Inflation and a slowing economy
Bill Bonner
The Daily Reckoning
27 Jul, 2006
"In the past three years America has been enjoying an unusual
combination of low inflation and rapid growth," writes Anatole
Kaletsky in the London TIMES. "This happy combination cannot
continue much longer. In the months ahead, either inflation will
continue to accelerate or economic growth will have to slow abruptly,
to the point where unemployment starts rising and businesses
start going bankrupt."
Our friend, Byron, believes bankruptcy is going to be a popular
practice for lawyers in the years ahead, like IPOs and mergers
& acquisitions in years past. He has an explanation for the
word too.
"Bankruptcy comes from ancient Rome," he points out.
"Merchants used to operate from a 'bankus' - a sort of workbench
or counter. If they couldn't pay their bills, the local authorities
would come over and break their bench -- bankus ruptus. In England,
they kept the bankruptcy procedures left behind by the Romans
after they left, even the part where they sold the bankrupt person
into slavery. Only it wasn't slavery anymore, it was indentured
servitude. And many were sold into indentured servitude in the
colonies."
Byron blames it all on one of our Big E's; Energy.
"It's because of oil," he says. "We're at peak
production right now. But there are five billion people who are
looking forward to the life that we Americans now lead. In China
alone, if people lived as we do, they'd consume 100 million barrels
of oil a day. And here we are at maximum production and the whole
world only puts out 84 million barrels. We keep telling these
people that they should want what we have. Democracy. Capitalism.
ATM machines on every corner. Who's going to tell them the bad
news? That they can never have it because there's not enough
cheap oil.
"The fact is, they can't be us. Because the earth can't
produce enough oil to allow everyone to live like us. In fact,
we can't be like us either. At least, not all of us. What's going
to happen is that the people who are now getting wealthy in the
rest of the world are going to use the oil that lower and middle
class Americans expected to use."
Many Americans won't be able to afford the new, higher prices
of petroleum products.
Meanwhile, in the Times, Anatole Kaletsky continues:
"The US economy is now clearly slowing, and what started
as an orderly retreat in the housing market is turning into a
rout. Yet the slowdown in housing and consumption has come too
late to prevent a steep increase in inflation. On Wednesday,
US government statisticians reported a further jump in inflation
to 4.3 per cent. This was the highest inflation rate reported
since 1991 (apart from a one-month blip after Hurricane Katrina)."
Kaletsky has been very bullish on the world economy. In fact,
he has been engaged in open warfare with such well-known bears
as Marc Faber, for example. Now he seems to be reading the papers.
In the papers, Associated Press tells us that existing and new
house sales, combined, has been going down for the past 7 months.
"Area home prices drop," adds the Washington Post,
noting that the median price of a house in nearby Loudon County,
VA, is off 1.2% over the year before. To make sure we get the
point, it has a photo of a man who is giving away a new car to
whoever will buy his suburban house.
In the US nationwide, inventories are up; sales are down. Prices
are falling in key areas, though they are still above a year
ago on a countrywide basis. In Massachusetts, foreclosures are
up 66%, says the Boston Globe.
And we got word from a friend who is trying to sell his house
in Santa Barbara that not a single person came to look at his
pad in a two-week period.
Kaletsky goes on: "Inflation in America is now running at
a truly alarming 4.8 per cent. How can the Fed commit itself
to price stability and rapid growth? How can it halve US inflation
from 4.5 to 2 per cent without allowing even a brief period of
rising unemployment? Professor Bernanke offered no answers.
"If he performs these miracles, he will go down in history
as an even greater financial wizard than Alan Greenspan. If he
fails, he may be likened to another Bush appointee who promised
painless victories without much idea of how to achieve them.
Is Ben Bernanke the Fed's Donald Rumsfeld?"
Regards,
July 27, 2006
Bill Bonner
http://www.dailyreckoning.co.uk/
 Bill Bonner is the founder and editor
of The Daily Reckoning.
He is also
the author, with Addison Wiggin, of The Wall Street Journal best
seller Financial
Reckoning Day:
Surviving the Soft Depression of the 21st Century (John Wiley
& Sons).
In Bonner and
Wiggin's follow-up book, Empire
of Debt:
The Rise of an Epic Financial Crisis, they wield their sardonic
brand of humor to expose the nation for what it really is - an
empire built on delusions.
321gold
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