All this has been obvious to us for a long time. Still, until this summer, nothing gave. Consumer spending continued to rise!
Then, the banks began to announce losses...and the numbers grew. A hundred billion here...a hundred billion there...pretty soon, we were talking about real money.
Already, there is “alarm at rising US car loan defaults,” says the Financial Times. And gasoline in the
The old market hands are wondering...what does the market see? How come it doesn’t correct in a major way? Do investors really think that the declining dollar will save them...? Are they expecting another big rate cut from the Fed (Bloomberg says another 3/4 point is coming...)? Do they think it will all blow over...instead of blowing up?
More tomorrow...and the day after...and the day after...
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by kayle on 21 November 2007:
Bill:
Reckon Paulson's Plunge Protection Team has been working overtime on the market lo these many days, just long enough for Goldman Sachs to short....
Yeah I think there will be more cuts from the Fed - what else can they do? The only thing that has a ghost of a chance of giving them any global credibility is to *raise* rates, and that would take a real pair of big brass ones considering the long line of Wall Street villagers with torches and pitchforks that would follow.
Let's just say that Helicopter Ben is no Paul Volcker.
Comment by Adam Smith on 22 November 2007:
Can we really believe that inflation is as low as ABS figures suggest?
An issue that could be worth raising while the election is still on is whether we really should take the ABS's inflation figures seriously. To many ordinary Australians the actual inflation rate they perceive when the go shopping seems to be significantly higher than the numbers regularly published by the ABS and some background research suggests that maybe the average person might be right.
In recent years, the ABS has been changing the way it measures inflation to follow recommendations made by a US Commission commonly referred to as the 'Boskin Commission'. That Commission was set up in 1996 with the undisguised objective of making recommendations that would reduce the measured US CPI (the US inflation rate) because a majority of politicians were concerned about US government's committed expenditures on Social Security and as these payments are indexed to CPI. Reducing 'measured' inflation was considered a really neat way of reducing future social security payments. Most of the ordinary population were and are unaware of the changes that were made which makes it even better for the politicians!
In the US, amongst those that knew, including economists, the validity and need for these changes was controversial. Nevertheless, the changes were and are continuing to be implemented.
The Commission said that if their recommended changes, which mostly involved the treatment of quality and new products in the measurement of CPI, were implemented the 'measured' US CPI would be about 1.1 percentage points lower (maybe even 1.6 percent lower) than if the unchanged approach continued to be used.
The ABS started implementing these recommendations in 1999. The cumulative effect of the changes, that is the difference between the price level if the old method was continuing to be used and the price level with the new approach could by now be quite substantial. Also, anyone in Aus with income indexed to the ABS's CPI could be getting a lot less today as a result of these changes.
So the question is, which should be raised during this election period,can we believe the ABS's numbers? Is inflation really as low as they suggest? And what role has the current government had in having the changes implemented? Of course, a lower 'measured' inflation rate does make the incumbents look better.
The measurement of inflation has important implications as many people receive income from sources indexed to the CPI. And the CPI is an important point of reference when workers negotiate wage rates with their employers.
X
Here are some reference so you can check this out.
http://www.princeton.edu/~deaton/downloads/letterfromamerica_oct1997.html
http://www.ssa.gov/history/reports/boskinrpt.html
http://en.wikipedia.org/wiki/Boskin_Commission
http://thomaspalley.com/docs/articles/macro_policy/rewrite_economic_history.pdf
http://www.prospect.org/cs/articles?article=the_inflated_case_against_the_cpi
http://www.shadowstats.com/cgi-bin/sgs?
Comment by Coffee Addict on 23 November 2007:
As an ex public servant - the bulk on my PSS super balance (being indexed to the CPI) is losing purchasing power and will continue to do so for the next decade at least. The scheme is absolute crap and I have no idea where the market linked compent of this investment stands.