Is Inflation Coming?

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castlewp's picture
castlewp
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Joined: Oct 7 2008
Posts: 304
Is Inflation Coming?

This seems to be a pretty good indicator

Quote:

Oil Traders Seek Another 10 Tankers, Frontline Say

By Alaric Nightingale

Jan. 7 (Bloomberg) -- Frontline Ltd., the world’s biggest owner of supertankers, said oil traders want to charter as many as 10 vessels to stockpile crude to take advantage of higher prices later in the year.

About 25 supertankers were already hired for storage and there are enquiries for 5 to 10 more, Jens Martin Jensen, Singapore-based interim chief executive officer of the company’s management unit, said by phone today.

The traders would buy crude now and sell it for delivery later, profiting from a futures market situation called contango where prices are higher as the year progresses. The vessels could handle as much as 20 million barrels, or about what is produced by OPEC member Algeria in 15 days. They would add to as much as 50 million barrels already hoarded at sea, for a combined amount equal to almost five days of European Union demand.

“I’ve never before seen storage demand on this scale,” said Didier Labat, a Paris-based shipbroker at Barry Rogliano Salles who has worked in tanker markets for about 20 years.

Commodities prices fell the most in five decades last year, with crude dropping more than $100 from the peak of $147.27 a barrel in July, as simultaneous recessions hit the U.S., Europe and Japan. Oil demand in 2008 fell for the first time since 1983, according to the Paris-based International Energy Agency.

Full article: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ab4nlifTEYjw

 

[Ed. note:  Article abbreviated, link added, to cure copyright issues]

bearing01's picture
bearing01
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Re: Is Inflation Coming?

You better believe it, but it's not from higher oil prices.  It's from the Federal Reserves enormus expansion of the money supply, and it has already been inflated and waiting to get lent out.  If all these bailouts are financed by the Federal Reserve printing press... watchout even more.  Big time price increases will be coming due to monetary inflation. The effects due to rising oil price will look small in comparison.

Today, inflation has been redefined to serve a Keynesian
economics view. It serves to hide the real cause of the rise in prices
of goods, services & commodities. Rather, it focuses on the effects
of the expansion of money/credit and calls that "inflation".

Inflation
is an increase in the supply of fudicary money and credit. Deflation is
a reduction in the supply of fudicary money and credit. Inflation is
caused by a central bank (the Federal Reserve) monetary policy who
prints money or similary creates computer balance sheet entry in order
to make interest rates lower than can be serviced via savings deposited
in banks. The increase in Federal Reserve balance sheet is magnified
when loaned out via fractional reserve banking. All newly created
money/credit is placing additional demand to consume
goods/services/commodities without being earned first. If it were
earned (or borrowed from existing dollars)then the work done to earn
that money would first have contributed a service/good/commodity to the
economy that would be available for consumption. This would keep prices
flat or down. Simultaneously, if the dollars were borrowed from
existing savings the lender would not have their dollars to
spend/compete for those same goods that were consumed by the borrower.

Lets say that oil prices go through the roof because of sudden increased demand and no supply.  If people don't have money to spend on oil they will either conserve more or spend money on oil and buy less other things.  As a result the prices of other things wil go down because demand won't be there.  If food and other products that require oil as part of their preparation or delivery  become expensive then people will only buy the necessary things and won't consume/buy other non-necessary things.  For example, a new TV or car won't be purchased because the monthly expenses are going toward food and fuel.  Demand for non-necessary products will go away and companies won't produce or sell as much of it.  Some companies that make un-necessary products will loose profit margin (by having to reduce prices to move product) and will go out of business.  The net overall prices won't go up if money supply is kept constant.  However, if the Fed Reserve prints money to keep the flow of easy credit then people will have access to more debt to go out and buy the expensive food AND fuel AND that new TV AND the new Car, to support the rising prices.  But then the consumer is loaded up on debt.

The Crisis we are in today is totally the responsibility of the Federal Reserve's monetary policy.  They are the ones that diluted the dollar by inflating the money supply (since deliberately leaving the gold standard in 1971) and permitted the prices of oil and houses (and resulting accumulation of personal debt) to get bit up to the stratosphere.  If they had not provided the money for people to take on as debt then none of this would have happened.

Also, when companies can get access to cheap credit and see that prices for consumer goods are increasing due to demand (not by increased wealth but by increased debt) their cheap credit makes cheap operating costs and this falsely makes the business opportunity look attractive.  They start businesses to bring new non-necessary products to market.  They use their credit (money created out of thin air) to compete for oil and  other commodities to bid up their prices in order to make their products for sale. Prices rise and then the Federal reserve gets the warning signal that it's time to increase interest rates.  Now people have to pay more for debt to buy all these unnecessary products.  Also, the business has to pay more for future debt in order to compete/secure more commodities to make profits.  This makes the operating cost of business higher and simultaneously there are fewer customers... because most people had no real wealth but rather operated on debt as well.  The result is a recession to make the companies that made these malinvestments go bankrupt and to get people to pay off their debts.  How does the gov't and Fed Reserve try to prevent a recession from happening?  They reduce the interest rates again to create another fake boom cycle to repeat this whole business cycle of boom/bust.  The difference in this recession is that everyone has way too much debt that will take some time to pay down.

This is Austrian Economics 101

http://mises.org/

RSLCOUNSEL's picture
RSLCOUNSEL
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Posts: 41
Re: Is Inflation Coming?

I really don't think more money is being created when new dollars are pushed into the system commensurate with the destruction of existing wealth.  Let me share with you a real life example from an excerpt from a Merrill Lynch July 28th press release:

MERRILL LYNCH ANNOUNCES INITIATIVES TO FURTHER ENHANCE CAPITAL POSITION

NEW YORK, July 28, 2008

.....

CDO Sale:

On July 28, 2008, Merrill Lynch agreed to sell $30.6 billion gross notional amount of U.S. super senior ABS CDOs to an affiliate of Lone Star Funds for a purchase price of $6.7 billion. .....

..... ....  ....

 Now let's do some math and draw a conclusion about inflation....

$30.6 billion - $6.7 billion = $23.9 billion destruction of wealth (money).   If I now print $23.9 billion dollars and give it to ML, the net increase in money and wealth is zero.  The inflationary effect of this is zero.

 

 

 

bearing01's picture
bearing01
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Posts: 153
Re: Is Inflation Coming?

The M3 money supply has trippled since November.

The Fed is doing everything to prevent contraction in the money supply.  They have given money to the banks to fill the holes in their balance sheets.  The Fed has bought up much of the credit card debt to exchange bank liabilities (mortgages, commercial paper) with cash to get banks to lend again.  This is monetization of the debt.

There has been a huge credit bubble to put us where we are today, and the only deflation is the defaulting of mortgages and other loans.  The Fed is printing money to bail everyone out. Otherwise the banks would be going broke.  The Fed is insuring this won't happen.  Look at mortgage rates today. Do you think the source of new money (for borrowing) is gone away?  The plan is to expand the money supply to get GMAC loaning $ to buy cars from GM and buy up all these foreclosed homes like never before.  There will be more credit available for future consumption than ever before.  None of it will be purchased with earnings or savings... just all money created out of thin air.  All banks need to see are credit worthy individuals.  As long as the Fed keeps the discount window at 0% that means the printing press is running 24/7

castlewp's picture
castlewp
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Posts: 304
Re: Is Inflation Coming?

What derivatives traders are doing is usually a good leading indicator.

EndGamePlayer's picture
EndGamePlayer
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Posts: 546
Re: Around the corner . . .

Good points bearings but I think of it little backward from that-

I think the US gov knows about up coming energy increases (which we saw last year - increased the price of everything) and they want to take advantage of the hyper-inflation it creates - whereby locking into debt -that will seem small when people need to make $1,000 an hour just to meet expenses. . .down the road.

Hopefully, when our grandchildren are making $1,000+ an hour - a trillion dollars debt won't look like much debt.

At least - that's what I hope the gov's are doing. . . if they know what they are doing at all. . . . 

Still, there are so many examples of countries who couldn't do the hyper-inflation dance after taking on massive debt, and there are those who could. I thought the US had 1 chance and that was that they had some handle on the price of oil. . . but now I think the whole thing could blow up into massive hyper-inflation and will not be controlled with oil (since oil will soon  not be trading in US dollars).

If it doesn't work  - then everyone will blame Obama, sad.

It would seem that to some extent people themselves have control of not choosing to use gas/oil as much as possible. Without locking into debt - buying bikes or using public transportation, growing a garden / food and adding insulation to your abode would seem like better hedges against future inflation than anything else I can think of.

bearing01's picture
bearing01
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Posts: 153
Re: Around the corner . . .

Any country with its own currency, not on a commodity standard like say gold, can create hyperinflation to reduce the burden of its debt... as long as the currency they promised to pay back are their own.  The US gov't owes US dollars to treasury Bill holders.  It just prints the US dollars up to pay back the debt.  If Argentina borrows US dollars to fund its deficits it does not have a US dollar printing press.  It would have to print Argentine dollars to buy US dollars to pay US debt.  But it doesn't matter.  Printing money to pay back debt is debt monetization and this dilutes the purchasing power of the money.  As prices rise people need to borrow larger sums of money to make purchases. To keep interest rates artifically low the printing press has to run to make the money available for cheap.  The natural interest rate is that which is supported by depositors savings which banks hold to lend out.  If demand to borrow this limited amount of cash is great then interest rates will be high.  When the savings run out the Fed Reserve prints more money to give banks to lend to keep interest rates low.

The price of oil will rocket up with monetary inflation.  Just because it's priced in US dollars means nothing.  Oil will cost more based on supply/demand and the availability of dollars to bid up its price.  If everyone woke up tomorrow and magically everyone had twice the dollars in their bank account, immediately everything would cost more.  A $40/barrel oil would cost $80.   If it costs $48 Canadian dollars to buy $40 US dollars then oil costs $48 Cdn/barrel.  However, if inflation allows $48 Cdn dollars to buy $80 US dollars then oil still costs $48 Cdn, but it costs $80 US.

The Federal Reserve has a printing press.  Unfortunately they cannot print oil out of thin air.

Inflation / Hyper inflation is not a good thing.  It destroys the currency and all savings.  All wealth in dollars will be lost. And when faith in the currency is lost, no other nation will lend their money to us.  

It could happen that Japan can lend to the US in Yen rather than their US dollar savings.  In that case the US could still print dollars to buy Yen to pay off debts, but that is Bolivia/Argentina/Weimer Germany style inflation. This causes everyone to loose faith in the currency which leads to everyone spending their money as fast as possible to get rid of it (money velocity) and hyper-inflation.

johnbryson's picture
johnbryson
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Re: Is Inflation Coming?

Hi RSLCounsel I like your example. I think it depends on how much money the Fed is pumping into the banks, compared to the holes that the banks have. If the Fed pumps more money than the holes the banks - the banks could then lend that money out thus creating inflation in the process.

Lemonyellowschwin's picture
Lemonyellowschwin
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Posts: 561
Re: Is Inflation Coming?

M-3 has tripled since November?  Are you sure about that?  I think you must be talking about M-1.

bearing01's picture
bearing01
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Posts: 153
Re: Is Inflation Coming?

Maybe it's total money supply?  I remember reading somewhere it going from 800 Bln to abovce 2 Trillion.

http://www.financialsense.com/editorials/conrad/2008/1218.html

http://www.nowandfutures.com/key_stats.html

http://mises.org/markets.asp

 http://www.financialsense.com/fsu/editorials/willie/2009/0102.html

mred's picture
mred
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Re: Is Inflation Coming?

Thank you bearing01 for your first post. Very few times, if ever, I see in these fourms the use of the term "inflation" in the sense that you used it, instead of the fraudulent sense promoted by bankers and government. Your summary of Austrian (common sense) economics is excellent.

I'm afraid that RSLCOUNSEL's example is flawed. Suppose that I pay $900 for an ounce of gold, but that then I find out that I was swindled with one ounce of pyrite. At that moment, what I (and others) perceived to be a wealth of $900 collapsed to a wealth of $1. My money has not disappeared, it simply was transferred generously to the seller of the fool's gold (call it a gift if you want). So there is no contraction of monetary supply even though the perceived "wealth" has disappeared. "Wealth" and "money" are not the same thing. The same misconception is applied by the Fed in its effort to "recapitalize" the banks through money creation. They are not creating "wealth" or "capital", they are only diluting the value of the existing unit of account. To the extent that they do "recapitalize" the banks, they will simply transfer part of the actual purchasing power of all currency holders to the banks.

johnbryson's picture
johnbryson
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Re: Is Inflation Coming?

See below the Ka-poom theory as shown on the site Itulip.com. The idea is that the period of disinflation (and maybe temporary deflation) will be followed by several years of high inflation - needed to pay of current debts.  

 

bearing01's picture
bearing01
Status: Silver Member (Offline)
Joined: Sep 8 2008
Posts: 153
Re: Is Inflation Coming?

 

I think this was it... 

http://research.stlouisfed.org/fred2/series/RSBKCRNS?rid=122&soid=1

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