India-Reports.com: Inflation Watch

Inflation When and Why

There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money.

In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations – all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government’s deficit exceeds 40% of its expenditures. Guess what? The U.S. will hit the 40% mark in 2009.”

From Bearish Report

How to Track Inflation

Looking at the value of the dollar is a good way to track Inflation. The dollar down might mean inflation is going up. But let an expert explain

Hyper Inflation Ahead? William Engdahl

Federal Reserve sets Stage for
Weimar-style Hyperinflation By F. William Engdahl, 15 December 2008

In response to the deepening crisis, the Bernanke Fed has decided to expand what is technically called the Monetary Base, defined as total bank reserves plus cash in circulation, the basis for potential further high-powered bank lending into the economy. Since the Lehman Bros. default, this money expansion rose dramatically by end October at a year-year rate of growth of 38%, has been without precedent in the 95 year history of the Federal Reserve since its creation in 1913. The previous high growth rate, according to US Federal Reserve data, was 28% in September 1939, as the US was building up industry for the evolving war in Europe.

By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.

Update on Indian Economy

This from The DailyReckoning Decemeber 11, 2008

Yes, it's the planet's first Worldwide Depression. And the planet's first Worldwide Bailout. Now the meek are inheriting the world. The downtrodden are getting up off the ground.

The latest news from India tells us that the government is pumping $4 billion into the economy to try to pep it up. $4 billion may not be much to you…we're now used to trillion-dollar bailouts…but India is a poor country. A billion still means something.

The latest measure brings to $60 billion the total India has committed to the fight against the slump. Even that, say critics, will not be enough. But India is not in such a bad slump - at least, not yet. GDP is moving ahead at a 7% annual rate. Indians may be poor…but they have little debt…and they're getting less poor every day.

Our Indian colleague, Ajit Dayal, says India is in a good position:

"Our financial sector never went in for sub-prime debt. There is very little consumer credit in India. Inflation is going down; it's expected to be only about 1% next year. The economy is still growing fast. We have a huge domestic demand; we aren't as reliant on exports to the USA as China is. And our stocks are very cheap. You can buy companies in India now for less than the cash they have in the bank…and at 2…3…5 times earnings. There is even an oil company paying a 10% dividend. India will be just fine. And as soon as foreign investors realize it, Indian stocks will rise again."

Following the Experts: JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

John Williams Nov, 30, 2008

Inflationary Recession Continues to Intensify.
GDP Revision Was Minimal, Well Shy of Reality.
Durable Goods Orders Indicated Severe Economic Contraction.
Annual Broad Money Growth May Slow Further.
Deteriorating November Employment/Unemployment Outlook.

Fourth Quarter 2008 Survey of Professional Forecasters

I find this amazing. Fifty one economists have come up with a forecast that in my opinion is so far off that it is amazing.

Forecasters Reduce Projections for Core Inflation in 2009 and 2010

The outlook for core inflation in 2009 and 2010 is expected to remain steady, but at a level slightly below that forecast in the last survey. Core CPI inflation (fourth-quarter over fourth-quarter) will average 2.0 percent in 2009 and 2010, down from the previous estimate of 2.2 percent over the same period (not shown in the table below). The forecasters also see lower core PCE inflation for 2009 and 2010from 2.0 percent in both years (not shown) in the last survey to about 1.8 percent in this survey.

Turning to the long run, as the table below shows, headline CPI inflation will average 2.5 percent over the next five years, slightly below the forecasters previous estimate of 2.6 percent (not shown). The forecasters have not changed the estimate for headline CPI inflation over the next 10 years, 2008-2017. That estimate remains at 2.5 percent. The forecasters predict headline PCE inflation will average 2.2 percent over the next five years, slightly below the forecasters previous estimate of 2.3 percent (not shown). The forecasters estimate for headline PCE inflation over the next 10 years remains at 2.2 percent