Always being on the lookout for inflation is part of The Mogambo Way (TMW), as
there is nothing else that can destroy a society faster than a lot of angry
people who cannot afford to buy food for themselves or their hungry children,
and after a while the incessant whining and crying of hungry babies gets on the
nerves of the adults both in the room and for blocks around until, suddenly,
one day, something just snaps and there is Hell To Pay (HTP).
Thus, always nervous and paranoid, I see inflation in prices everywhere I look,
which is not surprising since I also see inflation in money supplies everywhere
I look, which causes inflation in prices, and so I was surprised when the Labor
Department said that consumer prices fell 0.7% in December - falling for the
third
straight month! - and prices were up only 0.1% for the year, which is "the
smallest increase since 1954"!
In fact, this is not exactly true, as at bls.gov we learn that, as we already
know, "The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0%
in December, before seasonal adjustment, the Bureau of Labor Statistics of the
U.S. Department of Labor reported today. The December level of 210.228
(1982-84=100) was 0.1% higher than in December 2007."
However, when you look closer, you will see that the price of energy going down
accounted for most of the lack of inflation, or, if you don't want to look
closer, you can just read where the Labor Department itself said, "Declining
energy prices, particularly for gasoline, again drove most of the decline."
To prove it, they go on "The energy index declined 8.3% in December. Within
energy, the gasoline index fell 17.2% and accounted for almost 90% of the
decrease in the all items index." - 90%! Almost all!
In fact, excluding food and energy, overall prices increased 1.8% "for all of
2008", which is almost 2%, and as such is VERY worrisome when inflation should
be zero.
There was bad news for those of us that eat food, however, as the food index
rose 5.9% in 2008, as compared with 4.9% in 2007, "with grocery store food
prices rising 6.6% in 2008 compared to 5.6% in 2007." Yikes!
"In both cases," the department reports, "the 2008 increases were the largest
since 1980", which is certainly NOT consistent with the headline news that
prices were up 0.1% for the year, and reports of no inflation are a Hell Of A
Long, Long Way (HOALLW) from the real news that "Among the grocery store food
groups, the 2008 increases ranged from a low of 2.7% for dairy and related
products to a high of 11.7% for cereals and bakery products." A low of almost
3% increase in prices to almost 12% higher prices!
And if that is not bad enough, the index for medical care, which is a huge part
of GDP, was up 2.6% over the past year, too! Inflation is everywhere!
And if inflation is actually so low, then why did NYTimes.com have the headline
"Cost of Borrowing Zooms Up for Corporations", which is apparently understating
it, as "Even companies with strong credit ratings are paying about 5 percentage
points more than the federal government to borrow money, according to Standard
& Poor's. That is more than double the premium they paid last January.
Companies with so-called junk credit ratings are paying a 15% premium."
This is, according to Diane Vazza at Standard & Poor’s, "an extraordinary
spread" and is "unprecedented in the speculative-grade market."
So don’t look to me for answers as to what any of this means or how to take
advantage of "unprecedented" spreads, as I am far, far too stupid to make any
sense of it, if, indeed, there is any sense to be made from it, and that is why
I mindlessly, almost mechanically, buy gold, silver and oil, and why I suggest
that you do, too, and spend your time productively engaged in downloading porn
from the Internet and making yourself a drink every time your glass is empty!
Which, now that I think about it, sounds like a very good idea right about now!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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