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US Inflation at 8.6% in May, Blows Past Estimates and Hits Highest Level Since 1981


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Jun 10, 2022 | DailyFX
Diego Colman, Market Analyst

MAY INFLATION KEY POINTS:

  • May U.S. inflation rises 1% on a seasonally adjusted basis and 8.6% over the last 12 months, well above expectations.
  • Core CPI increases 0.6% m-o-m and 6% y-o-y, also above consensus estimates.
  • Strong inflationary forces could put pressure on the Fed to increase rates in 50 bps increments well beyond the July meeting.

Read more on May inflation news

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Inflation, Money Supply & Ex-Central Banker

Former Bank of England Governor Mervyn King says central banks have fueled the cost of living crisis by printing too much money during the pandemic. Checkout: 

 

The smart ex-banker speaks of mistaken ideas in the banking world.

Inflation soared in the USA, Britain, and the EU. That means lots of printed cash, $5+ tn in us, chasing too few goods. Rates on us 10-yrs treasuries turned to real rates. A domestically created situation, well before Ukraine war.

QE is part of the monetary theory which bankers have come to love at any cost, it involves the printing of money whenever you want it to finance cheaper loans! Who can pile up the highest debt-mountain? Your company? Your bank? Your government? What happens after that? Can't go on building debt mountains forever, or can you? Currency is debased. Badly doing entities are propped up instead of letting them collapse (includes bad banks).

Companies with excess cash, pension funds, individuals and foreign entities bought uncle Sam’s IOUs (they pay the bills).

The fed, in 2021, bought huge sums of mortgage-backed securities last year from the nation’s banks (2 trillion). And it bought $52 bn worth of corporate debts. Plus the $48 bn pay-check facility program ( a debt). It has about $11 bn worth of gold only. Nice gravy train for the bankers.

So, why couldn't the banks and corporates be made to handle their own mess?

It is a circular mechanism in operation by the fed.

Whatever reasons some think, including the fed, that the us companies, banks and individuals were in good health!!!! The above 'bailouts' prove otherwise. Sure, some companies are but the other majority? By what ill-defined measures are they good???

Currently debt build-up by many individuals, many companies, federal governments, central government is at the highest ever in their history. That means bankers have been loaning out huge, huge amounts. Some risky loans will have been dished out too, as in past history, – for whatever the causes ( e.g. Student loans, margin debts by financial companies etc...). The future could become very risky - toxic – red hot, as proved by past recession after recession. The historical facts are there for all to read.

Do any professionals heed past historical experience and not make the same mistakes, again and again?

If, say, you carried on borrowing, and borrowing eventually you go bankrupt, or are forced to cut back severely and go through hardship. But bankrupt means – can't pay back – so some bank or a lender will have to write it off as a big loss to them. Write offs are a loss that have to be covered by current income and savings. But a government taking a company's debts means the banks’ lending it are off the hook and the tax payer has to pay for it as a result ( not written off ). The buck is passed on.

No wonder running a government like that is complex, confusing and causes recessions.

Now governments, banks, and companies eventually get overwhelmed with their ever growing loans (debts) that risk their future survival. An economic or a financial calamity occurs. This causes mega losses, say, in a bank or a company. Their existing loans and other IOUs become a problem to lending banks. Soon a domino effect begins on bad debts.

That is the dwindling spiral.

 

What about the troubled bank and that troubled company situation now?

Currently no problem we, the government, as 'wisely advised', should “solve” the issue by taking over their toxic debts via the central bank. That's' magic'!

A complex account juggling system. It is effectively the government debt now, to be paid off by the taxpayers, once the bond holders have given their interest payments to the central bank. This has been the practice until now.

Subsidies and free money are great aren't they? After all the “taxpayer” can pay it off ( forced to, no choice ), instead of the originators of those debts. Companies and banks foul-ups are let off the hook! What magic!

In effect they pass on their losses to the taxpayers, they do not take their own financial responsibility but they took all the profits while it lasted. Oppressive to the taxpayers, but great for bankers. A win for them, so they can 'afford' to take excessive risks.

What company or a bank would take others debts to pay it off for them? Are you mad? None...zero...zilch number.

Yet this is what glib governments are advised to do and are doing without realising the implications. The capitalists practice with socialist methods by distributing their costs and foul-ups onto others, but not their profits. What a scheme!! Hey, who thought of it first?

Government needs to borrow more? No problem, we'll just print it, as much as you (government) desires. After all, they cannot go bankrupt – or can they? Yes, some have in the past. Banks only go on lending as they know the taxpayer will eventually foot the bill in time, unless the government lives within its means.

In the 2000s, fed chairman, Alan Greenspan kept on printing money and kept interest rates too low for a long time. That created the housing bubble from 'cheap money', i.e. Central bank fueled the housing bubble making people think “wow, i can borrow sub-prime loans” when in reality they could not afford it. An illusion that could not last.

In the EU. With various countries being part of it they have a 'one size fits all' monetary policy. In 2000s Spain and Ireland had their property bubble markets .

In the meantime Germany was the “sick man of Europe”, all because their rates were too high and Spain and Ireland had too low a rate ( cause a housing bubble)..

The EU finances “lame duck countries” like Greece and Italy with huge loans which is basically financed by northern EU countries, particularly Germany ( hence its tax paying people ) – it is all structured that way in their complex, creative accounting system. They break their own set rules too. But that's another story.

There is a basic economic law that says a country cannot have all three at any one time of the following:

A fixed exchange rate ; independent monetary policy; and, free capital flows (money transfer in & out of the country).

Violating this law will cause an economic crisis, eventually.

The other major economic law says that any money printing (cash, digital or other forms) depends on the following:

Money supply relates to the sum of existing goods and services delivered.

Violating this in either direction leads to inflation / deflation.

So using the money supply to keep rates deliberately low to finance further debt build-up brings havoc down the road. The pressure valves blow.

Some say, that increasing rates will cause higher bond rates, slow the economy, reduce companies growth rate, and lead to job losses. Yes, that is possible but only because companies and banks are not in a healthy enough condition to absorb the knocks. And why did they not think of the issue when they were free wheeling and dealing with money printing on the cheap? That was the time to see the future consequences of their actions. They know it has happened before.

Funny thing is; it is a theory that is used which so far always has come a cropper using it, though not apparent at the time. Greed knows no bounds.

Mervyn king said: “ central banks do not know where interest rates are going”. The charting via models used is for longer term predictions and bankers tell us where rates will be in the future! But not about emergency action needed right now, not next month or two or three later.

Markets act, central banks wait and see ,then follow the markets cue ( but everyone thinks it is the other way round! ). The markets know best in working things out without central bank and government interference.

King said: the theory model used is bad and is rarely admitted.

Most professionals could not tell what false information or miss-assumptions are used that are wrong for the forecasts and the “solutions” otherwise they would not be using them. Bad solutions tend to be destructive to industry and society which pushes the cost onto the society instead (via government bailouts, subsidies toxic debt takeover etc...). If an entity goes bust, let them. New companies always come in afterwards with new investments. Governments can “bailout” only the taxpayers they represent.

Bankers have to take their share of their loses rather than pass them on. After all they lend that money at their own calculated risk. They have to take responsibility for their actions and results themselves, in this way it will force them to use prudent practices at all times in the future.

Contagion of bad practices is typically ignored and not realised.

If the financial laws were simplified with strict guidelines of prudent practices and all loopholes cut with simpler laws (dos and cannot dos). That would be wow! Companies and banks would have far reduced financial admin overhead costs and can focus on their main purpose. But, you know, they can't allow that, vested interests mate. Can't break-up a cosy scheme that lasted many many decades.

As in football all games need good rules and disciplinary actions for those who break them, and refers to police prudent practices. This is true for all areas of life.

 

 

 

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On 13/06/2022 at 11:21, skyreach said:

Inflation, Money Supply & Ex-Central Banker

Former Bank of England Governor Mervyn King says central banks have fueled the cost of living crisis by printing too much money during the pandemic.

Thanks for sharing @skyreach

image.png

 

All the best - MongiIG

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On 13/06/2022 at 11:21, skyreach said:

Inflation, Money Supply & Ex-Central Banker

Former Bank of England Governor Mervyn King says central banks have fueled the cost of living crisis by printing too much money during the pandemic.

Thanks for sharing @skyreach

U.S. recession isn’t ‘inevitable,’ but inflation is ‘unacceptably high,’ Treasury Secretary Yellen says
PUBLISHED SUN, JUN 19 2022 | Jessica Bursztynsky | CNBC

KEY POINTS

  • The recession that many Americans fear is coming is not “at all imminent,” Treasury Secretary Janet Yellen told ABC News on Sunday.
  • Talk of a recession has accelerated this year as inflation remains high and the Federal Reserve takes aggressive steps to counter.
  • On Wednesday, the Fed announced a 75 basis point interest rate hike, its largest since 1994.

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The recession that many Americans fear is coming is not “at all imminent,” Treasury Secretary Janet Yellen said Sunday.

Talk of a recession has accelerated this year as inflation remains high and the Federal Reserve takes aggressive steps to counter it. On Wednesday, the Fed announced a 75 basis point interest rate hike, its largest since 1994. Fed Chair Jerome Powell also indicated the Federal Open Market Committee’s intent to continue its aggressive path of monetary policy tightening in order to rein in inflation.

At the same time, many expect the combination of resilience in consumer spending and job growth to keep the U.S. out of recession.

“I expect the economy to slow,” Yellen said in an interview with ABC’s “This Week.” “It’s been growing at a very rapid rate, as the economy, as the labor market, has recovered and we have reached full employment. It’s natural now that we expect a transition to steady and stable growth, but I don’t think a recession is at all inevitable.”

Although Yellen seemed optimistic about avoiding recession, the global economy is still facing serious threats in the coming months with the continued war in Ukraine, soaring inflation and the Covid-19 pandemic. “Clearly, inflation is unacceptably high,” Yellen said.

Still, she doesn’t believe a drop-off in consumer spending would be the cause of a recession. Yellen told ABC News that the U.S. labor market is the strongest of the post-war period and predicted that inflation would slow “in the months ahead.”

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On 13/06/2022 at 11:21, skyreach said:

Inflation

Key to trading inflation, and making money, is understanding how money quickly erodes in value as inflation picks up.

IGTV’s Jeremy Naylor caught up with Simon Popple, author of the Brookfield Capital Intelligence Report, who highlights this erosion. Popple’s view is to invest and trade into commodities, particularly gold.

 

 

 

 

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Just now, MongiIG said:

trading inflation

Trading inflation: the great economic reset

With the tunnel vision central banks have around inflation, and how to deal with it, those voting on rates can only see the carnage in their wake in the rear-view mirror.

 

Jeremy Naylor | Writer, London | Publication date: Monday 20 June 2022 

IGTV’s Jeremy Naylor caught up with commodities specialist, John Meyer from SP Angel, who said that commodities are usually a hedge against inflation but with recession looming a recovery may be some way off.

 

 

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Thank you MONgilG for reference to the above article.

It is very relevant even today as the mechanisms used at the time and now are similar to today's environment.

There is a lesson to be learnt in here ... somewhere! Here is one take on that.

Let's assume a Pandemic occurs, worldwide (not a new thing, has happened many times in history). What to do then?

A.     CLOSE DOWN THE WORLD'S PRODUCTION & LIVELYHOOD? That was the response on this occasion. WE ALL SUFFER, BIG TIME, AN EXTREME THING TO DO.

B.     Have an alternative solution? Is it, or was it possible?

Oddly enough, I searched the Internet with key words for one. Bingo, there was one. But NO ONE WHO KNEW ABOUT IT EVER ADVISED GOVERNMENTS ABOUT IT. HOW STRANGE!!!! AND IT IS WELL A KNOWN SOULTION!

DCON7 -- Decontamination 7.  See ref.:      https://www.decon7.com/

No government, Industry, Airports, Hotels, etc.... need have been closed up. Instead this solution would have be useable. Dcon7 was created by the military after the Anthrax situation years ago. It kills 99.9999 bacteria, viruses and microbes. It IS the best solution in the world they created. It is generally USED in machinery in industries & hospitals.

The world and its governments need NOT have gotten so stressed up with further huge debts as it had been made to do so. Industry could have bought the solution and kept the wheels of Industry going. with far far less loss of income and the debt build up from it. Protocols would still have been needed mind you. And governments could have said to Big Pharma we'll help you finance you vaccines, legally protect you from being sued but in return give some of that profit as we are partners in this solution. I suspect , like bankers, they would not give money in any exchange, nor even to volunteer it themselves. ( I know, it is asking a lot there FOR THEM TO DO AN EXCHANGE ).

ECONOMY OF ANY COUNTRY IS BASED ON IT's NATURAL LAWS BEING USED WISELY AND NOT ABUSED AS IS WITH MONETARY THEORY AND ANY OF THE WORLD-ORDER POLICES OF CENTRAL BANKERS. You disobey gravity by thinking you can jump up in the air and stay there. But NO, you come crashing down. The analogy is similar when natural laws applicable are abused or mis-used, or not even used. Economies come crashing down.

Inflation and the rates ARE NOT THE ONLY GOVERNING FACTORS IN RUNNING AN ECONOMY.

HOW EACH INDIVIDUAL COMPANY MANAGES ITS FINANCIAL MANAGEMENT IS ALSO GREATLY IMPORTANT. COLLECTLY THEY PROVIDE USE WITH THE HEALT OF THE ECONOMY.

MALPRACTICE BY CREATIVE ACCOUNTING METHODS, OVER INDEBTEDNESS, POOR RE-INVESTMENTS, LACK OF PRODUCTS THAT ARE NEEDED & WANTED, BAD QUALITY OF SERVICE, DOGGY PRACTICES, TOO FAST AN EXPANSION, TOO SLOW AN EXPANSION, POOR PRODUCTS OFFERED, ETC...

THESE ARE THE MAJOR FACTORS THAT HELPS TO BUILD THE PICTURE OF HEALTH OR ILL HEALTH IN OUR MACRO ECONOMIC PICTURE.

Come a recession, many companies are in trouble. Finance companies and banks are in BIG trouble.

WHY?       DID THEY NOT SEE IT COMING AS PROFESSIONALS THAT THEY SHOULD HAVE BEEN? DID THEY NOT USE ENOUGH CUSION OF SAVINGS TO BE ABLE TO RIDE IT OUT. OR AS USUAL, THEY UNDERESTIMATED THE NEEDED RESERVES , OR DID THEY GET CARRIED AWAY BY THE SEDUCTIVE POWERS OF CHEAP MONEY AND BUILD UP DEBTS LIKE NEVER BEFORE BECAUSE IT IS CHEAP ( WHAT A TRAP ). P.S.  ARE YOU SURE THEY ARE REAL BUSINESS PEOPLE OR HAVE ALLIENS TAKEN OVER TO DESTROY COVERTLY?

IT IS NO GOOD BLAMING EVRYTHING ON THE CENTRAL BANK TO MYSTICALLY "SOLVE" EVERYTHING. THEY CANNOT, THAT IS THE PAST EXPERIENCE. THEIR ASSESMENT OF RESERVES REQUIRED FOR BANKS WILL NOT WORK WHEN THE TIME COMES. INDIVIDUAL COMPANIES AND BANK HAVE TO TAKE THEIR OWN RESPONSIBILITY, NOT GOVERNMENT.

GOVERNMENTS CANNOT SOLVE INDIVIDUAL COMPANIES PROBLEMS. IT IS ALSO NOT THEIR JOB. THEIR JOB IS TO POLICE  ALL INDUSTRIES, THAT THEY MANAGE THEIR BUSINESSES WELL AND GET PENALISED IF ANY ABUSES  ( INCLUDING THE INDIVIDUALS RESPONSIBLE). UNFORTUNATELY THIS IS WERE GOVERNMENTS HAVE FAILED TO DO WELL UP UNTIL NOW. 

IF PROFESSIONALS SAY THEY UNDERSTAND THE PROBLEMS THEN THE SOLUTION APPLIED SHOULD WORK, SHOLUDN'T THEY?   IF IT DOESN'T THEN THEY REALLY DID NOT UNDERSTAND THE SITUATION AND ITS REAL SOLUTIONS. WHAT MIS-ASSUMPTIONS WERE USED THEN....HUMmmmm?

TIME WILL SURELY TELL WHAT UNFOLDS. 

 

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1655814269229.jpgSource: Bloomberg
 
Hebe Chen | Market Analyst, Melbourne | Publication date: Tuesday 21 June 2022 

This is a busy week for the RBA and its Governor with three reports released from Australia's central bank on Tuesday to help traders identify the central bank’s next move and of course, their investment strategy moving forward.

Inflation

The RBA now expects inflation to peak at around 7% in the December quarter versus its 6% prediction in May. This price rise is based on external and internal pressures including the increase in petrol and the availability of new cars.

Petrol prices in Australia have increased by 37% over the past year which alone adds around 1% to headline inflation (now 5.1%) while disruption to global production and the solid internal demand from the pandemic is significantly affecting the fastest-growing price in two decades.

1655814538649.JPGSource: RBA

However, the RBA didn’t anticipate the high-flying inflation rate could maintain its current pace into the next year and instead believes the consumer price index (CPI) will begin to decline for three reasons.

First, pandemic-related supply problems should be gradually resolved in the next six months as companies adjust to their new operating environment. Second, the current decades-high inflation rate is raising the bar for future comparison, meaning that prices have to keep increasing at an extremely elevated rate to maintain the current 5-7% growth rate.

The third factor relies on the central bank’s monetary policy and the tools available. The outlook of high-interest rates globally, which are set to be above 2% for most developed countries, should help to rebalance the demand for goods, services and supplies in the market. In that case, the irrational price movement can be stabilized.

 

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On 20/06/2022 at 16:11, MongiIG said:

 

 

Recession

Despite admitting the board of the central bank was very concerned about the downside risks to the economy, Governor Lowe was positive that a 'recession is out of the horizon' for Australia.

Governor Lowe does have sound reason to support his bold statement as evidence shows that domestic demand has been resilient even with winter virus outbreaks and the floods on the east coast. As such, GDP growth for the June quarter is anticipated to grow at the annual rate of 3.3%, lower than the previous two quarters but still higher than the pre-pandemic levels.

Furthermore, the combination of rising wages in a tight labour market and a high ratio of household savings should help Australian families to overcome the increasing price to some extent.

Overall, although GDP growth had slowed in the March quarter, Australia’s economy is still a safe distance away from worrying about a recession.

1655814700324.JPGSource: ABS
1655814731105.JPGSource: ABS; RBA
 
 
Hebe Chen | IG Market Analyst, Melbourne | Publication date: Tuesday 21 June 2022 
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May Inflation at 7.7% in Canada, Highest Level Since 1983; USD/CAD Holds Gains

Jun 22, 2022 | DailyFX
Diego Colman, Market Analyst

CANADIAN INFLATION DATA:

  • May Consumer Price Index rises 1.4% m-o-m, five tenths of a percent above estimates. The annual rate, for its part, surges to 7.7%, the highest level in nearly 40 years.
  • Core inflation advances 0.8% m-o-m and 6.1% y-o-y, also topping expectations
  • USD/CAD holds daily gains after the Canadian CPI report crosses the wires, but the move is linked to risk-off sentiment and falling oil prices

May Inflation at 7.7% in Canada, Highest Level Since 1983; USD/CAD Holds  Gains

Price pressures strengthened last month in Canada, bolstered by soaring energy and food costs, further eroding consumer purchasing power and increasing the risk of inflation becoming seriously entrenched in the economy, a situation that could lead to more aggressive monetary policy tightening in the coming months.

According to Statistics Canada, the consumer price index, which measures a comprehensive basket of goods and services, surged 1.4% on a monthly basis in May, bumping the annual reading to 7.7%, the highest level since January 1983, a figure almost four times the central bank's 2% target. Analysts surveyed by Bloomberg News had expected headline CPI to rise just 1.0% m-o-m and 7.4% y-o-y.

Details of the report showed that energy contributed the most to the monthly increase, as this category spiked 8.5% m-o-m on the back of a 12% m-o-m surge in gasoline. With prices at the pump rising further during the first half of June, energy expenditures will remain biased to the upside in the near-term, suggesting that the headline index may exceed 8% later in the year before topping out.

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