Think Outside the US
I remain amused by all the calls of hyperinflation and high inflation given the Fed has turned on the printing presses.
However, currencies cannot be viewed in isolation.
To those expecting a total US dollar collapse, here’s my word of advice. Stop being so US-centric.
Japan Authorizes Another Trillion in Stimulus
Please note Japan authorizes another $929 Billion to Battle Pandemic.
Japan is considering a fresh stimulus package worth over $929 billion that will consist mostly of financial aid programmes for companies hit by the coronavirus pandemic, the Nikkei newspaper said on Monday.
|The package, to be funded by a second extra budget for the current fiscal year beginning in April, would follow a record $1.1 trillion spending plan deployed last month to cushion the economic blow from the pandemic.
That is a total of 2 trillion dollars for Japan. Adjusted for the relative size of the economies, that is an amazing amount.
China Unveils US$500 Billion Fiscal Stimulus
Also note that China unveils US$500 billion fiscal stimulus, but refrains from going all-in.
Key Points
- China will increase its budget fiscal deficit to a record 3.6 per cent of gross domestic product this year, up from 2.8 per cent in 2019
- This is the first time the ratio has exceeded 3 per cent – a red line for decades.
- Beijing will also issue special treasury bonds for the first time since 2007 and increase the local government bond quota as it fights the pandemic
Supposedly that is not “All In.” And given what is going on elsewhere it isn’t.
But the Yuan is not a component of the US dollar index. And it is important that China is crossing red lines.
Unprecedented EU Stimulus
On April 23, the EU leaders announced ‘Unprecedented’ Stimulus Against Pandemic.
Hold On, a Major EU Court Battle Brews
On May 10, I noted a Major Court Fight Between Germany and EU Looms
Briefly, the German constitutional court ruled that the ECB abused its powers ruling on the ECB asset purchases as implausible, and objectively arbitrary.
Debt Mutualization
What Germany fears now and has from the outset is “debt mutualization” in which Germany would bailout Greece, Spain, Portugal, and Italy.
And despite the German court ruling, Pablo Iglesias, Spain’s Deputy PM. says a “certain [level of] debt mutualisation is a [necessary] condition of the [continued] existence of the EU”.
Eurozone Breakup Risk
The EU once again faces a breakup crisis.
This setup prompted my May 8 post: Eurozone Breakup Risk at New High
With negative interest rates in the Eurozone and a breakup risk high and rising, it’s no wonder the Euro is not strengthening.
US Dollar Index
The US Dollar Index is a weighted geometric mean of the dollar’s value relative to following select currencies: Euro (EUR), 57.6% weight. Japanese yen (JPY) 13.6% weight. Pound sterling (GBP), 11.9% weight. Canadian dollar (CAD), 9.1% weight. Swedish krona (SEK), 4.2% weight. Swiss franc (CHF) 3.6% weight.
US Negative Rates Are Not an Option
Given the US dollar index weighting, it’s no surprise the dollar is holding up.
Factor in Fed pledges to not let interest rates go negative, and a huge emerging market demand for dollars and you have your answer.
For a discussion of negative rates, please see Negative Rates Are Not an Option.
Meanwhile given all this competitive currency debasement, I have a question: Got Gold?
Mish
Amazing that we have long forgotten the ‘real value’ of…… the dollar/money, time, or food. We have ALL lost our way, when it comes to figuring out what is worth….. or what coats too much…. or if hyper inflation or inflation will occur. The fundamental question we should be all asking right now: if there is something you “NEED” …..what are you willing to give , or give up , to get it? This covid 19 exercise ,we are all experiencing right now, will likely get us all closer, to this question. Note, 98% of North Americans live in urban settings…..in short, work somewhere other than on a farm. Growing food is the ONE thing we have been trained, coerced, manipulated, louered, bribed, marketed to NOT do. To not grow food. Why? …….. where do we go next? I am new here, but if you wish to continue this discussion. Lets do it. Continue.I will also add my email riversedgewill@conversation gmail.com Yes, I amreally a goat farmer and I grow my own commodities and surplus food. Gold? Who needs gold !
Hi Mish I’d like to thank you for allowing me to post this information the other day though I know you don’t agree. I’m sure you are aware of “What is the fig tree sign?”The answer is certainly not at all ambiguous. Other than that I wonder why gold has turned around today after an early surge?
So, should I hold gold, I am considering selling it oh, it seems to be going nowhere for the last 10 years
One day it will go parabolic. Just nobody seems to know when. More when than if at this point. Probably sooner than later, but who knows.
Inflation is always the result of demand being greater than supply. Has nothing to do with the amount of currency in circulation. I guess if everyone has a lot of money, they may buy more, but in today’s climate, people will save it instead.
Can we revisit the calculation of the CPI or whatever the fed is using? It seems there is a good amount of inflation in things I have to buy. Health Insurance, House, cars, clothing, stocks. Is there a disconnect somewhere? Maybe a little education would help!
Mark my words.
The EU will not breakup!
Rather, every crisis will lead to further integration with the endgoal of the creation of the United States of Europe.
People just don’t seem to get it. Debt default is money destruction. The amount of money destruction that is occurring now, and will occur in coming months dwarfs the amount of money being borrowed and dispersed by the government. Remember also that a good portion of the loans world wide, are denominated in dollars, so as loans default worldwide, dollars disappear. Money destruction is deflation.
I disagree. When debt defaults, all it does is prevent money from flowing from borrowers to lenders. It doesn’t destroy anything. It just changes who holds the money.
Apparently you do not understand basic economics. This is not a opinion, it is a fact in a credit based economy debt default is money destruction. That is not debatable, any more than gravity is.
Those whom I respect suggest that the timing is right, so that based on information in the book of Daniel and Revelation-I can give you chapter and verse-the European Union will eventually devolve into 10 nations, some will be strong as iron, some weak as clay. I mention this because as this begins to take place within say the next 10 years, the dollar will probably have been replaced by a worldwide currency which could be digital backed by a group of commodities.
‘the dollar will probably have been replaced by a worldwide currency’
Very unlikely.
USA has the dominant influencing power over IMF and World funds. SPDR ( special purpose drawing rights) is just a theory. USA won’t let the dominance of US$ as a global trading in Fx exchange networks or the Global Commerce that easily!
No one there to challenge? Euro? Yen? Yaun ( hardly 2 % of global commerce + who will trust China?) rubel?
The things I am talking about were put in motion 72 years ago with the rebirth of Israel in 1948. In my own personal opinion, not just a guess, but based on a number of events, this current pandemic will at some point be referred to as “the beginning of sorrows”as suggested in Matt:24-8 KJV. In Luke:21-11 epidemics is mentioned for the first time. Things in the world are changing dramatically as this is a Biblical Event that needs a Biblical explanation or story. Since America is not mentioned anywhere in this story with the alignment of Nations beginning to take place, the dollar will not survive much longer.
at least we are now proud owners of HERTZ bonds
Thank you for reminding people once again that the USD value is relative to other currencies. The Fed CAN ONLY BUY BONDS which pumps up bond values and forces wealthy investors into stocks and pumps up stock prices. Global, wealthy investors are overjoyed. That’s why the stock market is so high! We get inflation in asset prices because workers get zero benefits. Wealthy global investors (US and non-US, top 10%) own more than 80% of our stocks. Bottom 80% of US households own only 7% of US stocks. THAT’S WHY THE FED IS SCREAMING AT THE POLITICIANS TO GIVE MORE MONEY TO THE AMERICAN PEOPLE! Working people have to pay off all of the debt (remember the corporate tax cut?). China and Saudi Arabia are huge benefactors/holders of US investments. The Fed begs the Republicans to send some money to average people, and they say things like “I don’t want to bail out a Blue State” or “unemployed people won’t go back to work if they have unemployment.” Average Americans have no idea that the printed money is welfare for the rich. If we are too dumb to understand where our money goes, then we are ripe for abuse. Trillions to pump up the rich and almost nothing to working Americans. That’s why inflation is actually deflation now. American workers will get lower wages, just watch. This is so simple to understand.
Hero Fed Battles Evil Republican Cheapskates.
Thanks for the totally clear headed, politics-free analysis.
That the dollar isn’t collapsing against other currencies isn’t a proof that there is no inflation, since those other currencies are being printed (electronically) as well.
Inflation should be evaluated in the context of purchasing power of average people vs prices of things they need – housing? food? health care? anything else?
Because you cannot print houses, or fried chicken, or cars, or…
Do that and you will see inflation.
Oh and the fact that the stock market did not totally collapse – how much printed money went into that? But that’s inflation. It’s not like stocks still have the same value, measured in how much house or food or health care you get when you sell them.
There is inflation in assets in the mkt, education, housing and medical care, but NO inflation in LABOR WAGES. Hardly any growth in the the wages since late ’80s. Bottom 60-80% have used CC to keep with the standard of living with debt on debt, just Uncle Sam! Deep in DEBT hole!
Now there is demand shock. Even if the supply is restored (by China ++) who has the purchasing power in the post corona World, with nearly 35 Millions have lost jobs! If the Cos increase their prices only top 10% can afford and NOT the rest of the society!
DE-leveraging Deflation ahead! once Mkts get connected with the reality, post 2nd Qtrs, reversion to the mean will proceed!
Wholesale beef prices have collapsed. Not shown in stores yet, but they will.
Reporting facts like that does not mean we like the Fed.
$USD = Purest gal in the whorehouse.
EVERY fiat currency (including and especially the $USD) is no longer fit for the purpose of settling international trade – and hasn’t been for decades.
I believe this is what I said the other day, but not in so many words. This game will continue as long as everybody plays it. At this point, none of the players can quit.
Fed printed money, via treasury purchases, are going to stimulus for main street and to fund govt. Unemployment claims, stimulus checks, etc etc..
True, but its a tiny amount compared to the lost income from jobs.
Hi Mish, no doubt the $ is holding up because of more significant unaccounted factors, e.g. total global USD-denominated debt, competitive debasement, etc.
So far, what the Fed has printed is merely filling up the hole of debt-deflation. But shouldn’t there be a point where the amount of printing gets too much and it starts to produce inflation? I’m not referring to FX rates, but more towards commodities & asset prices.
The Fed is using the printed money to buy Treasury’s and when the fiscal spending gets too profligate, shouldn’t there be a point where the market balked from treasury’s — and rates start rising during recession (i.e. stagflation)?
I will admit that this may likely be still quite a distance away, but surely there is a an amount (maybe a ballpark figure) of how much this printing amount should be, to cause this kind of outcome, isn’t it? If and when this happens, what do you see the resolution (endgame) will be?
Hopefully you will share your views on this. Thanks.
‘ merely filling up the hole of debt-deflation’
Deflation is defined as the VALUE of debts on the balancesheet of the Lenders ( Banks, shadow banking++) and the ability of borrowers to pay it back. Has it been done? NO!
Only after that DEBT is paid, one can think of the Hyperinflation. The HOLE of DEBT is too deep at this point! Global DEBT to GDP is 250+ T/ 100 Trillions. Did I mention is leveraged ratio in addition.
A DEBT has to be paid, written off or disappears when borrower/lendners go BANKRUPT!
As Mish says, “Got Gold?”
There is a proption of it intended for the EU Digital Market Place and Innovation. Bailing out the past wont solve many problems.
As Mish says the dollar isn’t going to collapse against the other main fiat currencies because their governments are also issuing trillions of debt (or printing), but the dollar has devalued against the main reserve currency, Gold.
The additional trillions that are circulating are repricing bonds and holding down yields which, as everything is relative, is holding down yields, interest & profit margins on everything else. This in turn puts downward pressure on wages and earnings as businesses struggle to make the required dollars and unemployment & business failures follow. To date businesses have offset this with gearing and turnover but the virus has put an end to that. Governments, emboldened by their successful debt issuance & money printing are now embarking on the giving of free money to those that have unfortunately lost their jobs. If it continues something will have to give, but what?
Interesting and especially since it is from January last year. Then along comes the reset in the form of a virus. So much of the economy has been disrupted, I don’t know about where you are but we still have a lot of bare shelves here, now several months into the crisis. I was actually denied a purchase at Walmart yesterday, I had a dozen cans of tuna. I may be seen as hoarding from one point of view, but, I now live in Florida and hurricane season is upon us, everyone else is stocked up with foods that don’t require cooking because the power may go out for a week at a time. I don’t. So I have been trying to stock up on things like batteries for LED lanterns, and foods that can be eaten without electricity to cook it. I need to get a grill but wow are they expensive here, along with bags of charcaol.
When the economy reopens things are going to be different and because I am a pretender to the middle class I know for us it will suck the big one.
The structure of my income is simple, I get a check from the US treasury as a 100% disabled vet 12 times per year. It is enough to as I say pretend to the middle class, only because I am single with no dependents, but I also have zero in savings and it was designed to be that way, they give you enough you can’t really bitch about it, but, not enough to have real security, any real savings. In a wider sense that is the description of the entire consumer economy now. We hear a lot of people say you have to live well under your means and save the rest. But when living under your means requires poverty or near to it then whatever is left is really not going to save you when the collapse arrives.
I think this is intentional because when you have tens of millions of people who in a collapse are threatened with extreme poverty and possible starvation then they will cede any and all rights in order to get by. Just look at the voluntary incarceration of most Americans in the Covid pandemic. And the way science disagrees and changes it’s minds about things like wearing masks, we hear a lot these days about how the right wing ignores science. When I see science conveniently changing it’s mind in order to augment and extend the power structure’s grasp on us I also question science. They are now going to use this to say you should never go outside without a mask, and if you do not obey you will be barred from life necessities like shopping for food. Because you have a choice they claim you are not losing rights. You have the choice of doing what they say or starving. Forgive me for thinking that sounds a tad ThirdReichy.
About inflation v deflation, I believe we could have seen deflation and will in some parts of the economy, but Covid proves that farmers for example will plow food back into the earth rather than sell at a loss. That is why vast swathes of store shelves are empty. And the price on many items that have made it to shelves are up double digits. Just one example, yesterday I also wanted a chocolate bar, I usually get a giant Hershey bar for $1.86 but yesterday they had been repriced to $2.24 and I just could not make my hand pick it up. Over 20% higher than three weeks ago. And that is not an increase supported by fundamentals like the price of cocoa in commodity markets, or sugar. I am sure you would not enjoy an exhaustive list of the things that have risen double digits so far this year that I have encountered so I will leave it there and invite you to agree or disagree. What I will say is that the economy is so messed up that price discovery is now meaningless, it is impossible for you or I to tell what is or is not an appropriate price on the goods and services available to us.
I wish you well Herkie.
Here, UK, I wanted done work done by a tradesman.
During the conversation yesterday it came out that 2 months ago one of his raw materials was £7/bag ( plaster)is now £20/bag as supply lines broken and limited availability expected for months.
No Government wants a full nation of independent free thinkers with sufficient resources to not need the Government. A subsistence population is a control freaks dream. No coincidences.
The dollar isn’t going to collapse. The basic necessities, having been commoditized, won’t see inflation. But the things that are most important to a middle-class life, like education, healthcare and housing, will continue to rocket into the stratosphere, as the rich 10% chase them with unlimited dollars shooting out of the Fed.
That’s what we saw with the housing bubble. With so many loss of jobs, housing prices will come down; however, the price of housing will still be well out of reach of the middle class. It’s all about purchasing power, not specific price tags or bank account statements.
Hyperinflation claims are ridiculous, also inflation expectations will not materialize, the newly created/printed money is in credit, means it goes to companies who is eligible, but its still a debt, it has to be paid back and banks will take collateral before giving this money, so they cannot arbitrarily spend this money and buy things which can cause prices to rise due to demand, they have to do business with this money, make a profit and pay back the debt, its not same like stimulus check given to each person which can be spend on anything and will not be paid back and can cause inflation.
Fed printed and gave a very small part of its balance sheet(about 5%) to citizens as a free money, but if things change and Fed gives away trillions of dollars helicopter money to citizens , then we can talk about inflation.
Totally Agree with you.
Look up “roll it over”.
What chance they could roll-over debt into newly issued Consols (perpetual bonds) with forced purchases by pension and investment funds with a nominal low interest rate p.a.
It never gets paid back but 0.5%/yr could be the rate.
Who says anybody has any intention of paying off the debt?
“…but its still a debt, it has to be paid back…” If it is collateralized then it is still a debt, but that does not mean the debtor has to pay it off.
In a broader more macro way I agree with you, a debt once created does have to be paid off by somebody sometime down the road. But how it gets repaid and by whom is not set in stone. Except to the extent that it must be repaid out of the excess of production by economies above what is divvied up to the participants in those economies, and paid to the ultimate holders of all debt, which you would think would be those same participants in the economies but which is now the top 10% and mostly 1%. All new debt issuance will ultimately be paid to them at a current rate of about 84% of what is issued, since that is the ratio of the economy they now own. But, they will also get interest on that loan, that is why they have taken more than 100% of all new national wealth at least since 2000. This is why financialization and debt is such a bad idea, because ultimately claims on our production and thus labor belong entirely to the wealthiest few. The only way to stop them collecting and turning us into slaves in the process is to refuse to work. But they will still hold title to us as chattel and we will merely starve. So our very survival will mean agreement to the repayment terms.
That is why the arguments between us about inflation and deflation are meaningless. Our owners simply do not care which relative value of their dollars are expressed in the economy, their wealth and power does not depend on what you pay for a house or car or chocolate bar. They already own us and the vast majority of the economy, if we have inflation they are insulated from it because they will be taking nearly all or more than all new production/profits. If it is deflation then they will have less new money coming in but what they already have will be worth a lot more. They will still be the the very pointy top of the wealth pyramid and we will still serve them. And, it is irreversible now, the only way out of it is via a couple possibilities, confiscation and redistribution, or the mob lynchings of all the top 10% and redistribution. So, redistribution. All scenarios to get to redistribution are just politics. The end goal is a choice between slavery and redistribution, slavery being the default paradigm.
Yes Herkie, it is Correct.
Does that mean we’ve been doing things wrong so far? Like why not just print money and stop working then?
Social Security for all? Or how about a guaranteed minimum wage job for all?
With the amount of debt in existence you have a massive soak for new liquidity, it adds up to new replacing old. The problem is that this shift in money supply changes the economy, from social to private to political – it is a big gamble, a big attempt to restructure the previous framework into the future. I’m not sure it will work, I’m not sure that the very attempt isn’t a form of failure.
Meanwhile, some now decide they cannot reach higher ground without conceding ground to the rest
Or maybe just realised that their investment is in trouble if they don’t fund it.
Others are not trying to reach higher ground
which makes it easier, unless of course anyone considers common ground higher somehow – after all, how can you represent and have a say over everyone if they stand out or aren’t included somehow ? I suppose though that perpetual forms of exclusion will be found somehow, as there would be no possibility of playing the role of the more equal otherwise.
They will get money in exchange for more control over their spending and policies by Brusssells. More generalization and central control.
I think so, one way or another.
I just wonder where this all leads, it is very oppressive in many ways and society is changing because of it, adapting to it. It is like a commodity that then becomes necessity. Eventually few will know other, and for those that remember the vitality that once existed it will be obvious that it cannot be retuned to, at least not without great distress. People have come to expect their world being built for them, and the apparent sum is always going to seem greater than their own effort, especially when they no longer own it. There will not be any other structure or way to fall back on, even the privilege of comparison will be gone.
Even further Sheepifying the population. Big Gov (the new shepherd) will always provide. Dangerous.
Same happens under all growing empires until collapse sets in and the sheep are lost, rudderless, unprotected. Panic and chaos then ensues and it cycles back with some conflict involved.
Same happened as Greeks, Roman’s, Holy Roman……..and all other empires failed.
For hyperinflation to occur the money has to circulate to the general public, and for the most part it does not. We may see occasional rounds of stimulus payments like we did in 2008 and this year, but that’s peanuts compared to the rest of the printing and liquidity injections.
In other words, in our “trickle down” approach where money is primarily inserted at the very top, the dollars won’t flow far enough downward to matter. We’ll see inflation in things like Cezanne paintings and ultra-rare baseball cards, but most people will never see this form of inflation or even know it exists.
I’d say about 90% of the bailouts are going to the 1% by way of corporate bond purchases, stock and ETF purchases. The peon small businesses and consumers not getting much, so little velocity now.
This is how we end up in a world where people pay $120000 for a banana taped to a wall
This has been the case and is why the recovery from the GFC took ten years. But, just because the new bailouts are a small fraction of the corporate Wall Street bailouts this time does not mean that this time they have been sterilized away from Main Street hands. This time quite a lot of money in a very short period have gone to Main Street. There were all the small business loans designed to keep employers from firing employees during or after the shutdowns. Those become grants if they go back to work, they pay rents, utilities and other overhead while closed. There is the direct stimulus though that really has been a drop in the bucket at a mere $300 billion or so. There is unemployment at depression era levels that are monstrous in quite a few states, at least seven states have weekly UI max payments over $700 per week, Washington for example is almost $800 per week, plus the $600 per week federal suppiment, makes me envy the unemployed in Seattle. Many of them have been taking home $1,590 per WEEK. That is $82,680 per year in unemployment. Roughly twice my retirement pay.
So much more has gone to Main Street this time that inflation at least in some sectors of the economy cannot be ruled out. Especially when parts of the economy, a healthy slice of business is at a tiny fraction of prior normal revenues, and quite a few will never open up again. Merely injecting cash into the economy that is shut down is grossly inflationary. When productivity of goods and services is half or less than it was in December or January but there is actually more M1 and M2 and velocity, more liquidity entirely, the ONLY result has to be inflation (with the caveat that we can’t know how much inflation till we get a better idea of how much is being saved, thus the velocity is the real key here). We do know that many online retailers are seeing their cash flow from buying online up by 40% or more.
Sebmurry, I bought a painting at an online estate sale that I will pick up today, a still life with table, wine, and books/apples, it is at least 100 years old and very well done. $56.82 with taxes and commission. The frame alone is worth more than twice that. I recall seeing a painting that sold for over $100 million that was just blue and green, one over the other. Top half was green I think. I never heard of the “artist.” A Pollock sure, Rembrandt okay, Van Gough of course, but anyone tall enough to reach the top of the canvas could have done this one.