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Benson's Economic
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| Consumer Price Inflation over the last
six months United States, Euro Countries and Britain |
|
| United States | 5.0% |
| Euro Countries | 3.6% |
| Britain | 3.1% |
Other countries are also showing what can be done when budget deficits and the money supply are cranked up and currencies are allowed to fall. A prime example of this is Venezuela and Russia. Even with all their wealth from oil, they suffer from very high consumer price inflation:
| Consumer Price Inflation Venezuela and Russia |
|
| Venezuela | 15.0% |
| Russia | 12.5% |
Even countries that have tremendous wealth from resource sales to China are experiencing escalating consumer price indexes:
| Consumer Price Inflation Argentina and Brazil, Indonesia, Turkey and The Philippines |
|
| Argentina and Brazil | 9.6% |
| Indonesia, Turkey, and The Philippines | 8.0% |
The fueling engine causing this inflation is a combination of large world budget deficits and overly accommodative central banks, which have fostered rapid growth in money and credit:
| Budget Deficits as Percentage of GDP | ||
| . | Short Term Interest Rates | Budget Deficits as Percentage of GDP |
| Japan United States Europe* |
0% 3.5% 2.0% |
6.0% 4.0% 3.0% |
| *Broad Money Growth in Europe is 8% | ||
World money growth is at its boiling point. China is printing money at an annual rate of 16 percent; Denmark is 15+ percent; Australia, Britain, and Canada are over 10 percent and broad money growth in Europe is 8%. While the broad measure of money growth in the United States is only 5 percent, growth of total credit is double digit!
After raising short-term interest rates to 3.5 percent, the Federal Reserve said they were still accommodative. They really meant it! Low interest rates in the United States, Japan, Europe and China - combined with an "anything goes money growth" philosophy - has allowed the United States to finance its $700 billion annual trade deficit and run an economy with negative consumer savings. These budget deficits and money growth are creating demand, which causes inflation. The world simply has too many Dollars, Yuan, Yen and Euros that are chasing a fixed number of barrels of oil. Believe me, the last thing inflation needed was Hurricane Katrina's devastating impact on oil production.
A number of market analysts and "cheerleaders" for the stock market have called for the Federal Reserve to stop raising interest rates because Katrina may cause the economy to slow. However, when you actually take a look at the budget deficits and money and credit growth (above), if the Federal Reserve stopped raising interest rates, the dollar could crash causing inflation to run at well over 5 percent a year.
The inflation numbers for August and September in the United States should look real ugly. While Congress seems intent to increase the budget deficit by as much as $150 billion to rebuild the south, we will watch the Federal Reserve response very closely and, like many foreign investors, be ready to dump the dollar if the Fed once again listens to the mob's cry for easy money.
Richard Benson Archives Richard Benson, SFGroup, is a widely-published
author on securitization and specialty finance, and a sought after
speaker at financing conferences on raising equity for mid-market
companies. Prior to founding
the Specialty Finance Group in 1989, Mr. Benson acted as a trading
desk economist for Chase Manhattan Bank in the early 1980's and
started in the securitization business in 1983 at Bear Stearns,
and helped build the early securitization businesses at Citibank
and E.F. Hutton. Mr. Benson graduated
from the University of Wisconsin in 1970 in the Honors Program
in Math, and did his doctoral work in Economics at Harvard University.
Mr. Benson is a member of the Harvard Club of New York and Palm
Beach. The Specialty
Finance Group, LLC is a Florida Limited Liability Company and
is registered with FINRA/SIPC as a Broker/Dealer.
President
Specialty
Finance Group, LLC
Member FINRA/SIPC
2505 S. Ocean Boulevard
- Suite 212
Palm Beach, Florida 33480
1 800-860-2907
email: rbenson@sfgroup.org
321gold Inc
