Deflation: One Over Virtuous Cycle, Redux

In  ‘rithmetic, that would be the reciprocal…When things are going good, they spiral up.  Virtuous Cycle it’s called.  But when things go badly, they can really spiral.

As of this morning, we’re at a toss-up point.

Note to the reader who was all over my case for mentioning deflation all the time:  TODAY’S REPORT is why I have been screaming deflation.  We operate in advance of, not in reaction to current events when possible.

Und zo?

New Consumer Price Report is hot off the press release:

“The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in September on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today.

Over the last 12 months, the all items index was essentially unchanged before seasonal adjustment. The energy index fell 4.7 percent in September, with all major component indexes declining. The gasoline index continued to fall sharply and was again the main cause of the seasonally adjusted all items decrease.

The indexes for fuel oil, electricity, and natural gas declined as well. In contrast to the energy declines, the indexes for food and for all items less food and energy both accelerated in September. The food index rose 0.4 percent, its largest increase since May 2014.

The index for all items less food and energy rose 0.2 percent in September. The indexes for shelter, medical care, household furnishings and operations, and personal care all increased; the indexes for apparel, used cars and trucks, new vehicles, and airline fares were among those that declined. The all items index was essentially unchanged for the 12 months ending September after posting a 0.2 percent increase for the 12 months ending August.

The 18.4 percent decline in the energy index over the past year offset increases in the indexes for food (up 1.6 percent) and all items less food and energy (up 1.9 percent).

So here’s the thing about inflation and deflation:  When the rate of general price increases slows, that’s disinflation.  When the rate of price increases increase, that is reflation.  When prices go nowhere (after prices go down but more money is pumped into the economy to hide that fact) that’s either stagflation, or it’s second and third have brother (and uncle) from West Virginia.

Now, the Fed can talk all it wants to about how inflation will be back as energy prices turn (true) but the American public ain’t particularly bright.  (Look at who goes to Washington, if you doubt me.)

The problem with deflation is that if people think sitting on their spending will let them buy something cheaper in the future, the economic “recovery” will sputter and fizzle out.

But in the meantime, it sets the stage for a massive market blow-off top as occurred in 1928-1929 just before that economic world ended.

The national goose will be cooked when the Fed attempts even a tiny rate hike and they you can set your collapse timer to about 18-months and prepare for the bitter end.

Here’s a freebie from our more serious website:

Modest Economic Expansion Claimed

By the Federal Reserve.  A short news report on it here, or if the day looks like a loser already, you can ruin more time at work by reading the whole Beige Book here.  From the summary:

Consumer spending grew moderately in the latest reporting period. Most Districts reported that non-auto sales grew at a modest or moderate rate, while vehicle sales generally grew more strongly; tourism across the nation was mixed. Nonfinancial services activity generally strengthened since the previous report, although freight transport activity weakened.

Manufacturing turned in a mixed but generally weaker performance during the latest reporting period, with a number of Districts noting adverse effects from the energy sector. Some strength was reported in the motor vehicles, aerospace, and transportation equipment industries, while metals industries were generally weaker–in part, due to the strong dollar.

Both the housing and commercial real estate markets improved since the last report. Home prices and sales volume increased in almost all regions, and a number of Districts noted relative strength in the market for lower or moderately priced homes. Both residential rental markets and commercial real estate markets were mostly stronger. Commercial and residential multi-family construction showed further strength; single-family construction activity was more mixed but did increase modestly.

Blah, blah, blah…

Consumer Spending and Tourism
Consumer spending grew at a moderate pace over the latest reporting period. Most Districts indicated that non-auto retail sales expanded at a modest or moderate rate. New York and Atlanta characterized sales as mixed, while Richmond and Chicago noted that growth slowed; Kansas City, however, indicated that sales weakened slightly. Contacts were described as generally optimistic about the sales outlook in the Boston, Philadelphia, Atlanta, Kansas City, and Dallas Districts.

Blah, blah, blah…

Employment, Wages and Prices
Labor markets generally tightened since the previous report.

Blah, blah…

Wage growth remained subdued in most Districts since the previous report.

Blah, blah..

Price pressures were said to be contained, as most Districts reported that both input and finished goods prices were little changed or up only slightly since the previous report.

Bottom Line:  Fed is walking the knife blade.  If rates go up, the Federal Debt will balloon and we go Greece.  If rates go negative, welcome to 1929.  Likely:  Knife edge with free money for 18 months and then collapse.  That’s not in the report.  But it is in the future.

Whistleblower Needed

Would someone at the US Treasury come forward and explain how the Federal Debt to the Penny hasn’t budged this year?  And I’m the Easter Bunny.

I mean 60% of America may be on mood altering drugs but for both of us who still don’t live chemically, could we please get some hints as to how it’s working?  Use our tip line on the menu above, please.

Page 5 of the Federal Reserve Flow of Funds report over here hints that government debt has been going up – so how is it that the Treasury doesn’t show that?  Unless…and this is ugly…they are writing down agency debt which means reserve funds (highways and Social Security?) might have less in them than expected down the road.  So yeah, we’d like to know how the game is being gamed, know what I mean?

Let’s All Go Fight in Syria

With the latest reports – that the Cubans now have a general and some forced in Syria, we have to wonder who else to invite to the party?

Of course, maybe the Obama administration has a secret plan:  Maybe there’s a yet-undisclosed deal to send some Sinaloa and MS-13 fighters to Syria… I mean haven’t we rung up enough favors for at least a small force from the drug gangs in return for leaving them an open southern border to exploit?

Aw, hell, can’t anyone in Washington get anything right?

Where’s that Peace Prize?

The Obamanation is not pulling out of Afghanistan.  Reason?

Well, for one the place becomes part of the Global Caliphate if we do.

Second, the invasion of Europe by military aged militant Muslims grows if we don’t keep order.

Of course, it’s going to go badly, but at this point it’s a matter of degrees.

As long as I’m on grouchy this morning, how’s that shutdown of Gitmo coming?

Unloading on Reload

The collapse of a basketball star at a brothel in Nevada has focused attention on Reload, which has been touted as an herbal Viagra.

Hillary Gaff Du Jour

Did she get a look at the secret trade deal in advance…a Whitehouse Spokes noticed.

Also in the political circle jerk, CNN reports Hil’s aid Huma will be on the grill tomorrow.  Nickel side bet on a last minute excuse for her or Hillary on the 22nd?

Meantime, CNN is under fire for supposedly deleting pro Sanders remarks

Cue Monty Python.

9 thoughts on “Deflation: One Over Virtuous Cycle, Redux”

  1. Duh. Debt ceiling + ‘extraordinary measures’ = official debt does not go up. There are separate funds under government control where the Treasury Secretary borrows while Congress plays out its hostage crisis. This never happened before the Congress became extortionists. If Congress has authorized spending, they really shouldn’t also have to authorize borrowing to pay for spending they’ve already done. Sane countries don’t play this game. The available sources of these extraordinary measures runs out the first week in November. At that point, if Congress hasn’t increased the debt limit, the US defaults.

  2. By the way, when Congress held the Debt Ceiling hostage in 2011, Mitch McConnell commented publicly that it was a “hostage worth taking.” Reports are out now that he has decided that America will default unless the President agrees to cut Medicare and Medicaid benefits, and cut the funding for the EPA.

    • This is a funny twist of events from when Ronald Reagan was in office. I remember him talking on the news about adding the social security funds into the general budget and that those funds would be more secure and stabilized for the general population by letting congress handle them for us.. every employer told me that was my retirement.. now just a few decades latter after our congress has squandered away those funds like a man going nuts with a credit card has made it so those using those secure benefits are constantly reminded that they are leaches on society.. we talk about the dollar falling in value all the while we are printing money so fast that we it would boggle the mind.. when if you do a quick google check you would definitely see that when 27 hit..people literally were taking bushel baskets of cash gold and silver to get a bushel basket of vegetables it was cheaper to burn money than to buy wood…. Less than a decade ago sky news had an article about Greece and young women selling their bodies for a can of spam to feed their families..Yet even though we see all these idiotic things being done by those we hire to do the public’s bidding keep voting them back in.. in my way of thinking we have it all coming to us.. you would fire an employee that refused to come to work every day or constantly did things that hampered the companies growth just to make some other companies profits soar.. so what do we do we vote them back in to do more….

  3. OK, this “herbal viagra” that isn’t herbal at all but actually the real viagra in a non–prescription package, is responsible for damaging someone who took massive quantities over several days. So if it wasn’t really herbal, how is that an excuse to attack the herbal industry in general for an effect it didn’t cause by someone who is clearly an idiot? It’s like using a heroine addict as an excuse to curb St John’s Wort. Smells like someone’s business model got cranky. And, yes there are $1 herbals that replicate $30 viagra if you aren’t an idiot about it.

  4. From what little I’ve studied of economic history, we’ll get a massive deflationary event before we see hyper inflation, which is what many people are *really* thinking of when they talk about ‘inflation’. (especially those who didn’t live thru the 1970’s.) We haven’t seen that massive deflationary event, as yet. Historically, that always happens first, followed by hyperinflation w/i a very few years.

    (imo, the dot com bubble and 2007 – ’08 were mere hiccups, compared to what’s headed our way.)

    …and I’m starting to lean toward ‘Ure’s Postulate’ that we’re matching the path of The Great Depression/WWII. Difference being – and for several reasons – I think this go ’round will be much worse.

    • interesting that you brought that up.. I had a great conversation yesterday with a gentleman and here is the example I gave.. you have eleven people.. ten of them have ten ounces of has eleven pounds of grain and eleven gallons of water.. your a hundred miles away from any civilization dying of thirst and hunger.. who is richer..

  5. It seems that Drudge aggregated a few articles to disparage herbal products, especially those that work.

    Anyone that takes any product is responsible for whatever happens, prescription or not. Some things can’t be delegated. Pick your poison and take your consequences. I’m fine with that, and I avoid others(MD types) that have to err on the side of caution lest they get sued. I’ve made some mistakes, and toughed it out and survived. If I failed and died, then it would be my choice. No problem.

    Legitimately protecting someone from others is part of the role of government. Protecting anyone from themselves dehumanizes them and reduces their status to that of a pet, or other animal. Protecting someone from themselves is the hallmark of a police state.

  6. Economic cycles AS WE KNOW THEM are caused by usury. Compound interest is like gasoline on a fire, it accelerates these cycles causing many multiple mini cycles within the bigger cycle. The magnitude of an economic cycle is determined by the amount of corruption in the economic system.

    It’s going to be one hell of a cycle.

    Think about this. When is the last time any market went up or down for any reason, like a drouth affecting a crop, or an actual shortage or excess of any physical commodity? Do not mistake corrections of market manipulation as real cycles. Markets today move because someone makes them move. And government statistics amplified by the media are a major driver of this. When oil went from $100 to $40 a barrel, world demand for oil changed less than 10% in one of the largest markets on earth.

    We are experiencing a dollar bubble, which is undetectable and will remain undetectable until a true market price of gold is established. 275-1 paper to product is not a market.

    The value of the dollar in the world today is no more real than the price of houses was at the peak of the housing boom, which was caused by, you guessed it, corruption. I have personally met more than one person who had to agree to sign multiple copies of their loan documents with blue ink in order to get their house loan. I have a friend who owned a large mortgage company who saw what was coming, and when he tried to get out of the business, was sued by several of the major banks. He was told the lawsuits would be dropped if he agreed to just make another $100 million in loans and pass the paper to them, no matter the quality of the loan. We now know that these sub-prime loans were packaged, falsely rated, sold, and then immediately shorted by the sellers. Now think about the dollar.

  7. Fish rot from the Head back Same for Empires, Whimper, Whine,and jump about is not going to help us get our selves out of the kettle of economic failure.

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