I’m sure glad I don’t use gasoline or eat food, or I’d think I was already experiencing inflation. Thank God for Ben Bernanke and the BLS. Without them telling me inflation is well contained, I’d be really worried.
Is This The Chart Making Bernanke Nervous?
Submitted by Tyler Durdenon 12/12/2012 10:35 -0500
With the Fed nervous to even let a little MEP ‘Twist’ expire (tightening), we can’t help but be a little nervous of their unbridled and passionate belief that if inflation should rear its ugly (or virtuous, perhaps, in their satanic eyes) head, they will be able to manage and tighten to control it. To wit, we note that one of the Fed’s most-watched indicators of inflation – the 5Y5Y forward inflation breakeven – has just reached its highest level in 17 months and is near its peak since the financial crisis lows in 2009 at over 3.08%. We have six little words for Bernanke, Yellen, et al. “Be Careful What You Wish For.” And by the way, the last few times, the 5Y5Y reached these levels marked a short-term top in the S&P 500.
17 month highs in inflation expectations…
These local peaks in inflation expectations have marked local highs in the S&P 500 also…
Travis says:
There is only one way to escape inflation:
Become an anorexic pedestrian.
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12th December 2012 at 11:50 am
harry p. says:
ALL IS WELL!!!!
I bet it will improve if Geithner is replaced by someone like Jamie Dimon…
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12th December 2012 at 12:52 pm
wip says:
What QE are we on now?
This says QE4
http://www.forbes.com/sites/afontevecchia/2012/12/12/qe4-is-here-bernanke-delivers-85b-a-month-until-unemployment-falls-below-6-5/
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12th December 2012 at 1:38 pm
BamBam says:
Cool charts, but is there a way to compare how much the drought played in? Because I could see the changes being rationalized away by some people.
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12th December 2012 at 2:15 pm
underfire says:
I’m going to rationalize away these charts, to a large degree anyway, in three words. Price of oil.
A quick search puts a barrel of oil in 1993 at about $17. Today, it’s in the mid $80s. Of course oil doesn’t account for all input costs in ag, but it affects a lot of the costs, and the impact has been big, from machinery, to fertilizers to getting product to market.
I farm and ranch and have some marginal land that I farmed in 1993 that now I can’t justify farming at today’s prices due to higher yet input costs.
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12th December 2012 at 2:59 pm
Administrator says:
No inflation here. Move along.
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12th December 2012 at 3:04 pm
Administrator says:
The drought has certainly impacted soybeans, wheat and corn. The drought’s impact on meat will be in 2013. Oil absolutely is a major factor, since fertilizers are oil based, farm machinery needs oil, and transportation to the markets requires oil.
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12th December 2012 at 3:09 pm
Administrator says:
The Market Ticker ® Commentary on The Capital Markets Posted 2012-12-12 12:59
by Karl Denninger
FOMC: Bend Over America
Got a stick for your teeth?
Release Date: December 12, 2012
For immediate release
Information received since the Federal Open Market Committee met in October suggests that economic activity and employment have continued to expand at a moderate pace in recent months, apart from weather-related disruptions. Although the unemployment rate has declined somewhat since the summer, it remains elevated. Household spending has continued to advance, and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running somewhat below the Committee’s longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices. Longer-term inflation expectations have remained stable.
Uh huh. Inflation has been stable eh? Hmmm….. would you define “stable” please? And while you’re doing it please do so in terms of health care, gasoline, loaves of bread, gallons of milk, pounds of steak, you know, things that people actually buy and consume.
I’d like the actual growth numbers in those prices since…. oh…. 2008 if you would. I’ll wait.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.
Uh, so let’s see, if productivity is running 3% you’d like to steal 5% annually? My, how generous of you. How’s that compound out over the next 5 or 10 years?
To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will purchase longer-term Treasury securities after its program to extend the average maturity of its holdings of Treasury securities is completed at the end of the year, initially at a pace of $45 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and, in January, will resume rolling over maturing Treasury securities at auction. Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.
Ah, so $85 billion a month now. That’s $1,020 a year, give or take, or most of the federal deficit. It would be nice if this was “sacrifice free” but of course it’s not. We can predict it shouldn’t be due to arithmetic (when you increase the quantity of money you decrease the value of each unit) but what’s worse is that the math has validated empirically.
All we should have to do is look at the employment rate of the population. After all, The Fed has massively accommodated thus far, yes? Therefore there should be improvement. There is, right?
Oh wait… there’s not.
Any.
At all.
The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
It’s not going to happen.
We’re putting about a 6.4% debasement into accumulated capital with this policy, with no firm end date — indeed, the promise is that it will continue until joblessness improves. But jobs are created from accumulated capital when it is deployed, and this policy is destroying that accumulated capital at a 6.4% annual rate!
As such the prediction is that one would not obtain the desired results, since the predicate required to obtain job growth is missing.
And in point of fact that’s what we see empirically in the chart above while Bernanke has been running his grand experiment.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed the asset purchase program and the characterization of the conditions under which an exceptionally low range for the federal funds rate will be appropriate.
The time approaches, if it has not already arrived, to simply withdraw as a producer and allow these people to reap the full consequences of capital deciding to go on strike due to this blatant act of theft, while at the same time Senior Citizens, others on fixed incomes and the poor are relentlessly trashed by this outrageous and utterly indefensible positive-feedback cycle that The Fed has doubled down on today.
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12th December 2012 at 3:23 pm
Roy says:
Fertilizers are not oil based, herbicides and insecticides are. All fertilizers are elements and cannot be synthesized. There is no substitute. As liquid fuels diminish we will reach a point where the remnant will farm like the Amish. Most of the population will die. It will not be televised.
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12th December 2012 at 3:32 pm
Administrator says:
Ammonia based fertilizers require large quantities of natural gas to produce. Do you consider natural gas to not be oil based?
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12th December 2012 at 3:53 pm
llpoh says:
Natural gas is bean produced. Beans are not oil based. Everyone knows that.
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12th December 2012 at 4:09 pm
underfire says:
Roy says:
Fertilizers are not oil based,” That’s right to a point, but the costs of the final product reflect far more the costs associated with extraction, processing, transportation and manufacturing of equipment, like, why is there only 15 cents worth of wheat in a loaf of bread?
But you’re certainly correct about finite essential elements and shortages coming right up.
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12th December 2012 at 4:12 pm
underfire says:
Ammonia based fertilizers require large quantities of natural gas to produce. ”
For a city boy, surprising grasp of the the subject. Normally the urbanites have no concept of ag production and care even less. Except when their pocketbook is involved.
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12th December 2012 at 4:24 pm
Roy says:
Admin
You said oil based, natural gas, methane, CH4 is an entity of it’s own and also a byproduct of oil production.
Nitrogen based fertilizers are made from thin air (same as our “money”) by the Haber-Bosch process. http://www.idsia.ch/~juergen/haberbosch.html These are water soluble nitrates which are dissolved by heavy rain and wash into the oceans causing “dead spots.” Water insoluble nitrates are produced by legumes and slowly released by soil bacteria.
For you other overweight diabetics read this – http://www.cbsnews.com/8301-505269_162-57505149/modern-wheat-a-perfect-chronic-poison-doctor-says/
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12th December 2012 at 5:19 pm
Jimi d says:
ROY = ‘DUMB ASS”. You can’t fix stupid.
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12th December 2012 at 8:45 pm