Thursday, 10 February 2011

Inflation and why there is no solution

Critically I have a source of organic matter for the allotment a huge pile of chippings from clearance to create new plots;=)

Here is the inflation in the US, add a few % for the UK:

Confirmatory evidence - What happens historically when people or governments recognise out of control inflation:
'Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.'
'Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver. In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 - a truly tectonic shift in demand!'

Where is the inflation coming from:

WASHINGTON (Reuters) - U.S. unemployment remains too high despite increasing signs of economic strength, Federal Reserve Chairman Ben Bernanke told Congress on Wednesday, suggesting the central bank would push on with its $600 billion stimulus program.
Bernanke said inflation remains quite low in the United States, a tough message to deliver amid headlines of rising food and commodity costs across the globe.

Why will interest rates not rise:
'Bernanke is printing money and funnelling it into the Wall Street banks for one reason and one reason only. That reason is: DERIVATIVES.

According to the Office of the Comptroller of the Currency's Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.

Of course, Bernanke tells the public and Congress that the reason we need low interest rates is to support housing prices. He doesn't mention that $188 TRILLION of the $223 TRILLION in notional value of derivatives sitting on the Big Banks' balance sheets is related to interest rates.

Yes, $188 TRILLION. That's thirteen times the US's entire GDP and nearly four times WORLD GDP.

Now, of course, not ALL of this money is "at risk," since the same derivatives can be traded/ spread out dozens of ways by different banks as a means of dispersing risk.

However, given the amount of money at stake, if even 4% of this money is "at risk" and 10% of that 4% goes wrong, you've wiped out ALL of the equity at the top five banks.'

Interest rates will not rise as this would simply increase the amount of money Bernanke has to create.

On the UK:

This is why there is no solution for the UK:

'The main conclusion I can draw here is that the UK cannot afford to pay for rising energy imports and higher prices simultaneously and so something will have to give, either locally or globally. Given that a large number of energy importing OECD nations face similar problems, it seems likely that the solution will be a global one and that energy prices must fall to make them more affordable and the mechanism most likely to bring this about is a global reduction in demand for energy.'

On the USA:
“Sixty percent of all of our transportation fuels are imported—a lot of that is on credit. A large chunk of the trade deficit is actually in transportation fuels. When those stop arriving because of our inability to borrow more money, then the economy is at a standstill,” he says.

On the world:
'The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show.'


We are inevitably heading for hyper inflationary depression that will be on going as GDP must decline at the same rate as available energy flows decline.
I draw your attention to my last post where the decline rate for the North Sea is shown at 20%.

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