Thursday, December 13, 2007

Inflationary Wild Fire in America

Now even official government statistics starts to display the inflationary tidal wave in America. The import price index rose 2.7% in November 2007 from October 2007 and 11.4% from November 2006 while the producer price index rose 3.2% from the previous month and 7.2% from 12 months earlier. That the sharp increase in import prices does not merely reflect deteriorating terms of trade but is also reflecting general inflation is illustrated by the fact that export prices rose 0.9% from the month before and 6.1% from 12 months before.

The consumer price index that will be released tomorrow will probably rise a lot less than 3.2% on a monthly basis, but it also seems likely to rise a lot more than the 0.6% estimate of most analysts.

So, at a time when inflationary pressures are getting worse and worse, what does the Federal Reserve and "Helicopter Bernanke" do? They take more measures to increase the already abundant liquidity, including interest rate cuts, ensuring continued debasement of the dollar. That is why I think everyone who can should get out of the dollar ASAP. That currency is going to hell in a hand basket.


Anonymous Anonymous said...

But the other central banks are doing the same?

And the dollar is 30% unervalued against the Euro?


5:48 PM  
Blogger stefankarlsson said...

All central banks inflate, but the Fed inflates more than most others, including even the ECB.

On what basis do you see the dollar 30% undervalued against the euro?

Euro zone yields are more attractive even as the euro zone runs a current account surplus while America still has a large deficit. America is in other words a massive capital importer that in all relevant aspects provide a worse deal for investors.

10:10 PM  
Anonymous Anonymous said...

yes they inflate a lot, but china for exampel inflates at an 18% rate, Sweden did inflate 15-20 %

PPP(=purchasing power parity) USA in cheap for Europeans today


11:40 AM  
Blogger stefankarlsson said...

But China inflates in order to limit a absurdly undervalued currency and moreover has very high output growth. Sweden too has higher economic growth and unlike the Fed who does everything it can too increase inflation, the Riksbank is taking measures to restrict money growth.

With regard to the PPP number, even if your nember is correct it is largely irrelevant. The only relevance it could have is to the extent it makes people buy American goods instead of European and so reduces the U.S. trade deficit and therefore reduces the need for capital inflow into America. But while the deficit has come down somewhat earlier this year, the fact remains that America runs a great deficit, meaning that the alleged PPP difference have very limited relevance.

2:51 PM  

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