In 301 AD, Roman emperor Diocletian implemented price ceilings on over 1,200 goods… The English translation of Diocletian’s edict is fun to read. It shows that not much has changed in politics over the millennia… now a new war must be waged against greed…
Are Price Controls a Good Idea? Read More »
Joe Biden recently claimed on Twitter that “Bidenomics” has increased the real wages of low-income workers. A counterclaim was made through Twitter’s Community Notes that wages adjusted for inflation were actually lower at the time of Biden’s claim. But data without theory is unsatisfying, so it is worth asking if conditions of the last few years have been conducive to higher real wages, especially for lower earners.
Bidenomics: Boom or Bust? Read More »
The most important question for asset prices right now, from stocks to houses to Bitcoin, is whether we’re due for a recession. Last week we got confirmation that according to the traditional definition of a recession – 2 quarters of negative growth – we are already in a recession.
The response from this administration has been denial and word games rather than actually trying to stop the slide. At which point the betting shifts to whether it’ll be a shallow 1991-style recession or a big, 2008-style one, perhaps with a financial crisis to spice things up.
How Long Will This Recession Last? Read More »
We’ve been saying for a while that the FED’s been “behind the curve”. First they said inflation was “transitory” and nothing to worry about (while we said to start worrying). Then they said they would start tightening “later”. And finally it begins, but it should have begun months ago, the inflation “genie” is out of the bottle and the FED is going to have a difficult time getting it back in. In today’s article, Ryan McMaken tells us how the FED’s actions are “too little too late”
The Fed’s New “Tightening” Plan Is Too Little, Too Late Read More »
Why Governments Villainize Assets That Protect Against Inflation
For years, in an effort to drive down prices, gold was attacked as a “barbarous relic” that paid no interest. But it was the only financial asset that wasn’t simultaneously another person’s liability. When an asset is also a liability it’s always possible that the liable party will be unable (or unwilling) to make good on that liability. In that case, the asset becomes worthless. But if you hold physical gold it will always be worth something. The price may fluctuate wildly, but it will never be worth zero. Being a commodity with many real-world uses (in addition to just jewelry), gold also tends to maintain its value during both times of inflation and deflation, plus gold tends to appreciate faster than inflation in times of crisis.
For years it seemed that governments around the world wanted to discourage their citizens from owning gold (while simultaneously hoarding it for their own treasuries). One reason for this seemingly duplicitous behavior is that without an alternative, citizens are forced to spend (and save) using the government-sanctioned currency. If you have the alternative of opting out of depreciating currencies most logical people will do so, once the benefits outweigh the costs.
Another reason governments dislike alternatives to the official currency is that alternatives reveal the true value of the government currency. Governments with perpetually high inflation rates like Argentina often will publish dubious “official” inflation rates in an effort to convince their populace that inflation isn’t as bad as their pocketbook tells them that it is. But with a non-shifting yardstick like gold, their lies become apparent. So they discourage gold ownership and thus leave people foolish enough to listen to their lies, defenseless to the ravages of inflation.
Now with the advent of cryptocurrencies governments have a new villain to demonize. It almost seems that gold has fallen out of favor and crypto has become the new gold. Millennials seem more likely to turn to modern alternatives like bitcoin rather than the antiquated (and time-tested) gold. And it is easy to see why. In recent years gold has remained relatively stable while crypto has skyrocketed.
Can Ruthless Governments Make Crypto Worthless? Read More »
On Friday July 15th, the U.S. Bureau of Labor Statistics(BLS) announced that the Consumer Price Index (CPI-U) had increased from 238.638 in June 2015 to 241.038 in June of 2016 resulting in a 1% Annual inflation rate. InflationData calculated the rate to be exactly 1.01% down marginally from 1.02% the previous month. However, on a
BLS Announces Virtually Flat Inflation for June Read More »
In today’s article Jared Dillian compares the 2/10 yield curve to a “Double Black Diamond” ski slope. In other words, it’s wickedly steep! The yield curve he is talking about here is the 10 year treasury yield minus the 2 year treasury yield. This spread measures the steepness of the yield curve. When it is high there is a big difference between the 10 year treasury yield and the 2 year. When it is small investors are not receiving much benefit for taking on longer term risk. Normally the yield curve is positive and longer-term rates are significantly higher than shorter-term rates. In abnormal cases the yield curve becomes “inverted” and short-term rates are actually higher than long-term rates. As Jared tells us, if even a small amount of inflation returns it will create havoc in the long term bond market.
Just When You Thought Bonds Were Safe Read More »
The most notorious recent case was in Zimbabwe and ran from 1998 – 2008. But North Korea experienced less severe hyperinflation in 2010 -2011. Other recent examples include Belarus 1994-2002, Bosnia and Herzegovina 1992-1993, and Angola 1991-1999. You can see a list of 26 examples of Hyperinflation beginning with Egypt in 276 AD which had 1 million percent inflation over 58 years and ending with Zimbabwe. And lest we Americans get too smug we need to realize that we are the only ones on the list twice. Once in 1779 and again in 1861-1865. The result of the Revolutionary and Civil wars.
Surviving a Hyperinflation Read More »
In 1977, Congress amended The Federal Reserve Act, stating the monetary policy objectives of the Federal Reserve are “to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates”.
Tapering Bets Could Backfire For Stock Bears Read More »
The Dow has been setting record highs for over a week now. You’d think the economy was booming or something. But as I’ve said before perhaps it is all just “funny money.” Is it possible that even though inflation isn’t affecting the price of most commodities it is affecting the stock market? After all, if people are concerned about their future, rather than spending money they save it but if the banks aren’t paying enough interest to cover inflation perhaps you might consider putting it in a mutual fund? That would drive up the price of stocks encouraging more people to choose mutual funds over banks. Hmmm. In today’s article Eric Frye looks at the stock market in a very different way.
Three cheers for the Dow Read More »
