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U.S. Food Inflation Running at 22%

by Chriss W. Street 26 May 2014

Steaks

After five years of the federal government telling the public that despite a $3.5 trillion increase in monetary expansion, the inflation rate is below+2%, the Department of Agriculture (DOA) just warned the American public that the consumer price index for food is up by 10% this year.

The DOA tried to blame food inflation on the drought conditions in California, but last year’s drought was worse and food prices fell by -6%. The real problem is Federal Reserve monetary stimulus is stimulating inflation. I reported in "Food Price Inflation Scares the Fed” two months ago that commodity food costs were exploding on the upside. Given the lag in commodity costs impacting prices on grocery store shelves, annual U.S. food inflation is now running at +22% and rising.

The DOA tried to blame food inflation on this year’s drought conditions in California that they stated may have “large and lasting effects on U.S. fruit, vegetable, dairy and egg prices.” It is true that California droughts are always agricultural issues, since 80% of the state’s freshwater supply is used by farms and ranches. This has resulted in surface water deliveries to farms and ranches from reservoirs and the California Aqueduct being cut by 32.5%, or 6 million acre-feet.

More…

US now spending 26% of available tax revenue just to pay interest

Excellent article from sovereignman, This is with interest rates at record lows. Imagine what happens if the interest rates move up a few points, it will be a matter of time, Americas money bomb has been lit.

U.S. debt Bomb

By the 19th century, the Ottoman Empire had become a has-been power whose glory days as the world’s superpower were well behind them.

They had been supplanted the French, the British, and the Russian empires in all matters of economic, military, and diplomatic strength. Much of this was due to the Ottoman Empire’s massive debt burden.

In 1868, the Ottoman government spent 17% of its entire tax revenue just to pay interest on the debt.

And they were well past the point of no return where they had to borrow money just to pay interest on the money they had already borrowed.

 The increased debt meant the interest payments also increased. And three years later in 1871, the government was spending 32% of its tax revenue just to pay interest. By 1877, the Ottoman government was spending 52% of its tax revenue just to pay interest.

 And at that point they were finished. They defaulted that year. This is a common story throughout history.

 The French government saw a meteoric rise in their debt throughout the late 1700s. By 1788, on the eve of the French Revolution, they spent 62% of their tax revenue to pay interest on the debt.

 Charles I of Spain had so much debt that by 1559, interest payments exceeded ordinary revenue of the Habsburg monarchy. Spain defaulted four times on its debt before the end of the century.

 It doesn’t take a rocket scientist to figure out that an unsustainable debt burden soundly tolls the death knell of a nation’s economy, and its government. Unfortunately, it can sometimes take a rocket scientist to figure out what the real numbers are; governments have a vested interest in not being transparent about their debts and interest payments.

 In the Land of the Free, for example, the government routinely doesn’t count interest payments that they make to the Social Security Trust Fund.

 They’ve managed to convince people that those debts don’t matter ‘because we owe it to ourselves.’ More…

 

Our financial system is so corrupt you might say that a fish rots from the Fed.

Bail outs Fed

Marketwatch-

How else can one describe a regime that punishes savers and rewards borrowers and speculators for years on end? Our central bank is essentially taking billions of dollars a year from average Americans, who are still struggling to get by in a bombed-out economy, and it is giving it — yes, giving it — to the very banks that helped cause the 2008 financial crisis in the first place.

It’s a stealth bailout,” Barrington said. “Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies.”

Of course, not. Because the costs are staggering.

Money-market rates have been stuck between 0.08% and 0.10% but the annual inflation rate has been, at least nominally, 1.5%. That’s pretty low for inflation, yet this spread eroded the purchasing power of American deposits by $122.5 billion over the last year alone, Barrington said.

Barrington’s analysis, by the way, is conservative. It only counts what inflation has done to savers. It does not include what savers might have made if interest rates were closer to historic averages. And after five years, these costs are only mounting.

“Unlike the other bailouts we’ve seen, this one has become open-ended,” Barrington said.

He does not attribute this ongoing folly to corruption, as I do. He sees it, more charitably, as the result of “thinking that’s trapped in the past.” Our economic problems are unprecedented, and yet the Fed is still making comparisons to what they think should have been done in the 1930s.

The Fed has been purchasing tens of billions of dollars per month in U.S. Treasurys and mortgage-backed securities from banks. It has been cutting back this program, and many Fed watchers expect it to end by October, but so far these purchases have totaled more than $3.3 trillion.

And what does the Fed have to show for this? Economic growth averaging only about 2% a year. A sluggish labor market. And artificially raised stock and real estate prices that may not hold if the Fed ever stops manipulating interest rates to such historic lows.

Most Americans, by the way, haven’t participated in these lofty stock market gains that continue to widen the gap between rich and poor.

Bankrate.com on Monday released a survey of more than 1,000 households that showed 73% are “not more inclined to invest in stocks.” It was the third year in a row that this survey uncovered negative sentiments regarding the stock market, even as the Standard & Poor’s 500 Index SPX +0.41%  has doubled since hitting bottom in 2009.

After getting burned twice in one decade — the 2001 Internet bust and the 2008 financial crisis — it is easy to see these gains as part of yet another financially engineered scheme. Average Americans either don’t have money to risk or they simply refuse to be herded into a casino, even at a time when money-market rates and bank deposits are delivering negative returns relative to inflation.

 


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