Can We Trust Government Inflation Numbers?
Updated Nov. 11, 2011
By Tim McMahon~ editor
For some reason people don’t seem to trust the government. I can’t understand why. Surely the government only has our best interests at heart and wants to take care of us like good parents, and they are just protecting us from ourselves. And of course all politicians are honest, selfless, hard-working civil servants. Right?
Well, Okay maybe they don’t always have our best interests at heart. And maybe it would benefit the budget if they didn’t have to pay so much for cost of living increases but surely they aren’t fudging the Consumer Price Index are they?
I frequently get emails, and occasionally phone calls, asking just that question. Often the conversation will go something like this: I know that a few months ago when I went to the grocery store my favorite Arnold Oatnut bread cost $2.50 and only a few months later it is costing me $2.89 so lets see that’s a 15.6% increase in six months so annual inflation must be around 31% right? And the government is telling us that inflation is less than 3.5% so they must be lying!
The Doom of Wired Telecom
Advances in technology bring many changes to the business world, and certain industries that were once considered viable are now industries that should be avoided at all costs. One industry that is expected to shrink the most dramatically is the wired telecommunications carrier industry.
This industry has been rapidly shrinking in response to the increasing widespread use of cell phones and online forms of communication. The need for wired communications has become so low that 25 percent of all households do not even own a land line phone. Some even predict that by 2025, land line phones will completely disappear. Continue reading
“No QE3″, Retracement Level Stalls Financials
Since financial stocks make up 14% of the S&P 500 Index, it is difficult to sustain a rally without strength in banks and financial services firms. With the Fed and ECB opening up the liquidity fire hydrant in late December 2011, bank stocks experienced another in a series of monster bailout rallies. As outlined below, the Financials Select Sector ETF (XLF) may be poised to give back some gains over the coming sessions based on numerous factors including reduced odds of QE3.
Unfortunately in the debt-saddled world we live in, central banks may be the most important driver of asset prices. Dallas Fed President Richard Fisher told reporters after a speech Wednesday:
There will be no QE3. I will support no QE3, no additional mortgage-backed securities, no additional Treasuries. Wall Street keeps dangling QE3 out there – I think it’s a fantasy of Wall Street – it’s not going to happen, it’s not necessary.
As we outlined in a January 16 video, the Fed, via currency swaps, and the ECB, via unlimited three-year loans, are already keeping the money printers busy. While there is no formal QE, the Fed is still injecting new money into the global financial system in a “QE-like” fashion (see How QE Boosts Stocks).
It is not unusual for markets to hesitate at key Fibonacci retracement levels, such as 61.8%. Therefore, the comments below will take on more meaning if the financials ETF shows signs of a reversal. A close below 14.42 would increase the odds of more sustained weakness. The 61.8% retracement of the losses from the spring high to October low sits at 14.61 (see right side of chart below). One more push toward 14.91 would fit well into an intermediate-term topping process; the same can be said for an S&P 500 move toward 1,363. Continue reading
The Fed Resumes Printing
By Bud Conrad, Casey Research
The Federal Reserve recently announced important policy changes after its Federal Open Market Committee (FOMC) meeting. Here are the three most important takeaways, in its own words:
- The Committee decided today 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 late 2014.
- The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve’s statutory mandate. In the most recent projections, FOMC participants’ estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.
- The Fed released FOMC participants’ target federal funds rate for the next few years.
Immediate Reactions Continue reading
How Does the Value of the U.S. Dollar Fit Into the Big Picture for the Economy?
Robert Prechter discusses his views on the credit crisis and the U.S. dollar
More credit is denominated in U.S. dollars than any other currency. What does this mean for the value of the dollar as the credit crisis continues its strangle-hold on the world economies?
Enjoy this video clip of Bob Prechter from an October interview with The Mind of Money host Douglass Lodmell, in which Bob discusses the debt implosion and the value of the U.S. dollar.
You can watch Prechter’s full 45-minute interview here — no sign up required!
 | Watch the full 45-minute interview FREE Get even more valuable insights as Mind of Money host Douglass Lodmell interviews Elliott Wave International’s President, Robert Prechter, about how to keep your money safe, the deflation versus inflation debate, and many more topics that are critical to your financial future. Start watching the free 45-minute interview now — no sign up required! |
How Inflation Affects Personal Debt Consolidation
What is the effect of inflation?
As a result of inflation, the value of tomorrow’s money decreases with regards to today’s money. In other words, you can purchase less with the same amount of money. This is commonly seen as prices having increased. This can make the situation appear more appealing for borrowers because they can buy today and pay back with less valuable dollars. But lenders and creditors don’t appreciate receiving less valuable dollars. So, in order to offset the declining value lenders and creditors increase the interest rates they charge. Thus inflation in general results in increased financial problems all around. It not only results in rising commodity prices but in increased interest rates as well. Inflation is mainly caused by governments. Because of high borrowing and deficit spending they find it necessary to increase the money supply which results in the value of each individual dollar in circulation being worth less. Continue reading
Is There a Correlation Between Inflation and the Stock Market
When inflation is high and commodity prices are rising on what seems like an almost daily basis, have you ever wondered how that might affect the price of stocks?
Recently I received the following question:
In the years leading up to the great depression and the great recession, the DJIA nearly quadrupled.
My question is… what the cost of living did in these time periods and if there is a correlation between the stock market and the cost of living?
John Kelsch
John,
Great question! You would think that if all commodities are going up stocks would probably go up as well, since companies produce commodities. But that isn’t always the case. Often high inflation can actually squeeze profit margins and cause companies to lose money or barely break even. So lets look specifically at the correlation between stock prices and the inflation rate.
First let’s look at the average inflation rate for the entire decade and the average annual rate of return in the stock market. In this case we will use the S&P 500 since it provides a fairly broad-based reference for the stock market.
In the following chart we can see Continue reading
Fed To ‘Hold Off’ On QE 3
We noted extreme levels of optimism earlier today. What could possibly trigger a correction in stocks and commodities? If the Fed fails to signal and/or announce another round of quantitative easing (QE), it would undoubtedly leave the markets disappointed.
The Fed uses the Wall Street Journal (WSJ) as a medium to communicate with the markets. It is possible someone at the Fed picked up the phone and said, “We need to temper short-term expectations for another round of QE. Can you help us out?” Friday’s WSJ has an article titled “Fed Holds Off For Now on Bond Buys”. Notice the word “may” is not included. Here is the first paragraph of the article:
Federal Reserve officials are waiting to see how the economy performs before deciding whether to launch another bond-buying program.
The statement above is very direct; it does not contain “expected to” or “analysts believe the Fed will”. While anything can happen next week, the WSJ is always Continue reading
The US Government Is Bankrupt
By Doug Casey, Casey Research
Everyone knows that the US government is bankrupt and has been for many years. But I thought it might be instructive to see what its current cash-flow situation actually is. At least insofar as it’s possible to get a clear picture.
As you know, the so-called Super Committee recently tried to come up with a plan to cut the deficit by $1.5 trillion and failed completely. To anyone who understands the nature of the political process, the failure was, of course, as predictable as it was shameful. What’s even more shameful, though, is that the sought-after $1.5 trillion cut wasn’t meant to apply to the annual budget but to the total budget of the next 10 years – a fact that is rarely mentioned.
Now whenever the chattering classes talk about cuts, it’s always about cuts over the course of 10 years. Which is a dodge, partly because most of the supposed cuts will be scheduled for the end of the period, but also because new programs, new emergencies and hidden contingencies will creep in to offset any announced cuts. So the numbers below aren’t a worst case; they’re the rosiest possible scenario. People have thought I was joking when, asked how bad the Greater Depression was going to be, I answered that it would be worse than even I thought it would be. But I haven’t been joking. Continue reading
How Global Financial Developments are Affecting the Price of Gold
Let’s face it. With the US economy facing the bitter consequences of extravagance and unscrupulous spending, it has become quite difficult for the US to manage both its public and private debts now. In this phase of post recession hangover and economic meltdown, the U.S. federal government has bumped up against its permitted borrowing limit. According to Alison Fraser, director of the Roe Institute for Economic Policy Studies, America’s debt just crossed $15 trillion, which means presently, the amount owed by the United States government to the world, is equivalent to the amount produced by the American economy per year. All these factors lead to higher prices and intensifying inflation concerns in the U.S.
Along with the U.S., there is the raising euro zone crisis where a number of European countries like Greece, Ireland, Portugal, Spain, and most recently Italy failed to pay their sovereign debts and consequently are heading towards insolvency. In fact Europe’s weakening economic performance literally forced the European Central Bank to follow more accommodative monetary policies. In short, both US and European economies are going through several years of sub-par economic commotion, high unemployment, and rising inflation. However in the midst of economic turmoil, when unemployment is up and there are conflicting tax increases, the price of gold is soaring almost beyond belief. It seems the skyrocketing gold price has a strong impact on both the dollar value and the European debt crisis as well. Read ahead, to know the latest forecasts about the future of Gold price. Continue reading
Preparing Your Finances for 2012
Looking ahead to a new year and planning for the future
It’s hard to believe that 2011 has passed so quickly and that 2012 will soon be here. Now is a good time to look back over the past year and assess your finances. Did your choices this year put you in better or worse circumstances? Do you have the information needed to make wise decisions in the next year? Are you prepared to protect your financial future?
The following excerpt from Conquer the Crash explains the importance of preparing and taking action now so that you’ll be ready for what’s ahead. You can read 8 more chapters from Conquer the Crash — 42 pages of critical information, including a list of imperative “dos and don’ts” — Free. Find out how below.
Chapter 14: Making Preparations and Taking Action
The ultimate effect of deflation is to reduce the supply of money and credit. Your goal is to make sure that it doesn’t reduce the supply of your money and credit. The ultimate effect of depression is financial ruin. Your goal is to make sure that it doesn’t ruin you. Continue reading
