Inflation Supply Shock Inferno

[ron4jesus]

Inflation Supply Shock Inferno
(Crisis & Globalization II)
by Daniel R. Amerman, CFA | October 29, 2009

The gasoline for rampant inflation already permeates the US economy – and all it will take is one bad day for a series of interrelated supply shocks to set off an inflationary inferno. As we will cover in this article, the accelerant in this case is the $700 billion annual United States trade deficit. We’ll explore how the real world economics of being the world’s largest debtor in a globalized economy trump insular deflationist monetary theory, as well as what happens when you pit exogenous supply shocks against Santa Claus.

Some Radical Questions

What would happen if the United States had to actually live on what we all produce? What would happen if other nations would only provide us with the goods and services that we could pay for with our own goods and services? What if other nations stopped manipulating the value of the dollar, stopped propping it up, and let it find its free market value?

This idea of living within our means – whether we want to or not – is radical stuff, but it could be happening fairly soon given the current global economic situation. As we explored in more detail in the companion article / video, "A Plunging Standard of Living (Crisis & Globalization I)", when we divide a $700 billion trade deficit by 111 million US households, the shortfall between what we produce and what we consume comes to about $6,300 per average family. As the median US income is $50,000 per household, this means that an average of 12% of the national standard of living consists of goods and services that we don’t produce enough to pay for, and are supplied effectively on credit by the rest of the world. When we adjust out taxes and the cost of housing, for a loose measure of discretionary income, that means that for the median household about 28% of what we think of as our standard of living is arguably based upon other nations propping up the dollar, manipulating currency values so that effectively American jobs have gone overseas.



In this article, instead of talking about our standard of living, we're going to talk about the purchasing power of our savings – the value of the dollar. What would be the impact if the trade deficit stopped, if supply had to meet demand, and we had to actually pay full price for everything that we are consuming?

Where exactly the dollar would end up is a very good question. But for right now I think it's fair to say that dropping 30% and 50% might be appropriate, for illustration purposes. The dollar has been propped up for a very long time, we have a $700 billion annual trade deficit, and arguably, the single strongest part of the dollar is a psychological factor. The world sees the dollar as the global reserve currency. If the perception goes from reserve currency to fatally wounded dollar, the downward plunge could be deep, and near instantaneous.

The Inflationary Supply Shock Inferno

What happens to prices? Let's look at Wal-Mart, Target and Best Buy. What all those "big box" stores have in common is that they are stacked full of goods made in China, Japan and other nations – for which the United States can't really pay. Goods that we're only able buy because they're buying our treasury bonds in exchange, essentially propping up our trade deficit by paying for our budget deficit. Now, if the dollar drops in half, that means the cost of virtually everything that we buy in those stores would double overnight.

Instead of paying $1,000 for an HDTV – we’re suddenly paying $2,000.

Instead of paying $3 for a plastic spatula - we're suddenly paying six dollars.

Instead of $70 for a dish set - all of a sudden it's $140. We have an immediate, drastic inflationary price shock, with the prices for everything we bring in from overseas soaring overnight.


more here : http://financialsense.com/fsu/editor...2009/1029.html

[ByFaithIFly]

Great article,Ron Thanks for posting it.

[ladylinda]

We might soon be finding out how different 'needs' are from 'wants'...
and how much we really need to survive.

[Pendragon]

Keep your eyes on water it is coming soon Save it from the downspout and save your milk jubs for storing it with purification tablets from walmarts that way when they start hitting the tax either you have a well or have water stored up

[sherrimae]

We already no longer buy anything other than groceries and gasoline.

[Homesick777]

All it takes is one very bad day in the currency markets and that could set off a chain of events that would be almost impossible to contain.

With so many living from paycheck to paycheck, Financial Armageddon would only be a few days away for most if/when this happens. This scenario is where Obama is currently steering the boat.

[Jonathan Blair]

Get ready for another burst bubble...

http://www.ft.com/cms/s/0/9a5b3216-c...nclick_check=1

Mother of all carry trades faces an inevitable bust
By Nouriel Roubini

Published: November 1 2009 18:44 | Last updated: November 1 2009 18:44

Since March there has been a massive rally in all sorts of risky assets – equities, oil, energy and commodity prices – a narrowing of high-yield and high-grade credit spreads, and an even bigger rally in emerging market asset classes (their stocks, bonds and currencies). At the same time, the dollar has weakened sharply , while government bond yields have gently increased but stayed low and stable.

This recovery in risky assets is in part driven by better economic fundamentals. We avoided a near depression and financial sector meltdown with a massive monetary, fiscal stimulus and bank bail-outs. Whether the recovery is V-shaped, as consensus believes, or U-shaped and anaemic as I have argued, asset prices should be moving gradually higher.

But while the US and global economy have begun a modest recovery, asset prices have gone through the roof since March in a major and synchronised rally. While asset prices were falling sharply in 2008, when the dollar was rallying, they have recovered sharply since March while the dollar is tanking. Risky asset prices have risen too much, too soon and too fast compared with macroeconomic fundamentals.

[Pendragon]

Hey Folks and Ron especially thought this was interesting!!

http://news.yahoo.com/s/ap/20091103/...ngton_northern



AP – FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders …
By SAMANTHA BOMKAMP, AP Transportation Writer Samantha Bomkamp, Ap Transportation Writer – 43 mins ago
NEW YORK – Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy.

Burlington Northern, the nation's second-largest railroad, is the biggest hauler of food products like corn and coal for electricity, making it an indicator of the country's economic health. The railroad also ships a large amount of goods — including everyday items such as refrigerators, clothing and TVs_ from Western ports like Los Angeles, Long Beach, Calif. and Seattle.

Analysts say Buffett is planting both feet in an industry that is poised to grow as the economy gets back on solid ground. If approved, it would be the biggest acquisition ever for Berkshire Hathaway Inc.

Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.


Berkshire also owns stock in two other major U.S. railroads — 9.56 million shares of Union Pacific Corp. and 1.93 million shares of Norfolk Southern Corp., as of June 30.

Ya know this is an odd move but wow the controls!!! food moves where and at what pace they want as well as goods... Look for friends to purchase companies affiliated with the items being shipped coal corn goods Maybe research that out who owns what in the grains and farming as well as energy and mining

[Pendragon]

also interesting to know what Soros owns here is the list of his buying and selling public stocks and the news to go with it

http://www.tickerspy.com/pro/Soros-F...hoo_2485_soros

[savedatcamp]

Check the gold price today. It's around $1,083....yikes!
savedatcamp

[ron4jesus]

Hey Folks and Ron especially thought this was interesting!!

http://news.yahoo.com/s/ap/20091103/...ngton_northern



AP – FILE - In this May 2, 2009 file photo, Warren Buffett, CEO of Berkshire Hathaway, right, waves to shareholders …
By SAMANTHA BOMKAMP, AP Transportation Writer Samantha Bomkamp, Ap Transportation Writer – 43 mins ago
NEW YORK – Warren Buffett's Berkshire Hathaway Inc. on Tuesday agreed to buy Burlington Northern Santa Fe Corp., making a $34 billion bet on the future of the U.S. economy.

Burlington Northern, the nation's second-largest railroad, is the biggest hauler of food products like corn and coal for electricity, making it an indicator of the country's economic health. The railroad also ships a large amount of goods — including everyday items such as refrigerators, clothing and TVs_ from Western ports like Los Angeles, Long Beach, Calif. and Seattle.

Analysts say Buffett is planting both feet in an industry that is poised to grow as the economy gets back on solid ground. If approved, it would be the biggest acquisition ever for Berkshire Hathaway Inc.

Berkshire Hathaway already owns about 22 percent of Burlington Northern, and said it will pay $100 a share in cash and stock for the rest of the company, a 31.5 percent premium on Burlington Northern's Monday closing price. Shareholders have the option to convert their stock for a cash payment of $100 per share or receive Berkshire Class A or Class B common stock. Up to 60 percent of the deal is cash and 40 percent is in stock.

"Berkshire's $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry," Buffett said in a statement.


Berkshire also owns stock in two other major U.S. railroads — 9.56 million shares of Union Pacific Corp. and 1.93 million shares of Norfolk Southern Corp., as of June 30.

Ya know this is an odd move but wow the controls!!! food moves where and at what pace they want as well as goods... Look for friends to purchase companies affiliated with the items being shipped coal corn goods Maybe research that out who owns what in the grains and farming as well as energy and mining

Thanks pendragon very interesting.