Wednesday, September 15, 2010
By: Michael Pento
Senior Economist at Euro Pacific Capital
I’ve said for quite some time now that the U.S. would suffer through a protracted period of little to no growth and rising inflation--in other words stagflation. Today we received further affirmation of this condition with the release of the Empire State Manufacturing Index and the Import Price Index.
The Federal Reserve Bank of New York’s general economic index fell to 4.1 this month, the lowest reading since July 2009, from 7.1 in August. And U.S. import prices rose faster than expected in August, recording their largest increase in four months on higher petroleum and food costs, according to Labor Department. In the 12 months to August, import prices increased 4.1%. That’s not evidence of surging inflation yet but it is evidence of consumers having to pay more for imported goods even though their job and income growth is suffering.
Meanwhile, consumers’ largest asset continues to falter. There were 4 million homes listed with brokers for sale as of July. It would take a record 12.5 months for those properties to be sold at the current month’s sales pace. In addition, there are as many as 8 million properties vacant or in foreclosure.
Mortgage purchase applications also continue to warn that the real estate market has anther leg down. The seasonally adjusted Purchase Index decreased 0.4% from one week earlier. The unadjusted Purchase Index decreased 21.9% compared with the previous week and was 39.7% lower than the same week one year ago.
Owners of about 11 million homes, or 23 percent of households with a mortgage, owed more than their property was worth as of June 30, according to CoreLogic. Another 2.4 million borrowers had less than 5 percent equity in their houses and probably would lose money on a sale after paying broker fees and closing costs, CoreLogic said on Aug 25.
The windup of all this is that the only deflation consumers will likely experience going forward will continue to be in the housing market. But thanks to the inane zero-percent interest rate policy from the Fed, Americans will continue to pay more for everything else as they watch the value of their currency crumble, especially against those assets whose supply cannot be increased by fiat.