Salient to Investors:

David Stockman writes:

The August CPI gives the Fed an excuse to keep shoveling free money into the casino. No Fed rate increase would be a clear indication of its fear of reining in Wall Street’s greedy and gamblers and that Keynesian central banking in the last two decades has been a fraud.

A market correction is long overdue and eventually unavoidable.

The BLS inflation report shows that prices of commodities and goods are falling due to global deflation, while the cost of shelter and domestic services is briskly rising: averaging the two is purely a statistical accident, and outside of the Fed’s ability to shape. Falling prices for commodities and goods cannot be countered by supplying more free money to the Wall Street casino.

The Fed’s 2% inflation target is arbitrary and there is no historical evidence that it is connected with economic growth or gains in wealth and living standards.

7 years of interest rate repression has fueled a near 45% rise in direct auto credit outstanding and even bigger rise in new leased vehicles, resulting in a flood of used cars, prices of which have fallen 1.5% during the past year, while new car prices have remained flat due to excess global production capacity.

Since 2000, inflation has outstripped real household incomes. The index for services less energy services has risen by at a 2.6% compound rate, with no deceleration evident. More than 66% of living costs for average households comprise shelter, transportation, medical care, education and entertainment; which have risen at annual rates of 3.1%, 2.1%, 2.2% 3.5%, and 2.7% respectively.

China is the epicenter of the global deflation and the leading edge of the collapse in the petro-states, commodity exporters and mercantilist exporters which fed on China’s boom. By pegging their currencies at artificially low exchange rates, they created huge current account surpluses which they then invested back into developed market stocks and bonds.

The US economy cannot be decoupled from the global deflation. Dollar denominated assets – treasuries, ETFs and individual stocks – were financed not out of savings from current global production, but from central bank fiat credit.

Saudi Arabia’s $350 billion annual surplus has become a deficit, where it will remain for years as world oil demand falters and supply increases from investments.

Financial markets will be hurt by petro states liquidating their assets to cover current account deficits.

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