Inflation, hyperinflation or deflation next?

By the measure of final sales to domestic purchasers, domestic aggregate demand has not recovered to 2007 levels; the chart shows final sales to domestic purchasers deflated by the personal consumption expenditures deflator:

Inflation is running ahead of official estimates, according to credible sources cited here:

What happens next is deflationary stagflation: food and energy prices rise, consumer purchasing power takes a hit, and the constraints on the flow of income contribute to further declines in house prices and other consumable assets.

Overall, the intermediate term—debt deflation, asset price declines, exacerbated by supply shocks to items with relatively inelastic demand.

To get a real wage-price spiral going you have to actually pay people enough to cover inflation and then some, and right now the movement in the labor market is toward bashing labor whenever and wherever possible. This is Bernanke’s and every liberal economist’s wet dream, that we get to inflate our way out of our debt once again, just like the old days.

The difference this time is the debt mountain on our backs. When debts don’t get repaid—because of income insufficiency—asset values fall.

The wild card is war. Throughout history, wars have been associated with inflation, and with a larger role for government in the economy. The mainstream parties, Republican and Democrat, have supported all the recent wars slavishly. Only Ron Paul and the Tea Party oppose more war. Whether they really mean it is a mystery to me. There is a lot of unfortunate baggage that goes along with the Tea Party, but at this time, they are the only movement willing to take on the military-industrial complex and provide real change—for which the American public is hungry, as Obama demonstrated. Whether they could actually accomplish anything given the way Congress works is doubtful to me. It would take a sweeping repudiation of the mainstream parties, and the Tea Party so far seems to be traditional Republicanism in sheep’s clothing (financed by the Koch brothers, etc.).

The system is currently dysfunctional. We are entering a crisis episode in which new rules of the game will emerge, one way or another. I believe in peaceful protest. Egypt was inspiring in this regard.

Peace.

See also You Want Inflation? Here's How To Get It

From dictatorship to democracy

Via:  New York Times  (h/t patrick.net)

Shy U.S. Intellectual Created Playbook Used in a Revolution

By SHERYL GAY STOLBERG

BOSTON — Halfway around the world from Tahrir Square in Cairo, an aging American intellectual shuffles about his cluttered brick row house in a working-class neighborhood here. His name is Gene Sharp. Stoop-shouldered and white-haired at 83, he grows orchids, has yet to master the Internet and hardly seems like a dangerous man.

But for the world’s despots, his ideas can be fatal.

Few Americans have heard of Mr. Sharp. But for decades, his practical writings on nonviolent revolution — most notably “From Dictatorship to Democracy,” a 93-page guide to toppling autocrats, available for download in 24 languages — have inspired dissidents around the world, including in Burma, Bosnia, Estonia and Zimbabwe, and now Tunisia and Egypt. […]

Non-violent protests works.  Note that you can download the piece itself.  I did. 

Robert Reich utters the taboo words

“Tax the rich.”  More steeply progressive taxation is the only way to rebalance demand and get the economy going again in the near term.  See also George Washington’s excellent post on inequality here.

Via:  http://www.huffingtonpost.com/robert-reich/the-obama-budget-and-why-_b_822920.html 

[…] The best way to revive the economy is not to cut the federal deficit right now. It's to put more money into the pockets of average working families. Not until they start spending again big time will companies begin to hire again big time.

Don't cut the government services they rely on -- college loans, home heating oil, community services, and the rest. State and local budget cuts are already causing enough pain.

The most direct way to get more money into their pockets is to expand the Earned Income Tax Credit (a wage subsidy) all the way up through people earning $50,000, and reduce their income taxes to zero. Taxes on incomes between $50,000 and $90,000 should be cut to 10 percent; between $90,000 and $150,000 to 20 percent; between $150,000 and $250,000 to 30 percent.

And exempt the first $20,000 of income from payroll taxes.

Make up the revenues by increasing taxes on incomes between $250,000 to $500,000 to 40 percent; between $500,000 and $5 million, to 50 percent; between $5 million and $15 million, to 60 percent; and anything over $15 million, to 70 percent.

And raise the ceiling on the portion of income subject to payroll taxes to $500,000.

It's called progressive taxation. […]

The kleptocratic rich are drooling, thinking about how they’ll be able to hire servants cheaply in the near future, once Neo-Feudalism is securely in place.  “Yes, m’um.  No, m’um.  Is there anything else, M’um?”

Paul Farrell has an excellent rant on the Chairsatan Bernank’s tenure:

http://www.marketwatch.com/story/fed-dictator-bernanke-needs-to-be-toppled-2011-02-15

‘Animal spirits’ lagging in cycle

From Dave Rosenberg at www.gluskinsheff.com:

The most recent uptick in the Michigan Consumer Sentiment index is anemic in relation to where the index usually is at this point in a recovery.

Comment on “modern monetary theory”

Inspired by Lincoln’s printing of fiat money to finance the Civil War, “modern monetary theory” posits that deficits don’t matter, that money is as money does, and that we should just print more money to get out of our present debt hole.  I haven’t addressed MMT before (except to dismiss it once, as I recall, as just another ruse to inflate our way out of our debt) because I considered it beneath the level of serious discourse, but Jesse has a nice demolition of it here, that I would like to add to.

Indeed, MMT is just another ruse to inflate our way out of our debt, which in the context of a fiat money world, Bretton Woods II, requires that our currency depreciate against others, but not so much that people refuse to accept it any more.  Money is what people accept as money, and if folks stop accepting the dollar—whether as reserve currency or not—then the U.S. is hosed.  Our banana republic status becomes official.

What I would like to add to Jesse’s analysis is the hidden truculent aspect of MMT.  In the context of a declining, bankrupt empire whose denarius is still widely accepted, an empire threatened by “barbarians” at its borders and dissent within, the best way to keep your denarius viable is to sow chaos across the rest of the world.

The Bretton Woods II super-nova, as I have called it, is just beginning to flame out.  The world-wide housing bubble was not created by Wall Street but by Washington forty years ago when the world went on Bretton Woods II.  Sure, Wall Street piled on and sold the rest of the world a bunch of toxic assets, to do their part to support the empire.

But should democratic reform spread—should the Europeans work out their problems, should China successfully reign in its bubble—should there become a viable alternative to the dollar, and the oil price rise sharply in dollars—there will continue to be strong incentive for the U.S. empire to defend its currency by sowing chaos throughout the world.

Wars have always been the best way to stimulate inflation.  And “modern monetary theory,” which disingenuously offers the old ruse of inflating one’s way out of debt, implicitly invites inflation and war.

Egyptian uprising as an ultimatum game

In an ultimatum game (reference) two subjects are given a free endowment to split.  The experiments routinely find that a subject facing an overly greedy partner will refuse to play. 

The ultimatum game is a game often played in economic experiments in which two players interact to decide how to divide a sum of money that is given to them. The first player proposes how to divide the sum between the two players, and the second player can either accept or reject this proposal. If the second player rejects, neither player receives anything. If the second player accepts, the money is split according to the proposal. The game is played only once so that reciprocation is not an issue.[…]

In many cultures, people offer "fair" (i.e., 50:50) splits, and offers of less than 20% are often rejected.^[2] One limited study on monozygotic and dizygotic twins claims that genetic variation can affect reactions to unfair offers, though the study failed to employ actual controls for environmental differences.^[3]

The Egyptian protesters, unarmed, brought the Egyptian economy to a standstill.  So much for the force of arms.  Will they go back to work under the threat of arms? No likely.

Instead, the army has taken the people’s side.  Smart move.  So far.

So all the Homeland Security thugs who disarmed the people in New Orleans and who stand ready to disarm the American people should they engage in civil disobedience should take this to heart.  Who’s side do you want to be on, in the end?  The Gini coefficient in Egypt is more unequal than that in the U.S. (reference). What we lack so far is the abuses of the secret police in Egypt that, I believe, ultimately mobilized the people.

Egypt is showing the world a way forward.  I hope and pray the resolution is peaceful.  However it goes will serve as a model in the world’s imagination for how “the authorities” aligned with the American Empire can and will respond to civil disobedience and demands for social justice.

Added 2/14:  Egypt: The Distance Between Enthusiasm and Reality  Still a military dictatorship in the short run, a true revolution yet to occur.

Nearly 11 Percent of US Houses Empty

Via:  cnbc.com  That would be 18 million houses.  Slightly more than one per officially unemployed person.

By: Diana Olick

I usually find the quarterly homeowner vacancy and homeownership report from Census pretty lackluster, but the latest one released this morning was anything but.

America's home ownership rate, after holding steady for a while, took a pretty big plunge in Q4, from 66.9 percent to 66.5 percent. That's down from the 2004 peak of 69.2 percent and the lowest level since 1998.

Homeownership is falling at an alarming pace, despite the fact that home prices have fallen, affordability is much improved and inventories of new and existing homes are still running quite high.

Bargains abound, but few are interested or eligible to take advantage.

More concerning than the home ownership rate is the vacancy rate. The Census tables don't tell the entire story, but they tell a lot of it. Of the nearly 131 million housing units in this country, 112.5 million are occupied. 74.8 million are owned, and that's only dropped by about 30 thousand in the past year. 38 million are rented, but that's up by over a million year over year. That means more new households are choosing to rent.

Now to vacancies. There were 18.4 million vacant homes in the U.S. in Q4 '10 (11 percent of all housing units vacant all year round), which is actually an improvement of 427,000 from a year ago, but not for the reasons you'd think.

The number of vacant homes for rent fell by 493 thousand, as rental demand rose. 471,000 homes are listed as "Held off Market" about half for temporary use, but the other half are likely foreclosures. And no, the shadow inventory isn't just 200,000, it's far higher than that.

Slideshow: 10 U.S. Cities Where Renting Beats Buying

So think about it. Eleven percent of the houses in America are empty. This as builders start to get more bullish, and renting apartments becomes ever more popular. Vacancies in the apartment sector have been falling steadily and dramatically, why? Because we're still recovering emotionally from the toll of the housing crash.

Younger Americans have seen what home ownership has done to their friends and families, and many want no part of it. Credit has become very nearly elitist. Home prices, whatever your particular data provider preference might be, are still falling.