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October 13, 2021

Inflation Rises To Highest Level In Over 13 Years

"Transitory," I'm sure.

Heather Long

BREAKING: Inflation was up 5.4% over last year in September -- the highest rate in 13 years.

Prices rose 0.4% in Sept, up from 0.3% in August

Gas, food and goods continue to be key drivers of inflation. Used car prices fell slightly but remain 24% higher than last year.

Soaring gas prices are a major component of the current "transitory" inflation. They've reached a 7 year high.

Over a 10-year period, the shale revolution also created a vibrant and prosperous industry in the U.S. reviving rural areas and bringing top-paying jobs to those involved. Two consecutive presidents had the good sense to stay mostly out of its way.

In fact, former President Barack Obama has tried to take credit for the invention of fracking and horizontal drilling , or perhaps even for putting all that oil under the ground in the first place.

Now, President Joe Biden is trying to throw away the independence, prosperity, and carbon emissions reductions that fracking has conferred upon the nation. All this just to appease environmental extremists whose support he needs and who think it is possible to wish away humanity’s need for abundant energy.

The price of this idiocy is being reflected at the pump every time you fill up. You may have noticed the price of gasoline is up almost 50% from where it was a year ago. It is now at its highest point in seven years.

Analysts have declared that "stagflation" -- a combination of a stagnant economy which isn't growing much, plus inflation -- which immiserated the country in the 1970s under Jimmy Carter is now here.

For months prices have been rising as the U.S. economy has recovered from the COVID pandemic while financial markets have stayed priced for perfection and central banks have clung to the view that elevated inflation would likely subside in short order.

Now, fears about higher prices are coming to the fore, with BofA Global Research analysts declaring in a Friday note that "stagflation is here" and a government report showing U.S. inflation still at a 30-year high as of August. Even central bankers appeared to be starting to capitulate this week, with Federal Reserve Chairman Jerome Powell saying that high inflation could run into 2022.

Rather than dissipating, price pressures are holding consistently firm and could be getting harder to dislodge as time goes on. At the moment, a global energy shortage is also unfolding across the U.K., Europe and China, shaking up investors previously distracted by COVID's delta variant, the troubles of China's Evergrande Group, and the potential for a U.S. government shutdown along with the debt-ceiling debate.


"This is the first week that markets realized that global growth could be weak and inflation more persistent," Athanasios Vamvakidis, BofA's global head of G10 FX strategy, said via phone from London. "Energy-price increases were a wake-up call for markets, and the scenario that's now more likely to develop is one in which we get higher inflation and weaker output."

Note that inflation often comes with a growing economy. In that case, it's bad, but the growth in the economy ameliorates it. That would be a case of stronger output combined with higher prices.

But a stagnant economy with inflation?

Let's Go Brandon.

That article mentioned China's Evergrande Group, which is a huge real estate company, highly leveraged, and now possibly on the cusp of being wiped out due to collapsing real estate prices.

And China has signaled that they won't necessarily be bailing them out.

Which could spark a fresh round of global recession.

Which could be the second-worst Asian Contagion of the past few years.

SHANGHAI/LONDON, Oct 13 (Reuters) - The rumbling crisis at China Evergrande Group and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high on Wednesday and triggered a fresh round of credit rating downgrades.

Evergrande, which has more than $300 billion in liabilities and 1,300 real estate projects in over 280 cities, missed a third round of interest payments on its international bonds this week, and other firms have also warned they could default.

Rating agency S&P Global delivered fresh downgrades to two of the sector's bigger firms, Greenland Holdings -- which has built some of the world's tallest residential towers -- and E-house, and warned it could cut their ratings further.

The $5 trillion property sector accounts for around a quarter of the Chinese economy by some metrics. In the clearest sign yet that global investors' worries are growing, the spread -- or risk premium -- on investment grade Chinese firms, which tend to have the most solid finances, jumped to its widest in more than two months.

Wait-- "investment grade" firms putting their money into a bubble real estate market...?

This all sounds very familiar to me.


Evergrande did not pay nearly $150 million worth of coupons on three bonds due on Monday, following two other missed payments in September.

While a 30-day grace period means the company has not technically defaulted, investors say they are expecting a long and drawn-out debt restructuring process.

Evergrande's mid-sized rival Fantasia (1777.HK) has already missed a payment and Modern Land (1107.HK) and Sinic Holdings (2103.HK) are trying to delay payment deadlines that would still most likely be classed as a default by the main rating agencies.

"These stories have challenged the notion that Evergrande is one of a kind," analysts at Capital Economics wrote in a note.

While China's policymakers will likely be able to avoid a "doomsday scenario", the overextended property sector will continue to weigh on the world's second-largest economy, they said.

"Even following an orderly restructuring of the worst-affected developers with minimal contagion to the financial system, construction activity would still almost inevitably slow much further."

Tucker Carlson spoke about the nearly decade-long binge of "quantitative easing" -- simply printing hundreds of billions of new dollars and injecting them into the economy -- last night.

He points out that the inflation this causes is bad for most people, especially those who've actually saved money.

But it's good for some people -- like highly-leveraged corporations with lots of debt. They benefit from dollars being made less and less valuable, as it makes their previous debt shrink.

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posted by Ace at 01:17 PM

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