Federal Reserve Policies Hurting Not Helping

Now it's time for Bill Gross to catch up to  Zero Hedge with regard to the role of the Federal Reserve chairman and conclude this in his latest monthly letter:

"It’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution."   Which is why there simply is no way out as long as Bernanke stays in. From Bill Gross of PIMCO

For a more advanced discussion of the problems with zero Fed funds interest rates, which push all market interest rates lower (financial repression), have a look at the list below (also  from the same Zero Hedge article referenced above):

1. Zero-bound yields deprive savers of their ability to generate income which in turn limits consumption and economic growth.
2. Reduced carry via duration extension or spread actually destroys business models and real economic growth. If banks, insurance and investment management companies can no longer generate sufficient “carry” (Return on investment or ROI) to support employment infrastructures, then personnel layoffs quickly follow.
3. With banks, net interest margins (NIM) are lowered because of “carry” compression, and then nationwide retail branches previously serving as depository magnets are closed one by one. In the U.K. for instance, Britain’s four biggest banks will have eliminated 189,000 jobs by the end of this year compared to peak staffing levels, reports Bloomberg News.
4. Investment banking, insurance, indeed the entire financial industry is now similarly threatened, which is leading to layoffs and the obsolescence of real estate office structures as well which housed a surfeit of employees.
5. Zombie corporations are allowed to survive. Reminiscent of the zero-bound carry-less Japanese economy over the past few decades, low interest rates, compressed risk spreads, historically low volatility and ultra-liquidity allow marginal corporations to keep on living.  Real growth is stunted in the process.
6. When ROIs or carry in the real economy are too low, corporations resort to financial engineering as opposed to R&D and productive investment. This idea is far too complicated for an Investment Outlook footnote – it deserves expansion in future editions – but in the meantime, look at it this way: Apple has hundreds of billions of cash that is not being invested in future production, but returnedvia dividends and stock buybacks. 
7. Western corporations seem focused more on returning capital as opposed to investing it. Low ROIs fostered by central bank policies in financial markets seem to have increasingly negative influences on investment and real growth.  Credit expansion in the private economy is restricted by an expanding Fed balance sheet and the limits on Treasury “repo.” The ability of private credit markets to deliver oxygen to the real economy is being hampered because most new Treasuries wind up in the dungeon of the Fed’s balance sheet where they cannot be expanded, lent out and rehypothecated to foster private credit growth. 

Our Expensive Jumble Of Intelligence Agencies

The Homeland Security Act was passed in 2002, calling for the establishment of a Department of Homeland Security with a primary mission to:

“prevent terrorist attacks within the United States”;
“reduce the vulnerability of the United States to terrorism”; and
“minimize the damage, and assist in the recovery, from terrorist attacks that do occur within the United States.”

How are they doing?  After 10 years and a Homeland security budget of $59 billion dollars for 2013, how much are you getting for your money??

Yes, there have been some 40 terror attacks foiled since 9/11, so that's pretty good--but at what cost?  (let's see, there have about 4 plots per year, so that works out to $15 billion per foiled attack!)  There are plenty of other intelligence agencies that already existed, so it's difficult to claim that these attacks were foiled strictly due to the Homeland Security department.

How many terrorists has the $7 billion TSA found in screening lines since 9/11?  None!

Add to that another $52.6 billion in 2013 budget request for the CIA and 15 other intelligence agencies, how do you feel now?   Has the CIA EVER done anything right?  They didn't get it right about Iraq.  They don't seem to know ANYTHING about Iran.

Add another $8.2 billion for the FBI, yet ANOTHER intelligence and law enforcement agency who appears to be constantly butting into state and local jurisdictions.  But at least the FBI DOES something!

Here's a summmary list of our extensive and expensive intelligence agencies from  Wikipedia:

The IC consists of 16 members (also called elements), most of which are offices or bureaus within federal executive departments. The IC is led by theDirector of National Intelligence, whose office, the Office of the Director of National Intelligence (ODNI), is not listed as a member of the IC.

Central Intelligence Agency (CIA)

United States Department of Defense

Defense Intelligence Agency (DIA)

National Security Agency (NSA)

National Geospatial-Intelligence Agency (NGA)

National Reconnaissance Office (NRO)

Air Force Intelligence, Surveillance and Reconnaissance Agency (AFISRA)

Army Intelligence and Security Command (INSCOM)

Marine Corps Intelligence Activity (MCIA)

Office of Naval Intelligence (ONI)

United States Department of Energy

Office of Intelligence and Counterintelligence (OICI)

United States Department of Homeland Security

Office of Intelligence and Analysis (I&A)

Coast Guard Intelligence (CGI)

United States Department of Justice

Federal Bureau of Investigation (FBI)

Drug Enforcement Administration (DEA)

Office of National Security Intelligence (ONSI)

United States Department of State

Bureau of Intelligence and Research (INR)

United States Department of the Treasury

Office of Terrorism and Financial Intelligence (TFI)

Gee, do you think we have enough intelligence????

You can imagine the overlapping of responsibilities between all this bureaucracies?  How many highly paid people descended on Boston to chase two criminal terrorists?  I bet it was over 1000 people at a cost that is unimaginably high.   At the end of the day, it was local citizens who saved the day.

In summary, we spend about $120 billion per annum on a huge jumble of intellegence bureaucracies.  I'm sure that there is room for a lot of consolidation and cost savings.

Flat Tax Could Neuter IRS

The IRS scandal shows how big government becomes corrupt government.  The entire bloated agency is run by mostly unionized, and therefore Democratic, employees.  This has been the case for some time and is true for most of the Federal Government bureaucracy.  So, there will always be considerable reluctance to ever "tame the beast" by Democrats.   But the beast needs taming when the bureaucracy begins to attack perceived adversaries that represent about half of the country's population! 

Peggy Noonan said it best when she summarizes the essence of the IRS scandal in the Wall Street Journal:

What does it mean when half the country—literally half the country—understands that the revenue-gathering arm of its federal government is politically corrupt, sees them as targets, and will shoot at them if they try to raise their heads?

That is the kind of thing that can kill a country, letting half its citizens believe that they no longer have full political rights. Those who think this is just business as usual are ahistorical, and those who think nothing can be done, or nothing serious should be done, are suffering from Cynicism Poisoning.

I've accused Obama of being Chavez-lite with Democratic vote-buying, 'control' of the media, and bulllying of the opposition---tactics used by Chavez to cement his multiple terms of office. The IRS persecution of the political opposition is not bullying?  And why else are the Democrats trying so hard to provide "cost-free" amnesty to 11 million undocumented Mexicans and so eager to offer them government benefits within months?  They see an opportunity to "capture" millions of new voters!!  It's a cynical power play!  They want another group "hooked" on the government for "free benefits." (In this way, we can "ruin" another minority group after we've ruined the Native Americans and African Americans.)

The end result of out-of-control government could be the same as in Venezuela:  inflation, stagnation and administrative politcal coercion.  We already have the stagnation and administrative coercion.  There are signs that inflation is welling-up too.  

When you hear that the head of the IRS has visited the White House 100s of times (which is extremely unusual), you can correctly fear that there is collusion and strong-armed tactics being perpetrated or planned.    We know Obama is obsessed with increasing taxes so he can spend all of that money and more.

Flat Tax Is Fairest and Makes the IRS obsolete 

The best way to neuter the IRS would be to downsize it.  The best way to downsize it is to vastly simplify our 10,000 page tax code.  Replace what we have with a flat tax on income for both individuals and corporations.  From my blog entry from September 2012 called A Flat Rate Income Tax is Truly Fair,

Because we live in time that nearly 50% of tax filers pay no income tax at all,  a flat tax of 16 or 18% on all income above the poverty level would be the fairest and simple tax rule (and no deductions).   Oh, and apply it to corporate entities too.   In that way, everyone pays their fair shar 

 (in this entire discussion, we are talking about income taxes.  It is assumed that payroll taxes would continue as is at 7.2% for individuals and the same amount paid by employers)

If you're single and make $40,000, then you pay 18% of the difference between $40,000 and the poverty level of $11,170.  This equates to 18% of $28,830 or $5,189 in Income Taxes.   If you make $1,040,000, then you $187,200 in Income Taxes.  No deductions.  

That's really fair right??   Right!  I'm glad that you agree.    This way, everyone has "skin in the game" and all can squawk with truly equal vigor about how well their tax dollars are spent.

You want to know why this is so difficult?   It's because the bottom 47% aren't paying income taxes now (they are paying 7% payroll taxes however).  If you have a truly flat rate, then much of the bottom 50% will have to pay a small amount of income taxes too!  

Also, since the top 1% are already paying 24% EFFECTIVE rate on average, then the 18% flat rate actually lowers their marginal rate (but with no deductions, the top 1% payer revenue would go up because of no deductions). 

What? The wealthiest pay lower tax rate???   (but revenues from this group would go up due to no deductions)   Sorry, but you already agreed that the flat rate is fair!   What we have now is unfair and amounts to "representation without taxation" for about half of the people in the USA.  

Oh, an average tax collection rate of say 18% is four percentage points above the post-war average tax take of 14% and would substantially solve the budget deficit problem!  The other thing is to limit the number and amount of tax credits or tax deductions per taxpayer as these "tax expenditures" now total $1 Trillion per year.   Add some real budget cuts to match and you've made some real budgeting reform progress!

With income taxes simplified, the IRS can be scaled back to something realistic and less aggressive.  Now, if we can get a Republican Senate majority in 2014!   Then we might really be on the right track once Obama is gone.

New Bubble: New Home Prices Taking Off

From ZeroHedge, comes news that the average new home sales price has reached an all-time high of over $330,000.  This is up from only $230,000 from a decade ago. The Federal Reserve has done it!  With manipulated and entirely too low interest rates and with unlimited (sub-prime?) loans made to questionable borrowers from the Federal Goverment, the Fed has finally done it!  (remember that Fannie and Freddie make up over 90% of the mortgage market)

Yeah, the government has used every arrow in it's quiver to bail-out underwater loans, bail-out banks and try to create a sense of prosperity or "wealth effect" in housing, stocks, and you-name-it.  Don't you feel so great?

The sad thing is that the next generation of buyers is sure to be priced out of the market if interest rates EVER return to "normal."  Real income is stagnant, so higher prices for houses (or anything) puts homes even more out of reach.  See the graph of Real Personal Income below (the 2nd graph).

That same generation will also shoulder the unimaginable burden of debt that we're bligthly accumulating for our own current consumption and bail-outs.

It's entirely possible that home prices could sag again if the props are ever removed.  But this market, and so many others, are so entirely manipulated by the government, it's hard to imagine the government withdrawing---EVER.  Maybe the restoration of free markets has to await the next Republican president.      

Meanwhile, real income has stagnated, making home ownership more questionable for the next generation of buyers.  Have a look at the graph of real personal income below.

Gestapo Tactics From the Obama Administration

Regarding just how far this government and administration is willing to go to harass our fellow citizens, read this excerpt of an article by Peggy Noonan in the WSJ. The story is based on a Huckabee show where a Texas woman was telling her story about her interactions with our wonderful Federal Government.

Prepare yourself for some shameful and extraordinary action by extraordinarilly expensive bureaucrats and bureaucracies.  You can bet that every government employee mentioned below make over $100,000 per year with rich benefits forever.

"But the most important IRS story came not from the hearings but from Mike Huckabee's program on Fox News Channel.  He interviewed and told the story of Catherine Engelbrecht—a nice woman, a citizen, an American.  She and her husband live in Richmond, Texas. They have a small manufacturing business.

In the past few years she became interested in public policy and founded two groups, King Street Patriots and True the Vote. In July 2010 she sent applications to the IRS for tax-exempt status.  What followed was not the harassment, intrusiveness and delay we're now used to hearing of. The U.S. government came down on her with full force.

In December 2010 the FBI came to ask about a person who'd attended a King Street Patriots function.  In January 2011 the FBI had more questions.  The same month the IRS audited her business tax returns.  In May 2011 the FBI called again for a general inquiry about King Street Patriots.  In June 2011 Engelbrecht's personal tax returns were audited and the FBI called again.  In October 2011 a round of questions on True the Vote.  In November 2011 another call from the FBI. The next month, more questions from the FBI.  In February 2012 a third round of IRS questions on True the Vote.  In February 2012 a first round of questions on King Street Patriots. The same month the Bureau of Alcohol, Tobacco and Firearms did an unscheduled audit of her business. (It had a license to make firearms but didn't make them.)   In July 2012 the Occupational Safety and Health Administration did an unscheduled audit. In November 2012 more IRS questions on True the Vote.  In March 2013, more questions.  In April 2013 a second ATF audit.

All this because she requested tax-exempt status for a local conservative group and for one that registers voters and tries to get dead people off the rolls.

Her attorney, Cleta Mitchell, who provided the timeline above, told me: "These people, they are just regular Americans. They try to get dead people off the voter rolls, you would think that they are serial killers."

This week Ms. Engelbrecht, who still hasn't received her exemptions, sued the IRS."

This kind of government instrusion is what you'd expect in Putin's Russia or Hitler's Germany.

Santa Cruz Trek in Peru's Huascaran National Park

As always, click any image to enlarge.

Best Quote of the Day

A timely quote for our day from Greg Gutfeld from Breitbart:

Here is a simple fact: a liberal president operating with a liberal media leads us to a really unpleasant place--populated with programs, policies, and principles that are woefully inept and corrupt. Obamacare, Benghazi, the IRS scandal, Pigford, and weird euphemisms for terror like "workplace violence" and "self-radicalization"--this isn't a comedy of errors, it's a tragedy of horrors. There is no guard rail anymore when you’ve got the left monitoring the left.

Well said.

ObamaCare Kills Jobs; Obama Doesn't Get It

One of the many problems with the Left is that they are incapable of letting facts get in the way of their ideology.  For years now, Democrats have pooh-poohed the notion that ¨uncertainty¨has caused the anemic economic recovery blaming it other factors.  Yes, there are other factors at work for sure.  But it is undeniable that ObamaCare is hurting job creation.

In my blog Small Business Creates the Most Jobs and ObamaCare is Killing Them,  I make the point that small businesses create more than 70% of the new jobs in this country.  When small businesses are under duress from the increased requirements of bureaucrats (local, state and federal), including the requirements of ObamaCare, it will stunt new job creation.

Already, businesses are cutting back on hours to escape the burden of ObamaCare. No one knows the cost of this law.  I don´t know.  You don´t know.  No one knows.  Numbers are leaking out and they big and rising.  The whole thing is going to fall apart when people discover it´s true cost.

From Investor´s Business Daily

Nearly 22 million Americans can't find a job or the full-time work they want. Millions more have quit looking altogether. Now, even more working Americans are seeing their hours cut because of the unreasonable burdens of the president's health care law.

The culprit is a requirement in the law that companies with more than 50 full-time workers provide expensive one-size-fits-all health insurance.Some small businesses have stopped hiring in order to stay below that number of employees. Others are cutting full-time workers back to part-time status — less than 30 hours a week.

The cuts are happening across industries and across the county. 

The Federal Reserve reported in March that the health care law is a major concern for businesses.Employers in the Fed's Richmond district blamed the law for layoffs and a reluctance to hire. Businesses around Dallas reported hiring the bare minimum to get by, due to uncertainty about the health care law. This uncertainty remained a drag on growth in the April Fed report. The drop in hours and the reluctance to hire are having a ripple effect throughout our economy.

Wages are stagnant. Economic growth is anemic.Just a few days ago, we learned that first quarter GDP increased at an annual rate of just 2.5%. This dismal number is nowhere near what we should be seeing nearly four years after the recession ended.The economy can't grow until we get Americans back to work. People can't get back to work if there aren't more jobs.

Employers aren't hiring because of the health care law

I've Warned You of Government Tyranny

This blog has warned many times that the biggest problem with big and bigger government is loss of freedom and inevitable government tyranny.

Obama recently warned graduating students at Ohio State to ignore those voices that warn of government "tyranny"

..you've grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that's at the root of all our problems. Some of these same voices also do their best to gum up the works. They'll warn that tyranny always lurking just around the corner. You should reject these voices. 

News of Tyranny and Cover-ups 

Really, we should reject those voices?  Now we hear that the IRS is persecuting "dissidents" by hammering them in audits and in applications for tax-free status.  Targets weren't just Tea Party groups, but anyone who even questioned out-of-control government spending .  From the Wall Street Journal:

The Internal Revenue Service's scrutiny of conservative groups went beyond those with "tea party" or "patriot" in their names—as the agency admitted Friday—to also include ones worried about government spending, debt or taxes, and even ones that lobbied to "make America a better place to live," according to new details of a government probe.

Now we've witnessing a belated burst dam of reporting now about how the Federal government, with the "tone" set by chief executve Obama, is comitting the very malfeasance and tyranny that I've warned.

We hear of IRS persecutions of citizens who happen to disagree with the administration,  the dozen revisions of the Benghazi lies and "talking points" to protect the incompetent or worse,  and the monitoring of journalist's phones and emails in an unprecedented affront to freedom of the press.

It gets worse and keeps piling up.  This is the tip of the iceberg.   Expect more "persecution" news from the highly ideological EPA, "Justice" Department, and HHS.

News of Medicare Fraud

In the news today is a story of 89 persons, including 14 doctors and nurses, who are charged with Medicare fraud to the tune of $100s of million in 8 cities. You can bet that it's just the tip of the iceberg. All of these programs are rife with fraud---as inevitably happens with big government programs.  I'm including this headline to underscore the evils of big government.

HHS Coercive "Donations"

Last Friday, from the Washington Post, reporting that HHS Sibellious has probably broke the law with her "request" for donations from health care companies.   From the Washington Post reported by Townhall:

Health and Human Services Secretary Kathleen Sebelius has gone, hat in hand, to health industry officials, asking them to make large financial donations to help with the effort to implement President Obama’s landmark health-care law, two people familiar with the outreach said. Her unusual fundraising push comes after Congress repeatedly rejected the Obama administration’s requests for additional funds to set up the Affordable Care Act, leaving HHS to implement the president’s signature legislative accomplishment on what officials have described as a shoestring budget. 

Of course, blame those bad and evil Republicans for "gumming up the works."  Never mind that Obama has almost single-handedly, completely and utterly, poisoned his relationship with the opposition, so much so that he couldn't even get an expanded gun background check bill through the Senate.  He's so stupid that he somehow forgot that he has to work with those people to have any success.

Wait until the bureaucrats, under ObamaCare, deny you care because of your political views!!   You now know that I'm not kidding or exaggerating!!  The IRS is a major administrator of ObamaCare.

Expect failure and more revelations from this supposedly "most transparent" and "post partisan" administration.

Obama COULD Learn Much From Texas

Obama could learn something about economics from Texas---but won't.   He reminds me of the saying "there is none so blind as he who cannot see."

From his inability to learn from the cop in Cambridge to his stubborn and ineffective efforts to create so-called green jobs, which are a complete bust--even fraudulent, this President, time and time again, proves incapable of learning or adjusting.  He's not smart.  He just appears smart since he's a good "performance artist."

To be honest, if I had to choose an actor for the job as president, I might have preferred Morgan Freeman. He played a great role as President in "Deep Impact."  What the heck, he'd be just as qualified as Obama.  You can't be any more unqualified!

Back to learning from Texas and economic policies that actually work,  Have a look at the article from John Merline at Investor's Business Daily,

President Obama went to Texas on Thursday. Since taking office, Obama has pushed more government as the way to get the economy moving. He dramatically boosted spending, imposed massive amounts of new regulations, ran enormous deficits, and has imposed more than $1 trillion in tax hikes.  At the same time, Obama has berated those who advocate tax cuts and deregulation as key ingredients for economic growth and prosperity, saying such policies have "never worked." [It's Obama's brain that doesn't work ]

But Obama's policies have produced the most sluggish economic recovery since the Great Depression. GDP growth has topped 2.5% in just four of the 15 quarters since the recovery started. The country is still 2.6 million jobs shy of the previous employment peak set back in January 2008. Poverty rates are up; real household incomes are down.

Texas, meanwhile, has pursued a far different path from the one Obama advocates.

The Lone Star state has the 6th lowest tax burden in the country, according to the Tax Foundation, and has the third smallest government per-capita in the country, according to the Kaiser Family Foundation.

It also consistently ranks as one of the most business-friendly states in the country. Chief Executive magazine, for example, has ranked Texas No. 1 for eight years in a row, citing "its business-friendly tax and regulatory environment."And since the recovery started in June 2009,

Texas has outperformed Obama on every important economic measure:

Jobs: Private sector jobs have shot up 10% in Texas since June 2009, which is twice the national growth rate. And while U.S. employment is still 2% below its pre-recession peak, in Texas it's 5% above the state's previous high.

Labor Force:  Nationwide, the labor force — the number of people who have jobs or are actively looking — has remained virtually flat since the recovery started, climbing just 0.3% over the past 45 months. Texas, in contrast, has seen its labor force climb 6.2%, as workers flood the state.

Wages: According to the Bureau of Labor Statistics, average annual wages in the U.S. rose 5.4% from May 2009 to May 2012. In Texas, they rose 6.1%.

Per Capita Income: Texans have also seen their per capita personal income grow faster than the nation as a whole, increasing 13.3% compared with 10.5% nationwide, Bureau of Economic Analysis data show.

GDP: And Texas' economy has grown faster than the overall economy since Obama took office. Between 2009 and 2011, real GDP in Texas expanded 8.7%, while the nation's overall GDP managed just 4.6% growth, according to the BEA.

And while Obama and his backers complain that austerity is now standing in the way of economic growth, Texas proves that more government spending and government jobs aren't needed to grow the economy. Overall state spending has been flat since 2010, according to the National Association of State Budget Officers, and BLS data show that state and local government jobs dropped 16,500 since the recovery started.

Rick Perry has, in fact, presided over a terrific economy and Texas has a significant budget surplus.  Liberals love to paint Perry as being "stupid."  If he's stupid, I want to be stupid! That's alright, they got it wrong about Ronald Reagan too.  Liberals, when it comes to economics, are idiots.  This is proven time and time again, and Obama is the prime example.

Who's the stupid one? Has Obama suceeded in anything?

Phony European Austerity

In my blog, European austerity is all about taxation, I argued that tax increases are the thing causing the current recession in Europe, not supposed decreases in public spending.  There are, in Europe as in the USA, idiot politicians and idiot media talking-heads that call the reductions of planned increases (but still an increase) a "cut."   But in an absolute sense there are few actual reductions of spending in the government sector in Europe . 

Have a look at the following graphs:

Change in Government Expenditures since 2007 in %

All of this spending leads to too much debt everywhere. Have a look at the graphs below:

Change in Government Debt from 2007 to 2012 in %

Early Warnings of Price Inflation

The mountains of US government deficit spending, now paid for by trillions of dollars of money creation by the Federal Reserve will eventually create price inflation, either in hard assets, financial assets and/or in general prices (CPI).   Huge increases in central bank balance sheets, in the US, Japan and China and eventually Europe will eventually ignite inflation of some sort.  It's unlikely that this money expansion can be reversed in a timely way, so due to fractional reserve lending system, it is likely that too much money will chase too few goods (and securities) at some point. The Federal Reserve still hasn't learned it's lesson that it creates bubbles that pop leading to economic distress!!  Idiots!  There's nothing worse than intelligent idiots!

The early warning signs are already found in price inflation in assets that the wealthiest people invest in.  This is because the hyper-money creation from the Federal Reserve goes directly into the hands of the top 0.1% at the banks. These bankers use a majority of that free money "flood" to buy a similar flood of government bonds issued and pocket a net 0.5 to 1.3%  return on the TRILLIONS of dollars being created.  This is an unspoken agreement between the corrupt crony capitalists and the corrupt ruling elites. This "process" is effectively financing the entire federal deficit, so lawmakers have no incentive whatsoever to even begin to trim out-of-control spending and debt.  All of this bond buying is reducing interest rates on all government bonds and at all durations. As an aside, I don't think that anyone knows what the natural interest rate is at the moment.  If we don't know the true level of market interest rates, then we have no way to correctly evaluate equity prices, financial asset prices or even the proper exchange rates.  But I digress.

Two Causes of Inflation

Type #1 Pure Monetary Inflation:  'Banksters' and the investment banking arms of the big banks primarily buy govt bonds but also put newly created money into other investment markets such as the stock market, real estate, land, collectibles, gold, wine, art and high yield bonds. So first expect asset inflation in these asset categories that are favored by the most connected and wealthy.  It is now a fact that all of these categories are inflating at rapid rates, with housing being the latest to rise (after a huge crash of couse) . The Fed is basically complicit in either creating new bubbles or re-igniting old ones.  But once the banks begin to lend to individuals and businesses, this will begin the monetary multiplier process which will put more money into circulation and all prices will rise--not just assets..

Type #2 Government Spending Push Inflation:   Other categories where significant inflation is occurring are in areas where the government is directly spending or where the govt is encouraging spending by making loan guarantees. This spending is creating excess demand:  in healthcare (via medicaid, medicare, VA spending), in college tuition, and in housing and land (anything with a mortgage). All of these areas are seeing hefty inflation now. Healthcare is getting additional "organic" demand due to the aging and increasingly obese population.

Eventually speculation and inflation in asset and other markets will affect the CPI inflation, but it's much later, if ever. For example, in the 2000s, the CPI inflation gauge never did reflect the bubbles in the mortgage and securities markets before the bottom dropped out of these markets--which crashed the general economy.

But there were early warning signs. Once again, there are early warning signs already here and now primarily in asset and commodity markets.  Already there signs of unsustainable bubbles in farm land and college tuition.  Student loan default rates have recently soared--reminiscent of the housing bust.


Examples of Gov't Pure Monetary Inflation (Type #1)

Gold Prices vs. Commodities

Gold has quintupled in price in a decade in the expectation for future inflation

Reuters Commodities Research Bureau (CRB) Index

Commodities, including gold have had a big surge since the credit crisis of 2008 but are backing off during the last 1 1/2 years due to cooling of the global economy and a reduction of demand for commodities.

Farm Land: up to 20% Inflation

Farm Land Prices Vs S&P
Farm Land Is Smoking Hot!  Rising World Food Prices Must Have Something to Do With It.    
From http://farmprogress.com/story-invest-stock-market-iowa-farmland-14-96321 

Food Prices: 7% Average Inflation Since Yr 2000

Food prices have doubled from the year 2000. This reflects the "pumping up" of the Chinese economy and other developing countries by their governments. You can see that the biggest surge in prices occured in the year 2007 and then again in the year 2010. Only government spending and money creation can explain these prices spikes.

World Food Prices
from the UN Food and Agriculture Organization of the UN 

Oil and Gasoline Prices 7% Inflation Since 2000

Oil prices have rocketed higher with the easy money regime from our Federal Reserve since 2001 and with more demand from pumped-up economies in China and other developing countries. The US Crude Oil chart looks very similar to the one for food price inflation.

Gasoline Prices have doubled since 2004 which implies about 7% inflation rate over that period. Prices have tripled since 1999 indicating about 10% inflation per annum.

The Stock Market

The Stock Market continues it's climb to new all-time highs. Every day there is a steady bid from companies that borrow at 1 or 2% in the bond market and buy back their own stock in the market. It works in 2 ways, additional balance sheet debt leverages or "amplifies" earnings per share but also reduces the number of shares outstanding. That's how you pump up your share price! It's being done in record amounts: about $1 trillion per year.

Examples of Government "Spending Push" Inflation (Type #2)

Housing Market Inflation (now 9.3% for latest 12 months)

An article about the Case Shiller Housing index in USA Today, has trumpeted that housing prices increased 9.3% for the last 12 months. The bubble is back!!  Thanks Federal Reserve!

To put this in perspective,  the increase is a small one relative to the parabolic rise in the 2000s and recent decline. But 9.3% inflataion for one year is real and present!

During the 2000s,  the minions of highly compensated mega-brains and PhDs at the Federal Reserve system couldn't see the danger building that is so very obvious in hindsight.  Now we're enjoying a renewal of an old bubble.  Thank you Federal Reserve!

Housing Price Index since 1976 to 2013
The 9.3% Headline Housing Inflation is the small blip up at the far right

College Tuition Inflation (about 10% per annum since Year 2000)

I've mentioned that the government "easy money" loan guarantees has spawned a flood of easy money into the colleges of all types with fairly rampant inflation of about 10% per annum.  See Government Causing College Tuition Inflation.   

College Tuition Inflation for the past 23 years
College Tuition has taken off since new "easy money" rules in 2001

Health Insurance Inflation up to 14% Inflation In Recent Years

From Inflationdata.com:  

Health Insurance Inflation Rates