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Civil Rights Roundup: 07/15/08 »

“Mental Recession” Continues: Wholesale Inflation Soars While Dollar Sets Record Low

Posted by JOE GANDELMAN, Editor-In-Chief in Economy, Politics.
Jul 15th, 2008 | Comments

Yet more signs that the “mental recession” is a tad bit more than just a “mental” recession: wholesale inflation is now the worst in 27 years — and the dollar has dropped to new lows.

It’ll be interesting to see if the White House blames this on the Democratic Congress or if it’s painted as somehow part of a past “Clinton recession.” But the seemingly- unraveling strands come amid stories about the possibilities of more banks at risk of failing. Taken together, it isn’t a picture that instills confidence in the economy — or those who administer the government that sets the policies. Which means there could be continued political and Wall Street consequences.

The financial news today is not good:

Soaring costs for gasoline and food pushed inflation at the wholesale level up by a larger-than-expected amount in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.

The Labor Department reported that wholesale prices jumped by 1.8 percent last month, the biggest one-month rise since last November. Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.

Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.

Meanwhile, the dollar continues to sink:

The dollar declined to a record low against the euro on speculation Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson will say credit- market losses are hurting U.S. economic growth.

The currency also weakened to the lowest level in more than a month against the Japanese yen and to a 25-year low versus the Australian dollar on concern confidence in the debt of Fannie Mae and Freddie Mac will diminish even after the U.S. government pledged support for the two-largest buyers of home loans. The pound surpassed $2 for the first time since July 1 after U.K. inflation quickened to the fastest pace in at least 11 years.

“The markets are reacting negatively to the renewed credit crisis in the U.S. and that’s hurting the dollar across the board,” said Roberto Mialich, a Milan-based currency strategist at Unicredit Markets & Investment Banking, a unit of Italy’s largest lender. “The market is speculating that Bernanke will offer a gloomy outlook for the U.S. economy.”

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Jim_Satterfield

Just remember that this mental recession is brought to you by the same people who brought you the Enron Loophole and other financial system deregulation. Now who could that be? Hmmm.....

jwest

Unless you are planning a vacation to the south of France, what do you have against a declining dollar?

A cheap dollar makes our exports more affordable to the rest of the world. The results are more jobs and lower trade deficits.

Polimom

jwest wonders why anybody would be concerned about the declining dollar, but then goes on to assume we're merely exporting???

Is the correlary not obvious? As in... the cost of imports goes up radically for us. Think oil, for starters.

jwest

Higher prices for imports (even oil) tend to reduce the consumption of said imports and increase the desire for domestically produced products.

So, what’s wrong with that?

Would you rather have a strong dollar so that U.S. made products and services were uncompetitively expensive to the rest of the world? How does that help?

StockBoySF

In the meantime the Dow Jones Ind Average is about the same as it was when Bush took office (around 10,800). Where as under Clinton it increased from about 3,200. Also many banks' stocks are trading at multi-decades lows...

jwest

Good grief. Do you think that if we studied the stock market over a number of decades, we might find that it is cyclical in nature?

Is your argument that Bill Clinton was a lucky president? I know Al Gore created the internet, but did Bill Clinton develop the technology that led to the stock bubble at the end of his term? Was there some policy I missed that he instituted that made everyone think Tube Socks Dot Com was worth more than General Electric?

Does the “stockboy” refer to supermarket shelves?

StockBoySF

My point is that Bush's economic policies have not been helpful to most Americans.

jwest

Which economic policies of the Bush administration would you say have been the least helpful?

StockBoySF

I don't have all day.. but to begin with... Bush's low dollar policy. I understand your point about good for exports, but the loss in other areas- such as the cost of oil is far greater. Unless you've enjoyed an increase in your standard of living as a result of increased exports and are more than happy to pay the $5/gal or so for gas.

Certainly I understand the cyclical nature of the economy, but again I believe that no real gains have been made under Bush.

jdledell

jwest - For starters lets talk about the massive tax cuts which ballooned the deficit. Complicit with a Republican Congress, Bush massively increased spending. How about spending $600 billion on a stupid war in Iraq. You combine that with a Laissez Faire attitude toward business and regulation and you get crappy results like Enron, World Com, Bears Stearns, Freddie and Fannie. How about letting monetary supply get too easy along with Interest rates too low for too long and is anyone surprised inflation is climbing. Contrary to your comment about a weak dollar being good, our policies have decimated our manufacturing base and thus our exports will NEVER compensate for the increased costs of imports.

Why do you think 80% of Americans think the country is going in the wrong direction? Is it because Bush is doing such a great job? I suspect you are one of those people who if the country entered a complete depression this fall with 30% unemployment and bankruptcies galore would still stand up to clap for your G-d, George W. Bush.

jwest

Even with 9/11 and wars in Afghanistan and Iraq, real GDP has increased 2.5% per year from ’01 to ’07.

I don’t blame Bush for the gas prices. I do blame Clinton and democrats in congress for blocking domestic drilling 12 years ago which would have supplemented supply and reduced prices today.

superdestroyer

You cannot complain about the stock market and then way a high dollar. A higher dollar would translate to lower stock prices and a worse off housing market.

Second, Enron went bankrupt in 2001. Worldcom went bankrupt in 2002. They are examles of the failures of the Clnton Administration.

In the short run, a lower dollar hurts the U.S. but it mus be killing China right now since there trade surplus with the U.S. will begin to collapse.

Jwest,

Ask them what the Obama Administration will do to improve the economy. does anyone really believe that limiting carbon emissions is going to help the private sector. Does anyone believe that nationalizing healthcare (indirectly) will help the economy?

jwest

Across the board tax cuts increase revenue to the government. They worked for JFK, Reagan and Bush.

There is no excuse for the spending that happened under Bush. With both the republican and democrat congresses, he should have vetoed the bloated spending bills.

I support the war and think it’s worth every dime, so there’s no need arguing that point.

Enron management did lean republican; however, Bear Stearns and WorldCom management supported democrats more than the right. Fannie and Freddie are both strictly democrat creations, run by democrats and protected by democrats.

The easy credit policies over the last few years have enabled millions of people to purchase a home who would have never qualified under old rules. Sure, some are going to default and lose their house, but the vast majority will hang on and be building equity.

People think the country is going in the wrong direction because that is what the MSM is telling them. When asked if they are doing OK, they answer yes, but when asked how they think their neighbor is doing, they think he’s going broke.

pacatrue

Jwest, my housing, gas, and food are all more expensive than they were just two years ago. The only thing I need to read to discover a $5 loaf of bread and a $6 gallon of milk (when they were recently $3 and $4, respectively) is my grocery receipt. But I am glad that you are doing well.

superdestroyer

Pactrue,

Part of the cost in your food is due to the ethanol program. It has pushed corn prices to records levels. Who has been pushng ethanol?

Gasoline is more expensive because there is no economic way in the U.S. to replace it or even to develop domestic energy sources. The Democrats tried to us the price of natural gasoline to put the nuclear power companies out of business and that program backfired.

I will believe a progressive really cares about the economy or the environment when they finally put an end to open borders and unlimited immigration. As long as progressive support open borders and unlimited immigration, they do not care about the economy, quality of life for Americans, or the environment.

Don Quijote

Presidential economics: Do parties matter?

Not to spoil the suspense too much, but here are the basic conclusions. Since Franklin Roosevelt’s third term (1941–44), Democrats have generally presided over faster growth and stronger stock markets than Republicans; Republican administrations have been friendlier for disinflation and the bond market. Also, Republicans tend to preside over recessions early in their terms, with growth accelerating as time passes; Democrats tend to preside over earlier accelerations followed by slowdowns as the term matures.

...
Over the long sweep of history, the distribution of income in the U.S. became more equal from the early 1930s through the late 1960s, and has been growing more unequal ever since. But there are some partisan patterns to this story. On average, inequality has risen in Republican administrations, and fallen in Democratic ones. Bucking the long-term trend, inequality rose slightly during the Eisenhower years. And while not quite bucking the trend, it rose more slowly in the Carter and Clinton years than it did under Nixon, Reagan, or George H.W. Bush.

The Bush administration, a standard Republican Administration, the better off you are the more you get, the poorer you are the more screwed you get.

Don Quijote

I will believe a progressive really cares about the economy or the environment when they finally put an end to open borders and unlimited immigration. As long as progressive support open borders and unlimited immigration, they do not care about the economy, quality of life for Americans, or the environment.

A) Last time I checked the people who are supposed to enforce immigration laws work for a Republican President.

B) Last time I checked most of the people employing said illegals were businesses who have done everything they could to break Unions and hire illegals because if they hired Americans to do those jobs, they would be dealing with Unions within a couple of years

See Mother Jones - The Chain Never Stops,
Meatpacking plant raid prompts immigration reform rally

Immigration Charges for Meatpacking Managers

DES MOINES -- Two supervisors at an Iowa meatpacking plant that was raided by immigration agents in May were arrested and charged with encouraging people to live in the United States illegally.

Juan Carlos Guerrero-Espinoza, 35, and Martin De La Rosa-Loera, 43, were also charged Thursday with aiding and abetting the possession and use of fraudulent identification. Guerrero-Espinoza was charged with aiding and abetting aggravated identity theft.
...
Critics have asked federal officials why no top executives at the plant had been arrested, even though more than a third of the plant's employees faced immigration charges.

I am sure all those employers & recruiters are liberal.

Jim_Satterfield

Oh, my. Enron. Clinton Administration? Not quite. Not guilt free, probably, but not the primary enabler of Lay, etc.

And tax cuts do not provide more revenue to the government. Period. End of subject. The CBO realizes this, many conservative pundits don't.

"Higher prices for imports (even oil) tend to reduce the consumption of said imports and increase the desire for domestically produced products." This is only partially true. Domestically produced oil, even if you could start it pumping tomorrow would barely touch the price of oil in the world market and oil is a world market. There just isn't enough in the U.S. that can be pumped economically at low price points. This ties into the accusations against Clinton and the Democrats because at the price of oil 12 years ago permits weren't an issue because the companies weren't interested in actually drilling at the prices back then. As for oil shale, there are no economical extraction methods at this point that aren't environmental disasters. Oil companies are still experimenting with methods for extracting oil from oil shale and are years away from it. Nothing to do with public lands and permits, everything to do with the technology and resources (Current highly imperfect methods would require huge amounts of water, which the American West is running very short on now.). And then comes the real biggy as to why jwest is wrong in his statement. It's really Econ 101, the price elasticity of demand.

The key part of this is

The demand for a good is relatively inelastic when the quantity demanded does not change much with the price change. Goods and services for which no substitutes exist are generally inelastic. Demand for an antibiotic, for example, becomes highly inelastic when it alone can kill an infection resistant to all other antibiotics. Rather than die of an infection, patients will generally be willing to pay whatever is necessary to acquire enough of the antibiotic to kill the infection.

We have built a country around cheap energy and especially cheap gasoline. Combining the real estate crash, a recent history of flat real income for many people and a very fast increase in gas costs means there just isn't much that can be done in terms of adapting to the new realities. People can not take that driving vacation. They can stop going to the mall across town. They can't stop commuting to work. Most can't afford to just instantly switch vehicles to a more gas sipping model. Those who want to but need to dump their gas guzzler first in today's market have a real problem. So while petroleum products aren't perfectly inelastic in pricing they are closer to perfectly inelastic than to unitary elastic.

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