Inflation is wrecking economic recovery
Prices are rising, and consumers are losing their spending power. Are the Fed's inflationary policies backfiring?
Oh what a wicked twist…Skip to next paragraph
Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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What a nasty turn…
What a bummer!
Now, consumer prices are rising. The feds wanted inflation. Apparently, they’ve got it. The latest figures show consumer prices rising at 0.5% per month. Doesn’t sound like much. But multiply by 12. It’s over 6% per year.
Producer prices are going up even faster – at a 20% annual rate, if you extrapolate from last month.
Of course, one swallow does not a springtime make. And maybe these early birds of inflation will prove to be loners. We won’t know for a while. But prices on energy, food, and auction-priced goods are definitely going up.
And as they go up, consumers are left with less spending power. Instead of encouraging the real economy forward, inflation is pushing it back.
Instead of causing more spending, the higher prices are absorbing what little purchasing power households had left. Instead of increasing demand, inflation is reducing it.
Let’s go back:
The real economy depends on two major things:
Jobs. And housing.
Most people spend money that comes directly from their jobs. And most of their accumulated wealth is in their houses. Neither looks good.
Here’s a little note on the job situation:
Massachusetts employment organization has canceled its annual job fair because not enough companies have come forward to offer jobs.
Richard Shafer, chairman of the Taunton Employment Task Force, says 20 to 25 employers are needed for the fair scheduled for April 6, but just 10 tables had been reserved. One table was reserved by a nonprofit that offers human services to job seekers, and three by temporary employment agencies.
Shafer tells the Taunton Daily Gazette the lack of employers means the task force won’t have enough money to properly advertise the fair.
The task force has been organizing the job fair nearly every year since 1984.
To judge by the overall level of home sales in the United States, the housing market has stabilized at a level well below the peak period of 2005 and 2006 but still higher than the sales rates that characterized prosperous periods in the 1980s and 1990s. Still, few of those sales are of new homes and a rising proportion are forced sales of homes no longer worth the amount that was borrowed.
Yet sales of newly built single-family homes have plunged to the lowest levels seen since the government began collecting statistics on such sales in 1963. The Census Bureau reported this week that only 17,000 new homes were sold in February, for an annual rate of 250,000 after taking seasonal factors into account. Both of those numbers are the lowest on record.
The February sales pace was undoubtedly depressed by harsh weather in the Northeast, and a rebound in March or April is possible. But the total number of homes sold over the 12-month period – 349,000 – is lower than in any comparable period.
As a result, this cycle has been very different from previous ones.
Too many houses were built in many areas during the boom, and now housing starts have plunged… There are fewer newly built homes available, and in some areas, buyers complain that builders have not been willing to cut prices to meet the prices available on used homes in the same area.