Author Topic: Money/inflation, the Fed, Banking, Monetary Policy, Dollar, BTC, crypto, Gold  (Read 512863 times)


Crafty_Dog

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Someone else reading our forum; this time on Producer Prices
« Reply #2101 on: June 15, 2022, 05:07:01 PM »
https://www.theepochtimes.com/a-closer-and-more-painful-look-at-producer-prices_4535505.html?utm_source=Opinion&utm_campaign=opinion-2022-06-15&utm_medium=email&est=8AAWiOTWwWjdT4%2FemSLxPJNMywGHPl9dVunion9Wp5OuF6uu7Qn7wNcrGKSjmdXG86dR

A Closer and More Painful Look at Producer Prices
By Jeffrey A. Tucker June 15, 2022 Updated: June 15, 2022biggersmaller Print
News Analysis

Any index of prices is based on an illusion. You can say it’s a necessary one. It likely is simply because we need some kind of aggregate to sum up a huge complexity of price movements. It’s the only way we can observe the existence of a general problem rather than a sector-specific one.

In truth, prices—even in a devastating inflationary climate like this one—don’t rise and fall in tandem. It’s not like the sea level. Inflation shows up more in some sectors over others, and the affected industries can be hard to predict. It hits plywood one week, cotton the next, pork prices the next, housing the next, transport the next, and so on, with successive waves of infection and seeming recovery.

This reality contributes to the feeling of overall chaos and tremendous public disorientation.

When press releases appear from the Bureau of Labor Statistics (BLS), the media looks for the headline number: What is the rate of year-over-year change? The Consumer Price Index (CPI) is the one that gets the most attention, but it is the Producer Price Index (PPI), released the following day, that’s probably more reliable overall.

Because it deals with wholesale prices and the full supply chain, it amounts to a forecast of future consumer prices, revealing how much price anxiety is being felt throughout the whole structure of production. The CPI is downstream of the PPI.

The June 14 release of the May PPI data headlined the number 10.8 percent. That’s because the BLS press release stated that “on an unadjusted basis, final demand prices moved up 10.8% for the 12 months ended in May.” And so that was the takeaway. There are a couple of provisos here that most reporters wouldn’t notice: This is unadjusted for seasonality and also combines final demand for both goods and services.

So let’s look a bit more closely, thanks to the charting tools at the Federal Reserve Bank of St. Louis, which are fed directly by an application program interface (API) from the BLS. Here’s a look at producer prices by final demand by goods alone. This reveals an incredible 16.3 percent increase year over year. This is far more alarming than the figures the BLS was touting, and perhaps this is why it isn’t being reported.

Epoch Times Photo
Producer Price Index by Commodity: Final Demand: Finished Goods. (FRED/Jeffrey A. Tucker)
Here is the same index focused only on commodities. It shows an eye-popping increase of 21.8 percent.

Epoch Times Photo
Producer Price Index by Commodity: All Commodities. (FRED/Jeffrey A. Tucker)

Now, let’s look at the hugely important sector of trucking and the prices of hauling goods across long domestic distances—a sector crucial to the U.S. consumer supply of nearly everything. Here, you see the real pain. It is intense at 34.1 percent.

Epoch Times Photo
Producer Price Index by Industry: General Freight Trucking, Long-Distance Truckload. (FRED/Jeffrey A. Tucker)
You have probably had enough, but there is one more you have to see. It concerns the cost of shipping for international trade, what the BLS calls deep-sea shipping. This is the lifeblood of all modern economies, the key to the international division of labor, and central to what we call prosperity. This figure is truly shocking: Prices are rising 44.7 percent.

Epoch Times Photo
Producer Price Index by Industry: Deep Sea Freight Transportation: Deep Sea Freight Transportation Services. (FRED/Jeffrey A. Tucker)
Perhaps you have noticed that many people are getting upset about inflation, mainly due to food and gas prices. These charts indicate that people aren’t nearly upset enough.

Should you be worried about food shortages, more goods shortages, business bankruptcies, and more shocking price increases in just about everything? Yes. Absolutely. My own read of the factors that make for these kinds of shocking levels of inflation is that they are nowhere near washed through the system. It’s going to be many years before they fully do. We don’t even know what kind of world emerges on the other side of this Great Inflation.

Living through this inflation is momentous for most people alive today. It’s a new experience, and people are learning in real time to understand cause and effect here. The Biden line that this was all “Putin’s price hike” seemed to have flopped, so he has stopped using it so regularly. It just didn’t stick. Now, you have lefty journalists at, for example, Vox, explaining that the real problem traces to industrial monopolies such as the meat packers. These people are insufferable.

If you want a really good and quick look at what inflation is and how it works, turn to Henry Hazlitt’s “Economics in One Lesson.” He has an entire chapter on the subject.

By way of background, Hazlitt wrote this book in 1946, after having been forced out of his job as an editorial writer for The New York Times. The publisher wanted Hazlitt to endorse the Bretton Woods agreement of 1944, but Hazlitt refused on grounds that it was an unsustainable monetary arrangement that would only produce more inflation. Hazlitt wouldn’t write what he did not believe; he kept his principles even though it meant unemployment.

So he used his new time off to write the book that the world needed at the time, and still needs today. He writes of inflation:

“It may indeed bring benefits for a short time to favored groups, but only at the expense of others. And in the long run it brings disastrous consequences to the whole community. Even a relatively mild inflation distorts the structure of production. It leads to the overexpansion of some industries at the expense of others. This involves a misapplication and waste of capital. When the inflation collapses, or is brought to a halt, the misdirected capital investment—whether in the form of machines, factories, or office buildings—cannot yield an adequate return and loses the greater part of its value.


“Nor is it possible to bring inflation to a smooth and gentle stop, and so avert a subsequent depression. It isn’t even possible to halt an inflation, once embarked upon, at some preconceived point, or when prices have achieved a previously agreed-upon level; for political and economic forces both will have gotten out of hand. …

“Inflation throws a veil of illusion over every economic process. It confuses and deceives almost everyone, including even those who suffer by it. … Inflation is the autosuggestion, the hypnotism, the anesthetic, that has dulled the pain of the operation for him. Inflation is the opium of the people.”

The Federal Reserve is in no position to stop what it has started, even if the political will were in place to do so. There are already rumblings in the Democratic Party that inflation is to be preferred to depression for fear of a mighty Trump comeback.

This seems like a dramatic political miscalculation. If you look at the charts above again, you will see that every bit of this mess traces to the Biden presidency, at least according to the data, and even though the roots extend further back in time.

There is no getting around this: The great inflation of 2021–22 has discredited the regime and its current managers. Even if nothing gets worse, the suffering will last a generation. The terrifying truth is that it will get worse and maybe much worse.


Jeffrey Tucker is founder and president of the Brownstone Institute. He is the author of five books, including "Right-Wing Collectivism: The Other Threat to Liberty."
« Last Edit: June 15, 2022, 05:08:52 PM by Crafty_Dog »

Crafty_Dog

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WSJ: The unintended consequences of interest rate hikes
« Reply #2102 on: June 16, 2022, 06:00:36 AM »
Fed Interest Hikes May End Up Having Unintended Consequences
The economy doesn’t need artificially high or low rates. It needs meaningful price signals—real rates.
By Judy Shelton
June 15, 2022 2:18 pm ET


Imagine you are chairman of the Federal Reserve. If you want to increase the output of goods and services for the economy to lower prices by meeting elevated demand, what do you do? First, you beg off by saying the Fed doesn’t have any control over supply. Then you try to kill demand.

This is what Jerome Powell finds himself doing now, with inflation at 8.6%, a 40-year high. It almost sounds like the responsible course of action when Mr. Powell says: “We have both the tools we need and the resolve that it will take to restore price stability on behalf of American families and businesses.” But does it actually make sense to hike interest rates in a deliberate effort to reduce employment and curtail economic growth, all to relieve price pressures?

The Keynesian logic that underlies the Fed’s analytical framework is fairly straightforward. To stimulate economic activity and lift aggregate demand, the Fed engages in expansionary monetary policy: It lowers interest rates to encourage borrowing. When spending on goods and services outstrips production, causing inflation, the Fed uses contractionary monetary policy to dampen economic activity and reduce demand: It raises interest rates to discourage borrowing.

A major cause of this recent bout of inflation was the federal government’s putting additional money in the hands of consumers, increasing demand, without increasing supply—but the Fed is hardly absolved of any wrongdoing.

To get a sense of how much liquidity the Fed has injected into the economy since the 2008 global financial meltdown, look at how much the Fed’s own balance sheet has grown. Total Fed assets increased from $1.5 trillion in October 2008 to more than $8.9 trillion today. Every dollar paid by the Fed to acquire securities was accomplished using a keystroke to credit the seller’s reserve balance, which is held on deposit at the Fed. This is how the Fed creates money from thin air.

We could have had more inflation, given the massive expansion of the monetary base, but the Fed pays interest on these balances. It pays banks on the $3.3 trillion in reserves they hold on deposit at the Fed. Additionally, the Fed pays interest on $2.3 trillion in cash parked at the Fed through reverse repurchase agreements conducted with money-market investors.

When the Fed raises interest rates, it does so primarily by increasing these two “administered” rates, which differ by 10 basis points, on the $5.6 trillion in liquid funds. Together, they set an overnight interest rate “beneath which banks and non-bank financial institutions should be unwilling to invest funds in private markets,” according to the Fed.

Given the negative effect pending interest rate hikes are expected to have on employment and economic growth—not to mention the devastating consequences for financial markets and 401(k) retirement plans—this seems a good moment to ask: Does the Fed’s approach to managing the money supply facilitate the productive use of financial capital? Should the Fed be encouraging financial institutions to keep money idle in depository accounts? How does that contribute to increasing the supply of goods and services? This could be precisely the wrong way to carry out the Fed’s mandate to promote stable prices and maximum employment.

Granted, for more than a decade the Fed has created excessive liquidity through its purchases of Treasury debt and mortgage-backed securities, but depriving the private sector of financial resources to correct the Fed’s own monetary mistakes is perverse. It doesn’t help that Mr. Powell and Treasury Secretary Janet Yellen have been slow to acknowledge the inflationary threat.

People may be starting to question the wisdom of wholly discretionary monetary policy as they are asked to accept a punishing sequence of rising interest rates. But a punishing sequence of rising interest rates seems to be the Fed’s only feasible option for addressing the latent inflation it enabled, which was triggered by fiscal stimulus.

Mr. Powell should note that the original inflation-targeting operating model for central banks—first put in place in New Zealand in 1990—included a provision for dismissing the top official for inadequate performance.

Accountability shouldn’t require omniscience, but neither should it excuse errors of judgment that end up harming Americans across the income spectrum. It was jarring to hear Ms. Yellen tell the Senate Finance Committee last week: “I do expect inflation to remain high although I very much hope that it will be coming down now.” You would think the former Fed chief would rely more on quantitative reasoning than wishful thinking.


The latest CPI number made it clear that inflation isn’t yet coming down—prompting the Fed to take a more aggressive stance. Contractionary monetary policy theoretically requires a nominal interest rate higher than the inflation rate. It isn’t clear the Fed is willing to go that far. In the extreme, high interest rates could cause bankruptcies and defaults. Meanwhile, a rising dollar could render dollar-denominated debt untenable for foreign borrowers with weak currencies.

All of this should cause us to rethink how the Fed intervenes in the economy. Neither artificially high interest rates nor artificially low interest rates are most conducive to productive economic growth. What a market economy needs is meaningful price signals—real interest rates.

Let’s abandon talk of hawks and doves on the Fed’s monetary policy-making committee and listen to the woodpeckers prepared to hammer away on the principle that money should provide a dependable store of value.

Ms. Shelton, a monetary economist, is a senior fellow at the Independent Institute and author of “Money Meltdown.”

ya

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Michael Saylor is one of the largest bulls on BTC...

https://twitter.com/i/status/1537935584961830913

ya

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BTC is most oversold in history. Unless someone thinks its done for, it will be higher again in the future. In the meantime, it is very painful. If I had more powder, I would buy more.


ya

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Saylor interview
« Reply #2105 on: June 18, 2022, 05:55:30 AM »
Svenrich interviews Saylor. A good long interview...but worth it in these times.

https://youtu.be/ckl08Rtq9zA
« Last Edit: June 18, 2022, 06:49:19 AM by Crafty_Dog »

ya

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ya

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We are near anger-depression

« Last Edit: June 19, 2022, 04:53:04 AM by ya »

ya

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Zoom out. Below is the likely path forward.


DougMacG

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Bitcoin was hurt IMHO in the hype of being a get rich scheme (and some got rich) , instead of becoming the most stable and secure store of value .  As the 'new gold', shouldn't it have gone up during the current turmoil and uncertainty?

Stuck at 1800, it looks like gold is not the new gold either.

What is a safe haven anymore with stocks, bonds, real estate and crypto tanking?

G M

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Guns, ammo, food, medical supplies and skills.

Real estate is rural areas where there is water and food production and law and order will be very valuable.

I see crypto as important as gov fiat currency dies.


Bitcoin was hurt IMHO in the hype of being a get rich scheme (and some got rich) , instead of becoming the most stable and secure store of value .  As the 'new gold', shouldn't it have gone up during the current turmoil and uncertainty?

Stuck at 1800, it looks like gold is not the new gold either.

What is a safe haven anymore with stocks, bonds, real estate and crypto tanking?

ya

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This is a worthwhile and balanced read on BTC by Nik Bhatia. This drawdown in BTC is not out of the ordinary, as the article shows there have been 12 such drawdowns of similar intensity. The asset class is only 13 y.old, it needs more time, hopefully another 2-4 years should do it.

https://thebitcoinlayer.substack.com/p/bitcoins-first-major-recession-part-59f

ya

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Another nice interview...long but fascinating
https://www.youtube.com/watch?v=5Q4-E5K7tW0

ya

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So SEC just approved a BTF short ETF, before the spot ETF. Either Gensler is trying everything in his power to bring BTC down, or the spot ETF will be approved on july 6. As I have said before, GBTC plans to sue SEC if the spot ETF is not approved. Exciting times. Might be ironic if the short ETF marks the BTC bottom.

ya

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I dont understand this topic well enough to comment....but seems relevant.

https://thehill.com/opinion/finance/3532683-who-owns-the-feds-massive-losses/

DougMacG

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Ya's post, a good question for our friend Scott Grannis.  Short answer, we all own the losses (and errors) of the Federal Reserve Bank.
---------------

The End of Credibility

John Authers:  (Bloomberg)

Monetary regimes don’t fall often. Half a century ago, in 1971, Richard Nixon ended
the Age of Gold by formally eliminating the dollar’s peg to the precious metal. Since then, the dollar and other currencies have rested on fiat—they’re worth something because governments say they are. You could call this the Age of Credibility. In place of gold, currency’s anchor is the trust in the central banks that issue them. Now credibility appears to be at an end. With central banks desperately ripping up their playbooks to try to rein in inflation that’s veered far beyond target, they’re admitting they’ve been wrong, and giving up on trying to steer the markets on their plans for the future.

That’s alarming, because the precedent of the 1970s is not encouraging. Oil briefly took over from gold as the anchor for currencies, and the world suffered through a period of protracted stagflation. The new Age of Credibility arrived courtesy of Paul Volcker, who as chairman of the Federal Reserve raised rates repeatedly at the turn of the ’80s and managed to squeeze inflation out of the system. For the four decades since, central bankers’ credibility has been the anchor. (Source: bloomberg.com)

ya

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BTC

Crafty_Dog

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Doug:  I have forwarded it to him.  Don't know if I will get a response.

ya

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As BTC users increase, price must increase. Uptake is faster than the internet. 1 Billion users will be achieved faster than that for the Internet.

« Last Edit: June 25, 2022, 03:18:07 PM by ya »

ya

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ya

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Comment from Marty Armstrong
" We are in the Sovereign Debt Default mode. As I have said before, we will see that start in the emerging markets which have already begun. It will then spread to Europe and eventually end up with the United States coming in last. While our politicians cheer forcing Russia into default, these morons only look at stopping Russia from borrowing. They have relieved it of debt servicing and that means the losers are Western institutions which are primarily pension funds because they got a better rate in the face of deplorable rates in the West. This will create more of a financial crisis in the West and these funds will then turn to their respective governments for compensation since they caused the default.
The Federal Reserve is pushing rates higher as I warned because they are blamed for inflation. It does not matter that it will fail and created more inflation and spur the emerging market sovereign default. That is the ONLY tool they have under Keynesian Economics."


ya

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A. With GBTC ETF denied. Some experts think there are two pathways forward.
1. GBTC sues the SEC and wins, in 1-1.5 years. This would remove the 30 % discount at the moment. People who think this might happen are going to buy GBTC at a 30 % discount and hold on.
2. The GBTC trust is dismantled or sold to another entity, who wants to acquire the largest hoard of BTC. In this case also, the GBTC holders will get the full current price of BTC.

BTC is in a bear market and touching lows that were inconceivable. Once Powell pivots, or the markets stabilize, BTC will bounce back too. BTC has an inverse relationship with the dollar, so softening of the dollar will also help. As I have said before, the pain is similar to what previous hodlers felt at 3.5k in 2018 and we all regret not buying more.

B. we are at the "then they fight you stage". European regulators want to do away with what they call "unhosted wallets" like Trezor

ya

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 This is good new, its still a draft from BIS, second consultative effort published June 30, 2022  https://www.bis.org/bcbs/publ/d533.htm
If finalized, 1 % of bank reserves is a lot of moolah.

"Group 2 exposure limit
The large exposure rules of the Basel Framework are not designed to capture large exposures to an asset
type, but to individual counterparties or groups of connected counterparties. This would imply, for
example, no large exposure limits on cryptoasset where there is no counterparty, such as Bitcoin. The
Committee proposes, therefore, to introduce a new exposure limit for all Group 2 cryptoassets outside of
the large exposure rules. The Group 2 exposure limit is set out in SCO60.121 to SCO60.124 and has the
following features:
Provisional limit set at 1% of Tier 1 capital, to be reviewed periodically."
« Last Edit: June 30, 2022, 05:03:59 AM by ya »

ya

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Also https://www.coindesk.com/policy/2022/06/30/banks-bitcoin-holdings-should-be-capped-basel-committee-proposes/

Hard for me to understand why BTC is not going up. Perhaps not everyone fully understands, but they will.

Crafty_Dog

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YA:  Sent you two emails-- have you received them?

===============================================

Crypto crash

Shutterstock

Things are looking pretty shaky in the cryptoverse as a continuous flow of damaging headlines continues to rock the sector. The staunch believers are calling it a "crypto winter" before things heat up again, while the naysayers are pointing to the final demise of "tulip mania" they have been warning about for years. Those in between are acknowledging that a shakeout is underway, but feel that only the strongest players will survive in a similar fashion to the aftermath of the dot-com crash. Bitcoin (BTC-USD) is trading under $20,000 again on the developments, and only time will tell which camp prevails.

The latest: The failure of the TerraUSD "stablecoin" project in May sent shockwaves through the crypto market, while the Celsius Network froze accounts and now is preparing for a possible bankruptcy. Popular crypto-focused hedge fund Three Arrows Capital was also ordered to liquidate on Wednesday and crypto exchange CoinFLEX issued new "Recovery Value USD" tokens in an attempt to resume withdrawals. Meanwhile, Coinbase (NASDAQ:COIN) and BlockFi have said they would slash their workforces by a fifth, though others remain undeterred, like MicroStrategy's (NASDAQ:MSTR) Michael Saylor, who scooped up another 480 Bitcoins for $10M despite undergoing massive unrealized losses.

Growing concerns over the industry even prompted the SEC to deny an application to convert the Grayscale Bitcoin Trust (OTC:GBTC) - which has $13B of assets under management - into the first spot ETF. The move would have potentially led to more institutional investment, but instead turned into another negative headline surrounding the sector. Grayscale is suing the SEC in response, after the agency felt that its product failed to meet requirements "designed to prevent fraudulent and manipulative acts... and protect investors and the public interest."

DeFi outlook: Sam Bankman Fried, the 30-year-old billionaire founder of FTX, believes that more failures among crypto exchanges are coming amid the ongoing slump that has wiped off $2T in market value since November. "Some third-tier exchanges are already secretly insolvent," he told Forbes in an interview. Increasing worries are also enveloping the broader DeFi industry, such as crypto lenders whose loans are backed by little collateral and lack access to liquidity in the event of a downturn. "It's just a risky structure," said Eric Budish, an economist at the University of Chicago Booth School of Business. "It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing - here it's all crypto." (28 comments)

===========================
===========================

https://www.reuters.com/markets/europe/eu-seeks-deal-ground-breaking-rules-regulate-crypto-2022-06-30/?utm_source=Sailthru&utm_medium=newsletter&utm_campaign=daily-briefing&utm_term=06-30-2022
« Last Edit: June 30, 2022, 05:51:01 AM by Crafty_Dog »

DougMacG

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Money, the Fed, Banking, Monetary Policy
« Reply #2127 on: June 30, 2022, 06:13:40 AM »
I study this endlessly but there are some things I don't understand.

Congress and the executive spend a trillion a year more than they take in not counting some additional 4.6 trillion in "excess spending" recently (fiscal policy), why does the Fed accommodate that with increased money creation (M2)?

See post just now at Political Economics with Scott Grannis: https://firehydrantoffreedom.com/index.php?topic=1467.msg147336#msg147336

Isn't the Fed an independent organization, does not report directly to Congress or the executive branch?  Aren't they tasked by charter and law to do what is responsible and in the best interest of the country, price stability and monetary integrity?  EVERYBODY knows spending is out of control, before, during and after the pandemic, under Obama, under Trump, under Biden, after way further back. 

Why does the Fed write a blank check for every irresponsible act coming out of the (other) branches of government?  Don't they have their own responsibilities?

Congress as representatives of the people, through the constitutional process of moving bills into laws, should be able to spend the money they take in any way they want.  Why is that amount of spending not limited to what they can bring in or reasonably and responsibly borrow?

Inflation at this point is intentional and fully manmade.  Are there no rules or constraints to stop this, short of passing a new constitutional amendment?

Chart from Scott Grannis:

ya

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YA:  Sent you two emails-- have you received them?

Sorry, did not get any, perhaps you mistyped the address ?

ya

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BTC @ 20.4K

Crafty_Dog

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You have PM.

ya

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Responded..thank you

ya

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Important podcast on the Yen..BTC
https://youtu.be/HMKk02vd7rc


ya

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There was a contagion due to all the investors, invested in shit coins and in companies which rehypothecate your BTC and give high yield. Sam is buying these companies very cheaply. With BTC, as long as one is not margined, BTC always comes back whereas these altcoins will disappear and go to zero. Next bull market a new batch of altcoins will emerge and the cycle repeats. BTC has had four 80-85 % pullbacks. Every all time high has been higher than before, same with the lows. Unless, I am misunderstanding the Bank of International Settlements (BIS) proposal, they will allow banks to hold 1 % of crypto. Once the document is finalized...this should be bullish. Neither the EU, nor the US has any plans to try and ban BTC...perhaps because it is very difficult to ban it, as China has learned.

Crafty_Dog

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Thank you.

ya

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Crafty_Dog

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Grannis and:
« Reply #2137 on: July 05, 2022, 08:56:10 AM »
See Scott Grannis' June 30 on BTC and also his entry on June 29.

https://scottgrannis.blogspot.com/

Separately, I note:

10 year treasuries are down to 2.8 and 30 years are down to 3.04.
 
Oil has dropped to $99.

Silver has dropped to 19.

Gold has dropped to 1766!

BTC is 19,400 and ETH is 1086.

Are these the signs of an inflationary apocalypse?

Or maybe with the end of Wuhan and the Feds helicopter money, the future inflationary reality is that it will slow faster than we have been thinking?


ya

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Crafty_Dog

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As a matter of consistent reportage, tis fair and correct to state that inflation over the past year has been 9.1 percent per official numbers (yes, yes, we know what official means).  This minimizes taking one or two months out of context.

OTOH here we have a rising trendline and to get a more accurate assessment of where we are at NOW is to annualize a 1.3% monthly. I'm too lazy to do the calculations of compounding, but if we multiply 12 x 1.3 we get 15.6%

This slightly understates of course, but for purpose of political conversation as to where we are at right now I would submit more relevant than the 9.1% number.

That said, this does need to be put in larger context.  The best economist I know is Scott Grannis

Here are his thoughts on his blog:

https://scottgrannis.blogspot.com/

If you have interest in economics, the market, and/or political economics, this blog should be a regular read for you.

Crafty_Dog

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One part survives?
« Reply #2141 on: July 13, 2022, 02:22:11 PM »

Crafty_Dog

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ya

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My spanish language knowledge is non existent, but I think the below means that, paraguay has passed a law that will allow use of excess hydroenergy to mine BTC.

https://www.criptonoticias.com/regulacion/senado-paraguay-ley-bitcoin-presidente/

ya

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Crafty_Dog

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ya

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muchas gracias.. :-D

ya

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ya

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