[Daniel_Plainview]

Denninger: US is headed for a "Depression Within a Depression"

We trashed the consumer in 07, and now we're doing it again. We will begin with our currency, of course - the Dollar. This goes back to 2006, when the dollar peaked at 92.63 and began it's relentless decline.



... When the dollar is weak those things you import are stronger in price. Many people think that there's no particular harm for the lower and middle classes in this, since the only "real need" in imports is oil. You couldn't be more wrong.

Oil is in everything. Literally. Here's the oil price over the same time:



Oil prices near and above $80 start to cause problems with input costs. This is clearly visible in the following charts:



That's corn. Oh, and if that wasn't enough, Obama is going to add to it with his EPA raising the percentage of ethanol (made from corn) in gasoline from 10 to 15%. Never mind that many newer engines are actually harmed by higher ethanol pecentages, and small engines (e.g. weed whackers, lawn mowers, etc) could be harmed or even destroyed. The other problem with Ethanol is that it contains fewer BTUs (less energy) than gasoline on a per-gallon basis, so raising the ethanol content of gasoline means your car goes fewer miles on a gallon of fuel.

This translates into two insults: First, you will pay more for your gasoline, and second, your car will go fewer miles per gallon, so you will have to buy more gallons. This is identical to what has been done in the grocery store where your so-called "half-gallon" of ice cream is in fact now 1.5 quarts - and the price has gone up on top of it.

Corn, of course, is in damn near everything you eat. While "High Fructose Corn Syrup" is in my opinion one of the things that we should ban, it is nonetheless in virtually every packaged food product. Pick up a few and look at the labels. Everything - from sodas to BBQ sauce - contain it. And it's going up in price - a lot.

Your meat contains corn too. What do you think your food eats? To a large degree, corn.

But it's not just corn. Here are Oats:



If you have a horse, he eats oats. But you do too, as do some of the other foods you eat. And that price is headed for a record. Certainly, the rate of change in price is dramatic.

Then you have wheat:



That's working on a 100% increase.

Notice when it started - right when the dollar took its recent header.

The total decline in the dollar since June has been about 13%. The increases in commodity prices have been radically greater, with the exception of oil, which has roughly matched the dollar depreciation point-for-point.

The problem with currency debasement as a means of trying to control a debt implosion (occurring as a consequence of hidden bad debts) is that it doesn't work. You can print more dollars and put them into the system but you can't control where they go. When the system is debt-saturated "where they go" is overseas, generating a carry trade. This effectively exports what you're trying to do (generate positive inflation) overseas, and causes inflation there. It in turn, however, drives up commodity prices, which translates into input costs and ultimately compresses both operating margins and consumer balance sheets. This then produces a profit recession, which ultimately produces a "classical" recession, and when it occurs into a debt-saturated environment you get bankruptcies by the boatload along with the sort of crash we had in 2008.

You'd think that Bernanke would have learned from the last time - which was just a couple of years ago. You'd be wrong.

Three years ago Bernanke started his "pump liqudiity" game with the economy, making the claim that it would prevent the recession that he had said just months prior wouldn't happen at all. All he did by pumping liquidity was trash the currency; the money immediately went overseas and into speculative commodity bets, driving all of the macro economic factors exactly the wrong direction.

This in turn generated a huge loss of jobs as consumers, unable to keep up with rising commodity prices with flat-to-down incomes (a fact that has been true for all but the very rich for the last decade in real terms) were forced to cut back. That in turn produced tightening credit and expanding losses in the financial system.

We all know what came next.

We're doing it again.

Just three years later, Bernanke is doing exactly the same thing that failed to work the last time, and in fact made the situation worse. He is heralded as "the savior" from a Depression that everyone claims didn't happen, when it fact not only did it happen, it's still going on - we're just hiding it:



When government is spending more than 10% of GDP with borrowed money, absent that GDP would be at least 10% lower. That's the definition of a Depression - a 10% top-to-bottom decrease in GDP. Well, folks, we're in one - and have been for three years. We're still in one. And now Bernanke is acting in a fashion that will cause us to have a Depression within a Depression.

This morning Stiglitz was on CNBS claiming that we needed to "return to Keynes." While there isn't much that Dick Armey and I agree with, he hit Stiglitz over the head with the truth on this one: Keynes' theories required that you run surpluses during boom times, filling the Treasury with the money you then intend to spend during downturns.

We haven't done the former, and thus can't do the latter without courting disaster. The deficit spending and money-printing are simply going to foster further speculative carry activity which will in turn reflect back into input costs via commodities. The money will not go to work here - when you have a ZIRP environment and your currency is depreciating there is no yield to be had here (you've declared that in-nation assets are worthless) and in fact all you have to do is convert the funds to some other currency and sit to earn a return - you don't even have to invest, as the currency depreciation makes money for you!

This is idiotic and yet the fact that money is fungible means you can't prevent this from happening - except by not doing it.

We cannot exit this economic malaise so long as we continue to prop up failed institutions and watch them bonus out tens of billions of dollars to their employees for screwing America blind coming and going. All we do with these policies is direct the money into commodity speculation and overseas yield-earning instruments which further depreciates our currency.

Bernanke and the markets think "QE2" will save us. It will not. All it will do is produce another depression inside the one we're already having and the government is unable to add another $1.5 trillion annually in deficit spending on top of the spending it's already doing. The lower and middle classes will feel the inexorable weight of the commodity price ramp starting about now, and continuing into the holiday season and the New Year, which will do exactly what it did the last time.

This is a proved failed policy, but there's nobody with a brain home in Congress, the White House or in The Fed who will pull their head out of the ass long enough to realize that fellating bankers will not resolve what ails us, when they're the ones who have been robbing the citizens with fraudulent schemes for the last 20 years and are now desperate to avoid the just desserts that should attach to their behavior.

[TheAntiDoomer]

Denninger? Does he have any credibility left?

[Daniel_Plainview]

Denninger? Does he have any credibility left?

What do you think will happen when oil reaches $90/bbl -$100/bbl, causing input costs for US consumer goods to escalate commensurately? Do you remember what happened in 2008? I didn't think so. But that's ok, because Bernanke doesn't remember either.

[Daniel_Plainview]

Commodities are going apeshit this week ... thanks to Bernanke ...

Here's GOLD a la Bernanke

This is a vote from the commodity market ... that the dollar will be intentionally trashed, basic commodities will got to the moon, you will be literally starved to death, and your earnings and wealth will be given to the banks to cover their frauds in the credit markets - specifically, in the housing market. ... That's what Gold is telling you today.

... Whether you choose to act or not, the market will act on its own, and those reactions to the lack of accountability by our government will destroy your middle-class lifestyle. You're running out of time to stop this destructive spiral America.

Denninger link

[Plantagenet]

Great posts, Daniel Plainview.

THANKS!

[gollum]

Commodities are way up, more than the economy can justify. Sure we are seeing some inflation from the actual money thrown in to the system, but I also wonder if we are starting to see loss of confidence in the dollar and the beginnings of hyperinflation.

[TheAntiDoomer]

Good article for "denninger types"

Why Do Bears Seem Smarter Than Bulls?

http://www.cnbc.com/id/39651881/

So why are the bears often seemed smarter or more in tune than the bulls?

1) Laziness. People want justification to not work harder (“if the world is going to hell then why should I bother”).

2) Evolution. People’s brains are hardwired to respond more to signs of danger. Our brains can get fixated, and then addicted, to the negative more than the positive.

3) Fitting in. Because we all have a need to be accepted, liked, and listened to, people are likely to share bad news than good news (because they know that #2 above will get them to be listened to if its bad news).

4) Pattern recognition. Because of #2, people will notice bad events more than positive events as they happen and more easily link those events to the people who “warned them”.

[Daniel_Plainview]

Good article for "denninger types"

Why Do Bears Seem Smarter Than Bulls?

http://www.cnbc.com/id/39651881/

So why are the bears often seemed smarter or more in tune than the bulls?

1) Laziness. People want justification to not work harder (“if the world is going to hell then why should I bother”).

2) Evolution. People’s brains are hardwired to respond more to signs of danger. Our brains can get fixated, and then addicted, to the negative more than the positive.

3) Fitting in. Because we all have a need to be accepted, liked, and listened to, people are likely to share bad news than good news (because they know that #2 above will get them to be listened to if its bad news).

4) Pattern recognition. Because of #2, people will notice bad events more than positive events as they happen and more easily link those events to the people who “warned them”.

The issue is not whether any given commentator happens to be a bear or a bull ... Rather, the key question is whether the commentator can successfully identify the truth and reality, thereby enabling him to expose the fraud, corruption, waste, inefficiencies, and greed which the MSM so blissfully ignores. Karl Denninger is way ahead of the MSM in this regard.

[gollum]

Good article for "denninger types"

Why Do Bears Seem Smarter Than Bulls?

http://www.cnbc.com/id/39651881/

So why are the bears often seemed smarter or more in tune than the bulls?

1) Laziness. People want justification to not work harder (“if the world is going to hell then why should I bother”).

2) Evolution. People’s brains are hardwired to respond more to signs of danger. Our brains can get fixated, and then addicted, to the negative more than the positive.

3) Fitting in. Because we all have a need to be accepted, liked, and listened to, people are likely to share bad news than good news (because they know that #2 above will get them to be listened to if its bad news).

4) Pattern recognition. Because of #2, people will notice bad events more than positive events as they happen and more easily link those events to the people who “warned them”.

Bears seem smarter because at this point in history you'd have to be blind to reality to be a bull, especially if you have any concept of peak oil.

[sparky]

.
nevermind the trading animals , there is two trend in this

1- the U.S. grossly overvalued currency is gliding down toward a reasonable value ,
the other countries migh squeal but , eh ,it's their problem
it will cut down the manufactured imports and favor local product and exports
all commodities prices in U.S. $ will rise of course , but it is unavoidable

2- there is big problems getting the stuff out of the ground fast enough

" Metal seam stress " from the FT , they call it a supercycle , I would call it the road to a peak
.....http://www.ft.com/cms/s/0/7c940832-d6fc ... abdc0.html

[Daniel_Plainview]

Trifecta Of Economic Horror: Trade Deficit Explodes To Second Highest Ever, PPI Rises Above Expectations As New Jobless Claims Surge

Submitted by Tyler Durden on 10/14/2010 07:39 -0500

Today's economic data avalance is a trifecta of horror: the August trade balance came at - $46.3 billion (deficit, duh), on expectations of $-44.0 billion, with the previous revised to ($42.6) billion. This is the second highest trade deficit on record. This also means the Q3 GDP will be revised lower again. Oh yes, and Schumer is currently frothing in the mouth as the trade deficit with China was at a record $28 billion, as expected based on the reverse lookup from yesterday's China trade surplus (which dropped). Elsewhere, PPI came in at 0.4%, on expectations of 0.1%: congratulation Ben, you have your inflation, as the bulk of the increase was in food and gas. PPI ex Food and Energy was 0.1%, in line with expectations. Lastly, jobless claims surge from 445K to 462K, with the prior number revised higher for the 24 out of 25 times. And speaking of revisions, the prior week Continuing Claims number was revised from 4,462K to 4,511K: yes stunning, we know. Those on Extended and EUC claims plunge by 340,000 for the week ended September 25, taking away a few more pips from GDP. All in all, this further cements the economic suicide that is QE2.

[jdmartin]

Thanks for the posts - interesting stuff. And scary. Even if you don't subscribe wholesale.

On a side note, is that a vampire in your signature?

[Pops]

Thanks for the posts - interesting stuff. And scary. Even if you don't subscribe wholesale.

On a side note, is that a vampire in your signature?

He's either eating a bug or that's a lip ring job gone really bad...
Either way he's a good mascot for the Economic Horror Show.

[americandream]

With increasing demand on supply and geology constrained assets like oil, resulting rising prices and squeezed profits, it is a reasonable assumption that costs will be cut in a bid to maintain profit margins. Labour costs/staffing immediately come to mind, staffing reductions, outsourcing, mechanisation where feasible...and of course, the increasing indebting of the worker in a bid to sustain level of sales. That point at which all of these converge to render the risk value of capital to zero is the point at which I suspect this cash cow will collapse under it's collective weight.

When this occcurs in anyones guess but I can't see it enduring beyond the middle of this century if Indian and Chinese growth rates are anything to go by.

[Niagara]

"Inflation, ex. food and energy" is only...

You gotta love it.

So as long as I don't eat, drive, heat my home, cook, clean or purchase anything manufactured and/or shipped - I have nothing to worry about!

[IslandCrow]

"Inflation, ex. food and energy" is only...

You gotta love it.

These figures jump around a lot, so if they were included in the main inflation figure there could be a lot of mixed signals swinging backwards and forwards...so you should get policy change of directions every month or so.

There needs to be a good way to smooth out the ups and downs to get at the underlying trend (such as the 200 moving average for stocks and shares). The theory is that food costs should affect wages, and energy costs effect manufacturing and distribution costs of goods. So with some delay rising and falling food and energy prices should feed into the basic inflation of goods and services.

This reasoning is based on the idea of supply and demand working. The trouble with this is that in the real world it does not alway work out so smoothly- see the latest Nobel prize in Economics (from a email news from The Economist):

Peter Diamond and Dale Mortensen, two Americans, and Christopher Pissarides, a British-Cypriot, jointly won this year’s Nobel prize for economics for their work on why supply and demand often fail to balance in the jobs market. The award may prove embarrassing for Mr Diamond’s critics in America’s Congress, who have so far refused to nod through his nomination for a seat on the Federal Reserve Board, after expressing concerns about his competence

[Outcast_Searcher]

"Inflation, ex. food and energy" is only...

You gotta love it.

So as long as I don't eat, drive, heat my home, cook, clean or purchase anything manufactured and/or shipped - I have nothing to worry about!

+1

I know you guys hate the MSM, but I noticed this was stated almost exactly like this yesterday and today on CNBC. Just exclude what goes up in price, and viola, the inflation is NO problem!

edit - changed MSN to MSM. (Freudian slip -- I hate MSNBC, since they are the left wing mirror image of FOX, but spend tons of energy pretending they aren't.)

[Quinny]

MSNBC left wing - LMAO

Are you having a giraffe?