to do with economic reality at this point, but for the moment those that are making giant piles of cash on Wall Street don’t really care.
Sadly, what very few people seem to understand is that what the Fed is doing is going to absolutely destroy confidence in our currency and in our financial system in the long-term. Yeah, many investors have been raking in huge gobs of cash right now, but in the long run this is going to be bad for everybody.
We have now entered a money printing spiral from which there is no easy exit. According to Graham Summers, the Fed has “crossed the Rubicon” and we are now “in the End Game”…
If tapering even $10-15 billion per month from $85 billion month QE programs would damage the economy, then we’re all up you know what creek without a paddle.
Put it this way… here we are, five years after 2008, and the Fed is stating point blank that the economy would absolutely collapse if it spent any less than $85 billion per month. This admission has proven just how long ago we crossed the Rubicon. We’re already in the End Game. Period.
Most Americans don’t really understand what quantitative easing is, and most don’t really try to understand it because “quantitative easing” sounds very complicated.
But it really isn’t that complicated.
The Federal Reserve is creating gigantic mountains of money out of thin air every month, and the Fed is using all of that newly created money to buy government debt and mortgage-backed securities. Over the past several years, the value of the financial securities that the Fed has accumulated is greater than the total amount of publicly held debt that the U.S. government accumulated from the presidency of George Washington though the end of the presidency of Bill Clinton…
The same day that the Federal Reserve’s Federal Open Market Committee announced last week that the Fed would continue to buy $40 billion in mortgage-backed securities (MBS) and $45 billion in U.S. Treasury securities per month, the Fed also released its latest weekly accounting sheet indicating that it had already accumulated more Treasuries and MBS than the total value of the publicly held U.S. government debt amassed by all U.S. presidents from George Washington though Bill Clinton.
To say that this is a desperate move by the Fed would be a massive understatement. We have never seen anything like this before in U.S. history.
And look at what all of this wild money printing has done to our money supply…
In many ways, the chart above is reminiscent of what the Weimar Republic did during the early years of their hyperinflationary spiral…
Just like the Weimar Republic, our money supply is beginning to grow at an exponential pace.
So far, complete and total disaster has not struck, so most people think that everything must be okay.
But it is not.
In a previous article, I included an outstanding illustration from Simon Black that I think would be extremely helpful here as well…
Let’s say you’re at a party in a small apartment that’s about 500 square feet in size. Then suddenly, at 11pm, a pipe bursts, starting a trickle into the living room.
Aside from the petty annoyance, would you feel like you were in danger? Probably not. This is a linear problem– the rate at which the water is leaking is more or less constant, so the guests can keep partying through the night without worry.
But let’s assume that it’s an exponential leak.
At first, there’s just one drop of water. But each minute, the rate doubles. So by 11:01pm, there’s 2 drops. By 11:02, 4 drops. And so forth.
By 11:27pm, there’s only six inches of standing water. Yet by 11:31pm, just four minutes later, the entire room is under nearly 8 feet of water. And the party’s over.
For nearly half an hour, it all seemed safe and manageable. People had all the time in the world to leave, right up until the bitter end. 11:27, 11:28, 11:29. Then it all went from benign to deadly in a matter of minutes.
Are you starting to get the picture?
What the Federal Reserve is doing is systematically destroying the U.S. dollar, and the rest of the world is starting to take notice.
Why should they continue to lend us trillions of dollars at super low interest rates when we are exploding the size of our money supply?
It is simply not rational for other nations to continue to lend us money at less than 3 percent a year when the real rate of inflation is somewhere around 8 to 10 percent and reckless money printing by the Fed threatens to greatly accelerate the devaluation of our currency.
When QE first started, the added demand for U.S. government debt by the Federal Reserve helped drive long-term interest rates down to record low levels.
But in the long-term, the only rational response by all other buyers of U.S. government debt will be to demand a much higher rate of return because of the rapid devaluation of U.S. currency.
So QE drives down long-term interest rates in the short-term, but in the long-term the only rational direction for long-term interest rates to go is much, much higher and in recent months we have already started to see this.
The only way that the Fed can stop this is by increasing the amount of quantitative easing.
Right now, the Fed is buying roughly half a trillion dollars worth of U.S. Treasuries a year, but the U.S. government issues close to a trillion dollars of new debt and must roll over about 3 trillion dollars of existing debt each year.
If the Federal Reserve eventually decides to buy all of the debt, then interest rates won’t be a major problem. But if the Fed goes that far our financial system would be regarded as a total joke by the remainder of the globe and we would reach hyperinflation much more rapidly.
If the Federal Reserve stops buying debt completely, the financial bubbles that they have created will burst and we will rapidly be facing a financial crisis even worse than what we experienced back in 2008.
But almost whatever the Fed does at this point, the rest of the world will probably continue to start to move away from the U.S. dollar as the de facto reserve currency of the planet. This move is just beginning, but it is going to have major implications for us in the years ahead. This is a topic that I will be addressing extensively in future articles.
Most of the debate about quantitative easing has focused on the impact that it will have on the U.S. economy in the short-term.
That is a huge mistake.
Of much greatest importance is what quantitative easing means for the long-term.
The rest of the world is losing confidence in the U.S. dollar and in U.S. debt because of the reckless money printing that the Fed has been doing.
But we desperately need the rest of the world to use “the petrodollar” and to lend us the money that we need to pay our bills.
As the rest of the planet starts to reject the U.S. dollar and starts to demand a much higher rate of return to lend us money, the U.S. economy is going to experience a tremendous amount of pain.
It is hard to put into words how foolish the Federal Reserve has been. The Fed is systematically destroying what was once the strongest financial system in the world, and in the end we are all going to pay the price.