RBS issues a scary inflation warning ...
RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve
Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.
The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."
Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly pencilled in by the Fed Board as the upper limit for quantitative easing (QE).
The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.
The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.
Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".
"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.
The economy is in trouble, the "stimulus" didn't work, and we're heading for a long depression. There Will Be (Hyper)Inflation.
Will there also be food shortages? Will you be able to feed your family?
Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.
Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.
The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.
Here, listen to what the Mogambo Guru has to say ...
Fed Credit, Inflation and the Idiots in the Middle
A whole series of alarms occurred after I got the news, although I lost the source, that “food stamp usage just soared to a new record high” of 40.2 million persons.
This number is alarming in itself because it means that the economy is so bad that more and more hungry people cannot afford to even feed themselves, sort of like teenagers, but with hopefully better manners and dietary choices.
And also alarming that the number of people needing government assistance to buy food “soared,” which is probably a verb of some kind, which indicates action, which is a signal to me, a real Mogambo Action Hero (MAH) kind of guy, to spring into action with my awesome superhuman power to instantly perceive trends in even random data.
Ergo, it made me shriek alarmingly “We’re freaking doomed!” which alarmed the other diners in the restaurant.
Perhaps I am so dyspeptic about such displays of raw stupidity because I had just found out that the Federal Reserve created another huge $8.5 billion of new Fed Credit last week, and simultaneously bought up $7.2 billion in US government securities, which had the effect of removing a nominal $7.2 billion in crappy assets (actual worth; pennies on the dollar) out of the economy, thus bailing out some halfwit scumbags who owned the toxic assets and would otherwise go bust, and replaced it with cash, recapitalizing the idiots! In One Freaking Week (OFW)!
Nobody can really know how much new money will be made out of this new Fed credit, but I notice that the M2 money supply, which causes inflation in price when it grows, as famously summarized as “inflation in prices is always and everywhere a monetary phenomenon,” instantly jumped $80 billion from the previous monthly report, the Treasury Gross Public Debt jumped by $27 billion in the same week, a towering mountain of government-borrowed debt which is up an outrageous $1.5 trillion in the last year, and indebting us by a staggering $13.07 trillion! Yikes!
With unemployment at Great Depressions levels, millions exhausting their unemployment benefits, and thousands more unemployed due to the oil drilling moratorium, a large percentage of American's will be facing serious hardship. And on top of all that, the Federal Reserve is going to continue diluting the value of the dollar.
We are doomed.
