Declining Standard of Living

If you followed the news here in the states, instead of across the pond, you would think everything is hunky dory.  Of course, we know that our dollar buys a lot less these days. 

Unfortunately for the Brits, their Pound buys a lot less every day as well.  To the tune of about 1 Pound a day.  Yikes!  As the blog article states, it gives a whole new meaning to the term "bank robbery."  Watching negative interest rates eat at your bank savings is depressing.  I'm in that boat myself. 

Of course, life isn't without risks, since the precious metal trade also has downside risk as well. 

Inflation; The Real Tail that Wags the Dog

While it is no shock that the news has been fairly down trodden this week, an excellent analogy from the guys over at the Daily Reckoning on how inflation is the "bad dog" on the street.

Unfortunately, inflation is the politically expedient way for the US government (and Federal Reserve) to reduce the burden of the budget and trade deficits.  In effect, monetary inflation to decrease debt burden in real terms is defacto debt default.

Century Bonds? Yeah, That'll Work!

When the yield curves are totally screwed, lengthen the term. 

I'm sure that will generate some wonderful demand.  I wonder what the price of a 100 year bond would look like?  Oh, that's right. 

Hello inflation! 

Linking Aid to Food, Food to Riots, Riots to Change

Obviously, with Egypt rioting, and as we've seen Greece rioting and Ireland rioting over the past 12 months or so, is it hard to wonder just where the world is headed?

Travel over to Phil's Stock World to have a look at this article discussing inflation and the correlation of the coming storm in food price shock, hunger, and revolutions (oh, and a funny cartoon of Keith Overbite).

Furthering the discussion of food, riots, and revolutions, several other interesting articles have been published today.  First, the Financial Times (Google the text of this link for the article http://www.ft.com/cms/s/0/cf0a73bc-2a44-11e0-b906-00144feab49a.html#axzz1CLWPoe6W) offers an assessment that developed countries are stock piling food as fast as they can.  Some have increased their demands as much as four fold from the year prior.

Considering that items like sugar are up 30% in cost in less than one year's, today's theme is price inflation with a lack of coresponding wage inflation (for those who even have jobs).  We've now watched the PIIGS transition to the Balkans, and back to Northern Africa.  How long before the full Middle East is revolting and the revolts traverse the Atlantic? 

Inflation? Where? There's No Stinkin' Inflation!

Late in 2010, Southwest Airlines and AirTran Airways planned to merge their companies.  Seemed like a good idea for the customer and the companies on the whole, but how about their financial? 

From the Baltimore Biz Journal, Air Tran's financial position was impacted by a 27.8% increase in fuel costs.  Though, in pure FedChair speak, HeloBen has continued to say recently that inflationary pressure remain muted.  Ahhh, what?  The treasury secretary is saying that inflation threats are not that important?

Someone please go ask the people of Tunisia or Egypt how that is effecting their lives lately. 

DJIA Over 11k! Really down 10% Since May's Similar 11K High

No linking in this post, just a quick hitter.  We've crossed the 11k mark on the Dow Jones Industrial Average for the first time since May!  YAY!  That's terrific!  We should pop the champagne corks and throw a big party!  Except, hold the phone, the dollar lost 10% from about mid-August until the end of September.  So, if you paid $100 for a stock in May, watched it sink, and then go back up to $110 bucks, did you gain anything?

I didn't think so either.

Bank of England Gov Wars of Higher Inflation, Longer

Less than a week after a Federal Reserve Governor warned of a boom bust cycle outlook for the USA, the Bank of England's Governor has issued a letter to the UK Treasury to state that inflation is running higher than the central bank's target.

It seems that, according to the Telegraph article, the Bank of England's Governor doesn't foresee a return to the country's 2% inflation target until 2011 at the earliest.  Now I'm sure the dear readers out there are wondering how can England's central bank admit to inflationary policies, yet the Federal Reserve can't see the same problem? 

Obviously, the Fed is more worried about the deflationary problem since the USA is saddled with exorbitant debt.  As prices deflate, wages stagnate or regress, and we get stuck in a downward cycle (great depression).  Deflationary pressures when there is a mountain of debt usually means default, which for the political establishment usually means an ouster.  Inflationary policies, as I am finding out in When Money Dies, allows the rulers to 1) buy time, and 2) those who wish to inflict radical changes to a country's structure then have a chaos within which to operate as the people are consumed with outright survival.  Where debt deflation is a market's ordered "survival of the fittest" solution to those who are over extended on their credit and have reaped the benefits of a cracker-jack economy, the US Fed wants to resist these pressures at all costs because it means a loss of power, as credibility has long since gone out the window.

So what is implied by the warning from the BOE's chief?  Nothing good, that's for sure.  Loose monetary policies have been the societal norm for the last 20~30 years.  As we are seeing detailed in the mainstream headlines lately, the consensus is starting to shift towards a dire outlook.  Hello second-half of the non-existent double dipper.  I don't like to offer a completely gloomy projection, but if we repeat the complete historical inflationary burn of 1920s Germany, the next decade will be ugly. 

Planet's Best Reporter: The Death of Paper Money

One of a couple stories that cropped up last week that flew under the radar was this one from Ambrose-Evans Pritchard of the London Telegraph.

It seems that the economic downturn we are now seeing (Thursday's jobless claims surged higher than "expected") he is predicting will persist on a bases of deflationary prices for the near term.  Unfortunately, that means ONLY the near term, due to the quantitative easing polices of the Easy Money Fed and Helicopter Ben Bernanke. 

The major scare last week (though, it wasn't much of a scare) was that a particular book is in high demand amongst international traders, bankers, and other finance ministers.  I have procured a copy of When Money Dies: The Nightmare of the Weimar Collapse  on loan from AKFan and will be starting it this weekend.  You, my dear reader, will get the full advantage of the best facts without the hassle of reading it or paying $800 for a copy.

Until the next update, enjoy your weekend!