But the US and Russia have similar red-hot inflation rates.
By Wolf Richter for WOLF STREET.
In Russia, the official rate of inflation was 6.5% in June. In the US, the official rate of inflation as measured by CPI was 5.4% in June. The CPI-W, which is used for the cost-of-living-adjustments to Social Security payments, was 6.1%. You see, there is barely any difference in inflation between Russia and the US.
The Bank of Russia sees the “persistent factors” to inflation, and it has therefore been cracking down on inflation. The Fed has decided to be in official denial about the persistent factors, is brushing them off as “temporary,” and is letting inflation rip.
Today’s rate hike would have been shock and awe if Bank of Russia Governor Elvira Nabiullina hadn’t warned on June 28 of a possible shock-and-awe hike of up to 1 percentage point. Today the Bank of Russia followed through: it hiked its policy rate by 1 percentage point to 6.5% (from 5.5% previously).
The rate-hike trajectory kicked off on March 19 with a surprise 25-basis-point rate hike, from 4.25% to 4.5%, followed on April 23 by a 50-basis-points hike to 5.0%, followed on June 11, by another 50-basis points to 5.5%. Followed by today’s 100-basis-point hike to 6.5%.
In today’s announcement, the reason for the mega-rate hike was right at the top: “The contribution of persistent factors to inflation increased due to faster growth of demand compared to output expansion capacity.”
This “persistent” is up a notch from the “not transitory” that Nabiullina had used on June 28.
There was no mention of “transitory” or “temporary.” None. But instead, there was “for a longer period” and “prolonged.”
“Taking into account high inflation expectations, this has significantly shifted the balance of risks towards proinflationary ones and may cause inflation to deviate upwards from the target for a longer period,” it said.
And the Bank of Russia put further rate hikes on the table over the next meetings to tamp down on inflation.
In the current context, “businesses find it easier to transfer higher costs to prices,” the Bank of Russia said.
The context is the same in the US, with businesses finding it easy to raise prices, and doing it, and price increases are now spiraling through the economy. But the Fed is in official denial.
The Bank of Russia cited inflation expectations by households that “continue to grow” and by businesses that “remain near their multi-year highs.” Same in the US of A.
“The dominating influence of proinflationary factors could lead to a more substantial and prolonged deviation of inflation upwards from the target,” the Bank of Russia said. That’s what the Fed should have been saying for months.
And it said that the effect of the proinflationary risks “may be strengthened by elevated inflation expectations and corresponding secondary effects.”
Despite the rate hikes to 6.5%, monetary conditions “remain accommodative” it said, given high and rising inflation and inflation expectations. The 1-percentage point hike today to 6.5% pulled the policy rate to the same level as inflation, and the real interest rate went from -1% before today to 0%. “In this context, lending continues to grow at rates close to recent years’ highs,” it said.
And the purchasing power of savers matters and gets a mention: “Today’s decision of the Bank of Russia will speed up the adjustment of bank interest rates to the monetary policy pursued. This will make it possible to raise the attractiveness of bank deposits for households, protect the purchasing power of savings, and ensure balanced lending expansion.”
A Fed intern should accidentally copy and paste that last sentence into the next FOMC statement so that the holders of US bonds and savings products get at least an accidental mention before the Fed guts them and sacrifices them at the altar of inflation.
The Bank of Russia then lists various causes of the inflationary pressures, including:
- “A stronger-than-expected decline in households’ propensity to save, propelled by the combination of low interest rates and growing prices.
- The “remaining disruptions in production and supply chains.
- “Structural changes in the labour market as a result of the pandemic.
- “Price movements in global commodity markets,” though they “have somewhat declined as prices for certain goods started to go down in June and July.”
- “Further movements of food prices will largely depend on agricultural harvest in 2021 both in Russia and abroad.”
And it has a gem about central banks in “advanced economies” – possibly pointing at the Fed and the ECB which have both decided to let inflation rip. Given the pace of the global economic recovery, “the need is no longer in place for unprecedentedly accommodative policies in advanced economies.”
Duh. It’s just that the Fed and the ECB didn’t get the memo.
But if and when the Fed and the ECB finally do get the memo, “an earlier monetary policy normalisation in these countries is possible,” the Bank of Russia said, and “This may become a further driver of volatility growth in global financial markets” – a veiled warning: when the Fed finally acknowledges reality, and tightens, financial markets might react in unpleasant ways.
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I protest this grotesque twisting of the facts! It is different here in the United States! Our inflation is transitory. This is a transitionary period during which I will secretly steal the money of the responsible people to support the irresponsible people. Hahahahahahahahahahahahaha!!!!!!!!!!!!!
Heard a lot of good stuff today.
1. Stockman. Wealth to income in US at 10:1. Long term average is 5.5:1. About $60 Trillion needs to go poof to get to normal.
2. Druckenmiller up on Capital Hill begging them to stop spending before they blow the system up.
3. Good discussion by Snyder explaining that reverse repo is indicating a problem with financial system. He says t-bills get leveraged up 10X – 30X in financial system so when there is a shortage that means financial system is trying to derisk because they smell trouble.
4. Number of SP500 stocks below 50 day moving average at 50%. Usually leading indicator.
Old school, that was such an informative comment that I wish you wrote columns here
I read a lot, but am mostly regurgitating what I read. Nearly everyone knows we are in a new and precarious situation as investors. Trying not to give politicians and gunslingers on Wall Street my life savings.
As far as determining where wealth should be approx.; for privates houses, it should probably be some multiplier or some a bit more complicated equation that takes account the average income for each 10% income bracket in America.
The S&P price to earning ratio is probably the best indicator for stocks, which is currently at about 47, it has typically been under 20 for most of it’s history. However, right now because of lack of competition in America, corporations are earning more than they should be and there could be a large reduction in profits for them in the future, greatly effecting their PE ratio.
Businesses in general and bonds, could be valued based on their expected returns and risks.
Precious Metals and certain other assets have intrinsic value, but no specific value.
The problem is that simply for a long time, alot of people were putting too much money into stocks and other investments. There is a savings (this counts investments too) glut (it’s unfortunately, heavily on the wealthier side though) and eventually, there has to be a crash. When people, especially the baby booomer retirees begin to pull enough money out, the value of housing across the country (not in all markets though) and stocks could crash.
Here is a graph and table of S&P 500 ratios since 1871. It’s important to also remember that right now, corporations could be at a sugar high profit level, due to lack of real competition in America. This effects their revenue by quite alot as well, you often have to price your products at quite a lot higher price to get that extra little bit of profit.
https://www.multpl.com/s-p-500-pe-ratio/table/by-year
https://www.multpl.com/s-p-500-pe-ratio
> He says t-bills get leveraged up 10X – 30X in financial system
Rehypothication of collateral goes routinely ignored by most people… laser eyes on the cash side… deer in the headlights on the collateral side…
It seems to me that the Fed is lending out US gov bonds (debt) as collateral to borrow more money!
Sort of like me borrowing money by issuing a bond and then turning around and lending the bond as collateral to borrow more money. That way I get to have my cake and to eat a cake.
Naturally when I want to have a second cake, I just borrow more money by issuing a second bond which I then lend as collateral for a second cake to eat!
Oink! Oink!
So in your opinion- what to buy?
Remarkable that with a 29 Trillion deficit, and more on the way, there is a shortage of treasuries. I guess QE is gobbling up over a Trillion a year…
Central Bankers need a Physics lesson…
FOR EVERY ACTION there is an EQUAL AND OPPOSITE REACTION….in physics and in economics.
Nah hist:
Physics is a ”hard” science, where stuff/theories can be proven within very very carefully described conditions,,,
first by the suggestions of math formulae, with carefully limited conditions,,, and then those theories can be confirmed by empirical experiments, etc., etc…
economics is what is referred to as a ”social” science, where stuff cannot be proven by empirical experiments, no matter how much the math theories can suggest
other than that,,, your many posts on here are usually ”right on” brother/sister, so please continue to add to the wonderful commentariat here
thank you
Druckenmiller is one of the only adults left. Obviously he’s a very wealthy man, but he recognizes that when society collapses, the “rich” will be in trouble, both in terms of finances and personal safety. It’s in everyone’s benefit to have a stable economic system with less inequality. He sees that. The rest of the Wall Streeters don’t.
“If I was Darth Vader and I wanted to destroy the economy…” Druckenmiller LMAO
Drunkenmiller is hilarious, watch the whole interview, and it’s like the “journalist” was trying to wrap her head around the fact that she is an imbecile and is totally clueless. She sits there nodding and her entire response amounted to: “what about equality,” and couldn’t wait to interrupt him because she didn’t listen to anything he said.
Her ongoing hand gestures were hilarious, as if she was waving for him to please stop talking about facts.
Those factors suggest asset price deflation, but other news suggests continued money printing and asset inflation:
1. Ultra Dove Powell likely to be replaced by an even more zealous and compliant money printer and silent MMT proponent in Feb 2022 (Brainard or Kashkari).
2. Republicans refused to close the tax gap with increased IRS funding, leading to more wealth concentration in the hands of scammers and fraudsters.
2. Bipartisan stimulus hopes faded, guard rails were eliminated, and Dems are getting ready to ram $4-6T stimulus through reconciliation.
3. Higher than expected unemployment claims, supporting the Fed’s QE efforts, in the view of a greedy mindless majority.
The creation of (reportedly) 25% of the US money ever created from 2019 to 2021, e.g., $2.3 trillion to buy mortgage backed securities by the banksters’ privately owned “Federal” Reserve, means that there will be too many dollars chasing too few goods when there is some “recovery.” However, infrastructure in the US has been in increasingly worse condition since the Bush administration.
K to 12th grade education in the US has declined in quality for many years. Thus, companies setting up businesses here have to educate new workers, unlike companies setting up facilities in countries with better run educational systems: i.e. most other countries.
Thus, the trillionaire families and their companies who avoided paying US taxes for many decades by using HUGE LOOPHOLES, like for foreign trusts and the exclusion of foreign income from US taxes, will have to balance the budget by finally paying taxes on their profits from CCP linked, China, quasi-slave operated factories. Boo hoooo! My heart breaks for them.
Let us all cry together with the greedy, parasitic, ultra rich that may finally have to pay US taxes like the rest of us!
Just like having your finances and hard work being raped of all its value by the Fed is a transitory experience. Because you can only go broke once, thereafter, we’ll make sure you stay broke.
Relax, said the old wh*** guy, just bend over and grab your ankles. That horrifying ripping sensation you’re about to experience… it’s just TRANSITORY. And best of all, most of you people won’t even realize what’s happening, cause you haven’t been educated enough to know why your life is in the toilet. So just go with the flow, it’ll all be over soon.
Metaphorically speaking of course.
That guy who runs the Federal Reserve is a lawyer. No experience as an economist. The bankers who control the Fed need someone who can plausibly spout nonsense, because he really just doesnt have a clue.
Helicopter Bernanke had degrees from Harvard and MIT, what good did that do? Don’t blame the player, blame the game.
As Cas127 says below, Congress is only relevant because it spends the money it doesn’t have. It wants to borrow insane amounts of money at no cost and Fed is its b***ch that makes it happen.
My guess…..the Fed has been hijacked….
and the real powers are in the shadows…
starts with Black and ends with Rock….just my opinion
Nacho, it’s a two way street. No fiscally responsible people can be elected to Congress (or remain there once elected), because there’ll always be someone willing to outbid him with borrowed money, so Congress will never rein in the Fed which makes it feasible (at least in the short term).
@RNY
At the rate we are going, comments like these are going to be seen in the near future as some crazy conspiracy theory bordering on sedition.
Jerome Powell, you are the most corrupt Fed guy ever or the biggest stpd
Choose…………
Back in 1970, Arthur Burns committed to President Nixon (at the president’s request) that if he was nominated and confirmed as Fed Chairman, he would run a loose monetary policy. And that is exactly what Fed Chairman Burns did. Nixon did not want tight money to sink his re-election bid in 1972. In August, 1971, the US left the gold standard and the price of gold in US $ was allowed to float. In the spring of 1973, it was still possible to buy regular gas at 29.9 cents per gallon in Dearborn Heights, MI. Now it is well over $3.00 per gallon, and much more than that in the suburbs of San Francisco.
For reserve accounts that can only be kept in very safe, highly liquid instruments, the Fed’s policy of negative real interest rates has been very punishing. Example: the reserve accounts of your Homeowners’ Association. But property values in my area have done very well in recent years, more than offsetting the effects of negative interest rates.
Yep. Since Nixon did that the dollar is worth 15 cents I think and that is being generous.
YEP A and OS,,,
And just try to wrap your mind, especially if you are at the age where interest yield and stability have become important to you and your long term viability,,, on the comparison of the USD from 1913 to NOW…
Try ONE PENNY,,, eh
IMHO, many many paid political puppets, AKA ”politicians” and their equally guilty crony(s) of all and every stripe and side of the aisle should be found guilty and take their punishment working at micky d’s of similar for the rest of their natural lives…
( MUCH more deadening than the lamp post, etc., but that is just my opinion after having done similar to the mickD experience in my youth, etc… )
Exactly. The Fed is stealing money from the working class and giving it to the ruling class.
Well both the Bank of Russia AND the Fed COULD be right.
Inflation in Russia could be caused by the combination of higher prices for its petroleum products (especially since they will now be shipping more of it) couple with international sanctions that prevent them from spending that cash elsewhere. Or even storing it elsewhere. So it just sloshes around their own economy.
Inflation is spiking in many countries around the world. Even in Germany it may hit 5% before the year is up, according to Bundesbank prez Weidman.
Oh I agree… I just think the causes will be different in many countries.
In our country we have a looming $4 trillion in fiscal stimulus about to be spent on top of all the cash floating around from COVID… that is absolutely a crazy amount of stimulus for an economy that is already rebounding.
The Bank of Canada is having to be aggressive not so much because of its own economy but because the USA is by far its biggest trading partner. Unlike us, Trudeau’s most recent budget proposal has half the debt of last year in the first year and cuts it again by half for the next two years. (Province debt may be another matter though.) But if the USA is adding gas to the fires of production (and inflation ) then Canada is going to get dragged along for the ride.
Russia (which in the best of times really only has two foreign currency -earning industries… oil and armaments) is sitting pretty for now in terms of cash inflows. The Saudis (and American frackers) seem to like the price of oil right where it is and the NORDSTREAM II pipeline will soon be functional. But as I said, there are few outlets for that cash.
One of the Bank of Russia’s statements that caught my eye was “Further movements of food prices will largely depend on agricultural harvest in 2021 both in Russia and abroad.” I hadn’t given much thought to how inflation in the American grain basket might impact a food-importing country like Russia. But they are right… most sanctions against Russia avoid agricultural products.
The Canadian dollar will push through par with the U.S. dollar mitigating most of the effects of inflation in Canada. There is also no pressure on wages in Canada.
Great comments Spence and Tony,
As to the article, even if interest rates rose to something even close to help lowering inflation, they would still be historically low. I remember clearly when a 7% mortgage was considered, “How did you get a 7%”? That was for my first house. At term it went to 18%.
Don’t say it can never happen. It can and it isn’t pretty or much fun. I would think it is a good idea to be prepared for any eventuality. One will never lose by getting rid of personal debt, regardless of interest rates.
Your comment: “I hadn’t given much thought to how inflation in the American grain basket might impact a food-importing country like Russia”
Russia is the world’s largest grain exporter! Net food exports are break-even or slightly positive for Russia, presently. In your defense, the latter point is a recent development.
The causes are NEVER different – the causes are due to printing too much money. The difference is where that excess money goes.
In case you didn’t get the memo from Milton Friedman here it is again. Inflation does not have many causes . Inflation is everywhere and always a monetary event. Dr Hanke ,a Johns Hopkins economist , likes to paraphrase Bill Clinton when talking about inflation being a monetary event .It’s the money supply stupid.
Someone has convinced uncle Joe that spending trillions “will reduce inflation, reduce inflation, reduce inflation”.
Twice I saw videos on how usda agents were attempting to strongarm American farmers into destroying their crops.The one video I saw yesterday showed geolocation maps,letter and rnvelope from usda,other docs.Didnt specify which state,how much arcreage,or which crops or if said crops were likely to export to China or Russia.Iceagefarmet.c probably knows more.I did hear our westcoast fruit and nuts were impacted by drought,heatdome,fires,so we will see how that plays out.
There was a large amount of stimulus and subsidy money spent during the great recession in 2008 and 2009 by Bush and Obama. Later Obama started reducing the deficit. Trump went to the White House and cut taxes, but was not as successful in cutting spending. Deficits rose. The Democrats took Congress and wanted taxes and spending. The virus multiplied. Tourism and hospitality shut down. More spending for households and businesses was needed by both parties. Biden was elected. The Federal deficit and spending increased again.
“Today’s decision of the Bank of Russia will speed up the adjustment of bank interest rates to the monetary policy pursued. This will make it possible to raise the attractiveness of bank deposits for households, protect the purchasing power of savings, and ensure balanced lending expansion.”
Given the history of the ruble, saving in rubles to protect purchasing power looks like a bad idea. The ruble has had double digit loses in a week.
Think there could be a lot of inflation this year due to poor harvests, in turn due to the high temperatures in the Midwest.
I can just hear what J Powel will say to the media when this whole house of cards in housing comes crashing down. He will just say these homeowners and homebuyers just got greedy and made bad investments. And the free market worked its magic.
The lending environments in Russia are enormously different than the US.
Among other things, the loans tend to be short and extremely high interest rate. We’re talking 20% back when you could get 10% interest on bank deposits.
Russia also has had a series of devaluations vs. the dollar since the 2007 and $150/barrel oil. It was low 20s rubles to the dollar then; it is low 70s rubles to the dollar now.
How about the devaluation of the dollar since 2007?
Go ahead and compare the 2021 costs vs 2007 cost for:
Housing
College
Medical procedures
Cars
Trucks
Etc
I would say that the dollar’s devaluation is nothing compared to the ruble’s devaluation since 2007.
The ruble’s big devaluation took place in the 1990’s. In June 1991, the official rate of exchange was 27 Soviet rubles for $1. By the beginning of 1998, it took almost 6,000 rubles to buy $1 US. At that time, the ruble had a reverse split when three zeros were knocked off the exchange rate. From about 6 new rubles to the U$S, it has now dropped in value to about 74 new rubles to the US$ (or 74,000 old rubles). Is it any wonder that Russian banking authorities are concerned about the value of the ruble?
@Anon1970
yes, quite true that ruble/dollar exchange rate plunged prior to the internal default in the 1990s.
The devaluations of the past few years were specifically made to ensure that committed expenditures in the Russian federal budget would not cause major deficits as the price of oil was declining after 2008.
It is thus very difficult to believe that Russian monetary policy of this past period is based on a “strong ruble”.
‘Between July 2014 and July 2016 the ruble fell by 50%’.
As interesting as this Russia info is, the country is not an exemplar for the US or anyone else. By comparison with the G20, it is a failed state. As of 2014. 23 million Russians lived on $170 per month. In ‘crony capitalism’ it ranks second worse, edged out by Hong Kong.
After supposedly dumping communism, 60 % of productive assets are ‘state owned’ in effect owned by the kleptocracy surrounding Putin.
Sorry to disappoint you, but $170/month @73 rubles/$ goes a long way when you have no rent.
The vast majority of Russians live with minimal housing costs – basically just the building maintenance and utility fees.
Secondly, 12500 rubles a month isn’t a lot, true, but costs are vastly lower.
I remember going to a grocery store back when the ruble was 25/$1 – and a kilogram of onions was $0.20. Potatoes on par.
Meat prices were comparable to the US semi-discounted prices, but costs for other food items could be extremely low.
As for the other stuff: kleptocracy. Yes, a huge number of formerly state-owned assets where privatized (read stolen) under Yeltsin. Putin didn’t try to reverse these sales, but instead ensures that the owners don’t act against the interests of the government of Russia or its people.
Contrast that with the American economy. Does the US government rein in the health care industry? the FIRE industries? the defense industry?
I can’t really say that the American system is better for its non-oligarch population.
Hong Kong also has enormously expensive real estate like the US. If you’ve been to Hong Kong, there are a large percentage of HKers who live in extremely tight economic and literal circumstances.
So overall, I can’t say that I am terribly impressed with your clearly uninformed opinion.
Wolf,
More pieces like this please, reviewing interest rates being paid by various countries/governments around the world.
Why?
Because the accumulated debt/cancer created by our horrifically bad political class, has locked the US dollar economy into a “kill box” – the government (and other) dollar denominated debt is so high, that US Treasury rates can essentially never be allowed to rise again very much…otherwise the annual Treasury debt service/budget deficits will explode to a unsustainable point.
But there is no “magic” in DC…quite the opposite.
1) The only way DC can keep debt-rotted America’s interest rates from rising is for the Fed to print money to buy T-bills at laughably low rates that *no one else* would accept (“money” passing from one leprous hand to another)
2) But since mere dollar printing does not add one single physical asset to existence, dollar printing by definition creates inflation as the ratio of printed money to existing assets must increase.
3) And, such inflation, coupled with artificially destroyed Treasury interest rates, makes the US a worse and worse (and worse) place to hold capital/savings in.
Over time, the US government has been run sh*ttier and sh*ttier than multiple other industrialized nations…whose much better debt profiles will make them better and better places to hold capital…which is absolutely fundamental to the functioning of an economy.
So tracking the relative Treasury rate profiles of various countries around the world will become more and more key.
Higher foreign Treasury rates tend to be blown off with hand waving towards US investor FX risk (not if capital expended in other industrialized country…) and banana republic savings seizure risk (no one can witness US government performance over last 60 years and not get at least a whiff of ripening/rotting bananas).
I have felt for some time that only external pressures will bring about change here in the US. Central banks raising rates around the world may be what forces them to acknowledge reality. Or, they may stay the course and watch the dollar’s influence and value decline. I underestimated their arrogance and greed in the past, but no longer. They may think that they can destroy the dollar, and then control what follows. I think we’ll all pay dearly for their delusions of exceptionalism.
The DXY dollar index will retest the 74 level and then make new lows in 2022. Some imbecile who commented about the U.S. dollar said the DXY dollar index would rise in 2022. I read a lot of clueless comments on this blog but the one about the U.S. dollar rising next year is a lulu.
Beware of getting too confident about how the dollar will play out. Might take a roller coaster ride before it gets in the 70’s.
“They may think that they can destroy the dollar, and then control what follows.”
In practice, the dollar (and their unlicensed right to print it) is the only thing that *keeps* DC in power.
DC buys their daily power and their daily peace with the purse of the public…once that has been effectively emptied, 15% approval ratings won’t buy DC control any longer.
Once the dollar goes, there will only be the splintered, Praetorian reliability of a military that already largely views DC with disgust.
Generations of failed DC generals may call out the Divisions for domestic use in a “dollar crisis” but that doesn’t mean all Divisions will respond.
US military personnel are not automatons, blind, or ignorant…they have a better than average awareness of US politics and geopolitics.
And there were more than a few even at the absurd cosplay “insurrection” at the Capitol.
Imagine what might happen in a legitimate nationwide repudiation of the DC way – defunded through its overplayed dollar dilution.
The mass media controls this uninformed population and I just dont see that the majority of the American people even want to hear the truth.
We are leaving our children a horrible world. It will be dominated by a repressive and aggressive Chinese government, ecologically devastated and economically stretched to the point of no return.
So why do you all keep voting for Republicans and Democrats? Has either side actually been telling the truth?
What,aren’t the loyal troops Grateful for the undercooked,molding Garbage Fed to them by the Demoncrats???! :-)
Rumpled,
What would the external pressure be in your estimation? Declining reserve currency status would be first on my list. After that would be more meddling debts by continuing with hegemony under the guise of ‘making you democratic’.
Aging = decline…..maybe not catastrophic decline, but decline nonetheless. The US story is no longer fresh or young. And always being the cleanest dirty shirt doesn’t really cut it.
There is change on the horizon I’m afraid, and we’d best be ready.
Declining reserve currency status is at the top of my list, and rising rates in other countries will make them more attractive for investment and more likely that transactions will be made in their own currencies. Our international reputation is poor, and our bipolar and confrontational government makes us impossible to rely upon. We can continue to see ourselves in the best light possible, but we don’t get to define how others see us.
Many commenters seem to be looking for a future precipitous event. I think our collapse has begun and is in plain view, but until it’s reflected in an asset prices or our currency most will remain in denial.
Rumpled Bemused
‘Declining reserve currency status is at the top of my list, and rising rates in other countries will make them more attractive for investment and more likely that…”
1. Which currency will challenge US$ as a global trading currency?
2. There are already 16-18 Trillions in NRP world wide. Rate increase? where and when?
fyi
Global Investors Are Buying American (WSJ -today)
Money managers world-wide funneled more than $900 billion into U.S. funds in the first half of 2021, a record in data going back to 1992.
TINA!!
Sunny, you can cry TINA as loud and as often as you wish. In the 70’s the USD had an 85% share. Twenty years ago it was 70%. It is now at 59% and has been falling at 1% per year for the past several years. Clearly there are alternatives and they are being utilized. I don’t expect any single currency to supplant the dollar.
Yep, I think a lot of people underestimated their arrogance. Very few people thought they’d continue this insane nation ruining QE for as long as they have.
I have seen some articles that and graphs that show QE is not causing rates to go down, but up. The logic sounds pretty good as well.
It might be one of those things that works in theory, but not in practice as market gets a vote too.
Which eventually leads to war or bankruptcy
Why does the Fed care, the 10 Year Bond is about 1.3%, nothing has blown up yet and Inflation is way higher than Bonds. Wasn’t this what the Fed wanted ? As long as nothing blows up in the Markets the Fed does not care how reckless they have been.
The Economic “nothing has blown up yet” Theory?
Didn’t Zimbabwe and Germany try that?
One totally bonkers but accurate assessment. If this was all just a HUGE test. The outcome has been inflation like not seen in decades. OH OK then how will they solve for the third act of this pandemic. I believe it will be more of the same. Average CPI is up 5% OK here you go have a 5% discount on all taxes due or a refund equal to that. Something along those lines. That keeps everybody happy with free money but the kind where they have a barrel to your head since you have to pay taxes to get the benefit. How many people did they “trick” into paying taxes in order to get on the dole
“How many people did they “trick” into paying taxes”
The answer is ZERO
Since Mr.Richter does not believe in posting links you may google “Child Tax Credit Non-Filer Sign-up Tool”
When stimulus payments started last year IRS had another website “Non-Filers: Enter Payment Info Here Tool”
SS# & bank acc# was everything IRS wanted
Why does Congress care?
Record high stock prices…
Free money for debt creation to fund socialistic endeavors and vote buying schemes…
and likely the Congressmen are fully invested, having gotten the nod about Fed policy long before any of us…
Pelosi “There is a floor under the stock market.”
Nice to know Nancy. Who told you, and when? Did you husband do well?
The real inflation in USA is ~14%.
But the FED won’t acknowledge it and won’t raise the rates.
Forget about raising rates, it won’t even start tapering.
Russia, Russia, Russia….
Russel Napier says what we’re seeing is organized financial repression:
She’s good!
What would she need for a transfer fee?
My Russian fund was Ok a couple of days ago and the Ruble was OK today, so it looks as if she might have the luxury of raising rates without crashing the market there. I’ll check again tomorrow.
Russia highlights supply shocks with no extra accomodation but there is no mention of the demand side vis-a-vis budget deficit if there is one? I never heard of any giant stimmies there.
US has got both to deal with, plus a stock market and bond markets on the edge.
Most of the big Russian companies borrow in euros and dollars and pounds, which is a lot cheaper for them. And they’re exporters (crude oil, natural gas, metals, military equipment, etc.), they’re getting hard currency to pay their debts with. So they wouldn’t react to higher ruble rates.
Also what she said was that short-term rates are still at the rate of inflation (6.5%), meaning real rates are 0%, and this policy is in effect still “accommodative.”
Great covering Russia W, so long as you don’t get banned!
It’s a fascinating place. I was told it was wicked all my life, until I started to look for myself.
Interesting about companies.
Agreed about accommodation but slightly less than it was pre hike.
Her comment about citizen’s savings was the top spot, that’s the only way out for people and it’s also the best deflator of ‘excess’ demand, ie buy it later when the price has dropped.
Picking up 6.5% hedged against the Ruble might not be a bad play where it’s zero everywhere else.
I have to admit that reading the English statements of the Bank of Russia is practically enjoyable compared to the twisted bland stuff the Fed puts out.
“And they’re exporters”
Having hard, real assets available for net export seems to be key to those economically stressed countries that make it versus those that spiral in to deeper crisis (ie, those that can’t rely on their phoney baloney self printed currencies to pay for crucial imports…food, medicine, oil, etc.).
Which of course makes perfect sense.
Once people realize that any fiat currency has no internationally stable value beyond that created by the integrity of its printing government…well, it starts to look a lot like a world run by currency Monopoly cheats.
When the economic going gets tough, governments get to printing…which destabilizes currency/savings values (at a minimum internationally) and usually makes the economic situation worse.
When things get even a little rough, economic realists stop paying much attention to infinitely inflatable currencies and look a lot harder at hard assets (food, medicine, oil, etc).
To the extent there is *any* currency stability among economically dubious countries, it is because they have hard assets to market (versus political promises, which are universally worthless).
It is the demand for those hard assets, not the political promises, that sustain any demand for corrupted fiat.
Checked my fund 30mins ago. Rock solid still up 14.5% on Jan1.
Powell would die for that, a full 100 basis points hike and a stable stock market. Are we seeing how things should actually work without years of asset biased manipulation?
It’s a long, long, game, always we wait and see.
“There was no mention of “transitory” or “temporary.” None. But instead, there was “for a longer period” and “prolonged.””
Seems like an approach with one’s eyes wide open and facing reality.
Refreshing.
1) USD/RUB triangle, a cont pattern, osc above Jan/May 2015 backbone, since Mar 2021.
2) SPX weekly is Engulf, x3 times the size of the previous bar, on slightly higher volume. NDX daily is a megaphone. Something is wrong with both.
3) If the crazy other side derail SPX off it’s normal tracks, USD/RUB will cont to rise.
4) The DAX rock. Putin’s inflation pipeline will shakeout Germany.
5) The DAX might look like Spain IBEX. The IBEX imitate the NIKK.
6) Tokyo’s inflation inflation is kneeling for 30 years.
7) Welcome to 2020 Olympics games.
Cousin of Ivan Volcker?
“Today’s rate hike would have been shock and awe if Bank of Russia Governor Elvira Nabiullina hadn’t warned on June 28 of a possible shock-and-awe hike of up to 1 percentage point. Today the Bank of Russia followed through: it hiked its policy rate by 1 percentage point to 6.5% (from 5.5% previously).”
Glad to see Elvira found a second career. Wolf, we’re gonna need pics. She knows inflation, bwahahaha!
And American economists used to make fun of Russia 20 years ago…
“This will make it possible to raise the attractiveness of bank deposits for households, protect the purchasing power of savings, and ensure balanced lending expansion.”
The FED is an economic terrorist outfit at this point, just blatantly destroying the lives of the middle and lower classes.
Its actually simple. Most of you can’t see a basic fact. Inflation means prices are higher than money people have. This problem will be solved by giving people more money. Therefore, Fed must print more money. Are you supporting Russians? you traitors…
Printing more money creates hyperinflation. America needs to go back on the gold standard before the country ends up like Argentina.
Yep. You see it best in war. Government borrows often at low rate so war material can be bought. Inflation happens after war if you are on winning side.
Oh it happened here after Vietnam, and we were not on the winning side….
I think it is excess spending and no taxes raised that brought it on then.
Why is supporting Russia being a traitor? The enemy is inside the Beltway.
Interest rates are still too low in Russia but at least they’re addressing the issue whereas America is running voodoo economic experiments which will put everyone into the poorhouse.
Not experiment,Plan!!!!!!!Poor,hungry,sickened,worried pooulace=easy meatpuppets.
The hyperinflation bell reached $250M for the wrong Barrack supporting the wrong side.
Seems like they don’t want another outsider playing in their house. Got to teach people that you have to be a member of the DC mafia.
Looks like he didnt register as a lobbyist.
If he had only lied to Congress (Clapper, McCabe, Comey et al) his bond would have been way less.
They are teaching people to stay away from Trump….the Guliani case, Stone, this, and others….
accusatory and legal costs…crippling
Can someone please give me the Month for the crash ?
November 2022 (+/- 4 months) – NOT tied to elections. Fibonacci math for past 120 years.
It will be the peak for the market on November 17th, 2021. From there, you should expect a very rapid 20% correction, followed by a dead cat bounce of about 5% before the resumption of the decline on the stock market in slow burn mode over the next five years, ultimately ending with the S&P at 1500.
And by the way, short Apple.
Legendary investor Howard Marks discussed “tops” recently via BusinessInsider Premium:
‘When trees grow to the sky’
With valuations running through the roof, and pockets of frenzy dominating headlines, the market has reached the latter half of the upcycle.
“The latter part of the upcycle comes when everything’s going well, and people tend to accept the trees will grow to the sky,” Marks said.
At this stage, investors are showing “increasing optimism, increasing enthusiasm, decreasing skepticism, increasing confidence” and engaging in the “willing suspension of disbelief,” or voluntary avoidance of critical thinking and logic, he said.
Marks pointed to “one of the greatest adages” that he ever learned in the early ’70s as a beneficial guide to his assessment of market cycles — there are three stages to the bull market.
He said there was “the first stage, when only a few intelligent, unusually intelligent, people appreciate that there could be an improvement, the second stage, when most people accept that improvement is taking place, and the third stage, when everybody believes that everything will get better forever.”
“And clearly, in the third stage, that’s when you get people paying the most for far-off uncertain potential,” he said.
Studying psychology gives investors a great advantage
When the market is going to extremes or acting irrationally, Marks said it helped to “get a handle on how people are voting and how they’re likely to vote in the future, and whether that’ll change.”
As the father of value investing, Benjamin Graham, said: “In the short run, the market is a voting machine, but in the long run, it is a weighing machine.”
Keynes said investing in markets is like being at a beauty pageant. It’s not who you think is the most beautiful, it is who the majority think is the most beautiful. Markets can remain irrational longer than you can remain solvent.
Might go on for a while as a bubble sucks nearly everyone in before it is over. Main thing is don’t invest in anything you don’t understand fully. Most likely when it pops everything will get sold to get to dollars. It’s better to have them before they are needed.
Amen, Old School.
Love it!
Yep. Still stacking dollars hand over fist, Old School.
‘Main thing is don’t invest in anything you don’t understand fully’
or cannot afford to lose! It takes 100% gain to get even after 50% loss!
During the last GFC (’07-’09) S&P lost nearly 60%. It cannot happen again, b/c Fed is watching my back, right?
Fed’s primary duty is protect the Banking system, it’s owners!
We may have a black Christmas, I mean it will start before the end of the year and 2022 will be too late to react to it!
September
I think you may be right …
Investors are saying that on the slight down turn Fed will print more trillions to support the market.
It’s literally blowing my mind that we’re in a world where the Russians are facing up to reality and telling truth about their situation and actually dealing with it. While the J team is fumbling over themselves and totally in denial about reality while busy spouting off the word transitory and trying to knock down any notion that there is a problem.
This is the f***ing twilight zone. I had thought the last decade was delusional. Apparently, I was totally clueless about how much worse it is getting.
Time will tell what impact this shock and awe will have. Will it be Shock and Awww WTF or shucks and awe maybe next time we will go MUCH bigger. But yawn at this as having a serious impact. Russia has it’s fair share of oligarch and ranks 5th on the list of number of Billionaires
JP certainly will hear about this and watch it with as much interest as the ballet performers Maya Plisetskaya, Ekaterina Maximova and Galina Ulanova
I wouldn’t expect shock and awe. I see it more as erosion that will be ignored until the foundation suddenly crumbles.
I expect it takes be like LTCM or Lehman. There is so much leverage all over the place and stocks, bonds and housing so high that a wrong word out of Powell’s mouth can blow someone up.
Ten year treasuries jumping around a lot, high inflation prints and near trillion dollar reverse repo are pre shocks before the big one I think.
There are a lot of money managers playing the momo game with finger on the sell button.
Clueless, I’ll admit to that as well. I believed them when they said they would raise rates. I wrongly thought that there were still some responsible adults with enough integrity to do the right thing. Apparently, I should have been more cynical, or more ignorant like the dumb money who are swimming in paper gains.
I have heard it said that as the former Soviet Union approached its end the official news outlets such as Pravda cranked out more and more ridiculous propaganda. But near the collapse almost no one believed it anymore. It seems to me that we are nearing that point with the NYT and Wapo standing in for Pravda and Izvestia. But it seems that Americans are considerably more gullible than Russians as a sizable group still believes it.
This is the entire problem with our landscape today. Everything is parsed along some crazy political line like that’s the only thing that matters. The media keeps pretending like it’s trusted, but in truth, I’d trust more of what Wolf or my neighbor tells me than what the talking heads on your favorite TV station or newspaper says.
To take a slight tangent, vaccination has become such a hot button issue that even if a legitimate medical question is asked, the person asking it becomes tarred and feathered with being an anti-vaxxer. Listening to the news is like listening to good ol al-Sahhaf during the early days of April 2003. The other side of this is equally crazy, where all vaccines are considered dangerous. It’s like sanity decided to take a long overdue vacation, then decided it was too much trouble coming home.
SC
Some say, US and Russia passed each other in mid Atlantic around 2010 going in opposite directions.
“I have heard it said that as the former Soviet Union approached its end the official news outlets such as Pravda cranked out more and more ridiculous propaganda.”
I agree. I read an excellent article on exactly what you are referring to – the increasingly desperate lies as the Soviet Union was failing – but I can’t find it right now.
“The rules are simple: they lie to us, we know they’re lying, they know we know they’re lying, but they keep lying to us, and we keep pretending to believe them.” – Elena Gorokhova, A Mountain of Crumbs
“In our country the lie has become not just a moral category but a pillar of the State.” – Aleksandr Solzhenitsyn, 1974
And since so much of our media, including “new media,” has become nothing more than a transcriber and mouthpiece of OUR State’s positions (which is virtually identical to the most heavily moneyed lobbyist positions) rather than being a true Fourth Estate acting as watchmen on government behavior for which the 1st Amendment was created, we are seeing the same thing here.
Thank goodness for sites like this for a “reality fix.”
Interesting. I was taught in senior h.s. econ. that socialism at one end, capitalism at the other, each would change and adapt, becoming like the other, until both were alike. Not sure the ship’s passed in 2010, but the similarities as striking.
The USSR had their reckoning in the 1990s. The USA is getting there fast.
October maybe sooner, Marco.
& yes I now the FED CAN STYAY SOLVENT LONGER THAN YOU CAN!
So inflation is happening around the world. Regardless if your interbank/overnight/TreasurytoBank rates are Negative – 20%. And regardless of raising the rates it doesn’t appear to be a quick or rapid drop or fix to the inflation impact. So why are people clamoring to have rates go up? Almost begging to see if that magically will fix the economy. That was fourty years ago. That was a time when people used to have money under their mattress, there was no internet, the boogeyman was the Mafia and Russia, I wasn’t born yet and shortages impacted your ability to use your vehicle.
This article shows that small increases or massive increases in the rate doesn’t have magical overnight beans that spout a fix to the bigger problems facing the world. To do something about this save some money, stop spending every single $100 you earn, don’t buy everything you want or desire, stop and think.
Deflation starts with habits changing. Rock a retro five year old phone it won’t hurt you but it might hurt your standing with the IT crowd.
ND:
“Why do people want rates to go up?”
Well, for one thing, it will slow or stop inflation. The second big thing is it will give savers a method to ,make money on their savings to offset inflation….like us millions of seniors living on fixed income.
The 30 yr FHA mortgage rate is 2.55%. The government wants to extend the payback period for Federal mortgages in forbearance.
A hawkish Fed? Not when the one year T-bond interest rate is .07%. We are not on Moscow time.
Why is the Fed buying distant MBSs well below inflation? And with the rip roaring prices in real estate ? Who benefits…?
Who else would by 30yr paper under 3% yield with a 5% inflation?
The Fed is trying to make water run uphill, and they are using the value of the dollar to do it.
And it only benefits those who currently have their houses. As Wolf said, if you’re trying to rip apart a society, this is a good way to do it.
historicism,
My theory is Fed is doing that to keep house prices up to assist selling or workouts of property that is going to start due to end of covid moratorium. Most can sell at a profit if prices stay elevated.
” So why are people clamoring to have rates go up?”
Never has inflation been 5% over the return on a savings account.
The Powers that be, Powell et al, have Stolen, are stealing money from those who earn and save.
Saving has been a foundation of this nation…it is how people pulled themselves up financially…..scrimp and save, work and earn.
They have taken this away and it is a crime to have done so.
Intentional inflation from the Fed…intentional zero rates from the Fed…
organized THEFT.
Watch PBS “The Power of the Federal Reserve” (on their web site)…
Fed Gov Fisher said they intentionally dropped rates all the way out the curve to FORCE INVESTORS TO TAKE GREATER RISK.
Where in the Federal Reserve Act does it speak of “forcing” the people of this nation to do anything? Did I mention FORCE? Fisher did.
The Fed is supposed to “promote moderate long term rates”. Moderate = not extreme. All time lows are extreme.
The wisdom of this third and usually unmentioned mandate is to prevent irresponsible debt creation that unfairly burdens future generations, pulling wealth forward to fluff the present.
You can see why this THIRD mandate of the mission statement is omitted in discussions…..they clearly violate, just like “stable prices”.
The Fed is rogue, and off the rails..
+10,000
I am torn about this. I have about 97% of my retirement earning about 0.2%. I know it’s a losing proposition, but makes me think Fed is putting squeeze on so hard about cash that it is the place to be.
Only solace is social security should bump up 6% or so to make up for loss of income. I saved my 10 – 20% when working and now the interest income is about $1500 per year in nominal terms or less than one social security check. But I had a good run in stock market and was happy to exit in 2016.
Well said
Hey Wolf & Co!
Working a high-paid American Middle-Class job, with full bennies, vacation, & retirement was the key. This was, “The Foundation,” of not just this nation’s, “demand,” (driving financially-solid consumption), of Savings, but of regulating and profiting from the investments made with this savings portion of our former Middle-Classes incomes through such (now extinct) things as Savings & Loans… (We now have, “family,” Hedge Funds.)
The opening of the Borders to Peasant Labor, combined with transferring our manufacturing base to China has removed both the means and incentive for Middle-Class economic (and political) participation as well as social cooperation…where do you think the Heroin Crisis is really coming from?
It’s root is in the desperation of the children of the former middle class falling into Third World peasantry-poverty as their future potential earning power melts-up into the wealth and power of the Conquistidors, the conquorers, (The Masters of Our Universe?), the destroyers of our once marginally Constitutional, Democratic Republic (once with a healthy Middle-Class, now, “new & improved,” with family Hedge Funds!).
As greed and self-gratification have risen to peak expression in our Corporate Aristocracy as they feasted on extracting the wealth of our dying Middle-Class (80s’s onward…), those of less means in our now-peasantized labor force, who have been robbed of the socially and financially healthy gratifications a Middle-Class American income once produced, through generating an environment productive of healthy love, healthy work-life balance, healthy children, and other healthy gratifications built on a, “fair,” NATIONAL economy, find much less healthy pursuits for their gratifications, as, “honest work,” now earns the same lifestyle as a Mexican peasant, “living the American Dream!.”
The, “Dream,” is not for Americans, but for foreigners who believe themselves above our laws and borders, all supported by the political parties who, (also above our laws & borders), “represent us.” (I laugh-cry when I write that…)
A friggin Nation of Cheaters…
Thus the breakdowns we observe around us both financially and socially, not to mention politically, are all ultimately rooted in the greed & corruption (The Trechery!?) that broke the soveregnity of this country, by “our,” politicians of both parties both exporting our jobs to tyranical enemies of the US (China), and importing endless allies for the political and economic forces in the US who believe themselves and their self-interests so far above our Laws, Borders, Constitution, (what’s that?), and the general welfare of our country that I can’t even see any of them in the rear-view mirror, as this hot-rod (America!) is running ninety miles an hour down a dead-end street.
In 1976, to us thick kids, my Economics Professor taught us that one problem, is we produce £100 of goods and services but pay ourselves £110
…the result..well you can all guess…
Watch out for the debt limit Kabuki. J&J are prepared to do whatever it takes. With J Powell’s support, Janet Yellen’s Treasury can do whatever the heck it wants.
Truly a dream team.
In the short term Fed and congress are going to be constrained by inflation. Don’t think Manchin is voting for $3.5T with inflation running hot and getting hotter. Fed is going to have to pull back too as higher rent calculations are going to feed into PCE and CPI.
There is absolutely ZERO reason for stimulus of any sort right now. I have no idea what CONgress is smoking, but they already grotesquely overheated the eCONomy. Adding more stimulus is like giving a junkie more heroin while he’s blue from an OD. These people are dangerous idiots.
Now that they have tested and proved they can helicopter cash at a moments notice. What makes you think they will ever stop. We have all seen the lab rats with their choice of “dope” or food as a given option. The rat died every single time and not from being overweight.
Sad but I believe the “dope” show is going to play until the record changes. And that record is locked in a room with the key in the belly of the FED who swallowed it long ago
If oil price is up, Russia experiences price inflation. If oil price is down, Russia’s ability to borrow immediately diminishes, and the fiscal situation becomes harder to finance, raising the prospect of currency collapse.
A rouble for your thoughts.
Russia has a more unusual economy than most countries. It’s first important to note that Russia always has a large trade surplus. In countries like America, alot of money is spent to prop up the currency, but in Russia they don’t do that, instead they let it float and push people to buy Russian made stuff. Spending money to prop up the currency can artificially and temporarily raise the standard of living for a country in the short term at the expense of the long term. At the end of the Soviiet Union, while most things became privatized, resource rights did not (some had to be taken back, because of corruption), meaning the government directly gets a lot of the trade money. However, Most European countries and others snub buying and making most things in Russia, lowering the demand for their currency. The Russian government and many companies have no issue taking Euros, Dollars, or certain other currencies for buying raw resources like oil, coal, wood, or platinum from them (or even many finished goods). Because so much trade with Russia is conducted in non Rubles there is little external demand for it. The government itself has very little debt, but if they or a company borrows, it’s often in foreign currencies.
Besides raw resources, other countries will buy stuff like metal products, food, military stuff, airplane parts, nuclear power stuff, and some machinery from Russia. Right now, they are trying to grow auto, plane, and medical exports.
Right now, the Russian government’s goal is to make the country as self-sufficient as possible.
….before the Fed guts them and sacrifices them (we savers) at the altar of inflation. The beatings will continue until morale improves.
Hahahahahahaha!!!! I am doing this all for the people! I love the people! Hahahahahahahahaha!!!!!!!!
Dude, switch to decaf!
Dear J-Pow!!!
When you get evicted from your current position next February, I think you have a promising second career just waiting for you to embrace it. I am talking about a new career as a professional comedian. You are much funnier than George Carlin. And he was pretty good!
Sincerely,
A Fan
Organized THEFT….
5% inflation….zero interest on savings…
intentionally brought to you by the Fed.
Stocks all time highs….
Some knew, bought, sat and became rich.
Others did know, worked saved and are getting slaughtered.
Things like this cause bad things to happen….
should read…”did NOT know”
You are correct. How can Fed justify blowing biggest stock bubble in history once it pops.
Get out of the dollar and invest in the Russian Ruble. They are raising rates an investing in Gold
I own some GAZP (gazprom). The dividend is great (even after expected 6% inflation), but Russia’s history of devaluation is not confidence inspiring.
Either way, now I’m diversified in an international basket, or an international basket case, perhaps both. Time will tell.
The U.S. has (supposedly) controlling interests in gold. If the government announced that the U.S. is a buyer of gold at $50, 000, the deficit would be paid off by 50%. Any purchases of gold could be bought by the issue of currency which of course, would automatically be backed by gold. If politicians would not abuse this system, the U.S. could control the price of gold and dominant currency well into the future. Most of the world, especially Asia, considers gold the ultimate monetary standard already.
This is what China and Russia are aiming for themselves.
Thank you BL,,, agree, ”like totally dude (or dudette )
No where is it written in large letters that USA or, for that matter, ANY nation or country or clan or ethnic group of any sort will be the final arbiters of global harm or global warm or global dharm ( a )….
When and if you can get your mind/head around that basic, or likely basic rule of our species, You might, just ”’might”’ be able to proceed to a point where you are awake, able, and willing to help ALL of our species DO WHAT CLEARLY NEEDS TO BE DONE…
The real problem, AKA ”issue” is ”WHAT” needs to be done, eh
Erick F:
(writing since I am not 100% sure you are not serious)
I need to have some money in a Russian bank. I keep them in dollars. For several years the exchange rate doubled. All this time the bank sends me offers to open a deposit at like 5% :)
If inflation is 5% everywhere, then does it matter?
if everyone is cutting off their right arm, does it matter if someone is cutting off yours? makes you even …so its ok, right?
It matters to me as a retiree. I followed “the rules” had a budget, lived on less than I made, drove cars till they dropped, saved, etc. When my father passed away a decade ago everything went to my step-mother (as I figured it would), there won’t any inheritance (excuse me “intergenerational wealth transfer”) I’m on my own with a fixed income and I get no return on the savings I labored to accrue while working and on top of it this inflation erodes the purchasing power of what I have now. I have no desire to be in the stock market or even bonds at this point because frankly I don’t what I’m doing and I can’t afford to lose principal at this stage of my life. I’m still way better off than than a lot of others at my age. I will get by, but it’s just so galling to have to play in such a rigged game. Also, I have never owned a home so that wild and crazy appreciation ride doesn’t apply either. It all sucks but I will duck and cover and try to make the best it till better times.
should be “the best of it till better times.”
Dave k.,
It matters to the people whose labor and savings are getting devalued.
However, historicus’ response is much more eloquent.
It doesn’t matter enough for people to do something about it, and that’s what matters.
The US can inflate inflation away, for a while. Sounds stupid?
Having the world reserve currency it’s not so hard to create more dollars when there is price inflation. Can’t pay the higher price? Here are some dollars to compensate for that. Most of those extra dollars are used to import goods, thereby exporting a great part of the currency-inflation.
In the Euro zone this can be done the same to some lesser extend within the internal market and trade with countries within the economic zone who still have their own currency. Euro’s go back and forth and a ‘few’ more don’t rock the boat immediately. Also there is international trade, where Euro’s are used for settlement (with China and some oil/gas exporters, like Russia).
Russia exports a lot of oil and gas and gets dollars and euro’s for that (with China there are other ways to settle). They cannot print Rubles to fight price inflation, because those Rubles don’t buy anything outside the Russian Federation borders. Ruble inflation can’t be exported in exchange for imports. Printing Rubles would lead to more price inflation almost immediately.
The US and Europe will not be able to play their game indefinitely. But they will kick that can down the road as long as they are allowed to, to not having to take the pain right now. Meanwhile, in the US and Europe, savers get hurt and buyers of non-import goods (like RE) and services see high price inflation that cannot be exported to other producing countries.
We have a winner. You can’t compare the actions of the Russian central bank to the Fed. It is like comparing the Fed to the Venezuelan central bank, nobody want to touch their crappy currency. It has a third of the value against the dollar that it had ten years ago. The bank needs to staunch the bleeding every so often. It is worth less than a month ago even with the hikes.
Russia is just a authoritarian oil fueled kleptocracy with a historic military capability and predisposition to create mischief in order to pretend it compares to its past self. This is necessary to mollify the populace and keep the kelptocrats in power.
This is why the Russian kleptocrats lobby so hard behind the scene for watering down the Magnitsky Act. The want their assets denominated in dollars and Euros rather that something denominated in rubles.
As far as goods inflation I am on the fence, there are to many nations that are ready to export deflation outside of their borders. Now service inflation, especially where there is low wage work involved that is a different story, though I am not sure that wage inflation for the lowest quintile is an entirely bad thing.
[The USA] is just a authoritarian oil fueled kleptocracy with a historic military capability and predisposition to create mischief in order to pretend it compares to its past self. This is necessary to mollify the populace and keep the kelptocrats in power.
Wow the substitution works. Only the US is fueled by paper pushing not oil.
>Wow the substitution works.
Except when it doesn’t. You obviously have no idea of the size and scope of the US economy compared to the Russian and the size and scope of the Russian kleoptocracy. The Russian economy is smaller now than it was in 1997.
More amusing is those saying to invest in Russia, when all the oligarchs are doing anything to they can to get their money out.
Dear Leaders have ordered us to hate Russia. They have also ordered us not to ask why, although the reason is simple enough: Russia refuses to be a US colony.
LM
Politics is a mugs game.
Most western politicians would die for Vlad’s popularity with his people.
All countries have cleptocrats. Which country has most and which country is trying hardest to get rid of them is what we should ask?
“Russia does not start wars, it finishes them” Vlad cf WW2, Syria
We should all respect each others way of life, only vested interests drum up divisions and animosity.
1) WTI peaked in 2008 @147, thereafter dropped to 26 in 2016.
2) Between 2008 and 2016 foreign money was flowing into Russia. EUR/RUB was up.
3) In 2021 both EUR/RUB & USD/RUB are in 2016 fractal zone.
4) Shanghai stock exchange had two bubbles and anti, in 2007 and 2015.
5) After SSEC anti #1, between 2008 and 2015 EUR/CNY was down. There was capital flow out of China. Russia & China are inverse.
6) Since 2005 until 2014 USD/CNY was down. There was capital outflow from China, the inverse to Russia. USD/RUB was up.
7) China : USD/CNY recovery from 2014 low is a thud. Russia : USD/RUB is up inside 2016 fractal zone. Foreign money love Putin hate Xi. Russia might reach a new all time high.
8) China is in troubles.
The Fed is ALLOWED to exist with certain parameters, agreements, mandates, and essentially instructions as granted by Congress.
They seem to ignore them all, and author new directions, that fly in the face of the written ones.
Stable prices…and moderate long term rates…the second and third mandates….the Fed is intentionally blind to them….why? how?
Punishing savers to fluff the over leveraged
I will invest in Russia. Let the money walking do the talking. This is only possible as long as people invest in countries that are practicing #financialrepression and I would argue any country that maintains interest rates below inflation rate outside of a depression is.
inflation is a purposeful, intended policy of (especially) the FED and ECB. it is the only way to manage the otherwise unsustainable central government indebtedness (i believe the ECC’s indebtedness is somewhat less egregious than that of the US).
But the debts keep increasing BECAUSE of said policy – it PROMOTES that which they’re allegedly trying to fight. The FED shows up to a forest fire with gasoline tankers. These guys are dangerous and need to be stopped at any and all costs.
Russia is a failed state, and when you open this up to economic mixed metaphors the trolls and the insurrectionists come out of the woodwork. Read Blowout to get the picture. Now they are part of OPEC+ which doesn’t seem like a move up in the global foodchain. At GDP of 1.6T the they aren’t as big as the proposed stimulus package. They do have a central bank and the US does not, but maybe that’s not a prize after all.
1) Russia GDP is $1.6T. RRP was $1T. Therefor : Russia isn’t the cause of the problems. Somebody bigger must be.
2) There is some kind of clogging stench out there.
3) JP provided good collateral to a starved o/n market.
4) Putin didn’t cause collateral shortages.
5) China is the main suspect. China is a troublemaker for 10 years, since 2011.
6) If JP is RIP, US gov will lose the only man in the room.
“Russia is a failed state”
The Russian state still has a near-monopoly on violence, so no, it has not failed. Uncle Sam is gradually losing his near-monopoly on violence, e.g., daily gun violence by civilians.
People can’t eat GDP. Can Russians grow food, make stuff, produce energy? The answer appears to be yes. Meanwhile US still depends on Russian rocket engines, and depends on China for an endless list of important items.
The Russian government enjoys high approval ratings by its citizens. Meanwhile US Congress approval rating is … 26%
Examining actual facts is not an endorsement of Russian policies. Actual facts are important for reaching conclusions based on reality. I applaud Mr Richter for approaching this topic in a non-emotional, even-handed manner.
a great article and a fantastic forum discussion. i turn to this website more and more for solid economic information. props.
Wolf, are you going to publish an article about the replacement of LIBOR on 1/1/2022 with the upcoming Secured Overnight Financing Rate (SOFR) soon? Or is it too early in the year?
I read an article on SA about it and it seems the FED is going to get more powerful when that happens.
Anthony A.,
I did in early 2018 when SOFR became active as a published rate. I have no intention of covering it again. They’ll get it worked out. And it’s a horribly boring and technical topic :-]
I don’t think it changes the Fed’s “power.”
I always wondered why LIBOR even became so popular. That thing has been manipulated from the beginning. OK, maybe that’s why it became so popular.
Before then, they used the Chase Manhattan Prime Rate as benchmark. I remember negotiating some commercial loans in Oklahoma with a lender in Oklahoma at Chase Manhattan prime +x%. I don’t remember all the details. It wasn’t great, but everyone did it, and it worked fine.
You need to have some kind of benchmark rate for floating-rate loans that can be written into loan contracts and that is transparent. SOFR seems to be a better mechanism than the two rates I mentioned. It’s based on published rates of actual and big markets, unlike LIBOR and Chase prime.
Interbank lending is now down to near-nothing, and so there is hardly any market there anymore. LIBOR should have never been used, and after it started being used, it should have been scuttled a decade ago.
Thanks Wolf, I wasn’t reading your columns in early 2018. What you just said here covers it for me.
So : Not sure here But the drift I am getting is that if enough country’s “Raise” their Fed Rate or what ever such Countries call such rates this is what is hoped for to slow / stop Inflation and give back a Normal , Stable economic environment .
Makes sense: Russia is the leader then being first ! Next ? humm who well step forward . Perhaps someone has a Valid Guess as to who that might be.
This may end up with World Wide representation rather then just say 500,000 demonstrating in DC . Do you think Millions and Millions
world wide well have an effect of Fed Rates in the USA or can it actually
be possible this unstable financial environment can continue just to appease those in power .
Any Guess who is next to sign on how about Nigeria ? lol
Sovereigns are looking to attract investment. There is a pile of money globally sitting out there. Now comes the competition in order to tap into the flows ( or unwind them). The US runs the best currency, EMs write debt in our name. We might ultimately become a zero growth state, (ex for military) and live off the seigniorage. That implies military defense spending, and Senate Democrats are bucking potus for more spending. We hate war, but we love the military (DJT) Reagan pulled it off, he defeated the Soviet Union, except of course no one was defeated. That leaves the door open to more defense spending, get it? Call it the broken window insurance company, call it gangster politics, I prefer Pax Americana.
Reagan defeated Grenada. The Soviet Union collapsed when the price of oil tanked to almost nothing.
Paulo:
FYI: The Soviet Union finally ceased to exist in December 1991. Did you check the oil prices around this time? :)
Russia is not totally the leader. There have been MASSIVE rate hikes in Turkey, Brazil, and other emerging economies so far this year. Somewhat behind are a few advanced economies that have announced that they will hike their rates in the fall. This includes Norway, which will start the rate hikes in September. FAR behind are the Fed, the ECB, the BOJ, and a bunch of others.
The central banks that have been doing QE, they need to stop QE first before they can start hiking rates, or else the yield curve would collapse, with the front end lifted by rate hikes, and the long end repressed by QE. That would be a mess.
Comrade Wolf,
Gonna take a slight tangent from your Russia coverage here. Cause holy donkey balls, comrade Pooh who loves buns just ordered all of China’s for profit education institutions to go non-profit and it literally wiped off half the value of all of these companies doing tutoring in the course of a day.
The official rationale appears to involve combating the declining birthrate. I think at this point, the whole idea is to screw over any foreign shareholders of Chinese stock, cause no one knows what Beijing will do next. It causes an exit that wipes out foreign investors.
On the bright side, for American children, there will presumably be less competition from China. Sadly, the rest of the world will likely not be so compliant.
I’m waiting for Beijing to announce next that equity and equality based on socialism view of the world of must be taught in school and math is a capitalist plot to destroy the world. That’s really help ensure no child is left behind around the world… in their indoctrination.
“…to screw over any foreign shareholders of Chinese stock,…”
Slight correction here. Americans that buy shares of Chinese companies listed in the US don’t own stock issued by the Chinese company. They own an American Depositary Receipt (ADR), issued by some entity in a tax haven, and this entity has a contract with the Chinese company. I have no idea why people buy this stuff. But fine with me. I also don’t know why people buy cryptos. I mean I get it, everyone loves a scam as long as the scam makes money. But then they complain when they get their pockets cleaned out.
You can apply this to tulips as well. People love scams as long as they are not left holding the bag.
A South East Asian friend of mine once told me that at one time people in the area used to be into certain types of fish for “investment”.
Getting Rich Quick is a siren that most people can’t resist.
Yep, totally true. The stuff on the exchange are all ADRs, you actually own a shell company in the Caribbeans usually. But the effect on the market in the US and elsewhere that list these stocks is going to be a perpetual eye toward what Beijing might do next. Look at Didi, a couple of quick words, and bam, on it’s way to becoming worthless. Would anyone in this environment buy BABA, JD, BIDU,or anything else from China? Jack is speaking up, send him to the re-education camp and call Ant a monopoly. Pony said something, Tencent music is violating all kinds of rights and must be reigned in.
What is totally worse is how complicit the US government (SEC) is in allowing our wonderful banks, yes, our wonderful, powerful, beautiful banks to utterly screw investors. The companies on the stock exchange are supposed to abide by accounting standards, companies that were listed from China were magically exempt. I remember one of your old commentator who talked about how Alibaba was a fraud. Well, he isn’t wrong.
Thanks to Jr, and the Audacity of Hope, that situation became worse and worse, and it took the Russian stooge to actually do something about it. And only because it was in his interest. Now the other old wh*** guy is following in his foot steps only because it’s convenient to bash China now.
I said earlier I felt I was in the Twilight zone, I think the actual reality might be that we were in the Twilight zone, and the party is coming to an end, and now we see the warts popping up, and the water is receding fast, so there isn’t much cover any more.
I bought some shares in one of the Chinese companies that was later put on a banned list by President Trump’s Executive order. President Biden replaced the old E.O. what his own version. The only benefit to me was that the “must sell by” date was delayed from November 2021 to June 2022.
The use of the ADR form enables American investors to avoid the hefty commissions, transfer taxes etc. that are levied when the shares are purchased (or sold) on many foreign stock exchanges. My ADRs were delisted from the New York Stock Exchange earlier this year because of the Trump Executive Order, not because of some scam perpetrated by the Chinese. So I had my shares converted by my broker to the actual Chinese shares for pending sale (no later than June 2022).
The only scam that I was a victim of was having my shares put on the banned list. It reminded me of President Roosevelt banning Americans from owing gold back in 1933. In July, I received my semi-annual dividend as before. But the information on the company available to American investors is more limited than before.
“I’m waiting for Beijing to announce next that equity and equality based on socialism view of the world of must be taught in school and math is a capitalist plot to destroy the world. That’s really help ensure no child is left behind around the world… in their indoctrination.” Your prediction is more likely to come true in “woke” school districts in the US before it ever comes true in China.
ON our local radio station, WMAL in the Swamp, a lender, Network Capitol Funding, out of Irving, CA is advertising 15 year mortgage loans at 1.75%. At the rate this is going it won’t be long before the rates are below zero (negative). Houses that were 1 million will be 4 million or more. People taking out these loans will then see their principal locked in while the house falls in value when interest rates normalize, and the taxpayers will be stuck with all the bad paper as all these loans wind up with Fannie Mae. This is where this is headed.
1) There is inflation in US, but US10Y is woke.
2) Money flow send US10Y down since Mar 15.
3) Money flow to Germany sent DET10Y down to minus (-) 0.42. DET10Y is in 2Y trading range since Aug 2019. We don’t know where Germany go : up or down.
4) Foreign money is flowing to the Tokyo Olympics. Japan 10Y is down to zero.
5) The zeros heroes failed the empire of the rising sun.
6) China woke & broke might be causing troubles in Japan. EEM is 40% China big tech & TSM, might be in troubles again.
7) In the last 10 years China foreign debt problems dragged the whole world down.
8) China problems are not temporarily.
Hey Psycho-Fed…sure ignore Russia…yet ignoring El-Erian gentle pleas to slow down the QE madness is going to be both the ultimate re-write of the Fed’s future role and the total reversal of team blue’s previous 2020 fortunes at mid-term elections. How can you be so foolish destroying the middle class via stealth inflation tax on everything, affecting future election outcomes (high inflation loses elections), and setting up the PERFECT conditions in which the govt will eliminate all Fed independence once it all falls apart in the next year or two. Instead of slowing QE, you actually ramped it to $162 Billion for the first three weeks of July..as if $120 billion per month wasn’t enough…what a tool…
Per Bloomberg:
What bond-market guru Mohammed El-Erian said Friday was enough to make bond investors listen like they’re in an old E.F. Hutton commercial.
“Inflation is not going to be transitory,” the chief economic adviser at Allianz SE said in an interview on Bloomberg TV’s The Open show. “I’ve been pretty certain in my mind about three prior calls. This is the fourth one.”
The Fed would make Darth Vader proud…per the most successful billionaire hedge fund investor on planet Earth —>Stanley Druckenmiller via a recent interview:
“If I was Darth Vader and I wanted to destroy the US economy, I would do aggressive spending in the middle of an already hot economy.”
“You usually get a bubble out of that, and you get inflation of of that. Frankly, we now have both. This is the biggest bubble I’ve seen in my career.”
“What are we going to get out of this? You’re going to get a sugar high, the higher inflation, then an economic bust,”
Pointedly our economy has been wrecked by the Reagan presidency/admin, Clinton, GB2, Obama. It’s always been about crushing American labor to a world level playing field which has been very successful so far.
The sheeple are so ready for slaughter. They have been distracted by “junk jewelry (stock markets) and trinkets” for so long they no longer know how to take a different path.
There is no doubt in my mind how deep this slide is going to be but it will still surprise those who think they have all this figured out.
So far the dollar is still used for many important global transactions but other countries/combinations are making more and more inroads to that supremacy.
The world is getting sick and tired of being under the thumb of our “destructive capitalism” thru so many stupid wars.
The FED under the scrutiny of our politicians is way, way out of it’s operational boundaries.
Economic pigmies the likes of Summers, Paulson, and others in 2009 have destroyed the credibility of our economic system and we have not recovered.
There were many warnings in the 1990’s during testimonies by critical thinkers such as Brooksley Born (and others) that should have been reckoned with but the flash of unsupported capital won the days and we are paying for those mistakes.
Americans don’t like to take Castor Oil or admit to mistakes. They won’t have to. We are on a irreversible path to economic/political oblivion.
Be prepared.
Dan, thanks :
I listened to MN symphony on u-tube. I like Maxim. He fiddle pain, tears and barbarism better. He is much more powerful.
Michael,
Glad you enjoyed my local orchestra. The conductor is a good clarinetist, and a month ago his composition, ‘Vanska’s Overture’ was premiered live (on free broadcast TV, public radio FM & steamed on the website) as a prelude to Weill’s Violin Concerto.
Vanska’s wife, Erin Keefe, does play a decent fiddle, and brought it down good on Weill’s piece (Friday, 25 June) I thought.
They will be back on TV & streaming this Friday evening @ 8:00 pm CDT.
Mr. Vengerov lives in Monaco, and that seems like a good place for a man of his talents to reside. His fiddle, a 1727 Stradivarius, was nearly one million pounds when he picked it up in ’98. I’m guessing it’s insured, eh?
A long-time family friend, Bjorn Ranheim, plays a sweet cello down in St. Louis.
Happy listening Michael!
If inflation in fact NOT transient but keep increasing but Mr. Powell and his sychophants in the media. keep insisting and repeating this is transient, every week, how does the Mkt/investors react?
Come next Friday, another inflation report coming!
“This will make it possible to raise the attractiveness of bank deposits for households, protect the purchasing power of savings, and ensure balanced lending expansion.” – Bank of Russia
It’s 2021 and Russia is making more sense than the US.
What does this mean?
Russia isnt bankrupt either. The USA is bankrupt, has been bankrupt for decades. Inflation is much higher than those phoney numbers the FED puts out. Just like the monopoly money we use its all phoney.
Our whole financial system is ponzi scheme.
In order for a ponzi scheme to work it has to have a constant inflow of new funds. This exactly describes fiat currency. The Central Banks constantly have to create more funds for its continued function. They rob Peter(average working stiff) to pay Paul(Elite). They Rob Peter by debasing the currency and Paul collects more of the debased currency enriching themselves.
OK, go check the exchange rate of the ruble against the dollar since 2008. That will be somewhat of an eye-opener. OK, I’ll help you. Since Jan 2008, the ruble has plunged 67% against the USD.
This doesn’t even include the ruble devaluations in prior decades. And Russia did actually default on its debt.
“The USA is bankrupt, has been bankrupt for decades.” OK, I see that your definition of “bankrupt” is very different from the normal definition.
The US government has around $23 trillion in debt. The vast majority is financed as extremely short-term Bills which are held by “public” entities (not the Fed). If rates ever spike, the US Government would be forced to either 1) raise taxes through the roof which would cause a massive depression, or 2) borrow more and more exponentially, which would cause a hyperinflation.
The only option for now is to keep rates low.
_ Perhaps russian short term rates have already risen a fair bit ? When that happens then this spells (financial) trouble for Russia. This is usual when foreign investors pull their money out of a country (e.g. Turkey, Argentina, Brazil, ………. ) = Very Deflationary.