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The Fed’s New American Dream: Paying More And Getting Less

The Fed’s New American Dream: Paying More And Getting Less

Authored by Michael Maharrey via SchiffGold.com,

In the Federal Reserve’s new world of “transitory” inflation, Americans are paying more to get less.

Retail sales were…

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The Fed's New American Dream: Paying More And Getting Less

Authored by Michael Maharrey via SchiffGold.com,

In the Federal Reserve’s new world of “transitory” inflation, Americans are paying more to get less.

Retail sales were up 0.6% from May to June. According to the Commerce Department, American consumers spent $621 billion on retail goods and services last month. With the big 1.7% drop in May, retail sales remained below levels in March and April.

Meanwhile, price increases in June far outran the increase in retail sales. In fact, they outran retail sales for the entirety of the second quarter. Consumers paid significantly more in every retail category.

  • Food bought at stores – up 0.8%

  • Prices at restaurants, delis, cafeterias, etc.  – up 0.7%

  • The price of gasoline – up 2.5%

  • Durable good prices including appliances, electronics, autos. furniture, etc. up 3.5%

These were price increases in just one single month. Overall, CPI popped 0.9% month-on-month in June. So far this year, prices have risen 3.6%.

Since retail sales are expressed in dollar amounts, they reflect rising prices. In other words, just because dollar widget sales increase doesn’t mean people bought more widgets. It could be that they bought fewer widgets but paid more for them. This is exactly what’s happening in many retail sales segments.

Consider gasoline, for example. Gas station sales rose by 2.5% in June to $47 billion. But the price of gasoline also rose 2.5% in June. That means consumers bought about the same amount of gasoline in June as they did in May, but they paid more for it.

Food and beverage store sales ticked up by 0.6% in June to $75 billion. Meanwhile, the CPI for food bought in stores jumped 0.8%, Again, consumers paid more to get less.

Meanwhile, retailers are projected to experience significant cost increases through the second half of 2021 as price hikes continue to bite. According to Salesforce, US retailers will spend $223 billion more in H2 2021 than they did in the same period of 2020. That’s a 62% year-over-year increase. Breaking down the increases, retailers will pay an additional $12 billion to suppliers, $48 billion in additional wages and $163 billion in higher logistics costs.

And of course, at least some of these higher costs will be passed on to consumers. Salesforce VP and GM of Retail Rob Garf told CNBC consumers should expect higher prices. “Retailers will certainly take on some of the burden and consumers are going to feel it as well,” he said.

In other words, don’t expect the Fed’s “transitory” inflation to disappear anytime soon. As Peter Schiff pointed out, companies have likely held off raising prices thus far. But as they continue to feel the squeeze of higher costs and it becomes apparent that this transitory inflation may not be so transitory after all, they will throw in the towel and raise prices.

It is certainly possible that we can finish 2021 with 10% CPI, which would rank it as bad as any of the years that we had during the 1970s. Except 10% in 2021 is not 10% in 1971 or 1979 because this is not your grandfather’s CPI. This is a completely different CPI that is completely rigged and reverse engineered. If we actually have 10% inflation, if we measured prices the way we did back in the 1970s, it’d probably be 15 or maybe 20% inflation.”

And how will companies cope with the rising costs that they can’t pass on to consumers? They’ll be forced to cut costs and that almost always means shrinking their labor force. That doesn’t bode well for a continued robust recovery.

Garf made another interesting observation, saying we are all “willing participants” when it comes to paying higher prices. “We’re willing to spend a little more. I think there’s enough momentum and positivity among people that they are willing to absorb the additional cost all the way through the holiday,” he said.

In other words, inflation expectations are baking into the economy. This is exactly why financial analyst Wolf Richter said Jerome Powell’s temporary inflation is turning into an inflationary spiral.

The first bout of inflation always looks temporary. But during those first bouts of inflation, that’s when the triggers of persistent inflation, namely the inflationary mindset and inflation expectations are being unleashed.”

Powell and others insist price increase are a temporary phenomenon due to economies reopening post-pandemic. This certainly accounts for some of the rises in prices. More significantly, the Federal Reserve has created trillions of dollars out of thin air and injected them into the economy. We have more dollars chasing fewer goods. That’s a recipe for rising prices.

Richter said the bottom line is that prices are rising, and at this point, nobody is resisting the price increases.

So much cash has been created and handed out that price doesn’t even matter anymore. People are paying whatever, even for discretionary purchases that they don’t have to buy.”

As a result, we have price spikes cascading from product to product and service to service.

This surge of inflation is becoming engrained in the inflation expectations of company decision-makers and consumers alike. They’re adjusting to it and in this manner inflation becomes persistent.”

In other words, get used to paying more and getting less.

Tyler Durden Wed, 07/21/2021 - 12:40

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Spread & Containment

China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China’s worst outbreak since COVID first emerged in the city of Wuhan has continued to spread, prompting authorities to intensify their efforts to crush the delta-driven…

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China Suspends Travel, Ramps Up Testing As Delta Outbreak Hits Wuhan

China's worst outbreak since COVID first emerged in the city of Wuhan has continued to spread, prompting authorities to intensify their efforts to crush the delta-driven outbreak. However, as the virus continues to elude their grasp, it's looking increasingly likely that Beijing's "zero tolerance" approach might hamstring economic growth, as analysts from Goldman Sachs warned in a recent note to clients.

More than 2 dozen cities have counted more than 300 cases over the past few weeks as the number of cases has quickly multiplied. China now has 144 medium- and high-risk areas - the most since the initial outbreak in early 2020, according to the National Health Commission.

By Monday, all of China's 31 provincial-level jurisdictions had issued notices by Monday advising people not to travel domestically. Some provincial governments singled out only medium- and high-risk regions, while others asked people to avoid all inter-provincial travel. According to the SCMP, Beijing's "zero-tolerance" approach to fighting COVID, which remains minimal compared with China's vast population, has "scared away" the tourists.

China reported 71 new COVID cases from local transmission on Wednesday, more than half of them in coastal Jiangsu province near the epicenter of Nanjiang, AP reported.

The CCP has decided to expand travel restrictions on Wednesday: ride-hailing services and public transit have been suspended in all medium- to high-risk areas. Immigration authorities have promised to "strictly restrict non-urgent, unnecessary cross-boarder travel" including restricting the issuing of passports for Chinese citizens. To try and stifle the virus before it has an opportunity to take hold, the city ordered millions of residents to undergo mandatory testing, leading to lines forming across the city. The city has also closed 17 bus lines and a handful of subway stations. Cases have been confirmed in 17 provinces and some two dozen cities, including Wuhan, which reported a handful of cases this week, per CNN.

Fears of another crushing lockdown - many Wuhan residents still have PTSD from the 70-day+ lockdown in the city that was used to crush the original outbreak, at a tremendous cost to the city's residents mental and physical health. Videos and photos shared on social media have shown empty shelves and long lines at supermarkets, as residents scramble to stock up on supplies.

"Seeing Wuhan people panic buying at supermarkets makes me feel sad. Only those who have experienced it understand how terrible it is, (we) dread a return to the days of staying at home and not knowing where the next meal is," said one Wuhan resident on Weibo.

The present outbreak began a little over a week ago in Nanjing, a city in Jiangsu province in eastern China, where nine airport cleaners were found to be infected on July 20 during a routine test. Chinese authorities have blamed the cluster on workers from Russia, who arrived at the Nanjing Lukou International Airport on July 10.

"It is believed that the cleaners did not strictly follow anti-epidemic guidelines after cleaning Flight CA910 and contracted the virus as a result. The infection further spread to other colleagues, who are also responsible for cleaning and transporting garbage on both international and domestic flights," reported state news agency Xinhua.

Given the provenance of the latest outbreak, Beijing has committed to ramp up testing of transport workers around the country. Workers at ports and borders considered high risk will be tested for the virus every other day said Li Huaqiang, a senior official with Ministry of Transport.

Earlier this week, another COVID-19 hotspot was identified in the city of Zhangjiajie, near a scenic area famous for sandstone cliffs, caves, forests and waterfalls.

Despite only confirming some 19 cases over the past week, the city ordered residential communities sealed Sunday, preventing people from leaving their homes. In a subsequent order on Tuesday, officials said no residents, and no tourists, would be allowed to leave the city. On Wednesday, the city government's Communist Party disciplinary committee issued a list of local officials who "had a negative impact" on pandemic prevention and control work who would be punished.

Far higher numbers were reported in Yangzhou, a city next to Nanjing, which has recorded 126 cases as of Tuesday. As a result, all cross-city ferry services, water tours were suspended in eastern Yangzhou on Wednesday.

But most alarmingly, the outbreak has already touched Beijing, eve though it's thousands of miles removed from the epicenter in Nanjiang. On Wednesday, 7 cases were confirmed in the capital city, prompting authorities to lock down two residential compounds.

As of this wee, China has doled out more than 1.71 billion vaccine doses to its population of 1.4 billion. Officials say 40% of the population is fully vaccinated, but the outbreak is also raising questions about the efficacy of those vaccines.

Tyler Durden Wed, 08/04/2021 - 18:00

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Government

Broward County Public Schools “Pause” Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Broward County Public Schools "Pause" Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Update: Broward County schools on Aug. 3 again changed course on whether to comply with or defy an executive order by Republican Gov. Ron…

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Broward County Public Schools "Pause" Proposed Mask Mandate After DeSantis Threatens To Cut Funding

Update: Broward County schools on Aug. 3 again changed course on whether to comply with or defy an executive order by Republican Gov. Ron DeSantis which prohibited schools from imposing mask mandates on students.

In a written statement to The Epoch Times, the school board has not changed its policy but “paused it.”

“In light of the governor’s executive order, the district is awaiting further guidance before rendering a decision on the mask mandate for the upcoming school year. At this time, the district’s face covering policy, which requires the use of masks in district schools and facilities, remains in place.”

The School Board plans to discuss next steps at a special meeting on August 10.

Dr. Vickie Cartwright, interim superintendent of Broward County schools is looking into the executive order further.

“The school board is reviewing information and looking for language from our executive rules as a result of the governor’s executive order,” Cartwright said in a video statement.

On July 30, the governor signed an executive order that protects parents’ right to make decisions regarding the masking of their children as a means of protecting them from COVID-19. A month earlier, he signed a bill that protected the parents’ “fundamental right” to make decisions for the upbringing, education, health care, or mental health of their minor children.

“Many Florida schoolchildren have suffered under forced masking policies, and it is prudent to protect the ability of parents to make decisions regarding the wearing of masks by their children,” DeSantis said.

*  *  *

As we detailed earlier, Florida Governor Ron DeSantis has had enough of the Covid hysteria.

Aside from going on record and calling the lockdowns a "huge mistake" back in April of his year, DeSantis has done everything he can to try and turn over the power in his state to its citizens, and away from the government.

The latest example of this comes this week, where DeSantis stood down Florida's second largest school district that was attempting to impose a mask mandate. In response, DeSantis threatened to withhold funding from the district. 

"Broward County Public Schools announced last week that it would require mask use after the CDC issued new guidance recommending universal indoor masking for all teachers, staff, students and visitors to K-12 schools this incoming school year, regardless of vaccination status," Axios reported this week.

DeSantis had issued an executive order last Friday barring schools from requiring masks when school re-opens next month. His order read that "if the State Board of Education determines that a district school board is unwilling or unable to comply with the law, the State Board shall have the authority to, among other things, withhold the transfer of state funds, discretionary grant funds ... and declare the school district ineligible for competitive grants."

And that's exactly what DeSantis threatened to do before Broward County Public Schools backed down, releasing a statement on Monday that said: "Broward County Public Schools intends to comply with the governor's latest executive order."

The statement continued: "Safety remains our highest priority. The district will advocate for all eligible students and staff to receive vaccines and strongly encourage masks to be worn by everyone in schools."

DeSantis also spoke at a press conference this week, stating: “Even among a lot of positive tests, you are seeing much less mortality that you did year-over-year. Would I rather have 5,000 cases among 20-year-olds or 500 cases among seniors? I would rather have the younger.”

“We are not shutting down. We are going to have schools open. We are protecting every Floridian’s job in this state. We are protecting people’s small businesses. These interventions have failed time and time again throughout this pandemic, not just in the United States but abroad.”

As we noted back in April, DeSantis told The Epoch Times that the lockdowns were a “huge mistake,” including in his own state.

“We wanted to mitigate the damage. Now, in hindsight, the 15 days to slow the spread and the 30—it didn’t work,” DeSantis said.

“We shouldn’t have gone down that road.”

Florida’s lockdown order was notably less strict than some of the stay-at-home measures imposed in other states. Recreational activities like walking, biking, golf, and beachgoing were exempted while essential businesses were broadly defined.

“Our economy kept going,” DeSantis said. “It was much different than what you saw in some of those lockdown states.”

DeSantis has also opposed vaccine passports in Florida. 

Tyler Durden Wed, 08/04/2021 - 22:40

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Government

Tenant Stampede Results In Largest-Ever Surge In Rents

Tenant Stampede Results In Largest-Ever Surge In Rents

Under Biden’s unconstitutional eviction moratorium order, the CDC has mandated thousands of small and medium to drop dead by not only barring them from evicting any deadbeat tenants in…

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Tenant Stampede Results In Largest-Ever Surge In Rents

Under Biden's unconstitutional eviction moratorium order, the CDC has mandated thousands of small and medium to drop dead by not only barring them from evicting any deadbeat tenants in the process defying the highest US judicial organ, but also contemplating steep criminal penalties for those who follow this order.

Meanwhile, as many small landlords continue to go out of business barred from collecting revenue even as costs pile up, Wall Street's renting giants such as Blackstone will continue to grab market share on the cheap, becoming ever bigger in the process as this WSJ article attests.

But that's just the beginning: with much of America reopening from covid and a reverse migration into major cities on the rise, Blackstone has a very clear reason to pursue regaining the largest US landlord title: the largest flood of renters in US history are now competing with each other amid record low vacancies - leading to the largest-ever rent increases, and what will be an record cash flow bonanza for Wall Street's mega landlords.

According to industry consultant RealPage, in the second quarter the number of occupied units jumped by around 500,000, the largest annual increase since records began in 1993 according to  Rents on newly signed leases, meanwhile, jumped by 14.6% last month vs. one year earlier - the most on record, while occupancy reached 96.5%, the highest level in 21 years.

"We’re seeing record low vacancy," said Jay Parsons, deputy chief economist for RealPage. "Wages are up, people have the money. And people are saying take my money, I want to move in."

As Bloomberg notes:

The rental market is getting flooded with Americans searching for apartments. The economy is revving up, and young people ready to leave their parents’ homes are competing with others who delayed moves because of Covid-19. At the same time, remote work is enabling families to relocate to more-affordable areas, and vaccines have made seniors comfortable again with downsizing.

The surge confirms what we reported in late June we discussed the biggest rent jump on record according to Apartment List, and crushes any expectations for just a "transitory" inflation hike, because even as the supply chain-driven spike in prices moderates (eventually), it will be replaced with far higher housing prices which contribute to a far higher portion of the CPI basket, resulting in an even bigger spike in year-over-year housing comps which only another change to the composition of the CPI and PCE baskets will be able to sweep under the rug.

Tyler Durden Wed, 08/04/2021 - 19:20

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