Tag: oil prices

–Is NPR in league with the Tea Party, or simply clueless?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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It was at 11:00 AM Central time, today, that I heard a discussion on National Public Radio, station WBEZ. The participants claimed the media are hamstrung by the need to present both sides of each issue.

They lamented the fact that “fairness” required them to give equal weight to opposing opinions, even when one opinion was far more persuasive than the other — and shouldn’t the media have more leeway in exercising their judgement on this?

Aside from the fact that columnists and editorials do exercise a form of censorship (aka “judgement”), there is one other aspect to the conversation that troubled me. The specific subject was the federal deficit. Both participants agreed the deficit must be reduced, so the “two sides” were: Raise taxes or don’t raise taxes.

As readers of this blog know, those are not both sides of the deficit issue. Those “two sides” are mere details in the real issue: Increase the deficit or don’t increase the deficit.

The media, including public radio, have been derelict in not presenting the “increase the deficit” side. And its not as though they don’t know or can’t find out. They easily can access such sources as this web site, Warren Mosler’s The Center of the Universe), Bill Mitchell’s Billyblog ), almost the entire faculty at the University of Missouri, Kansas City (far ahead of traditional Nobel winners like the University of Chicago and Harvard) and many,many others, to see powerful arguments, substantiated by facts, about why the federal deficit should be increased.

Why do they never broadcast these opinions and facts? It’s yet another puzzle surrounding the entire Monetary Sovereignty subject. Because “everyone” agrees the world is flat, the media don’t consider the possibility it may be round, so nothing is said.

There is only one solution. I’m following it and I urge you to follow it: Contact your local NPR station (www.mpr.org) and ask them to do as they claim to do: Broadcast both sides of the issue – the real both sides. If enough people request it, NPR finally may realize they are missing an important part of the economics debate.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–What are the best recession/depression investments?

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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It looks like Congress and the President, with the approval of the media, old-line economists and the voting public, are determined to reduce the deficit. Historically, deficit reduction has resulted in recessions and depressions. Federal deficits are the government’s method for adding money to the economy, and economic growth requires money growth.

So, we will cause ourselves a recession or a depression. I’m resigned to the fact that the vast majority doesn’t believe this, so I suppose I should enjoy the pleasant irony of seeing all the fact doubters lose their money, their jobs and their homes in the years to come.

But I don’t, partly because my own children and grandchildren will be hurt by the mess Congress is creating. I’ll be hurt, too – unless I can think of some recession-proof investments. While it seems nothing can prevent the out-of-control freight train known as “Congress” from destroying America, I’d like to protect my own family as best I can.

Many of you are investors. Some may know far more about stocks, bonds etc than I do. So I ask you this:

Given that we will have deficit reduction, which absolutely, positively will cause a recession or a depression (depending on how big the deficit reduction will be), what are the best investments to make today? Cash may be safest, but there’s no income. Treasuries are safe too, but again, there is scant income. Its a dilemma. What do you suggest?

Thank you for your help.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia.

MONETARY SOVEREIGNTY

–What will cause the next inflation?

The debt hawks are to economics as the creationists are to biology.

The debt hawks say federal deficit spending will cause inflation. History says they are wrong. There is no post-1971 (end of the gold standard) relationship between federal deficits and CPI. (See: INFLATION) In fact, despite massive deficit spending, the Fed today is most worried about deflation.

Nevertheless, I now believe inflation has become a threat.

In a letter dated October 1, 2010, John Mauldin said:

“John Hofmeister is the former president of Shell Oil and now CEO of the public-policy group Citizens for Affordable Energy. He paints a very stark picture of the future of energy production in the US unless we change our current policies. First, because of the aftereffects of the moratorium. It is his belief that the drilling moratorium will effectively still be in place until at least the middle of 2012. There won’t even be new rules until the end of 2011, and then the lawsuits start.

“Gulf oil production will be down by up to 1 million barrels a day. Imported oil is now 67% of oil usage but will go to 75% by 2012. He thinks crude oil will be up to $125 and gasoline between $4-$5 at the pump. And it will only get worse.

“He describes the problem with the electricity from coal production. The average coal plant is 38 years old, with a planned-for life of 50 years. Our energy production capability is rapidly aging, and we are not updating it fast enough.

“He argues that the fight between the right and the left has given us 37 years without a realistic energy policy, as policy gets driven by two-year political cycles but good energy planning takes decades. There are 13 government agencies that regulate the energy industry, with conflicting mandates that change very two years. There are 22 congressional committees that have some level of involvement and oversight of the energy industry.”

Why is this important for inflation? Because although federal deficits do not correlate with inflation, energy prices do. And if we have the shortages Mr. Hofmeister suggests (a big “if” as oil supply is notoriously difficult to predict), they will translate into higher overall consumer prices. Yes, new oil sources are being discovered daily. And yes, progress is being made in developing alternative energy. But the modernization of huge populations in China, India, Russia and other less developed countries, is sure to increase world oil consumption, massively.

Inflation can be prevented and cured by raising interest rates. But our government is fixated on the false, debt-hawk belief that federal deficits cause inflation. So the political “cure” will be to reduce federal spending and/or to increase federal taxes, either of which, history shows, will devastate our economy.

In summary, the next inflation will come from energy shortages, which the debt hawk government will deal with by causing a recession.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com

No nation can tax itself into prosperity. There is widespread belief the stimuli didn’t work. I am reminded of the man whose house was burning. His neighbor showed up with a garden hose and actually was able to reduce the flames, but only somewhat. The neighbor wanted to call the fire department, who would bring out the big hoses, but the man told him to stop, because “Obviously, water doesn’t put out fires.”

-Is inflation too much money chasing too few goods?


An alternative to popular faith

In the post “Do deficits cure inflation?” we saw that contrary to popular faith, deficit spending (i.e., too much money) has not caused inflation. We also saw that inflation can be cured by increasing the reward for owning money, i.e. by increasing interest rates.

Now we question another piece of popular faith: Is inflation caused by too much money chasing too few goods?

Begin with the notion of “too much money.” We already have seen that federal deficits are not related to inflation. What about another definition of money: M3? Please look at the following graph:

Clearly there is no immediate relationship between money supply and inflation. What about a subsequent relationship. Could “too much money” today, cause inflation later?

The graph indicates no such cause/effect relationship, with M3 peaks preceding inflation peaks by anywhere from 2 years to 10 years. It is difficult to imagine a graph revealing less relationship.

What about “too few goods”? If too few goods caused inflation, this would manifest itself with GDP moving opposite to CPI. Again, that does not seem to happen:

There seems to be no regular pattern, with GDP and CPI sometimes rising together and sometimes separately. In today’s international economy, it is difficult to substantiate the idea of a wide-spectrum commodity shortage when sufficient purchasing power exists.

Individual nations can experience shortages of individual commodities. Individual poor nations can experience shortages of a broad basket of commodities. But can a wealthy nation, with plenty of money to spend, suffer a shortage of a broad basket of commodities, thereby causing inflation? Has it recently happened?

Seems unlikely these days as products are made in multiple nations and shipped to multiple nations, with easy international shipping and instantaneous money convertibility. Your cotton shirt may have been grown in Egypt, woven in India, assembled in China, labeled in Italy and sold in the U.S. Clearly, a cotton shirt shortage would be rare, as any of these steps could occur in various countries, and that’s just one product. A nationwide “too-few-goods” situation, coincident with “too much money,” seems impossible.

There is however, one exception: Oil.

The graph below compares overall inflation with changes in energy prices, which are dominated by oil prices.

Oil is the one commodity that has worldwide usage, affects prices of most products and services, and can be in worldwide shortage. That is why, when oil prices rise or fall steeply, inflation rises and falls in concert.

The large oil price moves “pull” inflation in the same direction. When oil prices increased or decreased the most, inflation came along for the ride.

In summary, inflation is not caused by deficit spending or by “too much money chasing too few goods.” Inflation is caused by a combination of high oil prices and interest rates too low to counter-balance the oil prices.

The high oil prices can be caused by real shortages and/or by price manipulation.

Hyperinflation is a different beast, altogether. Every hyperinflation has been caused by shortages, most often shortages of food.

Zimbabwe, Weimar Republic, and Argentina had food shortages that created hyperinflations.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com