Monday, June 20, 2016

Ignorance And Arrogance. Ends At Debasement

And now for the real economic story of the week, month, year, decade...

The Fed just capitulated to deflation and therefore Emerging Markets are going back into competitive debasement mode now that the dollar is weakening, giving them room to ease monetarily. Meaning that global deflation (poverty) is now accelerating...

"LONDON, June 20 Nigeria's naira lost around a quarter of its value on Monday after the central bank dropped its dollar peg"

"Bank Indonesia unexpectedly cut interest rates Thursday to help spur economic growth, taking advantage of a stable rupiah, benign inflation and the U.S. Federal Reserve’s latest decision to keep policy unchanged."

The enemy of all borrowers is deflation. However, ironically prior borrowing, "debt", is the major cause of deflation. The pull forward of consumption from the future to the present until such time as the future is "now". 

For the past seven years Global Central Banks have been waging an unprecedented war on deflation consisting of the lowest interest rates in at least 500 years and untold "stimulus". Nevertheless, they were fighting an impossible battle against Globalization and the imbalance of trade between those in the developing world who have jobs and no incomes, and those in the developed economies who are underemployed and have ever-growing debt.

Still, despite that seven year battle, the average dunce knows nothing about deflation. They have been brainwashed to believe that when some prices go up, and wages go down, that's due to inflation, rather than cartel pricing power - healthcare, education etc. They've also been brainwashed to believe that when prices go down that's always "good" even though wages are going down more than prices. 

The Idiocracy is being bankrupted by Globalization and the ever-growing output gap. But they still have no clue why they're going bankrupt. 

Global Central Banks have lost the war. And even the Fed admitted as much last week. 

Reuters May 30th, 2016
Fed's Bullard: Global Markets Seem Well Prepared for Summer Rate Hike

Last week:
Fed's Bullard Sees One Quarter Point Rate Hike By 2018
"It was a stunning turn considering the hawkish talk coming out of the Fed before this week's meeting, and, perhaps, a capitulation to the bond and futures markets that had long doubted the central bank would meet its own hiking expectations."

As it was in 2008, long-term and short-term interest rates will be re-correlated to the downside. This time, sans "recovery"...

Ignorance and arrogance visualized

U.S. deflation versus stocks

TIP/Treasury ratio (red)

U.S. Deflation with world stocks ex-U.S.