The purchasing power of the US Dollar has been virtually erased since the creation of The Federal Reserve in 1913 when $1,000 in 1913 is now worth $36.36. And M2 Money Velocity (GDP/M2 Money) has crashed and burned to the lowest level in history.
Inflation? Home price growth YoY is the highest in modern US history. And CPI growth YoY is the highest since the Financial Crisis and July 2008.
Bear in mind that before the creation of The Federal Reserve System in 1913, there were numerous incidents of inflation and bank failures leading banks to want protection of a national banking system that controlled the currency. Well, the banks got what they wanted.
The Fed is predicted to ease its foot off the printing press in the latter half of 2022.
U.S. consumer sentiment fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases.
The University of Michigan’s preliminary sentiment index fell by 11 points to 70.2, the lowest since December 2011, data released Friday showed. The figure fell well short of all estimates in a Bloomberg survey of economists.
The slump in confidence risks a more pronounced slowing in economic growth in coming months should consumers rein in spending. The recent deterioration in sentiment highlights how rising prices and concerns about the delta variant’s potential impact on the economy are weighing on Americans.
“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Richard Curtin, director of the survey, said in the report.
The expectations gauge plummeted almost 14 points to 65.2, the lowest since October 2013. A measure of consumers’ outlook for the economy over the coming year soured, falling the most since the onset of the pandemic in March 2020.
Only 36% of respondents expect a decline in the jobless rate, down from 52% the prior month, despite record job openings. Consumers also became decidedly downbeat about their income prospects. The gauge of expected personal finances fell to a seven-year low.
Rising prices are having a clear impact on Americans’ budgets, particularly among those with lower or fixed incomes. Nearly a third of those aged 65 or older complained that inflation had lowered their living standards, as did about a fourth of those with incomes in the bottom third or with a high school education or less.
The Michigan report showed buying conditions deteriorated to the lowest since April of last year.
Yes, only 30% of respondents felt that it was a good time to buy a home. Particularly since home prices are rising at a 16.6% YoY pace, faster even than the peak of the infamous home price bubble of 2005. But this time, The Fed is blowing the bubble, not easy mortgage credit like in 2005.
Apparently, Treasury Secretary Janet Yellen does not inspire confidence in consumers.
Today’s import and export numbers for the USA show a disturbing trend. US export prices rose +17.2% YoY in July. That is the third consecutive month of +16.9% and above export prices growth.
That begs the question: Is The Federal Reserve exporting inflation to US trading partners through its financial repression?
The University of Michigan survey of consumers is out and their buying conditions for housing (good) was a disasters. Only 32% on consumers view buying conditions for a house as good. That means that 68% think buying conditions are not good. Why? With the Case-Shiller National Home Price Index growing at a scorching 16.6% YoY making housing simply unaffordable for many Americans.
On a different note, The Fed’s overnight reverse repo facility (aka, the slosh” just breached the $1 trillion mark.
Treasury yields are rising amid optimism over the global recovery but there has been a run on Eurodollar options betting the Federal Reserve will opt not to raise interest rates at all.
Traders this week have been busy snapping up Eurodollar call options on underlying March 2025 futures that target three-month Libor to fix below 0.5%. These pay off if markets price the Fed keeping its benchmark at its lower bound until then. Futures markets are currently anticipating Libor will rise to about 1.47% by the first quarter of 2025.
So, it looks like The Fed (aka, Greenman) may not be going anywhere.
Well, economists were expecting a 7.2% YoY print of the Producer Price Index – Final Demand. But July’s print came in hot … at +7.8% YoY. Compare that with the Core Consumer Price Index YoY of +4.3%.
The month-over-month PPI Final Demand is showing a run rate of 12%! (1% in July x 12 months).
The Covid Delta Variant seems to be picking up steam, we are seeing “flight to safety” assets other than Treasuries rising.
Gold and Silver experienced some serious corrections last week, perhaps because things were looking up. Then we saw Anthony Fauci scaring everyone about Covid … again. So, there is enormous uncertainty about how this will play out. In other words, ALARM!
Bitcoin and Ethereum have been climbing since Gold and Silver corrected last week. But both are up this week, particularly Gold.
The US Dollar is down slightly since the same time last year and M2 Money Stock growth has slowed.
Here is a chart showing another fear factor: the rise of the Covid Delta Variant. Deaths are only 1.7% of confirmed cases (if we believe the actual cause of death).
Mortgage applications increased 2.8 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 6, 2021.
The Refinance Index increased 3 percent from the previous week and was 8 percent lower than the same week one year ago. But recent declines in mortgage rates have produced a mini-refi wave (pink box).
The seasonally adjusted Purchase Index increased 2 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 18 percent lower than the same week one year ago. But rapidly rising home prices have cooled mortgage purchase applications since the beginning of 2021.
Here is the data from the MBA showing a rise in mortgage applications from the previous week of 2.79%.
US inflation remains nears its highest level since 1991, but moderated slightly.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5 percent in July on a seasonally adjusted basis after rising 0.9 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 5.4 percent before seasonal adjustment.
The indexes for shelter, food, energy, and new vehicles all increased in July and contributed to the monthly all items seasonally adjusted increase. The food index increased 0.7 percent in July as five of the major grocery store food group indexes rose, and the food away from home index increased 0.8 percent. The energy index rose 1.6 percent in July, as the gasoline index increased 2.4 percent and other energy component indexes also rose.
US Real Average Hourly Earning YoY “rose” to -1.2% as core inflation “moderated” to +4.3%, the second highest reading since 1991.
Core inflation remains at 1991 levels.
With core CPI growing at 4.3%, the baseline Taylor Rule model implies that the Fed Funds target rate should be 7.05%, not the current rate of 0.25%.
As The Fed keeps rolling the dice on zero-interest rate policies.
Confounded Interest - Anthony B. Sanders 
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