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The draining national prosperity
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 1 year 197 days ago (prudentbear.com). Views: 68
Tags: economics recession depression |
| Related Tags: finance wall street business video stocks politics credit crisis |
Over the next several months, it is likely that current trends of feebly advancing GDP and soaring commodity prices will continue. Certainly the stock market seems to think so; it has recovered nicely from its mid-March low and is now above the levels when the crisis hit last August, even though earnings in the financial sector, representing more than 40% of total US earnings before crisis hit, have essentially disappeared in the last two quarters. The Fed may not currently intend to push interest rates down further, but it has already forced them more than 2% below even the thoroughly fudged statistics of inflation produced by the Bureau of Labor Statistics.
It is perhaps disappointing for bears that a crisis may not occur immediately, but there can be no question that the vigorous monetary and fiscal medicine administered by the Bernanke Fed and the George W. Bush administration will have its effect. Indeed, far from declining in the second quarter, as has been confidently predicted, Gross Domestic Product may even tick up a bit, boosted by monetary and fiscal stimulus, perhaps to around 2% or 1% after population increase has been taken into account.
At some point, a crisis will arrive. Inflation in the eurozone, China and India is already at levels deemed unacceptable, while even Japan has positive inflation for the first time in many years. In the United States, the producer price index increased 6.9% in the year to March, while that for crude goods increased more than 30%. Like a bowling ball swallowed by a python, that inflation will move through the economic system and eventually be reflected in consumer prices. Indeed, it may already be showing up there; the seasonally unadjusted consumer price index for March was up 0.9% (an annual rate of around 11%) and only a heroic seasonal adjustment of 0.6%, double the next largest seasonal adjustment for any month in the last ten years, brought the figure down to an acceptable 0.3%.
The Bureau of Labor Statistics explains on its website that its seasonal adjustment methodology changed in January; should it be the case that this is being used to suppress consumer price inflation, even the dozier members of the media will come to notice after another couple of months have passed. In any case, it is likely that by the latter part of 2008, consumer price inflation in the US will be running at more than 10%, and that even the heroic mavens at the BLS will be unable to suppress that information completely (though on past form they will undoubtedly try.)
There will come a point at which the irresistible force of gradually increasing GDP and continually optimistic stock market will meet the immovable object of consumer price figures that can no longer be ignored.
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