Mish's Global Economic Trend Analysis

"Stand With Rand, Not Jeb"
Inflation Targeting Revisited; Three Major Fed-Sponsored Bubbles; Who Benefits From Inflation?
Sweden Officially in Deflation (As Measured by CPI)
Expression of the Day: "Ducks are Fat at the Back"
Obama's Promised Transparency: Where the Hell is It?

Posted: 13 Mar 2013 03:47 PM PDT

Jeb Bush is Back in the Spotlight this week with a new book, wall-to-wall television interviews, and a round of public speaking engagements. In regards to the 2016 election, Jeb Bush told MSNBC's Chuck Todd: "I'm not saying yes. I'm just not saying no."

Unfortunately, that sounds too much like "yes" to me. I suggest, it's time to move on. The last election proves just that.

Looking ahead ...

The Harvard Crimson says We Stand with Rand
Senate minority leader McConnell asks supporters to 'Stand with Rand'
The Washington Times explains Why even Neocons should stand with Rand Paul over McCain and Graham

My context is different. I suggest Jeb should go back into hiding until he is ready to "Stand With Rand" for the 2016 election.

This country seriously needs a change, not another Bush.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Inflation Targeting Revisited; Three Major Fed-Sponsored Bubbles; Who Benefits From Inflation?

Posted: 13 Mar 2013 11:57 AM PDT

A post on deflation in Sweden (which its central bank does not want) got me to thinking about inflation targeting once again.

Sweden's central bank, the Riksbank, has an inflation target of "2 per cent as measured by CPI." Bernanke has a similar target, as do many central banks.

The first major problem with inflation targeting is that increases in money supply and credit (the true measure of inflation) frequently appear in the form of asset bubbles, not consumer prices.

Even if that were not the case, it's easy to show why 2% inflation targeting is a bad thing.

Inflation Targeting at 2% a Year

click on any chart for sharper image

Real Disposable Income

Real Disposable Income Per Capita

Real Disposable Income Per Capita Detail

As long as wages and income keep up with inflation targeting, and as long as asset bubbles do not form, central banks can get away with their highway robbery tactics.

At some point however, asset bubbles do form and that's where big problems start. The Fed has sponsored three major bubbles in recent history.

Three Major Fed-Sponsored Bubbles

2000 DotCom Bubble
2005 Housing and Credit Bubble
2012 Stock Market Bubble

In the wake of the dot-com bust, the Fed (via loose monetary policy) sponsored a housing and credit bubble that caused the global financial crisis. The Fed did not see the housing bubble partially because prices are not in the CPI, but primarily because Bernanke and Greenspan have the common sense of a rock.

Following the housing/credit bubble bust, the Fed's "too big to fail" policy bailed out the banks at taxpayer expense. The Fed's subsequent QE to infinity policy created yet another major stock bubble that few see (simply because it has not yet burst).

All the while, price inflation marches on, even if credit inflation does not (roughly the current state of affairs).

Thus, in addition to the asset bubble problem, the second sad moral of this story is simple: Pursue price inflation long enough, then jobs move elsewhere and real wages are guaranteed to not keep up.

Starting in a major way in the year 2000, jobs and capital moved overseas because US wages were uncompetitive globally. Let's not stop there because it gets even worse.

Income Gap Discussion

In addition to the "Income Gap" one must also consider "Income Skew".

Under the Fed's inflationary policies, a select few percent have done exceptionally well, another few percent have done well, and another (perhaps slightly larger group) have barely kept up.

The bottom 80 percent or so have fallen much further behind than the above per capita charts suggest.

Income Skew

I explained why the rich get richer and the poor get poorer in Top 1% Received 121% of Income Gains During the Recovery, Bottom 99% Lose .4%; How, Why, Solutions

In response to that article a Reader Asked Me to Prove "Inflation Benefits the Wealthy" (At the Expense of Everyone Else)

CPI Percent Change From Year Ago

click on any chart for sharper image

Except for a brief period in 2009, price inflation has been positive. The question is "Who Benefited?"

I claim it is those with "first access to money" namely banks and the already wealthy. A few charts courtesy of Doug Short at Advisor Perspectives will prove my point.

Real US Household Incomes

In "real" (CPI-adjusted) terms, 50% of households are no better off than they were in 1988. Let's dig a litter deeper.

Growth in Real Household Income by Quintile

The above chart shows percentage income growth by quintile since 1967. Since 1988, the bottom, 4th and middle quintiles (a combined 60% of households) have negative real income growth.

The next chart shows the same thing in a different way.

Real Household Income by Quintile

No matter what your timeframe, only the top quintile did well. And from 1980 until 2000 the top 5% got the lion's share of income gains.

Inflation is Theft

Inflation is an insidious hidden tax that benefits those with first access to money (the banks and the already wealthy), and government (via sales taxes, property taxes, and income taxes).

Government bureaucrats take your money and redistribute it primarily for wasteful pet projects in their districts or to those who contribute to the politicians' campaigns.

In spite of the often-heard mantra that "inflation wipes away debt", I suggest otherwise. Income typically does not keep up with expenses, and most have too few assets to inflate. The poor (last on the credit totem pole) overpay for their assets with cheap credit given to them at precisely the wrong times (as happened right before the housing bust).

Inflation Clobbers Those on Fixed Income

In case you missed it, please consider Hello Ben Bernanke, Meet "Stephanie", my response to a reader on fixed income attempting to live on Social Security plus interest on a $16,000 CD.

If routine price inflation did not benefit the banks and the wealthy at the expense of everyone else, we probably would not have it.

Simple Solution (Easier Said than Done)

Conceptually, the way to eliminate the problem is simple: abolish the Fed and get rid of fractional reserve lending.

In practice, the idea is easier said than done, because the wealthy are in control of the system and they are the ones who benefit from inflation.

Wine Country Conference

I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig's Disease).

Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.

To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike "Mish" Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Sweden Officially in Deflation (As Measured by CPI)

Posted: 13 Mar 2013 10:45 AM PDT

Reader Kenneth from Stockholm, Sweden informs me that Sweden is Officially in Deflation.

Current Inflation Rate

In February 2013, CPI inflation (measured as the annual change in the consumer price index) stood at -0.2 per cent (-0.0 per cent in January 2013).

The annual percentage change in the CPIF (the CPI with a fixed interest rate, which is not directly affected by changes in mortgage rates) was 0.9 per cent in February 2013 (1.0 per cent in December 2012).

This is good news for consumers in Sweden, but the clowns at the Riksbank (and the clowns at every other central bank including the Fed) see things differently.

"The Riksbank's target is to maintain inflation at a rate of 2 per cent when measured by CPI."

In a separate article I will go over, once again, why inflation targeting is a bad idea.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Expression of the Day: "Ducks are Fat at the Back"

Posted: 13 Mar 2013 09:14 AM PDT

I was intrigued by a quote in the Financial Times by former German Chancellor Gerhard Schröder who won a standing ovation when he returned to remind his supporters of their ancient triumphs.

Schröder's message for the party was to persevere in this year's general election, with a real chance of beating chancellor Merkel's centre-right coalition in the final weeks of the campaign.

Schröder claimed Peer Steinbrück, the SPD candidate for chancellor, should stick to his guns in spite of trailing in the opinion polls. "The fat ducks are always at the back," Schröder concluded.

Fat Ducks Are Always at the Back

OK. What does "The fat ducks are always at the back" mean?

Reader Bernd from Germany, with whom I have been exchanging emails explains ...

Hi Mish,

Schröder's English has not improved since he was chancellor. Regardless, idiomatic expressions translate poorly in general.

The original German idiomatic term is: "Hinten sind die Enten fett". Literally translated: "Ducks are fat at the back (the rear)."

If you eat a duck, the juicy bits are at the rear. This was true when the term was coined and ducks actually were wild animals which flew. Then, the breast was tough to eat and not at all juicy, so the choicest bits were at the back.

Schröder uses this expression quite frequently – it is really rather old fashioned and very North-German.

In context it means: Steinbrück's chances come late in the game. Early polls don't make a difference.

I believe this is the most comprehensive explanation of the term ever.

Bernd

Google translates "Hinten sind die Enten fett" as "back, the fat duck", which is even more confusing than the Financial Times translation.

Image courtesy of wandtattoo4you.

The above, slightly different phrase translates as "behind the duck fat" even though the difference between "sind" and "ist" is the difference between "are" and "is".

This type of problem is one I frequently encounter when I do all of these Google Translates. I often have to make my own revisions, but this phrase I never would have gotten correct without asking.

A tip of the hat to reader Bernd for a comprehensive in-context explanation.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Obama's Promised Transparency: Where the Hell is It?

Posted: 13 Mar 2013 01:17 AM PDT

When president Obama took office he promised transparency and open government. The question at hand is "Where the Hell is It?"

I have the answer: Obama's transparency is Where the Sun Don't Shine.

President Obama has failed to deliver on few promises as miserably as his vow to create a more transparent and open government. Shortly after being sworn into office, he sent a memo to federal agencies promising, "We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration."

At the time, I was a staffer on the Senate Finance Committee for Republican Charles Grassley and couldn't help but laugh. Regardless of who occupies the White House, I understand that power wants power. Scrutiny just gets in the way.

President Obama is no different. Whether it's responding to Congress, media questions, or FOIA requests, this administration is no better than its predecessor. The big difference: Obama is a Democrat. And because he is a Democrat, he's gotten a pass from many of the civil liberty and good-government groups who spent years watching President Bush's every move like a hawk.

In March 2010, the Associated Press found that, under Obama, 17 major agencies were 50 percent more likely to deny FOIA requests than under Bush. The following year, the presidents of two journalism societies— Association of Health Care Journalists and Society of Professional Journalists—called out President Obama for muzzling scientists in much the same way President Bush had. Last September, Bloomberg News tested Obama's pledge by filing FOIA requests for the 2011 travel records of top officials at 57 agencies. Only about half responded. In fact, this president has prosecuted more whistleblowers under the Espionage Act than all prior administrations combined. And an analysis released Monday by the Associated Press found that the administration censored more FOIA requests on national security grounds last year than in any other year since President Obama took office.

One of the most glaring examples of Obama's failure on transparency is his response to the "Fast and Furious" fiasco—the botched attempt by the Bureau of Alcohol, Tobacco, Firearms, and Explosives to find Mexican drug lords by tracking guns smuggled from the United States into Mexico. The debacle came to light when ATF whistleblowers met with investigators working for Sen. Grassley. Grassley sent a letter to the Department of Justice demanding answers; not realizing Grassley already had documents that laid out the operation, officials at Justice responded with false and misleading information that violated federal law. When Grassley pressed the issue, the Justice Department retracted its initial response but refused to say anything more, which has resulted in multiple hearings and subpoenas.

The storyline is classic Washington: Whistleblowers run to Congress about bad behavior; Congress demands answers; the White House throws up a wall. But where is the outrage, especially from the very groups who are supposed to be holding the government accountable? It doesn't exist.

The occasion is not yet ripe for many in Washington to admit that the Obama administration is no different from those who have come before it. But time will come when the cognitive dissonance between what Obama says and what he does will be too much.

Paul D. Thacker writing for Slate has a compelling story. I took a lengthy snip but there is much more to see. Inquiring minds will take a look.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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