John Williams Forecasts: “Catastrophe Ahead”

In his article Are Pessimistic Consumers’ Fears of High Inflation Exaggerated?, Daniel Gross writes:

...this alarmism over inflation on the part of consumers is nothing new, and it may not be warranted. We’ve given a lot of grief to professional forecasters, who never seem to know when a recession is about to begin or end. But when it comes to projecting inflation, the amateurs don’t do very well, either.
…
there are a host of individuals and companies who benefit from freaking people out about inflation — i.e. gold bugs, bond vigilantes, politicians who believe that the Fed, simply by printing more money, creates inflation.
…
Given that people seem to be incorporating higher inflation into their mindsets, perhaps policymakers should consider indulging them.

Last time we checked, inflation occurs when those responsible for issuing the currency, be it a Roman emperor who controlled the content of precious metals in coinage or a central bank that controls the money supply, is solely responsible for the resulting price inflation.
How else, save trillions of dollars in quantitative easing, can we explain the exorbitant price increases in commodities like food and gas over the last forty years? Yes, Mr. Gross, the Fed, simply by printing more money, does, in fact, create inflation. A third grader can understand this basic concept, that when you artificially create something, its value goes down.
The reason people “seem” to be incorporating higher inflation into their mindsets is because policymakers have already indulged them. Isn’t this exactly the current policy of the Fed?
Mr. Gross suggests that consumers are disconnected from reality because they are, on a personal level, expecting inflation of around 5.8% over the coming 12 months based on a recent survey. Clearly, Mr. Gross is himself disconnected from reality, because those consumers are already experiencing yearly price increases as of right now of over 11% – almost double what they are expecting for the coming year, and triple what the official CPI has reported.
The real data suggest everything the Federal Reserve is reporting, and mouthpieces like Mr. Gross are parroting, is nothing short of deceptive.
Well known economist and contrarian statistician John Williams, who incidentally is not an amateur, provides a concise explanation for how you’re losing purchasing power to inflation everyday.
Williams says, for example, that Social Security cost of living adjustments, if the government had utilized real data, should be double what they are today. Of course, that is simply not economically feasible for a government run retirement system that is a few years from collapsing using even manipulated data.
In an interview with Goldseek Radio, John Williams, proprietor of the popular alternative statistics web site Shadow Stats, provides those with the desire to understand the real numbers a concise explanation of how the government calculates their statistics, why the need for manipulation, and what the real data are actually saying:

You have to be careful when you are talking about inflation and deflation that you define what you’re talking about. When I talk about inflation I’m talking about the change in prices for goods and services consumed by the consumer. I’m not talking about asset inflation or deflation. When I’m arguing that we have higher consumer inflation, that’s again for goods and services. It’s not for assets and such. I can see a deflation in assets – I’d have no problem, conceptually, with a stock market crash. In fact, I think we’re probably seeing something akin to that now in slow motion over the last couple of weeks.

Our policymakers, utilizing all sorts of adjustments and machinations, are doing everything in their power to control the perceptions of the general population. If they were to come out and tell us the truth about what’s really happening to our currency you can fully expect panic buying of precious metals and hard assets would ensue. As we’ve pointed out many times before, the powers that be do not want anyone but themselves holding gold and silver assets, because then you are not beholden to their system of debt.
Make no mistake, the US Dollar is in serious trouble, but so long as people, those like the aforementioned Mr. Daniel Gross, have faith in what they’re being told by the Fed, the US government and the mainstream media, that the inflation rate is under control at 3%, there is still calm.
When the reality of what has happened becomes obvious, however, the people will go ballistic. And according to Mr. Williams, that time is coming sooner rather than later:

I’m not a day to day timer here, but I can tell you long-term that we have a catastrophe ahead for the US dollar. It will eventually become worthless in a hyperinflation, which I have written about it’s the time of thing that will break in the not to distant future. It could be another couple of years, but it’s coming. So, looking at the long haul you don’t want to be in the US dollar. Gold is a primary hedge against that, as is silver.

We’ve previously written of Mr. Williams warnings, and what we can expect in such a scenario in No Way of Avoiding Financial Armageddon:

The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar.
John Williams – December 2009

The evidence is absolutely clear. The catastrophe cannot be stopped. The implications are life changing.

Bernanke’s Global Games

Bernard Bernanke, chairman of the U.S. Federal Reserve, will give a speech at the summit meeting of reserve bankers; it will affect the entire global economy.
Once a year the little town of Jackson Hole, Wyoming, awakens from its slumber when reserve bankers from the world’s major economies are invited to a summit to exchange thoughts on significant developments in the global economy.
That will happen again on Friday. Facing national debt crises, turbulent markets and threatening recession, financial markets nervously await Ben Bernanke’s speech in hopes that he will once again fire up America’s printing presses, offering U.S. securities for sale.
That will make the third time since the collapse of financial markets in September 2008 that the Fed has taken such action due to the still stuttering U.S. economy. Quantitative easing — loose fiscal policy — is the term used to describe this method of intervention. At a time when interest rates are low, the Fed buys huge quantities of U.S. government bonds, paying for them with newly printed money that then flows into the markets. The Fed bought bonds worth roughly $3 trillion during the first two rounds of quantitative easing, known as QE and QE2. QE3 will expand on that fiscal loosening.
But quantitative easing is controversial because its effectiveness is by no means a settled matter. After the first two rounds, critics complain that the U.S. economy grew hardly at all after a brief upward tick. The near 10 percent unemployment rate is at a 30-year high. However, economics Nobel laureate Joseph Stiglitz told the Financial Times that without the looser fiscal policy, the recession would have been far worse, and the unemployment rate would now be near 12.5 percent. Because of that, he feels a third round of QE is necessary.
The entire world will be impacted
The negative effects of such an expansion will mainly be felt by the rest of the world, but not as seriously by the eurozone nations because the European Central Bank is also currently buying up the investments of member nations, thereby keeping the euro’s value relatively low.
Full Article: http://watchingamerica.com/News/118960/bernankes-global-games/

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How Global Investors Make Money Out of Hunger

By Horand Knaup, Michaela Schiessl and Anne Seith

Getty Images

In recent years, the financial markets have discovered the huge opportunities presented by agricultural commodities. The consequences are devastating, as speculators drive up food prices and plunge millions of people into poverty. But investors care little about the effects of their deals in the real world.

The room in which the world's food is distributed looks everything but appetizing. Bits of paper and disposable cups litter the trading floor at the Chicago Board of Trade (CBOT). Sweaty men in bright yellow, blue or red jackets walk around, seemingly oblivious of the debris beneath their feet, waving their hands, shouting and scrapping over futures contracts for soybeans, pork bellies or wheat.

Here, in the trading room of the world's largest commodity futures exchange, decisions are made about the prices of food -- and, by extension, the fates of millions of people. Those decisions affect both hunger on the planet and the wealth of individual investors. For Alan Knuckman, there is hardly a nicer place than the CBOT trading floor. "This is capitalism in its purest form," the commodities expert raves. "This is where millionaires are made." The 42-year-old's face shines with a boyish glow -- perhaps because he has never stopped playing.
Knuckman arrived here 27 years ago, and quickly advanced from his first job as a runner in the trading room to a trader. He worked for brokerage firms, soon established his own firm and is now an analyst with Agora Financials, a consulting firm specializing in commodities investments. He also writes a newsletter that offers investment tips. "I trade in anything you can get in and out of quickly," he says candidly. "I'm here to make money."
'I Believe in the Market'
How he makes money doesn't make any difference to Knuckman. He draws no distinctions among commodities like petroleum, silver or food products. "I don't believe in politics," he says. "I believe in the market, and the market is always right."
How does he feel about exploding food prices? For Knuckman, they are purely a reflection of supply and demand. And speculators? They're good for the market, because they predict developments early on. Is there excessive speculation? "I don't see it."
It's a surprising comment. Never before has so much cash flowed into financial transactions involving agricultural commodities. In the last quarter of 2010 alone, the amount of money invested in these commodities tripled compared with the previous quarter. There has been a lot of money in the market since the countries of the world tried to overcome the financial crisis with massive economic stimulus programs and bailout packages.
Agricultural commodities attract investors who are no more interested in grain than they were previously in dot-com companies or subprime mortgages. They range from giant pension funds to small private investors searching for new, safer investment options.
Satisfying the Demand
The large index and agriculture funds now being offered by the banks seem to have come along just at the right time to satisfy this demand. All of a sudden, the world's food supplies have become a tradable commodity, as easy to handle as stocks.
The downside is that food prices are rising in parallel to the ravenous demand for agricultural securities. In March, the Food and Agriculture Organization of the United Nations (FAO) reported new record high prices, which even surpassed the prices during the last major food crisis in 2008. According to the FAO's Food Price Index, overall food costs rose by 39 percent within one year. Grain prices went up by 71 percent, as did prices for cooking oil and fat. The index had reached 234 points in July, only four points below its all-time high in February.
"The age of cheap food is over," predicts Knuckman, noting that this can't be such a bad thing for US citizens. "Most Americans eat too much, anyway."
For his fellow Americans, who spend 13 percent of their disposable income on food, the price hike may be an annoyance. But for the world's poor, who are forced to spend 70 percent of their meager budgets on food, it's life-threatening.
Since last June alone, higher food prices have driven another 44 million people below the poverty line, reports the World Bank. These are people who must survive on less than $1.25 (€0.87) a day. More than a billion people are starving worldwide. The current famine in the Horn of Africa is not only the result of drought, civil war and corrupt officials, but is also caused by prohibitively high food prices.
'Side Effects'
Knuckman refers to the fact that the poorest of the poor can no longer pay for their food as "undesirable side effects of the market." Halima Abubakar, a 25-year-old Kenyan woman, is experiencing these supposed side effects at first hand.
She is sitting in her corrugated metal hut in Kibera, Nairobi's biggest slum, wondering what to put on the table this evening for her husband and their two children. Until now, the Abubakars were among the higher earners in Kibera. The family managed to feed itself adequately with the monthly salary of €150 that Halima's husband earns as a prison guard.
But that has suddenly become difficult. The price of corn meal, the most important food staple in Kenya, is now at a record high after increasing by more than 100 percent in only five months. Potato prices went up by a third, milk is also more expensive, and so are vegetables.
Abubakar doesn't know why this is the case. She only knows that she suddenly has to pay close attention to how she spends the family's meager daily food budget of about 300 shillings (€2.30). Her first step was to switch to a cheaper brand of corn meal. It doesn't taste of much, but at least it fills one's stomach. She sometimes goes without her own lunch so that her children can have enough to eat.
List of Possible Reasons

"More poor people are suffering and more people could become poor because of high and volatile food prices," World Bank President Robert Zoellick said in April, describing the brutal effects of price increases on consumers in developing countries. The problem has many experts deeply concerned. The probable reasons for the price explosions are cited again and again at meetings and conferences. They include:

• Climate change, which leads to droughts, floods and storm, and thus to crop failures;
• The cultivation of biofuels, which takes valuable farmland out of food production;
• The global population, which is growing too fast for agricultural production to keep up;
• The emerging economies China and India, whose citizens are consuming greater quantities of higher quality food;
• The rising price of oil, which makes it more expensive to produce and ship food products;
• The rise in meat consumption, which means that more grain is needed for animal feed;
• Decades of neglecting agriculture, especially in hunger-prone regions.

All of these factors sound logical and plausible, and some undoubtedly contribute to the tense food situation. Yet they are not responsible for the excessive price hikes.
Olivier de Schutter, the United Nations special rapporteur on the right to food, is one of the few who is trying to set the record straight. The production of biofuel and other "supply shocks" -- such as crop failures and export bans -- were "relatively minor catalysts," he wrote recently. "But they set off a giant speculative bubble in a strained and desperate global financial environment." He identifies the true culprits as major investors who, as the financial markets have dried up, have invested heavily in the commodities trade, expanding it beyond all proportion. According to de Schutter, excessive speculation is the primary cause of the price increases. Indeed, closer inspection reveals that the reasons cited to date for the price hikes on food products are somewhat dubious.

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California bill to fund college for illegal immigrants advances

(Reuters) - A California bill dubbed the state's "Dream Act" that would allow illegal immigrants to receive public funds for college education was approved on Wednesday by the state Senate.
The legislation would still need to pass the Assembly and be signed by Governor Jerry Brown, a Democrat, to become law.
Proponents acknowledge that illegal immigrants who attend college are still not able to find legal employment after graduation, but they say the bill could eventually help spur the federal government to grant those students citizenship.
"The Senate made history today by voting to pass ... the final portion of the California Dream Act," Assembly member Gil Cedillo, a Democrat from Los Angeles and the author of the bill, said in a statement.
Cedillo said that, if the bill is approved, it would "increase the earning potential of these students, which helps all of us by contributing to our tax base."
Brown in July fulfilled a campaign promise by signing into law a related bill to allow illegal immigrants to receive privately funded college scholarships, but not public funds.
The latest bill would go into effect in 2013 and could cost the California budget about $40 million a year, but not all of that would go to immigrants because some legal residents from other states could qualify for the funds as well, according to an analysis prepared for a state Senate committee.
Ira Mehlman, spokesman for the Federation for American Immigration Reform, said the bill would hurt California.
"The state is slashing budgets, they're cutting admissions, they're cutting programs, and here they are using scarce resources to help illegal aliens, when so many other people are feeling the brunt of these budget cuts," Mehlman said.
The bill passed the Democratic-controlled state Senate on Wednesday by a vote of 22-11, said Conrado Terrazas, spokesman for Cedillo's office.
The Assembly is expected to vote this week on the bill.
California is one of about a dozen states that allows illegal immigrants to pay in-state tuition, based on attendance and graduation from a state high school. Only a handful of states also allow for financial aid for those students.
A federal Dream Act that would have created a pathway to citizenship for illegal immigrants who attend college or serve in the military failed in the U.S. Senate last year.
(Editing by Cynthia Johnston)