Saturday, June 7, 2014

A different - and scary - look at inflation

Karl Denninger has produced one of his humdinger masterpieces, this time on the declining purchasing power of the US dollar.  Here are a few excerpts.

The Fed Z1 "captures" all on-balance sheet debts in the economy and the flows that constitute them.  That's what the Z1 is -- the canonical flow-of-funds and thus balance sheet statement for the entire US economy.

The rate of monetary inflation is thus trivially able to be computed; since in our system all money is in fact someone's debt we can simply compare the total outstanding debt from one year to the next to determine the actual rate of inflation -- that is, how much your dollar has depreciated in real terms from one year to the next year, simply based on its scarcity (or lack thereof.)

For the 12 months ending 12/2013 this rate was 3.47% -- and continued at that rate in the first quarter of 2014.

That is approximately double the stated "price inflation" rate.

. . .

From the beginning of 2001 to the end of 2013 the amount of "moneyness" in the system has risen by 111%.  That is, it has more than doubled.

In the same timeframe the population of the United States rose from 282 million to 309 million, an increase of about 9.6%.  In other words adjusted for population your dollar only buys half as much as it did in 2000.

Put another way the price of everything assuming constant technology has approximately doubled and your purchasing power has been cut in half.

The amusing part of the debate is that people will claim that GDP went from $10.5 trillion to over $17 trillion while attempting to claim that this is "all good" in terms of impact to you.  Unfortunately while that did indeed happen credit in the system rose faster, so your net position was damaged rather than enhanced.

. . .

This didn't happen accidentally.  If this had not been intentionally perpetrated you would have much more in terms of "things" and buying power than you have today, simply because technology improves lives.  You instead have less because of the intentional theft of your purchasing power and you refuse, almost to a man, to do anything about it other than throw partisan barbs around and bleat about the minimum wage.

Your buying power has been intentionally stolen from you by President Bush, President Obama, Ben Bernanke, Charwoman Yellen, Nanci Pelosi, Harry Reid, John Boehner and of course Lloyd Blankfein and his other buddies on Wall Street.

It was not an accident and it was not a natural event.

It was organized theft at all levels of government and commerce, orchestrated by those in power.

Until and unless you, the common man, demand and put a stop to it which means that you must stop demanding the impossible through the political process and cut the ****, this will continue.

And both this trend and the markets will continue right up until they can't -- that is when your self-theft and racketeering folds back to the extent that the economy collapses upon itself.

That day is approaching -- fast.

There's more at the link, including a graphic illustrating how credit in the economy has more than wiped out any nominal growth in Gross Domestic Product.

I can't argue with any of Mr. Denninger's facts or conclusions.  Mathematics is a science.  It doesn't lie.  That's the province of politicians, economists on politicians' payrolls, and central bank executives tied to politicians' apron-strings (or is it the other way around?  It's hard to tell sometimes.)

The root cause of our economic malaise is systematic 'robbing Peter to pay Paul' by our political leaders.  They're still doing it, because they've become addicted to it.  They're on a 'high' that can have only one ending - and the withdrawal symptoms are going to be ghastly for all of us, not just the addicts.



Rolf said...

But robbing Peter to pay Paul ensures you of Paul's vote. until that dynamic changes, nothing significant will change.

Differ said...

Mathematics is both disprovable AND better than science in this case which is only disprovable.
The third category being faith which is neither provable nor disprovable....see Fran Porertto at Liberty's Torch...

STxRynn said...

When I moved to this burg in 1999, gas was $0.92 per gallon. Too much supply.

Texas is just behind Saudi Arabia in petro production today. We are in a worse economy than 1999, and gas is $3.40

In my basic math, I figured that we lost 70% of the value of the dollar. Looks like I was too pessimistic. If that's even possible.

Anonymous said...

So paying twice as much for ammo isn't a bad thing then?


Roy said...

" refuse, almost to a man, to do anything about it other than throw partisan barbs around and bleat about the minimum wage."

Okay - ENOUGH!

What - EXACTLY - would you and Mr. Denninger have us common folks do? Should we just grab a rifle and start shooting politicians? Oh that will make things so much better - NOT! (Besides, I'm in my 60's and not exactly young enough, or in-shape enough to take up arms and start the revolution.)

So again, what exactly should the common man do?

Build up a store of ammunition? Check.
Store enough food and consumables to last through a month or two of crisis? Check.
Vote all the incumbents out, regardless of party. Okay, so the POTUS and Senate then becomes Republican and the house Democrat. Then what? I don't see anything changing at all. (And if we vote third party, it will mean all three branches become Democrat, because "they" vote in lock-step. In that scenario, everything gets worse, not better.)

So tell me. What does a 60 year old guy, on the cusp of retirement, who has raised his family while working - and is still working - a full time job do exactly? Because I am getting all of the gloom-and-doom - which I agree with mostly - but what I am not getting is what we as individuals should do about it.

Unknown said...

All you can do is look after you and your's. There are no political solutions to this problem. Politics are the problem.

Peter said...

Roy, I've suggested several steps individuals can take in previous articles. The truth is, one can only do so much. If we prepare to cope with hard times as best we can, we'll at least have a head start on everyone who hasn't prepared at all!

I don't see any way for us to avoid what's coming. The medicine's going to be pretty bitter for everyone.

Roy said...

Peter, I agree with you. But I take umbrage at all of the finger-pointing and statements such as: "...and you refuse, almost to a man, to do anything about it..." When I have been doing all that I am capable of doing.

Since I am already taking care of me and my own in every way I know how, I need to know what else to do about it besides the throwing of a partisan barb or two and the occasional bleat about the minimum wage.