Saturday, December 17, 2011

Non Event Inflation News is Actually Big Wake Up Call News

On Friday the government reported November Consumer Price Index (CPI) data that showed NO change in prices last month with a core CPI (factoring out useless things like food and energy due to their volatility) up a teeny weeny .2%. 

In other words, the government wants you to believe that the anecdotal price increases that you have observed (eg. everything getting seemingly more expensive from food to having your lawn mowed) is a just a figment of your imagination.

On an annual basis the government reports a peachy keen gain of only 3.2% in the overall CPI.  By this estimation alone, the government is implying that it would take over 20 years for the CPI to double, which of course is laughable - really - belly laughable, or so laughable that it would hurt.

The famed Shadow stats site, with its honest data vs the pablum the government regurgitates,  estimates that CPI is really running at around 7%.

But let's take Uncle Sam at his word. CPI thus far this year is up a tame 3.2%.

At the surface, this seems like good news. But it is actually a bad news scenario when the universe of money rates is considered. Here's a screen grab from CNBC of US rates. As seen here, the entire curve from 3 month bills to 30 year bonds is BELOW the seemingly tame 3.2% government inflation stat (Click to see larger and clearer image).

If the Shadow Stat CPI inflation figure of 7% is taken into account, negative rates are then running close to an almost unimaginable 10%.

One could argue that with the core PCE price index, as of November, running at 1.7%, the negative yield umph is taken out of the benchmark 10 year, to which I say, 'whatevahhh'. Regardless of which inflaton number one uses, there is still a substantial chunk of the rate universe running in negative territory. I strive to shun the arcane and pseudo sophisticated economists' talk and stick to reality. So pick any inflation gauge. It doesn't really matter. That is to say that no one is getting rich from treasury yields in their present state when inflation is factored in. They are getting poorer.

Negative yields mean a loss of dollar purchasing power which makes us all the poorer. It begs the question, which is worse hyper inflation, or a loss of purchasing power? They are both bad and the loss of purchasing power is actually worse since it is an insidious and more abstract concept for the masses to follow. The November CPI figure is big reminder of the collapsing debt bubble we are in the midst of! This is money at its worst. IF you don't realize this, let me shout it out. This is ongoing FINANCIAL REPRESSION.

Put another way, the negative rate problem means millions of grannies and conservative investors, who have their dollar wealth tied up in CDs and other money market type instruments are losing wealth with each passing day as inflation (even at a modest 3.2%) quietly over time eats away at their wealth which is not only not producing income, but is contracting wealth due to a negative rate of return when inflation is factored in.

If knuckle sandwiching seniors and other conservative investors with negative rates isn't bad enough , consider this on the scale of central banks and governments which hold the lion's share of treasuries both in their own government's debt and their holdings of US debt.

Negative real interest rates plague not only the US, but all of the other biggies including China, Germany, Japan, Canada, etc.

Wow, it's no wonder that central banks have been busy buying gold in 2011. Take my word since I have already looked at all of this stuff, or investigate for yourself here:

Quick conclusion. The CPI release may have been a yawner on Friday, but it was still yet another jarring reminder of the predicament that fiat money is in: up a stinky creek with no paddle.

And a word to the wise deflationists. Yes, the negative rates are a deflatonary sign, but again, loss of dollar buying power is as bad if not worse than faster and hyperinflation.

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