Friday Lite

Just a short time ago, the inflation report for November came in at zero. That is, when all the October prices for items in the Consumer Price Index were subtracted from all the November prices, the result was 0.0 percent.

Year-over-year, overall inflation rose by a scant 2.0 percent and core inflation (excluding food and energy) rose 2.6 percent. In the last few months, energy prices seem to have been hammered into submission (see the red boxes in the chart below) and equities have been rising. As long as energy prices stay low, inflation should remain contained (yes, when you think about it, this statement is wrong in so many ways - but that's what they say on TV).
On CNBC, Steve Liesman just said, "Goldilocks kind of got a new life here" and an economist who was sitting in with the morning crowd scoffed at the idea of $70 oil. The whole gang cheered for another all-time high in the DOW today. Ahhh. Life is good.

Inflation in the U.K. - Part 1

This story in last week's Daily Telegraph was notable for a number of reasons, the most important being that some journalists are starting to notice that prices are rising faster than their government's economists say they are.

The cost of living for many British households is up to four times the Government's published rate of inflation, The Daily Telegraph can reveal.

Millions of families are experiencing inflation far beyond the official rate of 2.4 per cent, new research suggests.

The Government was last night accused of neglecting hard-up families as the research shatters the illusion that the Consumer Price Index - used by the Bank of England to set interest rates - represents the true cost of living as experienced by many households.
...
The shadow chancellor, George Osborne, said: "This is a stark illustration of how real living standards are falling, particularly for pensioners and the most vulnerable in society.

Maybe we need a "shadow chancellor" here in the U.S.

Inflation in the U.K. - Part 2

In this report from the same source, the writers went into a bit more detail about the history of the CPI and had few kind words for Chancellor of the Exchequer Gordon Browne (the man who sold half of the country's gold back around 2000 for about $300 an ounce).

Most of us have noticed that things are getting more expensive; yet Gordon Brown keeps thrusting figures at us that show that inflation has been conquered. How are we to explain the discrepancy? It turns out that the Chancellor has been engaging in a spot of statistical prestidigitation.

In 2003, he adopted a new measure of inflation: the Consumer Price Index (CPI). Conveniently, the CPI excludes many of the costs that are rising fastest: gas and electricity bills, council tax, mortgage repayments, school fees.
...
Like Soviet citizens, we are ceasing to believe official figures. That is why The Daily Telegraph will now print an independent cost of living measure alongside the Government's CPI each month. Readers can judge for themselves which feels the more accurate.

In this follow-up earlier this week, the government reported that inflation in the U.K. just hit a ten-year high, the CPI jumping from 2.4 to 2.7 percent. In this separate story, they calculated the rate of inflation for senior citizens at nine percent.

Inflation in the U.S.

Aaron, over at the blog with the marionette mascot that evokes frightening childhood memories that somehow involve a circus clown, is the source of this news about inflation in the U.S.

The big news for today is that a new crime has been created -- by the US Mint of all places. It is now illegal to melt those pennies and nickels in your pocket, which, thanks to inflation, are now worth more as their constituent base metals than as legal tender. The new rules allow for fines of up to $10,000 and five years in prison.

First of all, if you're going to melt those coins, please take them out of your pocket first. There are a lot of people in the gold crowd that are having a field day with this development from the U.S. Mint. It really is pretty silly when you think about it. The comment by Idaho Spud (not his real name) puts the matter into perspective.

I think it's hysterical (and telling) that they can't even find a *base* metal to make coins out of that isn't worth more than the face value of the coin itself. Looks like it's about time to do away with coinage altogether. I'm sure they'll find a way to rationalize and explain it away this to Joe Six.

Neal at autoDogmatic calculated that in another couple decades a nickel will be worth a dollar. Ironically, a dollar will then be worth less than a nickel.

John Embry, Caroline Baum, and the Plunge Protection Team

Just when some of us where starting to warm up to "The Baumer" (Caroline Baum at Bloomberg) as a result of her recent critique of the former Fed chairman, this story reminds us all of her cock-eyed views toward all things conspiratorial. While Sprott Asset Managemement's John Embry may have overstated the case for gold price suppression, the counter-point is laughable.

All that is keeping the price of gold from rising drastically is a so-called "Plunge Protection Team," or PPT, crafted by U.S. monetary authorities in 1989 to ensure world financial markets do not get too far out of line with the political needs of their masters, he noted.

Critics of the price suppression theory dismiss the existence of a formal PPT. According to Caroline Baum of Bloomberg News, the alleged power of the PPT gains credibility with repetition. "They swap the same fish tales back and forth with the stories acquiring respectability through frequent repetition among believers," she wrote.

The folks at GATA commented on this story as well. They rightly point out that Ms. Baum prefers to look for reassurance about the non-existance of the PPT, rather than consult officials such as Fed Chairman Ben Bernanke, William R. White of the Bank for International Settlements, George Stephanopolous, Paul Volcker, and others who have either confirmed the existance of the PPT or corroborated the gold price suppression story.

The Plunge Protection Team Goes to China

A fair amount of time was spent earlier in the week to lower expectations for the strategic economic dialogue between the U.S. and China in Beijing this week. According to this report, maybe expectations for reforms in both currency policy and intellectual property rights weren't lowered enough.

American officials and specialists on China have said that Wu Yi, a vice prime minister and the country’s highest-ranking female official, might not have the inclination, or the influence, to challenge the party apparatus that is tied to the sprawling state-owned export industries.

China appears to view the dialogue less as a vehicle for adjusting its policies than as a means to air its opinion that the United States should alter its economy to end an addiction to Chinese goods and loans that sustain gigantic American trade and budget deficits.

The main concern of the American delegation is currency reform - the desire for the Chinese yuan to rise relative to the dollar, thus increasing the cost of U.S. imports and helping to reign in the U.S. trade deficit. Be careful what you wish for - rising prices at WalMart are the last thing that cash-strapped consumers in the U.S. need.

The Anticipation Builds

There are only two weeks left to go before a lucky winner is announced for the contest held just two months ago - Guess the Year-End Price of Oil and Gold. There will probably be another update next week, but the important reading comes on December 29th with the closing price of gold (spot bid) and black gold (February WTI crude contract).

The lucky winner gets a free one-year subscription to Iacono Research.
The blue circle above contains guesses from the following individuals - dlp, WT, Anup, AK, dotditdot, and CR. Initials were used for those who may not want their names to appear here (yes Aaron, that's you).

He's Totally Broke

There doesn't appear to be a story to go along with this faux magazine cover from The Onion.


It's probably better that way.

For Every Guy Like This ...

You have to wonder how many people there are like this that are too embarrassed to talk about what's happened to them, no less talk about it to a newspaper reporter. According to this LA Times story, Mr. Hertzberg has been having quite a party in recent years - all on the house.

Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.

"Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."

The money wasn't really free, of course. It just seemed that way, the result of a radical shift during the last decade in how people view their homes.

"Homeownership has become like auto leasing, where the price of the car doesn't matter," said Rick Soukoulis, chief executive of LoanCity, a San Jose lender that funded $7 billion in mortgages in 2005. "All that matters is the size of your monthly payment."

Wow! Losing money in commodities after the dot-com bust? How bad an investor do you have to be to pull that one off? Was he one of those earlier this year that was convinced that gold was the real deal as it passed $700 and then panicked during the correction, selling at $570?

Some people just shouldn't be allowed to handle money.

What a Difference a Year Makes

Should anyone have any sympathy for people like this?

David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.

Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.

"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."
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Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.

Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."

"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."

The Dunns and others like them should consider the aftermath of the real estate bubble to be a valuable learning experience that can be applied to the rest of their lives. In their early 30s, with monetary policy as it is in the post-Greenspan era, they will see many more financial bubbles. Get used to it.

Still Cracking Up Over the Name

Under a post at Metafilter titled "Best resources to become literate in macroeconomics and financial markets?" came this response.
It still cracks me up to see the name of this blog in print - it's going to be hard to ever change it.

A Mother, Her Son, and Her Daughter

You have to feel sorry for this poor guy (and his sister, as it turns out). According to this story, his mother either encouraged him or forced him to act retarded for much of his life.

For nearly 20 years — ever since Pete Costello was 8 — his mother has collected disability benefits on his behalf. In meetings with Social Security officials and psychologists, he appeared mentally impaired and unable to communicate. His mother insisted he couldn't read or write, shower, care for himself or drive.

But now prosecutors say it was all a huge fraud, and they have video of Costello contesting a traffic ticket to prove it.

"He's like any other person trying to get out of a traffic ticket," Assistant U.S. Attorney Norman Barbosa said Tuesday.

The same ploy was used for Pete's sister (whereabouts unknown) with the Costello family raking in almost a quarter of a million dollars on their behalf over the years.