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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Doug Noland
October 25, 2011
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Of late, and for good reason, markets have been increasingly petrified by the prospect of a spiraling out of control European debt crisis on the brink of puncturing myriad vulnerable global Bubbles.  However, with the entire global financial system succumbing to Credit crisis contagion, the near-universal policymaker response signaled to the markets that, at least for now, the uncontrolled contagion scenario was being taken off the table.  Risk markets reversed course, inciting a stampede of buying to reverse hedges and bearish short positions – unleashing powerful short-squeeze dynamics.  Rather quickly, illiquid markets turned liquefied - and animal spirits again incited intense buying rather than the selling that has been overwhelming markets the past month or so.    

When the markets succumb to de-risking and de-leveraging dynamics, the marketplace rather quickly dismisses inflation risk.  The $100 plunge to below $40 crude during the ’08 crisis is, for now, forever etched upon the markets’ mindset.  But crude closed today near $87, and it is not beyond the realm of possibilities that inflationary pressures prove more resilient this time around.  This morning’s report on September U.S. Import Prices showed an undeflationary 13.4% y-o-y increase.  This follows September’s 6.5% y-o-y increase in U.S. Producer Prices and 3.8% y-o-y increase in the U.S. Consumer Price Index (reports this week, including from Safeway and Campbell Soup, confirm that food price inflation has become well-entrenched).   Euro zone inflation is running at 3.0% y-o-y, the high since October ’08.  And it is worth noting today’s report on Chinese inflation.  At 6.1% y-o-y, consumer price inflation remains stubbornly above the government’s 4.0% goal, led by a problematic 13.4% y-o-y increase in food prices.  India’s rate of inflation remains above 9%, also stoked by surging food costs.

I raise the inflation issue this week because it just might prove relevant one of these days.  After having afflicted even sovereign debt on a global scale, stemming the unfolding global Credit crisis will require a scope of policy response even beyond that of 2008.  And let’s assume that attentive policymakers bring out the big guns early – desperate these days to ensure “policy” gets ahead of the crisis.  In China, in particular, there is potential for an easing of policy to bolster already robust food and consumer price inflation.  And if my “developing” Credit systems and economies thesis is correct, the general global inflation backdrop might depend significantly on whether these Bubbles are at the brink of bursting or whether the global policy backdrop provides these Bubbles an extended lease on life.