Second Half 2011 Inflation Predictions, Political Impact, and More
April 26, 2011
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HT To EPJ:
USDA ups Inflation forecast for meat:
"As forecast right here at EPJ, price inflation is going to heat up significantly in the second half. Gas prices are already climbing. Clothing prices are starting to uptick and now the US Department of Agriculture is warning on meat prices.
The USDA now says meat prices will climb 6% to 7% this year over 2010, up from its March 25 forecast for a 4.5% to 5.5% increase.
Beef prices are projected to jump 7% to 8%, up sharply from the government’s March estimate of a 4.5% to 5.5% rise. Beef prices are already running 12% higher than they were a year ago.
Pork prices, which gained more than other meats last year, will be a half-percentage point higher, rising 6.5% to 7.5% over 2010.
Depending on what happens to money supply growth, the price hikes could be even greater than these USDA forecasts."
McDonald's has already doubled its inflation forecast as well.
Forecasting Its Impact On Politics
The timing could not better, folks. Consider this, inflation has already been a destabilizing force in the Middle East, most likely as a secondary spark rather than a primary, but certainly a force. According to the World Bank, global food prices rose 36% last year (you can probably double that, but whatev.)<------ Lots of scary stuff in that World Bank link, but the scariest thing is their general economic ignorance, in which food prices rise because other stuff rises in price (but of course, no reason is given why those things rose in price!)
Though QE2 is coming to a close, don't expect an immediate slump and contraction. Just as it takes time for new currency to bid up prices, it takes time for prices to stabilize and contract if the stimulus is removed. It all depends on the behavior of the market actors, and we know how often they want to do their own thing :)
So we can reasonably expect that inflation will still be upticking towards 10% for food and energy as the Presidential primary debate season begins. How delightful?
This means that there will be questions-a-plenty for our field of candidates on monetary policy, the dollar, economic approaches, and of course, the Ben Bernank.
Here's Business Insider's Joe Wiesenthal's view:
"It's inconceivable to think that in the GOP primary, candidates won't be asked for their position on Bernanke, quantitative easing, the role of the dollar, and of all the candidates, only Ron Paul has made a career on all these issues. In fact, after decades fighting his fight, he must be somewhat shocked that in just the last few years, his ideology has become so popular (or maybe he's shocked that it took so long).
In 2008, the GOP primary was dominated by...candidates like Mitt Romney and John McCain and Fred Thompson and even Rudy Giuliani. They were content to basically ignore what Ron Paul had to say. This time, they'll be fighting on his turf."
Like I said, how delightful?
Why I'm So Darn Excited
I'm not excited because Ron Paul is going to win. This isn't a racetrack. I'm not betting on horses. The real batte is the ideas. Whose ideas are going to win? For at least half a century, the ideas of totalitarians have dominated the popular culture. Finally, we got to see a battle unfold where the ideas of liberty will get a fair hearing (unlike the sham of 2008). Oh, I'm sure the Republican leadership will try anything to keep him from speaking his voice, but I'm at least optimistic that his message will reach a far broader audience this time around. Again, it'll be fun. Enjoy it. It might be our best shot.
Last Word of Warning
The elephant in the inflation-debate living room is that pesky small sum of $1.47 Trillion and counting in excess reserves. Is The Ben Bernank going to pull a Joker and torch it in front of his compadres (I can see him exclaiming "this country needs a better class of criminals!")
What to do... What to do.... And why the heck is paying interest on it??? EPJ tackles those questions in an amusing write-up here:
One important example of Bernanke's new Federal Reserve "tools" is the paying of interest on deposits that banks leave with the Federal Reserve. It has resulted in over a trillion dollars accumulating at the Fed, as what is known as "excess reserves". The Fed is paying banks EIGHT times equivalent market rates when they keep the funds as excess reserves.
If I may quibble with Mr. Wenzel, it's not eight times the "market rate" since there is no real market rate for low-risk assets anymore. But his point, that on the Fed-centrally-planned market, the banks would earn 1/8 as much in interests for low-risk/no-risk investments is well taken.
Which leads to questions: even if we accept the MMT story that this money is merely an asset swap, where does the money come from to pay the interest on excess reserves? Over a three month period, that interest adds up to $1 Billion. Where did that $1 Billion come from.
And if this is simply an asset swap, where is the other $1.47 Trillion in assets?
I'm not being a smart aleck, I really don't know. If you do, feel free to comment.
David in Qatar
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