Commodity inflation is evident through the metals markets. The excess liquidity that has been pumped into markets worldwide is driving this inflation.

China in particular, as previously asserted, is one of the largest inflationists. China is also stockpiling commodities and through government stimulus spending driving a massive infrastructure build out.

Price has risen significantly off of the lows from the liquidity crisis forced selling from last year. Now look at the supply of these two commodities.

"LOL, I can't believe we can still do this!"

Looks like the Congress can’t wait until the new year to begin running up massive deficits for the next calendar year. According to a new report:

Troubled by the rising jobless rate, President Barack Obama and the Democratic majority in Congress are assembling a jobs package that would devote billions of dollars to projects meant to put people back on payrolls in 2010 and keep them working.

Since even Congress realizes that the growing debt is now threatening to crush the Republic they are considering new and creative ways of paying for the next round of “stimulus” funds, including a 25 cent fee for each stock transaction. How kind of them, but don’t worry about the proposal being revenue neutral, either:

House Speaker Nancy Pelosi, D-Calif., said this week that if the public were given a choice between a job and an uptick in the deficit, the answer would be easy.

So in the interests of short term job gains that the last, much larger stimulus completely failed to provide, they are not only going to do it again, but they now simply don’t care what the long term effects are on interest rates and inflation.

If this Republic continues to spend this way eventually the consequences will catch up with us. Whether that takes the shape of a worthless dollar, massive inflation, sky-high interest rates, or some combination thereof is unclear now. What is clear is that the day is coming when we won’t be able to charge our absurd spending on credit and, when that day comes, this nation will be a very different place.

A recommended view, especially for americans. For those of you who watch the markets – did you notice how they played dollar-wack-a-mole again? The US dollar flew up, but it only took a few hours before someone found a bucket with a few gazillion dollars to pour into the forex markets. Likewise, gold dropped $40, but leave it to foreign central banks to put a floor under the market and sure enough – buyers poured into the gold market pushing the price back up towards $1200.

If we go by the monetary base, or the gold price, or the dollar index – inflation is running at more than 20% a year. Only consumer price inflation is lagging – but for how long?? Watch this – and prepare.

National Inflation Association (US)

The ‘Fall of the Republic’, Obama’s unkept promises and lies, the economic crisis as part of a bigger new world order strategy, the swine flu hoax, the fraud behind the Federal Reserve – Alex Jones talks about all this in an exclusive interview with RT’s Anastasia Churkina.

Animated US Map Shows Startling Growth of Unemployment

Gold eagle is legal tender and is exempt from reporting to the IRS
US Mint to Suspend American Eagle Gold 1-Ounce Coins

Reuters
November 26, 2009

Read Full Article Here

Today, the day after Thanksgiving, is commonly called Black Friday in the retail industry as this is the day where they expect to begin to show a profit (moving from the red to the black).

I’ve quite understood this mentality as one should expect to be able to show a profit throughout the year, not just during a holiday season. Personally, I believe the concept of Black Friday is one made up by inept executives to explain away their losses.

Who wants to wait until the end of the year before expecting a profit. That just seems to be asking for losses.

While that was a totally an aside and away from the real economic topics of day, it seems worth noting.

Gold on Thanksgiving reached new highs of close to $1195/ounce on foreign markets, only to undergo a sharp decline this morning, along with all precious metals and commodities and I expect the stock market to drop also once it opens. The decline, however, has nothing to do with gold, silver, commodities or stocks themselves, but rather it was reported in London that in the country of Dubai the state backed company Dubai World may be getting ready to default on $59B in debt.

This sent a “stampede to the US Dollar” sending it up and correspondingly sent metals and commodities down.

Gold Not Yet Considered Money

What does this tell us?

I probably have a different view of this than many people who write about these things. The common agreed up move in financial crisis’ is to move to the US Dollar and out of commodities, metals and foreign currencies. The reason for this is that the US Dollar is the International Reserve Currency and having dollars enables one to trade with other countries.

However, the underlying global economic situation has not changed one bit with the above announcement. Countries are still inflating their currencies, including the US. Gold still cannot be created out of thin air like fiat currencies can. The US Dollar’s increase in value this morning has caused over selling in other forms of currency, metals and commodities. Unfortunately for the US Dollar there is nothing of substance to warrant an increase in value.

What this also tells us is that Gold has not yet returned to being considered money. The operative word there is yet. The more Gold becomes considered Money the less it should act as a commodity. It will be some time before that takes place, if it takes place at all.

What I see happening is that this increase in the value of the dollar will be fleeting and momentary and Gold and other metals and commodities will rebound next week, if not later today.

Today just might be a good day to buy into foreign markets and metals while the US Dollar is at this momentary increase in value. Further flocking to the dollar could occur if Dubai were to actually default or for another large debt come under suspicion.

Gold Demand

I’ve read in a few places where gold demand has been down this year. I find this hard to believe. What I do believe is that the demand of jewelery has declined due to the increase in price for gold. However, if there were not either an increase in the demand for gold or a reduction in the supply of gold or some combination of these, then why has gold prices risen consistently this year.

The US Mint announced today that they are no longer going to produce gold or silver eagles because they can’t buy enough of the gold or silver. http://www.contracostatimes.com/business/ci_13869651?nclick_check=1 Notice that the mint isn’t saying they are stopping production due to a lack of demand.

A lack of supply of a commodity like gold is a form of demand. For example, if I don’t want to sell something I have and neither do most people who purchased that something, this reduces the supply of that something. But this is really demand as the reason the supply is low is because I want to keep this something and have a personal demand for it.

When the demand for jewelery, considered a luxury item by most, dropped due to the economic decline the price of metals dropped. This was the perfect time to buy the metals and people who bought those metals at that time, like myself, aren’t selling if they purchased the metals for future economic stability.

You must be wondering about the relation between potatoes and laptops. Are there laptops made of potato peels? Can laptops be made of recycled potatoes? Have scientists invented machines which transmute potatoes into laptops? Have potatoes gained computational capabilities? Or have we discovered intelligent laptop wielding potatoes in the outer reaches of space. These could be some of the sophisticated questions cropping up in your fertile imagination. The answer to all of them is a resounding NO!!! Not yet, at least.

What I had in mind was the ballooning food inflation in India. It has hit 15.5% today, pushed up by potato prices which soared this year, reaching up to Rs.30.00 during the Navaratri season. Prices of grains and pulses, fruits and vegetables have also seen an upward trend. One of the reasons for high food prices seems to be lack of rains. This was a drought year for the country and understandably it severely affected the crop yield.

However, the more compelling reason for high food inflation and for high potato prices in turn, is the continued lack of investment in agricultural sector and the conversion of agricultural land for residential and industrial purposes. Combined with an uncooperative weather, this has lead to skyrocketing food prices. The Gandhian vision of grassroots level development was lost as soon as India stepped into the industrial development. But I believe it is time we rediscovered his ideology. With a nation of more than 1.2 billion people and still growing, we cannot continue to neglect the farming sector which performs the most critical function of feeding the nation. All talk of India becoming a superpower will be rubbished if half of the nation goes hungry. Although substantial sums are allocated in the national budget for development of the farm sector, most of it is siphoned off by politicians and vested interests. Some of them have built monuments and statues to fulfill their megalomaniac ambitions, pulling the wool over the poor farmers. The policy and frame work for development of agricultural sector may already be in place, but as usual due to inadequate enforcement, they cannot bear fruit. There is an urgent need to focus our attention and invest time and resources to nurse this vital sector back to health.

Contrary to food prices, laptop prices have fallen steadily. A decent laptop is now available for as much as Rs.16000.00. These laptops until a year back used to sell for almost double this price. The prime reason for reduction in prices is the continuous improvement of technology which has multiplied the computing capabilities manifold while slashing the component prices each year. Such focus of energy and intense research is of course driven by market interests.

Perhaps private farming initiatives could achieve similar excellence in agricultural production if the necessary regulations to dissuade them from overexploitation of labour and resources are put in place. Maybe the solution is to form agricultural cooperatives. I am not sure of the correct route to follow.

But one thing is certain, if the inflationary trend continues, it would be difficult for many of us to make both ends meet. Most importantly, it would severely affect the nutrition of children and the poor, not to mention the seeds of anarchy it would sow in the society. For each of us it is a wake up call not to be taken lightly. This could presage the course of things to come unless we choose to be dead serious about it. After all, we cannot eat laptops, no matter how cheap they become.

Climate Change minister Penny Wong, has been playing hard ball against the Liberals of their stances on the E.T.S. bill which only have ended in drama.

The drama turns out to be a opera event, there goes the underscore and the overture. You just have to wait for the fat lady to sing!

That’s what I’d be expecting on monday, where the leadership is taking place between Malcom Turnbull and his opponents.

If Penny Wong and her college Kevin Rudd, was serious about tackeling climate change they might as well just encourage or build some new green electricity farms instead a tax on industries.

How effective will compensation to households and others is really going to help them cope with increases in electricity and utilities bills, good and services?

Will the compensation component also cover for the inflation created by the R.B.A? or the expansion of credit? or even fixed prices on good and services?

I want to know how they can really justified of passing the E.T.S. without any clear idea of how exactly the compensation aspect will play out?

Until next week for the answers, when the develops into detail!

Cheers

Khoa Huynh. As I’m happy to blog on a Friday night when I’m suppose to be going out, but decided to stay instead.

On November 26, 2009, Germany’s statistical office Destatis announced that according to flash estimates, the German consumer price index (CPI) decreased 0.2% m/m in November 2009.  Most of the downward pressure came from core components with clothing and household goods prices falling the most, pointing at the considerable slack still prevalent in the German economy. On a year-over-year basis, inflation increased by 0.3% y/y in November. Harmonized Index of Consumer Prices (HICP), the indicator of price stability for the ECB, posted a 0.4% y/y gain in November 2009. Compared with October 2009, the HICP declined by 0.1% m/m.

Dubai Defaults – Deflation In Action – Watched Pot Theory Revisited

by Michael Shedlock

Last night after a 10 hour drive I was up at 5:00AM watching the futures plunge but not knowing why. Now we know: Dubai default fears spook investors

Global stock markets endured heavy selling on Thursday as investors were spooked by the spectre of a default by Dubai and after a febrile foreign exchange market saw the yen surge to a 14-year high against the dollar.

The turmoil caused a flight to less risky assets. Gold, which had challenged $1,200 in Asian trading, fell back from its highs and money flowed into havens such as German government bonds.

US markets are closed for the Thanksgiving holiday, but electronic trading of the benchmark S&P 500 equity futures contract showed a potential drop on Wall Street of 2.2 per cent.

As the European trading day progressed it became clear it was Dubai World’s difficulties that had hit a particular nerve, reminding investors of the lingering damage wrought by the financial crisis.

Banking stocks tumbled on concern about their potential exposure to Dubai. Indeed, the cost of insuring against default by the emirate jumped, with Reuters reporting the Dubai five-year credit default swap being quoted as high as 500-550 basis points. This means it would cost about $500,000 a year to insure $10m of Dubai’s debt. On Tuesday it would have cost about $360,000.

Greek and Irish government five-year credit default swaps also moved higher as nations with supposedly precarious fiscal positions were punished. In contrast, investors sought out comparative haven assets, pushing the yield on the German Bund down by 8 basis points to 3.16 per cent.

Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Please consider Dubai Debt Delay Rattles Confidence in Gulf Borrowers

Dubai shook investor confidence across the Persian Gulf after its proposal to delay debt payments risked triggering the biggest sovereign default since Argentina in 2001.

The cost of protecting government notes from Abu Dhabi to Bahrain rose, extending the steepest increase since February as Dubai World, with $59 billion of liabilities, sought a “standstill” agreement from creditors.

Dubai World’s assets range from stakes in Las Vegas casino company MGM Mirage to London-traded bank Standard Chartered Plc and luxury retailer Barneys New York through asset-management firm Istithmar PJSC. The Dubai government’s attempt to reschedule debt triggered declines in stocks worldwide that had been rebounding from the worst financial crisis since the Great Depression.

Unlike Argentina, which stopped payments on $95 billion of debt eight years ago after yields on benchmark bonds more than doubled in four months to more than 40 percent, Dubai’s announcement yesterday “was a surprise,” said Alia Moubayed, a London-based economist at Barclays Plc.

Gold And The Watched Pot Theory

While some were spouting US government debt default theories or dollar devaluation theories others were looking for the “unwatched pot”.

Inquiring minds are taking another look at Gold And The Watched Pot Theory written October 07, 2009.

Message Of Gold

The reason for the strength in gold is not US inflation. As I have pointed out many times, gold fell from 850 to 250 over the course of 20 years, with inflation every step of the way. Thus, the inflation story just does not fit.

However, it should be clear that a major financial crisis is in store following a long period of competitive currency devaluation and massive debt and derivatives expansion by nearly every major country on the planet.

Might the US dollar blow up? Yes it might. But so could the RMB if China floated it, and so could the British pound. No one seems to see the crisis brewing in Japan with a huge demographic problem, a shrinking population, falling exports, and no way to pay back its national debt.

There is seldom a mention of the problems in European banks who foolishly lent money to the Baltic States in Euros or Swiss Francs and now those Baltic country currencies have collapsed and the loans cannot be paid back. European banks also lent to Latin America and those loans are also suspect. Arguably, European banks are in worse shape than US banks, but no one talks about it, at least in the US.

Spain has unemployment approaching 20% yet must suffer through the same interest rate policy as Germany. Seldom does one hear about this either.

Certainly the UK is a complete basket case with its banks on government life support. Iceland has already blown up, who is next?

Most are not aware of the problems in China, Japan, or Europe. However, the problems in the US are universally well understood. Indeed all eyes are on the dollar and everyone is talking about deficits, monetary printing, and especially unfunded liabilities even though the latter is tomorrow’s problem, not today’s.

Watched Pot Theory Revisited

A watched pot may boil, but it’s not likely to explode, especially when everyone watching the pot expects an explosion any second.

Indeed, it would be fitting if the Ridiculous Hype Over Secret Oil Meetings, helped form a bottom on the US dollar.

Yet, it’s easy to see that a financial crisis is brewing.

Somewhere, something is going to blow sky high, but from where I sit, it’s as likely to be in the Yen, the Swiss Franc, the British Pound, or something no one is watching at all as opposed to the US dollar specifically.

Hyperinflation?!

Amazingly some see this as hyperinflationary.

Nadeem Walayat writing for the Market Oracle says Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend

Nov 18, 2009 – 12:58 AM

The jist of the deflationists argument is that debt deleveraging MUST trigger huge consumer and asset price deflation. Whilst we have all witnessed huge asset price deflation and some consumer price deflation during 2008 and into 2009. However we have also witnessed unprecedented government and central bank actions of this year, which have ignited asset price inflation with more to come that is now starting to feed into consumer price inflation.

Why do deflationists have it wrong ?

It is that focusing on the deleveraging of the the debt mountain is a red herring, taken on its own then yes it DOES imply deflation as the debt bubble ’should’ contract. But given the asset price reaction of 2009 that is NOT what is actually taking place! the Debt bubble is NOT deleveraging, the bad debts are being dumped onto the tax payers! The huge derivatives positions that act as the icebergs under the ocean as compared to the asset price tips that we see above water are not contracting but expanding!

The DEFLATIONISTS ARE DEAD WRONG !

The last 8 months have proven it to be so ! But STILL they cling on as though they have blinkered visions as a function of presumably not having to put their own money on their deflation calls. What will there position be in another 8 months – it will be to REINVENT HISTORY TO IMPLY THEY SAW IT COMING ALL ALONG!

What’s amazing is how hyperinflationists who have blown the call for 10 years running now accuse deflationists in advance of rewriting history.

Here’s the deal. Deflation happened, the only debate is how long it lasts. It is more than premature to proclaim the end of it on the basis of an 8 month period. Things do not progress in a straight line and a rebound after a 51% plunge in the S&P 500 and 10 year treasury yields close to 2% was expected.

That rebound is a much proof of the end of deflation as any of half a dozen 50-100% rebounds in the Nikkei over the last two decades, or the massive rebound in the DOW in 1931 before it plunged to new lows.

Many of those pointing to 8 month timelines as if that is what matters ignore an even bigger timeline in which stocks fell that 51%. If this rally is proof of inflation the the plunge must be proof of deflation.

The reality is neither is true. What is true is that in a credit based fiat economy, what matters is ability of the Fed and Central Banks in general to foster bank lending. And that is not happening.

Total Bank Credit

click on chart for sharper image

More Deflationary Writeoffs Coming

click on chart for sharper image

Allowances for loan losses will decrease as charge offs increase. However, the above charts are in relation to non-performing loans.

Because allowances for loan losses are a direct hit to earnings, and because allowances are at ridiculously low levels, bank earnings have been wildly over-stated.

The $trillions poured into the economy got a measly 2.8% rise in GDP.

Now what? Jobs are still contracting, businesses are not borrowing, banks are reducing credit card limits, etc, etc.

Those are not conditions of inflation, let alone hyperinflation. Now concerns are rising in Congress and the administration over the national debt. Meanwhile, more defaults loom: on housing, on commercial real estate, and on credit cards.

Two year treasury yields are at a record lows of .74 and five year treasuries are at 2.11.

If hyperinflation is coming, buy houses. Nowhere else can you get the leverage you can get in houses. It’s a sure thing. Meanwhile I suggest gold has been rising for another reason: credit stress and fears of deflationary economic collapse.

Dubai just stepped up to the plate out of the blue, defaulting on debt. Defaults are part of the deflationary process. Prepare for more of them because they are coming.

I see no reason to change my stance that the US is in for a long slug of hopping in and out of deflation for quite some time. Ironically it is the hyperinflationsts who are rewriting history. The hyperinflationists had it wrong, deflation happened first.

Deflation is here, the only debate is how long it lasts. Some of us saw it coming, the rest still scream about the massive inflation that is supposedly coming. They may be correct eventually, but when?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

The Dollar Bubble is a new documentary starring Peter Schiff, Ron Paul, Marc Faber, Gerald Celente, Jim Rogers, and others. Prepare now for the U.S. dollar collapse.

The rate of inflation is a pretty important number.  In addition to being an indicator of whether things are getting more expensive or not, it is also used to judge the effectiveness of monetary policy, and to adjust the rate of payments for programs such as Social Security, military retirees and survivors, food stamp recipients, and a host of other programs.  The Consumer Price Index (CPI), which is the primary measure of inflation, affects payments in some way to almost 80 million people.  In other words, it’s a pretty important number.

To calculate the CPI, a complex formula is used to determine the price of certain products in several geographic areas.  This is where the games can be played, and where Cash For Clunkers comes in.  If a friend (or fellow taxpayer) gave you $100 to help buy a new TV, and you bought the TV for $500, what would you say was the price of the new TV?  Well, the number on the price tag was $500.  The guy who came into the store at the same time as you and bought an identical TV paid $500, the same as you did.  The fact that your friend gave you $100 did not lower the price of the TV.  However, in the latest release of the Consumer Price Index according to Bob Arnott (chairman of Research Affliates, LLC), if you were given $4500 from other taxpayers to help buy a new car as part of the Cash For Clunkers program, the $4500 was considered a price reduction of the car, making the car look cheaper and reducing the inflation number.

With the hundreds of billions of dollars being spent on stimulus, this type of game can be played for quite a while, but not forever.  A low inflation number helps GDP growth look better because GDP growth is measured relative to inflation.  However, at some point, the shifting of money has to slow down and the actual rate of inflation (and GDP growth) will show up.  Hopefully, actual growth will have kicked in by then, but this certainly seems like a potential problem in the not-too-distant future.

Turkey’s finance minister says there is every sign Turkey’s economy is bouncing back.

Commenting at the 2nd Gold Summit in Istanbul, Mehmet Simsek predicted the economy will recover rapidly from the global economic crisis. “There are already several indications of recovery,” he said.

“In the past one or two months, there have been strong indications in both Turkey and the rest of the world that the markets are recovering. Especially in Europe, the developments are rather positive. In Turkey, export volume is experiencing minor growth and there is an increase also in the number of new enterprises.”

The banking sector, a crucial part of economic recovery, was in a healthy state before the economic crisis and was therefore dealt a lighter blow than the banking sectors of many other countries.

Simsek said Turkey is experiencing its lowest-ever inflation rate, and its low interest rates are helping growth in loans. “I expect the economy to recover from the crisis in the near future and this recovery will be permanent because the foundations of the economy are solid.”