“Real” inflation rate looming for Obama’s re-election campaign

FROM: NYPOST.com

It was three years ago this week that Federal Reserve Chairman Ben Bernanke became the first US central banker to sit down for a vanity interview with “60 Minutes,” an interview in which he heralded the “green shoots” that he was seeing in the economy.

Hence, it is no surprise that in the spring of this election year the “green shoots” brigade is out in force again, aided by an enthusiastic mainstream media that tells us day after day that the economy is getting better.

Indeed, the employment picture in America has brightened a bit, with an average of 245,000 new jobs added over the past three months as the unemployment rate fell to 8.3 percent. “Great news for the president” is the conventional wisdom.

Yes, 8.3 percent unemployment is far better than the 10.2 percent we saw back in October 2009. Still, when voters “vote their pocketbook” come November, unemployment is just one — although the main — component of their economic well-being. The other is inflation, and on that front Team Obama has a lot to be worried about.

Remember the Misery Index? Veteran Democrats do, and so do the president’s re-election operatives in Chicago. The Misery Index is the sum of the unemployment and inflation rates, and it’s what did in Jimmy Carter in 1980 as runaway inflation compounded an already bleak economic picture.

On the face of it, the government measure of consumer prices, the CPI, is just mildly alarming — with the government estimating prices to be rising at a 3.1 percent annual rate.

But as anyone who pays the bills or does the household grocery shopping knows, a government-reported 3.1 percent inflation rate is laughably low. Bought cereal or mac and cheese for the kids lately? If so, you’re aware of the near double-digit increase in prices in the supermarket aisles.

So what is the true inflation rate?

Fortunately, the folks at the American Institute of Economic Research have resurrected the idea. Their Everyday Price Index (EPI) strips away the cost of big-ticket items, like homes and cars, and looks at the cost of things that consumers encounter on a daily or monthly basis, such as groceries, prescription medicine, and telephone and cable bills. By that measure, the Everyday Price Index shows inflation galloping ahead at an 8.1 percent annual rate, a reading that would put the current Misery Index at a Carter-like 16.4 percent — not a good recipe for re-election.

Averaging the CPI and the EPI gives us a rate of 5.6 percent, a number most New Yorkers, and probably most Americans, would consider on the mark.

By that estimate, the Obama Misery Index comes in at 13.9 percent, higher than that of any president up for re-election since Carter in 1980, but not too far above the 12.4 percent misery reading when Ronald Reagan ran in 1984.

Inflation at 2-Year High, As Rising Food, Gas Costs Boost Prices

From: CNSnews.com

Consumers paid more for gas and food in April, pushing inflation to its highest level in two and a half years. But so far this month, inflationary pressures have begun to ease.

The Consumer Price Index increased 0.4 percent in April, the Labor Department said. In the past 12 months, prices have risen 3.2 percent. That's the biggest 12-month gain since October 2008.

Excluding volatile food and energy, prices ticked up 0.2 percent and have risen only 1.3 percent this year. That's double the gain posted six months ago, but still below the level the Federal Reserve considers a healthy pace of inflation.

Oil prices have fallen from their peak of $114 a barrel earlier this month to about $100 Friday. And the price of corn and other grains have also declined in recent days.

As Inflation Surges, Central Banks Run Amok

FROM: CAIXIN ONLINE

Super heroes for the world economy they're not, as the Federal Reserve's inflation-stoking policies prove

Inflation is rising around the world, and none of the major central banks have shown serious interest in containing it. To prosper now, under these inflationary conditions, one needs thick skin.

The Bank of England has the thickest skin of all: It no longer gives excuses for ignoring inflation. The U.S. Federal Reserve is constantly inventing new theories while trying to explain away inflation, and while trying to justify its QE2 quantitative easing project despite inflationary signs aplenty.

The European Central Bank has the thinnest skin of all, and recently raised interest rates to defend its credibility in targeting price stability even though, unfortunately, the ECB won't be able to maintain this stance. The Bank of Japan is still shy, but it will have to out-QE the Fed to help its government pay for post-earthquake reconstruction.

Price stability is supposed to be central banking's main goal. But these days, central bankers think they're super heroes who should rescue the world and make everyone happy.

Inflation, since its negative effects are spread thin and take time to materialize, is ignored. Today's central banking is about so many things except inflation. This is why inflation will worsen for a long time to come.

Indeed, inflation is the main theme for the current decade. A change will occur only when the current generation of central bankers is replaced.

Inflation's Hold
When western governments decided to bail out their bankrupt financial institutions in 2008, I foresaw inflation ahead. I argued it would start with commodities and in emerging economies, and then spread to developed economies. But now it seems inflation has already taken hold in developed economies.

The euro zone inflation rate reached 2.4 percent in February and 2.7 percent in March year-on-year, marking the third and fourth months that the rate topped the ECB's 2 percent target. More importantly, it's been on a solid upward trend for the past two years. Inflation's dip in 2008 seemed a temporary phenomenon due to negative demand shock. Actually, structural forces have been inflationary for a long time.

The U.S. Consumer Price Index increased 0.5 percent in March from the month before and 2.7 percent from the same month 2010. The index has risen an average 2.7 percent over the past 12 months, much higher than the Fed's assumed target of 2 percent. However, the Fed insists on focusing on core CPI, which excludes food and energy. That indicator averaged a 1.2 percent increase over the previous 12 months.

The problem with the Fed's view is that its policy is partly, if not mostly, the reason for a rapid increase in food and energy prices. If it continues on this policy track, this price trend will continue. And core CPI will eventually catch up with general CPI.

Britain's inflation rate conveniently fell 0.4 percent from the previous month to 4 percent in March. The decline was cited as the reason why the Bank of England has not raised interest rates. Britain has had an inflation rate above its policy target for nearly two years, but it hasn't raised rates. This seems to be a pattern. Data from a single month hardly matters.

Inflation? Michael Kinsley Thinks It's Coming

This from the guy who was routinely handed his head on "Crossfire" by Pat Buchanan and John Sununu back when CNN was in its salad days.

From: The Los Angeles Times

Standard & Poor's, the bond rating service, has been widely mocked for its recent prediction that the U.S. government may default on its bonds. It's a highly qualified prediction, sort of a prediction of a prediction of a remote possibility. S&P estimates there's a 1-in-3 chance that it will downgrade its ratings of U.S. bonds. So the chance of a default has increased from unimaginable to almost unimaginable. But, like that kid in math class who bursts into tears when the test comes back graded A-, America would find this traumatizing because it's never happened before.

Some people say, relax and don't worry about it.

They argue first: Standard & Poor's is dealing, in this case, with public information. It knows nothing that you don't know, or could not find out, about United States government bonds. These aren't remarkable investment opportunities involving Nigerian royalty, like the ones offered in my email inbox every day. They are backed by the full faith and credit of the United States.

Besides, the folks at Standard & Poor's are just overcompensating for burying their heads in the sand during the subprime mortgage collapse.

What's more, the United States government will never default on its debts, because (unlike almost every other debtor in the world, including other sovereign nations) the United States can just print more money. "At least one economist" (i.e., one economist) is widely cited in the blogosphere as issuing a "derisive guffaw" at the notion that the United States can ever default on its obligations as long as there's still fuel to run the printing presses.

Well, I don't know. Standard & Poor's may know nothing that I couldn't find out, but it certainly knows more than I've bothered to find out. (And how about you?) And how its experts assess all this publicly available information is surely worth knowing, isn't it?

Second: Yes, the bond rating agencies failed to warn investors about the home mortgage debacle. What are they supposed to do now? Just go out of business?

Obama’s Monetary Policy: Stick It to the Middle Class

From:Pajamas Media

It’s a rare day when I, a self-confessed macroeconomics ninny, dare to write about anything so weighty as federal monetary policy. My husband of four decades loves to joke that I know nothing about money except how to spend it. (Ha. Ha.)

He fails to mention that I have been the chief financial officer of my household budget for 41 years now — that I have managed to put wholesome, safe meals on our family’s table through some of the most treacherous-to-the-middle-class periods of inflation in American history. Or that I take only cash to purchase nearly 100 items every single week and am never off my cost estimate by more than a few dollars at checkout. These are feats of which I am quite proud. In the process of weekly grocery shopping over four decades, I have become an expert at spotting inflation before my financial-guru husband has the slightest clue what’s around the bend.

I’ve been sounding the hyperinflation alarm for more than a year — to rolling eyes and shrugs, and the all-too-familiar “you just want a raise” discounting tactic. So when I read this little piece in the Wall Street Journal last week, I would have been downright giddy at the validation, if I weren’t so utterly depressed by the reality.

It seems that one heck of a prestigious dude — William Dudley, president of the New York Federal Reserve — decided to have a little tête-à-tête with local consumers, no doubt sensing a need to bolster their confidence in the Fed’s more-fishy-by-the-hour monetary policy.

Mr. Dudley gave a nice PR speech highlighting “improvements” in the economy and the Fed’s “successes.” Then came the questions. One guy had the audacity to hope he could make some sense out of the government’s insistence that inflation remains minimal despite the largest monthly increase in food costs in 36 years — and gas spiking so much that soon the cost of getting to work may exceed one’s wages. Dudley made use of a skill they must have taught him at Berkeley, proceeding to ram his Goldman Sachs resume, along with his Gucci loafer, right through his front teeth:

“Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he replied. “You have to look at the prices of all things.”

To which one truly great American responded: “I can’t eat an iPad.” He might as well have added, “I can’t drive an iPad to work either.” And at the rate grocery and gas prices are rising, by the end of this year, I couldn’t afford that iPad’s monthly service fee even if I had enough discretionary income to purchase the little piece of dazzling technology in the first place.

If you ask me, Ms. typical American middle-class consumer, I would have to say that Mr. Dudley’s current yearly salary of $410,000 in taxpayer money is just a tad inflated as well. That $410,000 of our money is mere chicken-feed to a man of Mr. Dudley’s stature, I’m told. When he was at Goldman Sachs, he was pulling in millions every year. I’m sure he was worth every penny. If inflation really were down in the 2% range on the genuine necessities of life for us little people, then I wouldn’t begrudge the guy his half-million in wages and benefits.

But Dudley’s salary, along with Geithner’s and Bernanke’s and even Obama’s, are all based on lying statistics that mean nothing in the real world where inflation is actually rampant.

ObamaCare alone has caused a nearly 40% hike in insurance premiums for individual policies such as the one my self-employed husband and I have. The Democrats’ save-the-deadbeats credit card law caused an immediate rise in interest rates for us always-pay-on-time consumers to cover the cost of the mandated write-offs.

Right here, in the real world, Obama’s monetary policy is starting to look like it has a bottom line screw-the-middle-class philosophy.

For the president’s information, the most dreaded word in every middle-class household’s budget confab is — all together now — INFLATION. And just because a few golden-boy hotshots in the jet set can somehow ignore the cost of groceries and gas when they do their little on-paper tallies of deceptive figuring does not mean that a real family can get by without taking these vital things into account.

When inflation drives up the cost of food to fuel the little human bodies sitting around the dinner table every night, then the family must get the money from somewhere else in the budget. Otherwise children go hungry. We don’t have money-printing presses in our living rooms.

When inflation drives up the cost of gas — and gas is necessary to get to work and school and all the other places we must go — then that extra money has to come from somewhere else. The yearly vacation, which has been cut down to a couple of days close by, has to go entirely. Or that summer camp we were planning to send the kids to is out. Or the braces will have to go on the credit card whose interest is way above “prime rate.” There isn’t a middle-class family in this entire country who does not live in dread of the I-word.

Inflation stalks like a thief in the night, filling the nightmares of homemakers and breadwinners alike.

Inflation is the invisible beast that steals the long-awaited raise before it has a chance to hit the bank account.

Inflation is the disease that ravages the arduously saved dollars of decades.

Inflation is the bandit that steals from the poor while hardly ever even noticed by the likes of the politicians who guilefully prod its crime spree.

Inflation is the monster who gobbles up the goodies of responsible citizens no matter their station.

So, when Obama and Bernanke and all the Fed gurus like Mr. Dudley put their little heads together and formulate a monetary policy, it would really be nice if they remembered — just once — that while the iPads and the Guccis and the golf clubs they love so much are simply wonderful if they cost a little less, the rest of us do have to worry about the rising cost of our groceries and our gas.

In our world, the necessities of life don’t get paid for with other people’s money.

We in the middle class pay the most taxes and fuel the government engine.

It would be nice if we weren’t told to eat our iPads when we notice that our government has set out to deflate the middle class.