NEWSFLASH: Inflation Hits 17-year High!

To most on this site, this isn't exactly news, as many have been claiming that the price of goods and such have been rising. But now the dead tree press is, in a sense, making it official.

US consumer prices rose by 0.8 per cent in July, twice as fast as expected, damping hopes that falling crude oil prices and the slowing consumer demand would rapidly ease inflationary pressures.

The surprise jump in the consumer price index on a monthly basis was accompanied by an annual increase of 5.6 per cent, which was more than forecast and the largest jump since 1991.

Meanwhile, core prices – excluding food and energy costs – rose by 0.3 per cent, which was also higher than expected, amid sharp increases in the prices of apparel, tobacco and public transportation.

- excerpt from "US inflation at highest since 1991", Financial Times, 2008

Global economic tipping point: at the intersection of China and Oil

The US is no longer the engine, or at least the sole engine, of global economic growth. That mantle is shared, at least, with Europe, and even moreso with emerging Asia, and nowhere so much as China, now the world's 4th largest economy and 47wallst.com/2008/07/china-a-10-gdp.html">growing at a rate of 10% a year.
That growth has run smack up against at least short term limits on the availability of resources -- metals, livestock, rice, and more than anything else, Oil.
While growth in the US peaked about two years ago and has been generally declining since, most recently measured at about 1.9% (but perhaps in a year or three retroactively to be revised into negative territory, as Q4 2007 just was), China in particular has continued to boom, as I described in China's Out of Control Inflationary Boom.

Manufacturing Monday: Tax bill to spur jobs, and a costs eat into Dow

It seems Congress is looking into getting the tax code to work in bringing jobs here. Also, on the inflation front, Dow Chemical is reporting that material costs have become a financial tumor. Folks, welcome to another edition of Manufacturing Monday!

You bring the jobs, and we'll lower your taxes!

Back in 2004, then-presidential candidate, John Kerry, proposed a tax plan to promote manufacturing jobs. Essentially if you hired a certain number of American workers, that you as an employer, would receive a tax credit. There was a graduated system, depending on how many you employed.

Is China's bubble bursting?

If I simply showed you the following graph of a stock market losing nearly 60% of its value in 9 months, you'd probably conclude that a bubble had burst, and that the country whose companies it represented was probably in for some big Hurting:

So why has China been immune from such analysis? Presumably because the "story" behind China's growth is so compelling. Just about everybody seems to agree that China is the emerging economic world superpower.
Well, it's difficult to imagine now what life would be like without the internet, and yet that didn't stop the dot-bomb crash of 2000-2002. And the Mississippi Land Bubble was based on the accurate belief that what is now the US midwest would someday be the breadbasket of the world. Unfortunately they were off by 150 or so years.

Treasury Trouble: Is the government giving bad TIPS?

A little story passed by the radar of most folks this past week. A piece of news that really shows the US reaching a watershed moment. What is this oh so awesome thing? Well it isn't awesome, in fact, it isn't good at all. Investors are starting to reject government securities.

Treasury Inflation Protected Securities (TIPS) has been a staple investment for a long time, finding a home in portfolios big and small. So what are TIPS, and why should I care?

So what's the deal on TIPS?

Surprise! Negative interest rates don't always mean high inflation

In the last couple a days a lengthy brief by Aaron Krowne, famous for the "Mortgage Broker Implode-O-Meter", titled Debate Over: It's Hyperinflation (and US Economic Collapse) has gotten extensive attention. The title is pretty self-explanatory. Krowne claims that the Fed's recent negative interest rate policy is going to provoke hyperinflation:

the one thing that is different this time; the only thing on the planet that could truly be the cause of the EXTREME price action in oil, are the actions of the Fed. In specific I mean holding interest rates at the ungodly low rate of 2% -- below even their own doctored inflation reading (which is around 4%); and hell, below even their core inflation reading, which is a percent lower or so.

Today's CPI (inflation) number UPDATED: Welcome to Scroogeflation

I will be on the road this morning when the CPI is reported. I will check back in later and update after I have had a chance to look at the numbers and the release, but here are a few things to watch for: -- UPDATED with analysis!
Originally I was going to call our new form of rotten economic performance with heightened inflation, "Stagflation nouveau" but I don't think that quite catches the meaning I want to convey. I think "Scroogeflation" works better. What we have here is an inflation which is gradually, month after month, slowly eating away at middle and working class Americans' standard of living. It is the kind of inflation that Ebenezer Scrooge would welcome. Hence, "Scroogeflation". If you think of something better, let me know.

Result of the Fed's rate cuts: global inflation, US stagnation

University of Oregon economist Tim Duy is rapidly becoming one of my favorite reads. His insight into how loosey goosey low interest rates in the US have engendered blowback unforeseen by the Fed is a great example:

For my part, I am concerned that the Fed appears to have written off the dollar. My concern stems from rising international tensions - the Fed is dumping additional liquidity into the system at a time when most central banks are attempting to turn off the faucet. The Fed is implicitly, if not explicitly, relying on countries with fixed exchange rates to absorb that additional liquidity at the cost of inflation in those economies. Moreover, those economies with floating rates become the anti-Dollar bets.…

Another squeeze by the Boa Constrictor economy

(hat tip to taonow: I've stolen your analogy)

A while ago, in a diary entitled Are Hard Times near? The Great Decline in interest rates is ending I pointed out that the great decline in interest rates that began in 1981 looked like it was coming to an end, and with it American consumers' ability to refinance debt at lower rates. I noted that if consumers could no longer refinance at better terms, and if their wages weren't growing, the engine of the American economy would stall, not just for a short time, but for a very long period -- What I have called "The Slow Motion Bust."

With oil prices at $126 a barrel, and $4 a gallon gasoline, the boa constrictor of higher prices has tightened around the average American's budgetary breathing space some more. A look at how much and how consumers are coping, below.

Scenes from the World Food Crisis

Events of the past two years have made food an increasingly worrisome item in household budgets and in the budgets of nations. In early 2008, food prices to the American consumer were 25 percent greater than two years earlier. This reflected dramatic increases in farm beef prices, while farm corn prices were double and wheat prices triple those of early 2006. Clearly something new has happened to a food market which has historically fed Americans well and for a uniquely small proportion of their income.

A series of events was associated with these price adjustments. In 2005 the U.S. dollar began to depreciate and a major realignment of international currencies set underway. (1) [A series of crop failures and poor harvests around the world magnified the food problem]. Finally, Congress adopted legislation that drastically altered the framework of American agriculture....
- Foreign Affairs (2)

inflation