Chart of the Week: Inflation in the Real World
By Jake Weber, Editor, The Casey Report
As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world. According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1% in August.
The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low. While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities.
On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October.
You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road.
The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher – the decline in purchasing power of the dollar is also showing up in the price of physical goods. It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals – a trend that is now very much in motion.
[Jake is going to be digging deeper into the “secret” inflation in the next edition of The Casey Report, which will be released just following the upcoming midterm elections. Sign up today and make the powerful trends now sweeping the global economy and investment markets work in your favor. Our 3-month, 100% satisfaction guarantee assures you’ll love the publication or get a full no-questions-asked refund. Details here.]
http://www.caseyresearch.com/editorial/3791?ppref=ZAC175ED1010A
Overnight Rates Soaring to 13% on Shortage of Peso Bills: Argentina Credit
Argentina’s overnight loan rate between banks is rising the most in two years as inflation quickens and speculation grows that lenders are facing a shortage of peso bills.
The one-day interbank rate jumped 200 basis points last week, the most since October 2008, to 13 percent, an 18-month high, according to data compiled by Bloomberg.
South America’s second-biggest economy is growing at the fastest pace in five years, boosting demand for pesos, the central bank said Oct. 13. At 13 percent, Argentina’s loan rate is 225 basis points, or 2.25 percentage points, higher than Brazil’s and compares with key rates of 1 percent or lower in the U.S., Japan and Europe. Month-end demand for cash to pay workers and retirees is exacerbating the shortage of pesos, said Federico Sturzenegger, president of Banco de la Ciudad de Buenos Aires.
“The central bank can’t keep up with the rising circulation needs,” Sturzenegger said. “Banks are using bills for longer periods of time and putting worn-out notes into automatic-teller machines.”
Speculation the central bank’s printing press is failing to keep up with demand grew after Buenos Aires-based newspapers Ambito Financiero, La Nacion and Clarin reported on the shortage this month.
Some bankers may be stockpiling cash on speculation that there may be a bill shortage in the future, said a central bank official who declined to be identified in accordance with policy. While the central bank has slowed the pace at which it removes and destroys old bills to help meet a seasonal spike in demand, its printing presses are running at full capacity and guaranteeing supply, he said.
‘Dynamic’ Expansion
The interbank rate, also known as the call money rate, fell 75 basis points yesterday to 12.25 percent. It’s up from 10.08 percent on Sept. 28, as the central bank forecasts the economy will grow about 9 percent this year, the most since 2005.
“The increasingly dynamic economic expansion has continued to boost the demand for money from the private sector,” the central bank said in a monthly report released Oct. 13.
The economic expansion is also sparking a surge in consumer prices. Goldman Sachs Group Inc. estimates inflation in Argentina is about 25 percent, more than double the government’s 11.1 percent rate.
Economists and politicians including Vice President Julio Cobos have questioned official inflation statistics since 2007, when then-President Nestor Kirchner made personnel changes at the national statistics institute. Kirchner, who died Oct. 27, and President Cristina Fernandez de Kirchner have said the government data is accurate.
New Bill
Pablo Verani, an Argentine senator from the Radical Civic Union opposition party, this week presented a plan to introduce a 200-peso bill to combat the erosion of purchasing power caused by inflation and mark the nation’s bicentennial. The 100-peso bill has been the largest note in circulation since Argentina introduced the currency in January 1992.
“My plan is related to comfort,” Verani said. “If you go to a supermarket with 100 pesos now, you buy about 20 percent of what you bought three years ago.”
The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries narrowed eight basis points to 520 as of 9:59 a.m. New York time, according to JPMorgan Chase & Co. It tumbled 49 on Oct. 27 after the death of Kirchner spurred speculation that the nation’s statistical reporting will become more transparent.
Money Supply
The cost of protecting Argentine debt against non-payment for five years with credit-default swaps fell 34 basis points yesterday to 613, according to data provider CMA. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to debt agreements.
Warrants linked to growth in South America’s second-biggest economy rose 0.15 cent today to 13.23 cents, according to data compiled by Bloomberg.
The peso was little changed at 3.9590 per U.S. dollar.
The central bank, which is fueling money supply growth by selling pesos for dollars to weaken the currency and shore up exports, raised its 2010 monetary growth targets on Aug. 26 to 29.4 percent from 19 percent. Foreign reserves rose to a record $51.8 billion on Oct. 25.
Juan Carlos Nougues, president of Buenos Aires-based Banco Supervielle SA, said his bank is not struggling with a shortage of bills.
“Our bank hasn’t had problems obtaining bills,” he said in an e-mailed response to questions. “The rise in the call rate doesn’t seem significant to me.”
‘Psychological’
The rate should fall by early next month as salaries are paid out, said Fernando Izzo, a currency trader at ABC Mercado de Cambio in Buenos Aires.
“They say there is a lack of bills, that there is inflation and that the central bank can’t print notes fast enough,” he said. “It’s a bit psychological.”
A lack of bills, mainly 100-peso notes, led the central bank to remove fewer pesos from the system during this week’s auction of short-term notes known as lebacs and nobacs, said Camilo Tiscornia, a former central bank economist who is now an analyst at research company C&T Asesores in Buenos Aires.
The sale of notes this week tumbled to 948 million pesos ($239.5 million) from 3.6 billion pesos last week, according to the central bank.
“If the banks fear that they will run out of bills, they will hold on to more currency, which implies there is less supply of cash in the interbank market, pushing up the call money rate,” Tiscornia said.
http://www.bloomberg.com/news/2010-10-29/overnight-rates-soar-to-13-on-shortage-of-peso-bills-argentina-credit.html
Why should anyone be surprised at this, if you thought any different you were naive
Contraception could be free under health care law
WASHINGTON (AP) - Fifty years after the pill, another birth control revolution may be on the horizon: free contraception for women in the U.S., thanks to the new health care law.
That could start a shift toward more reliable - and expensive - forms of birth control that are gaining acceptance in other developed countries.
But first, look for a fight over social mores.
A panel of experts advising the government meets in November to begin considering what kind of preventive care for women should be covered at no cost to the patient, as required under President Barack Obama's overhaul.
Sen. Barbara Mikulski, D-Md., author of the women's health amendment, says the clear intent was to include family planning.
(go to link for the rest)
http://apnews.myway.com/article/20101031/D9J6QV8O0.html
Population drop-off vexes Maine residents
CAMDEN, Maine — Trendy Brevetto Kitchen & Wine Bar is bustling on a recent Thursday, but not with a typical happy hour crowd. Less rowdy and mostly professional, the men and women wearing name tags are not here to hook up but link up.
They're members of Midcoast Magnet, one of several regional groups working to halt a population slide in one of the USA's most picturesque states.
Maine was one of three states whose population declined from 2008 to 2009 (Michigan and Rhode Island were the others). For the first time in 209 years, neighboring New Hampshire has more people than Maine, according to Census estimates.
The drop in Maine stems mostly from young people leaving for school and jobs and the birth rate dropping as those left behind age. Maine's median age (half are younger, half are older) is 42.2 — oldest in the USA.
Maine traditionally has been divided between natives — "Mainers" — and those "from away," but this time, both are reaching out to bridge the gap.
Young and old at the mixer pause for small-group exercises. That night: How can you use your skills and connections to help someone else in the group?
The networking is keenly significant for hundreds of small Maine towns struggling to hang on to people and stave off declines in the tax base, the labor force and investment.
"Midcoast Magnet's mission is to attract, connect and retain talented people," says Amber Heffner, a "from away" who now heads the mostly volunteer organization. Heffner, 42, moved from Chicago, married a lobsterman and founded Little Harbor Technology, a Web design and database company in nearby Rockland.
Skip Bates, the former head, is a Mainer. The Bangor Savings Bank officer rattles off efforts to attract people and business: an initiative to bring high-speed Internet to rural Maine, a venture capital fund, grants to help new technology ventures and a "Juice 2.0 Conference" "powering the creative economy."
An aging state
People flock to Maine's spectacular coastline, steeped in tradition and dependent on lobstering, shipbuilding and tourism. Many out-of-staters who stay are retired and older. Maine, 95% white, has drawn few immigrants.
"We project that in 20 years, a quarter of our population will be of retirement age or higher," says state economist Michael LeVert. "We have to make sure that when folks in Boston or New Jersey think about starting a family or starting a business, they think of Maine," LeVert says.
Two-thirds of the state's 1.3 million people live in the lower third. The timber and paper mill industries that supported rural northern counties near Canada consolidated, and thousands of jobs disappeared.
"Clearly, the place has been grappling for 25 years with massive restructuring," says Mark Muro, director of policy for the Brookings Institution's Metropolitan Policy Program.
Maine's self-reliance and local autonomy, rooted in New England's tradition of direct democracy and town hall meetings, may have stymied efforts for statewide and regional cooperation, but resistance wanes as the state shrinks and ages.
"The sheer impact of the Great Recession took some very comfortable communities and made them rethink their future," says Dan Bookham, who runs the Camden-Rockport-Lincolnville Chamber of Commerce.
'Let's all get out of here'
Frank Pavalkis, 24, who grew up near here, describes a common refrain of Maine's high school seniors: "Let's all get out of here."
He did and went to Boston's Northeastern University but eventually returned. He studies medical technology at the University College at Rockland and hopes to be hired by Pen Bay Healthcare, the large medical system in the area.
Among current efforts to revitalize Maine:
•The Council on Quality of Place works at turning the state's assets — natural and man-made — into jobs, products and services.
•The Ocean Energy Institute in Rockland is researching offshore wind energy research.
•Old paper mill equipment now makes molds for handbags and soccer cleats manufactured in China.
Young people "love the lifestyle ... the quality of place ... the scale of the community," says Laurie Lachance, president of the Maine Development Foundation. "We can shine the light on those things."
Youth is sprouting in the state Legislature. At 34, Hannah Pingree is the youngest woman in the USA to be a state House speaker. When she was first elected at 25, there were seven legislators age 40 or younger. Now there are 25.
Bettina Doulton was a hard-driving mutual funds manager at Fidelity in Boston — until she bought the Cellardoor Vineyard in Lincolnville. She says she has found the change of life she was seeking. "This area is a petri dish for entrepreneurs," she says.
http://www.usatoday.com/news/nation/2010-11-01-maine01_ST_N.htm
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