Inflation

US Dollar Vulnerable to Interest Rate Cut, China Dumping US Bonds

I did mention I sold all my stocks and took the dollars and moved them into Czech crowns last month. I would recommend anyone else to do the same. I wish I had done it 7 years ago. I would have more than doubled my money.

Excerpt:

Speculators, investors, and central bankers have figured out that the US government and the Bernanke Fed will not protect the dollar - not when millions of Americans are having trouble making their mortgage payments. The US money supply is increasing - nearly five times faster than GDP growth. And now, fearing a Japan-style deflation, the Fed is likely to cut rates later this month.The Chinese have one of the largest dollar piles in the world.“Is China quietly dumping US Treasuries?” asks Ambrose Evans-Pritchard in the English press.“A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.”


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Real US Inflation at 15%?

Wow, revelation. When you take out oil and housing prices from the Consumer Price Index it looks pretty good. Magic! Put them back in, not so much so.

Excerpt:

"In 1983, the Bureau of Labor Statistics [BLS] was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15%, thereby making the country's economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2% real return after inflation, that would mean that bond and money market yields could climb as high as 17%."Yikes! What to do, what to do, what to do whattodowhattodo? "The BLS's solution was as simple as it was shocking: exclude the cost of housing as a component in the CPI, and substitute a so-called 'Owner Equivalent Rent' component based on what a homeowner might 'rent' his house for." Hahaha! The government resorts to lying! "Wow! Why didn't we think of this before?" they are heard to ask among themselves. Fortunately for the government, it worked. "The result of this statistical sleight of hand was immediate and gratifying," Mr Hardaway writes, "for the reported inflation index quickly dropped to 2%"


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The Fed Won't Help the Working Class

A good and quick summary of what the fed doesn't do to help the average person.

Excerpt:

Besides having created the mortgage-liquidity nightmare, Greenspan and the Fed can also chalk up another accomplishment: inflation. Inflation is so serious that it has more than wiped out any income gains coming to the majority of families in the past seven years.The New York Times reports that "Americans earned a smaller average income in 2005 than in 2000, the fifth consecutive year that they had to make ends meet with less money than at the peak of the last economic expansion, new government data shows. While incomes have been on the rise since 2002, the average income in 2005 was $55,238, still nearly 1 percent less than the $55,714 in 2000, after adjusting for inflation, analysis of new tax statistics show."


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