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The Daily Reckoning | Friday, February 4, 2011 Reckoners offer frontline inflation reports from around the world, Creative destruction and the state-sponsored impediment to capitalism, Plus, Bill Bonner on governments, dodos, dinosaurs and plenty more... ------------------------------------------------------- Why Some People DIDN'T Go Broke In The Bust From 2008 until now, some people watched their gains go UP...as high as 448%, 556%, and even 579%... On what? Not gold or blue chips. And obviously not real estate. Yet they could soon do it - and so could you. Click here to watch the free new video that shows you how. Inflation ’Round the World Fellow Reckoners Report the Effects of Inflation from Around the Globe Joel Bowman Reporting from Buenos Aires, Argentina... Faithful and unfaithful readers alike will have noticed a recurring theme in our recent reckonings. We refer, of course, to inflation; that insidious, noxious tax which appears to be gushing out of every economic orifice in the land, but that, somehow, fails to register as even a drip on the government's official inflation-o-meter. Curious, no? Regular reckoner, Chris Mayer, identified inflation as the "wrecking ball" of 2011 in this column. Eric Fry addressed it both here and here. And our Reckon-in-Chief, Bill Bonner, touches on it below...and, in some fashion, on most days. In fact, most people in possession of at least one of the five basic human senses seems to see, feel, hear, taste or smell inflation's foul presence. Which means that those trained specifically to keep an eye (ear, nose, etc.) out for it - and who so adamantly deny its existence - are either blessed with a sixth "masking" sense to which the rest of us are not privy...or that they are simply senseless morons, blinded by the light of their own academic brilliance. Most likely, inflation will continue to be...and not to be. In other words, those manning the controls in the government's "Ministry of Information" will continue to churn out numbers that agree with whatever qualitatively-eased, policy-of-the-month they are pursuing. Meanwhile, the rest of us will continue to weather the adverse consequences of these econo-commands as they express themselves in the form of everyday higher prices. This time last week, we heard from some of our frontline reporters across the United States. Fellow reckoners wrote in from grocery stores and gas pumps around the country to lend some of their own boots-on- ground perspective. Alas, this academically-defined non-inflation is also pushing up prices in other parts of the world. But fear not. We have eyes (ears, noses, etc.) in those parts, too. And so, without further ado, we present a handful of reader mail from some international Daily Reckoningreader posts... First up, here's what reader B.L. had to say: "I currently live in Singapore and travel throughout Asia Pac, Central Europe, ANZ, and was back in the US over Christmas/New Year's. I see food inflation everywhere I go. [In] Singapore the prices have risen noticeably since I've been living there, which was April of 2010. When I was in the US - North Carolina - I was shocked by the food prices when I bought groceries for two families for New Year's Eve and day. Combine the food prices with the fuel price rise and I can see why so many American families are getting support for food from good ole Uncle Sam. "In places like China or India, where food makes up a huge % of a families cost to live - over 50% versus less than 10% for the middle class in the US - they are really feeling the pinch. "Lots of reasons, but very scary for those of us that have to eat - oh wait, that is all of us last time I checked on the human condition. "Keep up the good work." Sticking in the East for a bit, here's what another reckoner had to say: "Here in Thailand, inflation is running high. "On January 1st, 7/11 mini-marts, of which there are thousands across the country, increased all their prices by 10%. "Hotel rates, mostly in the 4 and 5 stars categories, are going through the roof, 25 to 50% higher than a year ago. "Restaurants of all kinds regularly increase their prices. "Overall, the national inflation rate is certainly in the double digits." Thailand? But why would prices be rising in Thailand? Another reckoner, based in that (offensively gorgeous) part of the world offers some thoughts: "The millions of dollars flowing into Thailand form your neck of the woods is causing real problems with food prices and more noticeable is the increase in washing powder, soap etc. These too are increasing due to the raw material costs. "Cambodia and Vietnam are feeling the winds of change also. I live here in Thailand 6 months a year then go home to shitty Britain to fish for trout. I was in Cambodia last week. My friend has just opened a small guest house there and we both went to see friends in Vietnam. Same problem; big inflows of money. "I hope this adds a new thinking to your insight into inflation." But what about Japan, the leader in all things DEflationary? Reckoner Gary? "I live in Japan, and have observed over the past year, food prices have gone down. In fact, prices have been about the same for many years. Last year flour was about Yen 230 a kilo, this year about Yen 150. Living on a fixed income, I must say, I like DEFLATION much more than INFLATION. So tell me, why is Bernanke trying to increase my food costs - doesn't he have my interests at heart? "The US system is broke, financially, economically, morally, education, etc. And with all the partisan fighting in government, Republican vs. Democrats, secret agendas, it isn't going to get better. I think the best solution is to just let all those banks and zombie companies crash and burn, and we start over again." Hmm...but what about this... Another email from The Land of the Setting Sun? This one from Reckoner Matthew: "One small slab of mozzarella cheese imported from Germany costs about 600 Yen, or 7.26 US doll hairs. A small pack of blueberries from Chile costs about the same. These items have become extravagances for consumers. "How about gasoline? Just filled up my car with a tank of the stuff. Converting liters to gallons and Yen to USD, I paid 6.64 dollars/gallon (high octane, mind you) at today's exchange rate. "Try guessing what will happen to the USA when prices get to this point? Here in Nipponville, everyone's numb to it all." And in Australia, Reckoner Ronald: "The cost of our city-supplied water has tripled in the last ten years. In the last 29 years, the local daily newspaper has quadrupled in price and the TV weekly magazine is up 625%. But petrol (gasoline) is 'only' up 308%." How about in Europe? Reckoner Paul? "After taking 2 weeks holiday around Christmas, I returned to my commuting routine to my office in Hamburg, Germany. Between the station and my office, I usually pick up breakfast at one of many bakeries. Between 18 Dec. 2010 & 3 Jan. 2011, my breakfast cost went up on average 3%. Oh My! 10 cents more for my apple turnover or chocolate croissant!" And finally this observation from Buenos Aires, where your editor experiences daily the effect of government-induced non-inflation... "Argentina is a good example of food inflation. Meat (main food for most locals) is now 100 % more expensive than a year before, as a result of government controls and policies against production, just in order to maintain local prices in line. Result: less production, less consumption and less exports of an Argentine symbol. Is this a recipe to be applied in other countries?" A big thanks to everyone who wrote in with frontline reports on the effects of inflation that, we are told, doesn't exist. If you'd like to file a report of your own, send us an email at the address below. The (common sense) Truth about Inflation... If you think inflation is good for the economy, why isn't Zimbabwe the wealthiest nation on earth? In Chris Mayer's brand new video presentation he destroys the popular myth that inflation stimulates the economy and create jobs. He also reveals the sickening truth behind Washington's endorsement of runaway money printing. Please, don't do anything else until you've learned the TRUTH... Click here to watch your FREE presentation now. The Daily Reckoning Presents Governments Struggle to Stand Still Bill Bonner Facebook didn't even exist until 2004. Maybe it's just a fad. But it is a fad that the financial markets value at $50 billion. Mark Zuckerberg is now one of the richest men in the world. If he stole the idea, he is one of the most successful thieves in history. Google is another parvenu. It was created in 1998. Now it is worth $197 billion. Yahoo!, founded in the middle of the Clinton years, is worth $20 billion. eBay, which set up shop about the same time, has a market value of $40 billion. Capitalism is a process of "creative destruction," said Joseph Schumpeter. New wealth is created. Old wealth is destroyed. Unless the feds can make time stop, these great successes of today will be the great failures of tomorrow. The "crisis in capitalism" is now in its 5th year. But where's the crisis? Capitalism responds to demands that haven't even been invented yet. We didn't know we needed a Facebook, for example, and there it is. Whole new industries are growing up, worth trillions of dollars, with hundreds of thousands of well-paid employees, high margins and rapid growth rates. Capitalists are taking trillions of dollars from old businesses and re-allocating it to new ones. Emerging markets have grown 85% in the last 5 years, while mature markets have been flat. According to a McKinsey study, global investment is expected to jump from $11 trillion this year to $24 trillion in 2030 - with most of the money going to market economies that didn't even exist 30 years ago. Capitalism is destroying fortunes too. In the US household sector alone, some $7 trillion has been taken off housing values since 2006. And in the corporate sector, in terms of gold, US stocks have lost 80% of their worth over the last 10 years. The world's erstwhile biggest automaker, GM, would have gone broke if it had been allowed to do so. Many of the planet's biggest and most prestigious financial institutions would have been demolished too. We will never know for sure. Because just as capitalism was getting out its wrecking bars and sledgehammers, it was called off the job. The financial crisis that began in 2007 was widely, and intentionally, misunderstood. People who were paid not to see it coming earned even more pretending to see it go away. Bankers, for example, made billions in fees for promiscuously mongering debt during the bubble years. Then, when the itching and soreness began, they profited from the quack cures. It was a "liquidity" problem, they said; "give us more money and the economy will recover!" Politicians were happily bamboozled. They mislabeled the problem a "failure of capitalism." Very convenient for the leveraged speculators capitalism was about to destroy. And very convenient too for the central planners who wanted to bring it under control. In 2009,Foreign Policy magazine, for example, named Ben Bernanke its #1 Top Global Thinker, for his role in staving off another Great Depression. Without Bernanke's decisive rescue, bankers who lent imprudently would have lost their jobs, failed economists would be parking cars, reckless investors and fund managers would have gone broke. Trillions in unpayable debt would have been written off. But thanks to Bernanke it's still there! Thanks a lot. First, the US Fed bought the banks' bad mortgaged-backed securities - about $1.5 trillion of them from all over the world. Fiscal policies worldwide contributed $2.3 trillion more to the bailout. Altogether, the bill came to more than $7 trillion - not including the trillions in free money that came from central banks' lending below the inflation rates - only to the big banks, of course. The fix is in. And who knows how long it might go on? The Irish bail out their banks. The Europeans bail out the Irish. The Chinese bail out the Europeans. The Chinese bail out the Americans too, who also bail out the European banks. It doesn't matter how broke you are. You can still be bailee or bailor. There seems to be no end to it. Why else would investors lend to the US government for 10 years at only 3.41%? Or to the Japanese government - with debt to GDP of 200% - at just 1.23%? As long as the money keeps flowing, insolvency has no meaning. Government hates change. When a stranger comes to town, it calls the cops. That is its role, to protect the elites who control it. But adjustments need to be made. The US government alone faces a financing gap of more than $200 trillion. Every day the sun still rises. By the time it sets, another $4 billion has been added to America's debt. But only phony "reforms" are put forward; Barack Obama's proposed budget cuts would only reduce the US deficit by 3%. The feds resist change. But change happens anyway. Were it not so, the Hohenzollerns would still be in power in Prussia, the Ottomans in Istanbul, Pharaohs would still rule the Nile and the Moguls would still sit on the peacock throne in India. And what happened to the Romanoffs, the Habsburgs, the Bourbons, the First Republic, the Second Republic, the Third Republic, the Forth Republic...the First Reich, the Second Reich, the Third Reich? Like dodos and dinosaurs, they did not adapt. They went extinct. Regards, Bill Bonner for The Daily Reckoning Joel's Note: So what happens when the next round of governmental dinosaurs hit the tar pit? DO you have an exit strategy? A pile of gold bricks (or even coins) under the floorboards...a piece of land in an exotic locale to escape to...investments diversified across multiple markets? If you're like many readers, you might be wondering, "What's Bill doing with his own money? Where does he see the opportunities of the future? What measures is he taking to protect himself and his wealth?" Fellow Reckoners interested in preparing for a post-extinction era might like to start by reading Bill's invitation to join his Bonner & Partners Family Office program. All the details you need can be found right here. Inflation...Oil Shocks...Economic Turmoil...It's Back To The 1970s...! The New OIL WAR and Why Iran Threatens Your Money... According to Byron King's new presentation Hezbollah terrorists, militant Muslims and Iran's crackpot leader could be planning the deadliest surprise threat to your money and livelihood this coming year. Yet nobody in the Pentagon will talk about it, and no one in the White House has a clue. Thankfully Byron's taking action and is sharing several ways for you to take to protect yourself against the epic financial crisis ahead... Click here to watch Byron's value-packed presentation now. Bill Bonner Inflation or Deflation? That is the Question by Bill Bonner Reckoning from Los Perros, Nicaragua... No time for much reckoning today. Dow up 20. Gold up $20. Associated Press reports: NEW YORK (AP) - Stocks posted small gains Thursday after Federal Reserve chairman Ben Bernanke said the central bank will stick to its efforts to spur the economy. In a speech at the National Press Club, Bernanke said that the Fed expects the economy to improve this year and inflation to remain low despite the jump in commodity prices. "Chairman Bernanke basically indicated in his speech that he considers unemployment to be the bigger problem than inflation and that the Fed will continue to focus on that," said Doug Roberts, chief market strategist at Channel Capital Research. The Federal Reserve has a plan to buy $600 billion in bonds, a tactic known as quantitative easing, aimed at spurring lending and making stock ownership more attractive. Some economists had worried that the Fed could end its bond purchases earlier than anticipated. Stocks had fallen for the most of the day as concerns over violent protests in Egypt weighed against better-than-expected economic news in the US. Meanwhile, inflation in primary, international auction priced goods is beginning to work its way into consumer prices everywhere. Bloomberg has that story: India's food inflation accelerated to a one-month high and services growth quickened, bolstering the case for more interest-rate increases. An index measuring wholesale prices of agricultural products rose 17.05 percent in the week ended Jan. 22, the commerce ministry said in a statement in New Delhi today. The Purchasing Managers' Index rose to 58.1 in January from 57.7 in December, according to HSBC Holdings Plc and Markit Economics. A reading above 50 indicates an expansion. Asian economies from South Korea to China and India are facing inflation pressures, prompting the International Monetary Fund Managing Director Dominique Strauss-Kahn to say this week that central banks in the region need to raise borrowing costs further. The Reserve Bank of India on Jan. 25 boosted rates for the seventh time in a year and signaled more increases. Ben Bernanke is talking nonsense. Well...nonsense of a particular sort. He wants to inflate the economy. His line of talk explains why... Bloomberg: Federal Reserve Chairman Ben S. Bernanke said the US needs to see faster job growth for a sufficient time before policy makers can be assured the economic recovery has taken hold. "With output growth likely to be moderate for a while and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level," Bernanke said today in a speech at the National Press Club in Washington. "Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established." Bernanke said economic growth will pick up this year and the Fed's purchases of $600 billion in Treasuries are "providing significant support to job creation and the economy." At the same time, his emphasis on labor-market weakness means the central bank is likely to leave stimulus in place for a while, said Michael Feroli, chief US economist at JPMorgan Chase & Co. in New York. "The Fed is still in a very growth-supportive policy stance," said Feroli, a former Fed researcher. "I don't think they make any premature feints toward heading to the exit." Bernanke still regards the threat of deflation as greater than the threat of inflation. Or, he says he does. We judge them about equal and figure they'll both hit us. Hard. And more thoughts... Did we say we had more thoughts? We don't have time for more thoughts. Not today. The thoughts will have to wait until next week. Regards, Bill Bonner, for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor atjoel@dailyreckoning.com Why You Should Be Buying Gold As the Fed Prints Money Gold is what you buy when you fear the authorities are up to no good. But so far, very few people own gold. Ask your friends and neighbors. Many will have never considered buying gold...and they’ll look at you as though you were a kook for suggesting it. Relative Wealth and the Struggle for Economic Dominance Youth and Islamic Fundamentalism Why Food Prices Must Go Up Instantly, there were, of course, quizzical looks at my concluding reference to “socialists” since, up to that point, the whole conversation was merely about how the prices of food are rising ominously, although nobody mentioned the rises in the prices of energy and taxes, which are as bad or worse! Anticipating a Budget Deficit Indications of the Broadest Measure of Money Supply Managing Risk... and Conflicting Interests With each passing day it’s always exciting to see what new examples of banking unscrupulousness happen to pop up. Today, there’s one from Omer Rosen, a former employee in Citigroup’s corporate derivatives unit. Chinese Gold Buying: All Part of the Plan... Liquidate the Fed The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters: Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru Editor Rocky Vega Editor