Posts tagged prices

Are You Ready For The Price Of Food To More Than Double By The End Of This Decade?

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Source: http://theeconomiccollapseblog.com

By Michael Snyder

Are You Ready For The Price Of Food To More Than Double By The End Of This Decade?

 

Supermarket-Photo-by-Abrahami-300x300Do you think that the price of food is high now?  Just wait.  If current trends continue, many of the most common food items that Americans buy will cost more than twice as much by the end of this decade.  Global demand for food continues to rise steadily as crippling droughts ravage key agricultural regions all over the planet.  You see, it isn’t just the multi-year California drought that is affecting food prices.  Down in Brazil (one of the leading exporters of food in the world), the drought has gotten so bad that 142 cities were rationing water at one point earlier this year.  And outbreaks of disease are also having a significant impact on our food supply.  A devastating pig virus that has never been seen in the U.S. before has already killed up to 6 million pigs.  Even if nothing else bad happens (and that is a very questionable assumption to make), our food prices are going to be moving aggressively upward for the foreseeable future.  But what if something does happen?  In recent years, global food reserves have dipped to extremely low levels, and a single major global event (war, pandemic, terror attack, planetary natural disaster, etc.) could create an unprecedented global food crisis very rapidly.

A professor at the W. P. Carey School of Business at Arizona State University named Timothy Richards has calculated what the drought in California is going to do to produce prices at our supermarkets in the near future.  His projections are quite sobering

  • Avocados likely to go up 17  to 35 cents to as much as $1.60 each.
  • Berries likely to rise 21 to 43 cents to as much as $3.46 per clamshell container.
  • Broccoli likely to go up 20 to 40 cents to a possible $2.18 per pound.
  • Grapes likely to rise 26 to 50 cents to a possible $2.93 per pound.
  • Lettuce likely to rise 31 to 62 cents to as much as $2.44 per head.
  • Packaged salad likely to go up 17 to 34 cents to a possible $3.03 per bag.
  • Peppers likely to go up 18 to 35 cents to a possible $2.48 per pound.
  • Tomatoes likely to rise 22 to 45 cents to a possible $2.84 per pound.

So what happens if the drought does not end any time soon?

Scientist Lynn Ingram, who has studied the climate history of the state of California extensively, told CBS News that we could potentially be facing “a century-long megadrought” in California.  If that does indeed turn out to be the case, we could be facing huge price increases for produce year after year.

And it isn’t just crops that are grown in the United States that we need to be concerned about.  As NBC News recently reported, the price of cocoa is absolutely soaring and that is going to mean much higher prices for chocolate…

As cocoa prices surge to near-record highs on demand for emerging markets, chocoholics brace for a hike in price – and maybe even a different taste, as chocolate makers hunt out cheaper ingredients.
 
Cocoa futures are up 10 percent so far this year, hitting almost £1,900 on ($3,195) a ton in March. Last year prices rose 20 percent.

In fact, experts are now warning that chocolate may soon become a “high-end luxury item” because it is becoming so expensive.

Meat prices are also starting to spiral out of control.

A virus known as porcine epidemic diarrhea has pushed pork prices up to new all-time record highs.  It has already spread to 27 states, and as I mentioned above, it has already killed up to 6 million pigs.  It is being projected that U.S. pork production will decline by about 7 percent this year as a result, and Americans could end up paying up to 20 percent more for pork by the end of the year.

The price of beef has also soared to a brand new all-time record high.  Due to the drought that never seems to let up in the western half of the country, the total size of the U.S. cattle herd has been declining for seven years in a row, and it is now the smallest that is has been since 1951.

If the overall price of food in this country increases by just an average of a little more than 12 percent a year, it will double by the end of this decade.

What would you do if you suddenly walked into the grocery store and everything was twice as much?

That is a frightening thing to think about.

Meanwhile, all of our other bills just keep going up as well.  For example, we just learned that the price of electricity hit a brand new all-time record high for the month of March.

If our incomes were keeping up with all of these price increases, that would be one thing.  Unfortunately, that is not the case.  As I wrote about earlier this week, the quality of our jobs continues to go down and more Americans fall out of the middle class every single day.

According to CNBC, there are hundreds of thousands of Americans with college degrees that are working for minimum wage right now…

While a college degree might help get a job, it doesn’t necessarily mean a good salary. According to a report released last month by the Bureau of Labor Statistics, some 260,000 workers with bachelor’s degrees and 200,000 workers with associate’s degrees are making the minimum wage.
 
The federal minimum wage is $7.25 an hour, and the minimum wage for tipped workers is $2.13 an hour. Some cities and states have recently raised their minimum wage, but the BLS report defines only those making $7.25 an hour or less as “minimum wage workers.”

And according to the U.S. Census Bureau, median household income in the United States has dropped for five years in a row.

This is why so many families are financially stressed these days.  The cost of living is going up at a steady pace, but for the most part our paychecks are not keeping up.  Average Americans are having to stretch their money farther than ever, and many families have reached the breaking point.

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

 

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Image credit: http://theeconomiccollapseblog.com

 

Why Meat Prices Are Going To Continue Soaring For The Foreseeable Future

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Source: http://endoftheamericandream.com

By Michael Snyder

Why Meat Prices Are Going To Continue Soaring For The Foreseeable Future

 

Drought-Monitor-April-1-300x231The average price of USDA choice-grade beef has soared to $5.28 a pound, and the average price of a pound of bacon has skyrocketed to $5.46.  Unfortunately for those that like to eat meat, this is just the beginning of the price increases.  Due to an absolutely crippling drought that won’t let go of the western half of the country, the total size of the U.S. cattle herd has shrunk for seven years in a row, and it is now the smallest that is has been since 1951.  But back in 1951, we had less than half the number of mouths to feed.  And a devastating pig virus that has never been seen in the United States before has already killed up to 6 million pigs in this country and continues to spread like wildfire.  What all of this means is that the supply of meat is going to be tight for the foreseeable future even as demand for meat continues to go up.  This is going to result in much higher prices, and so food is going to put a much larger dent in American family budgets in the months and years to come.

One year ago, the average price of USDA choice-grade beef was $4.91.  Now it is up to $5.28, and the Los Angeles Times says that we should not expect prices to come down “any time soon”…

Come grilling season, expect your sirloin steak to come with a hearty side of sticker shock.
 
Beef prices have reached all-time highs in the U.S. and aren’t expected to come down any time soon.
 
Extreme weather has thinned the nation’s beef cattle herds to levels last seen in 1951, when there were about half as many mouths to feed in America.
 
We’ve seen strong prices before but nothing this extreme,” said Dennis Smith, a commodities broker for Archer Financial Services in Chicago. This is really new territory.

The outlook for pork is even worse.  The price of bacon is 13 percent higher than it was a year ago, and porcine epidemic diarrhea is absolutely devastating the U.S. pig population

A virus never before seen in the U.S. has killed millions of baby pigs in less than a year, and with little known about how it spreads or how to stop it, it’s threatening pork production and pushing up prices by 10 percent or more.
 
Scientists think porcine epidemic diarrhea, which does not infect humans or other animals, came from China, but they don’t know how it got into the country or spread to 27 states since last May.

It is estimated that up to 6 million pigs may have died already, and it is being projected that U.S. pork production could be down by 7 percent this year.  That would be the largest decline in more than 30 years.

But even if someone brought an end to this pig virus tomorrow, we would still be facing a very serious food crisis in this nation.

The reason for this is the multi-year drought which is crippling farming and ranching in much of the western half of the country.

As you can see from the latest U.S. Drought Monitor update, the drought shows no signs of letting up…

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Hopefully this drought will end soon.

But I wouldn’t count on it.

In fact, CBS News recently interviewed one scientist that says that the state of California could potentially be facing “a century-long megadrought“…

Scientist Lynn Ingram, author of “The West without Water: What Past Floods, Droughts, and Other Climatic Clues Tell Us about Tomorrow,” uses sediment cores inside tubes to study the history of drought in the West.
 
“We’ve taken this record back about 3,000 years,” Ingram says.
 
That record shows California is in one of its driest periods since 1580.
 
While a three-to-five-year drought is often thought of as being a long drought, Ingram says history shows they can be much longer.
 
If we go back several thousand years, we’ve seen that droughts can last over a decade, and in some cases, they can last over a century,” she says.

So what will we do if this drought just keeps going and going and going?

As the article quoted above noted, last century was far wetter than usual.  During that time, we built teeming cities in the desert and we farmed vast areas that are usually bone dry…

Scientists say their research shows the 20th century was one of the wettest centuries in the past 1,300 years. During that time, we built massive dams and rerouted rivers. We used abundant water to build major cities and create a $45 billion agriculture industry in a place that used to be a desert.

So what happens if the western half of the country returns to “normal”?

What will we do then?

Meanwhile, drought is devastating many other very important agricultural areas around the world as well.  For example, the horrible drought in Brazil could soon send the price of coffee through the roof

Coffee futures prices are up more than 75 percent this year due to a lack of appreciable rain in the coffee growing region of eastern Brazil during January and February, which are critical months for plant development, according to the International Coffee Organization, a London-based trade group.

At this point, 142 Brazilian cities are rationing water, and it wouldn’t just be coffee that would be affected by this drought.  As a recent RT article explained, Brazil is one of the leading exporters in a number of key agricultural categories…

Over 140 Brazilian cities have been pushed to ration water during the worst drought on record, according to a survey conducted by the country’s leading newspaper. Some neighborhoods only receive water once every three days.
 
Water is being rationed to nearly 6 million people living in a total of 142 cities across 11 states in Brazil, the world’s leading exporter of soybeans, coffee, orange juice, sugar and beef. Water supply companies told the Folha de S. Paulo newspaper that the country’s reservoirs, rivers and streams are the driest they have been in 20 years. A record heat wave could raise energy prices and damage crops.
 
Some neighborhoods in the city of Itu in Sao Paulo state (which accounts for one-quarter of Brazil’s population and one-third of its GDP), only receive water once every three days, for a total of 13 hours.

Most people just assume that we will always have massive quantities of cheap, affordable food in our supermarkets.

But just because that has been the case for as long as most of us can remember, that does not mean that it will always be true.

Times are changing, and food prices are already starting to move upward aggressively.

Yes, let us hope for the best, but let us also prepare for the worst.

This article first appeared here at the The American Dream.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.

 

 

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Image credit: http://endoftheamericandream.com
 

Peter Schiff ~ Meet “Lowflation”: Deflation’s Scary Pal

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Source: http://www.europac.net

By Peter Schiff

Friday, April 4, 2014

Meet “Lowflation”: Deflation’s Scary Pal

 

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital

In recent years a good part of the monetary debate has become a simple war of words, with much of the conflict focused on the definition for the word “inflation.” Whereas economists up until the 1960′s or 1970′s mostly defined inflation as an expansion of the money supply, the vast majority now see it as simply rising prices. Since then the “experts” have gone further and devised variations on the word “inflation” (such as “deflation,” “disinflation,” and “stagflation”). And while past central banking policy usually focused on “inflation fighting,” now bankers talk about “inflation ceilings” and more recently “inflation targets”.  The latest front in this campaign came this week when Bloomberg News unveiled a brand new word: “lowflation” which it defines as a situation where prices are rising, but not fast enough to offer the economic benefits that are apparently delivered by higher inflation. Although the article was printed on April Fool’s Day, sadly I do not believe it was meant as a joke.

Up until now, the inflation advocates have focused their arguments almost exclusively on the apparent dangers of “deflation,” which they define as falling prices. Despite reams of evidence that show how an economy can thrive when prices fall, there is now a nearly universal belief that deflation is an economic poison that works its mischief by convincing consumers to delay purchases. For example, in a scenario of 1% deflation, a consumer who wants a $1,000 refrigerator will postpone her purchase if she expects it will cost only $990 in a year. Presumably she will just make do with her old fridge, or simply refrain from buying perishable items for a year to lock in that $10 savings. If she expects the cost of the refrigerator to decline another 1% in the following year, the purchase will be again put off. If deflation persists indefinitely they argue that she will put off the purchase indefinitely, perhaps living exclusively on dried foods while waiting for refrigerator prices to hit zero.

Economists extrapolate this to conclude that deflation will destroy aggregate demand and force the economy into recession. Despite the absurdity of this argument (people actually tend to buy more when prices fall), at least there is a phantom bogeyman for which to conjure phony terror. Low inflation (below 2%) is even harder to demonize. Few have argued that it has the same demand killing dynamics as deflation, but many say that it should be avoided simply because it is too close to deflation. Given their feeling that even a brief bout of minor deflation could lead to a catastrophic negative spiral, they argue for a prudent buffer of 2% inflation or more. But the writer of the Bloomberg piece, the London-based Simon Kennedy, quotes people in high positions in the financial establishment who offer new arguments as to why “lowflation” (as he calls it) is a “threat” in and of itself. And although the article was primarily concerned with Europe, you can be sure that these arguments will be applied soon to the situation in the United States.

The piece correctly notes that those struggling with high debt tend to welcome high rates of inflation. The math is simple. By diminishing the value of money, inflation benefits borrowers at the expense of lenders. By repaying with money of lesser value, the borrowers partially default, even when paying in full. The biggest borrowers in Europe (and the United States for that matter) are heavily indebted governments and the overly leveraged financial sector. Should it come as a surprise that they are the leading advocates for inflation? The writer admits that higher inflation will help these interests manage their debt burdens and in the case of the financial sector, profit from the increased lending that low interest rates and quantitative easing encourage.

On the other side of the ledger are the consumers, the savers, and the retirees. These groups want lower prices and higher rates of interest on their accumulated capital. Such a combination will lead to higher living standards for those who have worked and saved for many years in order to enjoy the fruits of their efforts. But these types of people are simply not on the “must call” list for our best and brightest economic journalists. As a result, we only get one side of the story.

The article also points out that higher inflation gives businesses more flexibility to retain workers in periods of weak growth. The argument is that if sales revenue falls, companies will not be able to lower wages, and will instead resort to layoffs to maintain their profitability. However, this is only true in cases involving labor union contracts or minimum wage workers. In all other cases, business could reduce wages in lieu of layoffs. Plus, if prices for consumer goods are also falling, real wages may not even decline as a result of the cuts.

In circumstances where wages cannot be legally reduced, as is the case for unionized or minimum wage workers, layoffs are often the employer’s only option for keeping costs in line with revenue. However, inflation allows employers to do an end run around these obstacles. In an inflationary environment, rising prices compensate for falling sales. The added revenue allows employers to hold nominal wage costs steady, even when the raw amount of goods or services they sell declines. When inflation rages, higher skilled workers will often demand, and receive, pay raises. But low-skilled workers, who lack such leverage, are usually left holding the bag.

In other words, politicians can impose a high minimum wage to pander to voters, but then count on inflation to lower real labor costs, thereby limiting the unemployment that would otherwise result. So what the government openly gives with one hand, it secretly takes away with the other. Workers vote for politicians who promise higher wages, but those same politicians also create the inflation that negates the real value of the increase. But while government takes the credit for the former, it never assumes responsibility for the latter. The same analysis applies to labor unions. Based upon political protection offered by friendly officials, unions can secure unrealistic pay hikes for their members. But the same governments then work to reduce the real value of those increases to keep their employers in business.

Of course, what the Bloomberg writer was really arguing is that governments need inflation to bail themselves out of the policy mistakes they make to secure votes. But two wrongs never make a right. The correct policy would be to run balanced budgets rather than incur debts that can only be repaid with the help of inflation. On the labor front, the better policy would be to abolish the minimum wage and the special legal protections offered to labor unions, rather than papering over the adverse consequences of bad policies with inflation.

So be on the lookout for any more hand-wringing over the supposed dangers of lowflation. The noise will simply be an effort to convince you that what’s bad for you is actually good. And although it’s an audacious piece of propaganda to even attempt, the lack of critical awareness in the media gives it a fighting chance for success.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show.

Order your copy of Peter Schiff’s latest book, How an Economy Grows and Why It Crashes.

Will Washington Take Down Apple — And Why?

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Source: http://www.againstcronycapitalism.org

By

Will Washington Take Down Apple — And Why?

 

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Is Apple being given a hint to fork over more campaign contributions?

The US Department of Justice has not only successfully sued Apple for arguably non-existent anti-trust violations in the e-book market. It has even demanded– and gotten– a court appointed “monitor” placed inside the company to supervise the company’s pricing decisions.

This is a company that went from an $18 billion market value in 2000 to a $455 billion market value in 2013. During the same period, Microsoft’s market value fell from $603 billion to $290 billion. Should anyone expect the success story to continue now that the government is meddling with all the company’s pricing?

Apple appealed the anti-trust judgement this Tuesday, but was unable to get the government “monitor’s” work suspended while the case is under appeal. Among the interesting facts that have come out about the “monitor,” Michael Bromwich: he bills for his time at $1,100 an hour and charged $138,432 for his first two weeks of “work.”

Apple has labeled Bromwich’s appointment “unprecedented and unconstitutional.” We wish it were unprecedented. This form of government price interference and intimidation has become increasingly common.

Joseph Covington, who headed the Justice Department’s Foreign Corrupt Practices Act Division in the 1980’s, told Forbes, in reference to monitors appointed to enforce that act: “ This is good business for Justice Department lawyers who create the marketplace [ for monitors] and then get…a job there [ after they leave government].”

Nor is it limited to the Justice department. If a company gets into the sights of the Federal Trade Commission (FTC) or even the Food and Drug Administration (FDA), the terms of settlement increasingly include “monitoring” by highly paid lawyers, who are typically former FTC or FDA employees.

This is not just the small time corruption it might seem. It is tremendously damaging to the economy. The collapse of the Soviet Union should have demonstrated once and for all how important honest and unimpeded prices are for an economy.

If the government takes control of pricing, as it is doing in more and more sectors of the economy, it is guaranteeing unemployment and economic suffering. It is also guaranteeing an ever greater problem of crony capitalism, as companies respond by increasing their campaign contributions or take other steps to buy influence in Washington.

Apple is and ought to be ramping up its Washington presence. A Politico article of May 2012 wondered about the earlier naivete of the company leadership. Did they really think they could get away with lobbying expenditure of only $500,000 in the first quarter of that year compared to $5mm for Google and $1.8mm for Microsoft? Did they really think they could get away with having no company political action committee (PAC) from which to make campaign contributions?

Apple might have thought it was safe, even untouchable. Was not the company an icon of American economic leadership? Did not Apple employees overwhelmingly direct what campaign contributions they made to President Obama? Even with the lawsuit, had not Apple employees in fact given 93 percent of their contributions to Obama in 2012 and only 7% to Romney? Wasn’t that good enough?

Well no. Google employees gave 98 percent of their money to Obama and it was a whole lot more money ($727,702 versus $338,752). Apple CEO Tim Cook hadn’t even maxed out ( given to the legal limit) in his own contribution.

This lack of political involvement may be contrasted with Amazon’s Jeff Bezos, who stood on the other side of the anti-trust suit, even though he had created what certainly looked like a near monopoly in e-books, the subject of the suit. Apple is not wrong to argue in its legal filing that its entry into the sector “marked the beginning, not the end, of competition.” But Bezos has bought the Washington Post, and Washington officials will think twice about tangling with him.

In thinking about Apple’s relative lack of political involvement in the past, we should also keep in mind what Politico reported last month: “ President Barack Obama has a plan to save the Senate’s tenuous Democratic majority: sell a populist message… and raise lots of cash.”

In Washington doing favors for special interests is one way of raising cash. But so is intimidating them. Either way you get paid, whether from gratitude or fear.

In addition, there is another reason why Apple could now be in the crosshairs of the Justice Department. On November 5, 2013, the company issued a report containing this: “ Apple has never received an order under Section 215 of the USA Patriot Act. We would expect to challenge such an order if served on us.” This made jaws drop both in Silicon Valley and Washington. It was daring, perhaps foolhardy. It was directly taking on the government.

Before leaving the besieged Apple, we might pause to consider how the company also gives the lie to one of the great economic myths of our day: that falling prices ( deflation) hinder an economy. Here is a typical version of the myth from an AP story last month: “ Many economists have worried that the Eurozone may be about to suffer a debilitating bout of deflation….Falling prices can hurt an economy as consumers postpone spending in the hope of getting cheaper deals in the future while businesses fail to innovate and invest.”

This all backward. Businesses innovate and invest in order to become more productive. Being more productive allows them to lower prices, improve quality, and get more customers. Everyone benefits from lower prices, but especially the poor and the middle class, who have the most trouble dealing with rising prices.

Apple is a good illustration of all this. Various tech experts on the internet have been discussing what an Apple Iphone would have cost if available in 1991. What would we have had to pay to get similar features and power in some form ( clearly not hand held)? The estimates vary but the top one approaches $4mm.

Shouldn’t it be obvious ( to anyone other than a Federal Reserve official) that falling prices, produced by innovative and productive businesses such as Apple, are exactly what we should be hoping for? If so, why is the government determined both to create inflation and to interfere with Apple’s price setting decisions?
 

Image credit: http://www.againstcronycapitalism.org

 


Hunter Lewis
About Hunter Lewis

Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 8 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Breitbart.com, Forbes.com, Fox.com, and RealClearMarkets.com. His most recent books are Crony Capitalism in America: 2008–2012, Free Prices Now! Fixing the Economy by Abolishing the Fed, and Where Keynes Went Wrong: And Why Governments Keep Creating Inflation, Bubbles, and Busts. He has served on boards and committees of fifteen leading not-for-profit organizations, including environmental, teaching, research, and cultural and global development organizations, as well as the World Bank.

 

U.S. Government Says ‘No Inflation’ As Food Prices Soar

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U.S. Government Says ‘No Inflation’ As Food Prices Soar

 

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Published by selfownership1

Image courtesy of jscreationzs at FreeDigitalPhotos.net

 

Austrian Economics with Glenn Jacobs

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Glenn Jacobs spoke to a group regarding Austian Economics several months back in the video shown below which I had intended to share.  Today I realize that despite the best of intentions and saving the video I had not yet posted the presentation by Glenn Jacobs, published by messengersforliberty, which I would encourage all to watch.  Should you have the opportunity to attend a meeting featuring Glenn Jacobs as speaker I would recommend attending, as you will find him to be a highly personable and intelligent individual, and that you will find your time very well spent.

 

Austrian Economics with Glenn Jacobs

 

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Published by messengersforliberty

This economic presentation with Glenn Jacobs, aka Kane, was documented on September 5, 2013.

“It really ticks me off when I hear leftists and statists talk about how the free market causes wealth inequality, the free market doesn’t. The free market though out history has allowed poor people to pull themselves up and has given people more socio economic ability to move up and down the socio economic ladder, up, than anything else in history.
Paul Krugman, who is a keynesian economist par excellence, just wants to inflate like crazy, but yet he writes a column for the New York Times and it’s called ‘Conscience of a Liberal’, because he loves poor people despite the fact that he’s the guy that’s killing them, but then he’ll look at someone like me and say you hate the poor. I don’t hate the poor, I hate the fact that they’re poor.”
—Glenn Jacobs

Follow Glenn Jacobs on Twitter: @JacobsReport

 

Jim Grant: Fed Insists On Saving Us From ‘Every Day Low Prices’ (Video)

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Source: http://www.againstcronycapitalism.org

By

Jim Grant: Fed Insists On Saving Us From ‘Every Day Low Prices’ (Video)

 

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Why are falling prices bad? The Fed does everything it can to avoid “deflation.” But we have “deflation” in electronics every year, every month, and this increases our general quality of life. Why can’t this happen in other goods?

 

Prices don’t have to increase. They can stay steady. They can fall. In a healthy economy prices move.

Thing is, the banks don’t like falling prices because falling prices generally mean a reduced need/desire for credit. Can’t have that.

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Image credit: http://www.againstcronycapitalism.org

 

Obama Doubles Down On Destroying The Economy

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Source: http://www.againstcronycapitalism.org

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Obama Doubles Down On Destroying The Economy

 

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Is the president really this ignorant of business and economics?

Telling American employers to raise their wages sounds innocent enough. But it ceases to be innocent when people lose their jobs as a result of it.

In his State of the Union address, the president called for higher minimum state and federal wages and added: “ I ask… America’s business leaders to…raise your employees’s wages.”

This is not the first time a president has made this “request” of employers.

After the stock market crash of 1929, President Hoover began talking about wages. They needed to be protected from cuts, he said, and preferably increased, so that consumer demand would increase. More consumer demand would supposedly get the economy through the storm.

As the economy sputtered and prices began to fall, the president acted on his pet theory. He began lobbying businesses not to reduce wages. He did more than lobby. He sent a clear signal that if his directive was ignored, the government might step in and legislate wages.

Businesses listened. But they also had their backs against a wall. With consumer prices falling, wage reductions were needed to protect profits. Without profits, a business fails and everyone loses their job.

Faced with this reality, but afraid to make any reduction in wages, businesses did the only thing they could do to try to stay afloat: they cut jobs. Millions were thrown out of work who might have kept their jobs at reduced pay but for Hoover’s intervention.

When the new Roosevelt administration came in, it embraced the same bogus economic theory. Both prices and wages were tightly controlled by the National Recovery Act. In a famous incident, a New Jersey immigrant worker, Jacob Maged, was sentenced to jail for three months on a charge of pressing a suit for 35 cents instead of the legislatively required 40 cents.

These policies had the paradoxical effect of making some Americans newly affluent even while throwing millions out of work. Since prices had fallen sharply, those who kept their jobs at the old wages could in many cases buy twice as much with the same money.

The Hoover/Roosevelt/ Obama policy meant that some got a windfall; others got destitution. Economic inequality sharply worsened. In general, the Roosevelt administration’s most powerful supporters, labor unions, saw to it that their members did not lose jobs, while those without unions were the ones laid off.

It is noteworthy that the same thing happened when the Obama administration bailed out General Motors. The non-unionized workers, even those in the most efficient plants, lost everything: jobs and retirement benefits. Unionized workers allied with the president kept both.

In the same State of the Union speech, the president did not just ask employers to raise wages. He also required them to pay a higher minimum wage if they had a federal contract. Hearing this, employers can only wonder what further wage controls will be proposed next.

If more federal wage controls do come, it is not even clear that lay-offs could be used as they were in the 1930’s to save businesses from closing. Economist Paul Krugman has proposed federal controls on the right to lay-off or fire workers. The president himself has proposed giving workers the right to sue if they apply for a job and are turned down.

The economy itself provides sufficent reason to be cautious about hiring. The Federal Reserve’s low interest rate policy and regulatory rules make it very difficult to persuade a bank to finance expansion. And Obamacare creates a strong disincentive to hire the 50th employee.

With all this in the background, why would any employer in 2014 hire a new worker if not absolutely necessary? This is especially true for small businesses, and small businesses have always been the chief source of new jobs.

This is all part of a larger picture. To thrive, an economy needs free prices. Free prices not only provide the truthful signals that producers and consumers need in order to make good decisions. They also provide the discipline that any economic system requires.

The Soviet Union’s collapse was an object lesson for the world. No system can survive in the long run without free prices, and wages are among the most important prices.

The Obama administration’s whole approach is to try to substitute government regulation for the private price system. As a result, we only have “engineered” prices left on Wall Street and in medicine, and both finance and medicine are in grave jeopardy as a direct result.

Fixing the economy is not all that difficult. All we have to do is let producers and consumers sort out prices together and the engine of job growth will start up. Meanwhile the present administration offers one initiative after another guaranteed to keep the middle class and especially the poor in a state of economic hopelessness.

Image credit: http://www.againstcronycapitalism.org

 


Hunter Lewis
About Hunter Lewis

Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 8 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Breitbart.com, Forbes.com, Fox.com, and RealClearMarkets.com. His most recent books are Crony Capitalism in America: 2008–2012, Free Prices Now! Fixing the Economy by Abolishing the Fed, and Where Keynes Went Wrong: And Why Governments Keep Creating Inflation, Bubbles, and Busts. He has served on boards and committees of fifteen leading not-for-profit organizations, including environmental, teaching, research, and cultural and global development organizations, as well as the World Bank.

 

The Deflation Menace

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Source: http://www.europac.net

By Peter Schiff

The Deflation Menace

 

The article below was taken from the January edition of Euro Pacific Capital’s Global Investor.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital

Dedicated readers of The Wall Street Journal have recently been offered many dire warnings about a clear and present danger that is stalking the global economy. They are not referring to a possible looming stock or real estate bubble (which you can find more on in my latest newsletter). Nor are they talking about other usual suspects such as global warming, peak oil, the Arab Spring, sovereign defaults, the breakup of the euro, Miley Cyrus, a nuclear Iran, or Obamacare. Instead they are warning about the horror that could result from falling prices, otherwise known as deflation. Get the kids into the basement Mom….they just marked down Cheerios!

In order to justify our current monetary and fiscal policies, in which governments refuse to reign in runaway deficits while central banks furiously expand the money supply, economists must convince us that inflation, which results in rising prices, is vital for economic growth.

Simultaneously they make the case that falling prices are bad. This is a difficult proposition to make because most people have long suspected that inflation is a sign of economic distress and that high prices qualify as a problem not a solution. But the absurdity of the position has not stopped our top economists, and their acolytes in the media, from making the case.

A January 5th article in The Wall Street Journal described the economic situation in Europe by saying “Anxieties are rising in the euro zone that deflation-the phenomenon of persistent falling prices across the economy that blighted the lives of millions in the 1930s-may be starting to take root as it did in Japan in the mid-1990s.” Really, blighted the lives of millions? When was the last time you were “blighted” by a store’s mark down? If you own a business, are you “blighted” when your suppliers drop their prices? Read more about Europe’s economy in my latest newsletter.

The Journal is advancing a classic “wet sidewalks cause rain” argument, confusing and inverting cause and effect. It suggests that falling prices caused the Great Depression and in turn the widespread consumer suffering that went along with it. But this puts the cart way in front of the horse.  The Great Depression was triggered by the bursting of a speculative bubble (resulted from too much easy money in the latter half of the 1920s). The resulting economic contraction, prolonged unnecessarily by the anti-market policies of Hoover and Roosevelt, was part of a necessary re-balancing. A bad economy encourages people to reduce current consumption and save for the future. The resulting drop in demand brings down prices.

But lower prices function as a counterweight to a contracting economy by cushioning the blow of the downturn. I would argue that those who lived through the Great Depression were grateful that they were able to buy more with what little money they had. Imagine how much worse it would have been if they had to contend with rising consumer prices as well. Consumers always want to buy, but sometimes they forego or defer purchases because they can’t afford a desired good or service. Higher prices will only compound the problem. It may surprise many Nobel Prize-winning economists, but discounts often motivate consumers to buy – -try the experiment yourself the next time you walk past the sale rack.

Economists will argue that expectations for future prices are a much bigger motivation than current prices themselves. But those economists concerned with deflation expect there to be, at most, a one or two percent decrease in prices. Can consumers be expected not to buy something today because they expect it to be one percent cheaper in a year? Bear in mind that something that a consumer can buy and use today is more valuable to the purchaser than the same item that is not bought until next year. The costs of going without a desired purchase are overlooked by those warning about the danger of deflation

In another article two days later, the Journal hit readers with the same message: “Annual euro-zone inflation weakened further below the European Central Bank’s target in December, rekindling fears that too little inflation or outright consumer-price declines may threaten the currency area’s fragile economy.” In this case, the paper adds “too little inflation” to the list of woes that needs to be avoided. Apparently, if prices don’t rise briskly enough, the wheels of an economy stop turning

Neither article mentions some very important historical context. For the first 120 years of the existence of the United States (before the establishment of the Federal Reserve), general prices trended downward. According to the Department of Commerce’s Statistical Abstract of the United States, the “General Price Index” declined by 19% from 1801 to 1900. This stands in contrast to the 2,280% increase of the CPI between 1913 and 2013

While the 19th century had plenty of well-documented ups and downs, people tend to forget that the country experienced tremendous economic growth during that time. Living standards for the average American at the end of the century were leaps and bounds higher than they were at the beginning. The 19th Century turned a formerly inconsequential agricultural nation into the richest, most productive, and economically dynamic nation on Earth. Immigrants could not come here fast enough. But all this happened against a backdrop of consistently falling prices.

Thomas Edison once said that his goal was to make electricity so cheap that only the rich would burn candles. He was fortunate to have no Nobel economists on his marketing team.They certainly would have advised him to raise prices to increase sales. But Edison’s strategy of driving sales volume through lower prices is clearly visible today in industries all over the world. By lowering prices, companies not only grow their customer base, but they tend to increase profits as well. Most visibly, consumer electronics has seen chronic deflation for years without crimping demand or hurting profits. According to the Wall Street Journal, this should be impossible.

The truth is the media is merely helping the government to spread propaganda. It is highly indebted governments that need inflation, not consumers. But before government can lead a self-serving crusade to create inflation, they must first convince the public that higher prices is a goal worth pursuing. Since inflation also helps sustain asset bubbles and prop up banks, in this instance The Wall Street Journal and the Government seem to be perfectly aligned.

Peter Schiff is the CEO and Chief Global Strategist of Euro Pacific Capital, best-selling author and host of syndicated Peter Schiff Show. 


The Media Is Trying To Bury Gold

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Source: http://lionsofliberty.com

By

The Media Is Trying To Bury Gold

 

Ezra Klein once wrote:

Good economists are great storytellers. They sculpt narratives with squiggly graphs and crowded charts.

That’s actually the polar opposite of a good economist, as anyone familiar with Austrian Economics understands. But that’s how mainstream economists operate.

Let’s take a look at how Bloomberg writer, Nicholas Larkin, is “sculpting” gold with “squiggly graphs” and “crowded charts”:

gold-year-feverline2

How does one “sculpt” a gold narrative to make it look unattractive?

Well first, you declare that a “Bust” has occurred. And then you make sure that the “squiggly graph” makes it seem like that is the case. You do that by adjusting the time frame of the graph to fit the “narrative”. In other words, the above chart only shows the years 2008-2013.

But what happens when you to expand the chart out:

prix-or-depuis-19701

Aha!

That changes the narrative…doesn’t it?

Instead of a “Bust”, what we’re actually dealing with is a “Normal Pullback”. Anyone who pays attention to markets has an awareness of the push and pull that occurs at all times. The gold price ran virtually straight up for a good decade!! It would be naive to think that a pullback would never occur.

The media’s constant portrayal of gold’s pullback as a “Bust” is purposefully done. The government (and it’s media) hate anything that challenges their paper money empire. Gold is always the main threat. They know it, they hate it, and will always try to paint gold as some loser metal that you should never consider owning.

There has been no “Bust” in gold.

If you want to see what a real bust looks like, take a look at the old Lehman Brothers chart:

leh

It’s important never to fall victim to the establishment’s “narratives”.


Chris Rossini on TwitterFacebook & Google+

Credit for “squiggly graphs” and “crowded charts”: http://lionsofliberty.com :)

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