No Inflation

Bernanke and a majority of Fed officials predict that the surge in oil prices will lead only to a modest and short-lived increase in consumer prices as firms will have a very tough time passing cost increases on to consumers as slack in the labor market keeps wage increases to a minimum. Thus, inflation is…

Read More

ECB Wrongly Raises Rates

The ECB hiked its main interest rate to 1.25% from 1%, yet inflationary pressures and growth prospects are no different in Europe than in the US and UK and they are not raising. This decision marks the moment when differences in analysis and not divergent economic circumstances, affect policy decisions. This decision will hurt the…

Read More

Treasury Yields, Stay!

There seems to be widespread view that Treasury yields will rise sharply once QE2 is over since the captive market for bonds, the Federal Reserve, will be gone. Wrong, wrong, wrong! The only way Treasury yields will increase is if we have an accelerating economy (not), rising credit demands met by increases in bank lending…

Read More

The Symptom of Deflation

Deflation 101: It’s critical to keep in mind that deflation is a symptom of weak demand but it is not necessarily a cause. If we attack the symptom of falling prices with a dose of inflation, we risk having 2 problems not 1–inadequate real demand and unwanted inflation. Yes, deflation has hurt Japan but they…

Read More

Inflation Trumps Prospects

The good: Consumer spending rose in Feb for an 8th consecutive month, spending rose 0.7% in February after a 0.3% increase in January. The Bad: Adjusted for inflation, consumer spending was up just 0.3% last month after being flat in Jan. The Ugly: inflation accelerated at its fastest rate since June ‘09 and the data…

Read More

Falling Income

In Feb there was no rise in average weekly wages, but there was a 0.5% inflation in consumer prices meaning that real incomes fell by 0.5%. They have now fallen in 5 of the last 6 months during with time it has shrunk by 2.3%. Thus, the anemic job growth we are experiencing is barely…

Read More

Fiscal Year begins

Given signs of inflation QE ends in June taking wind out of the S&P. The fiscal year for S&L govts starts in July and big tax hikes and spending cuts are due. State restraint is already visible in reduced employment. In Oct federal spending cuts commence as fiscal ’12 begins. In Q1 ‘12, we will…

Read More

New Zealand Recession?

New Zealand’s finance minister is suggesting his country could be on the precipice of a recession later this year & a flood-induced Q1 contraction in Australia seems assured. Inflationary pressures are building in emerging markets. Thus the need for interest rate hikes and liquidity drainage is a key reason why the equity markets in India,…

Read More