We mentioned this earlier but it bears repeating: Not only is our financial system broken, but it looks like what remains of our industrial system has shut down as well. Industrial production dropped 2.8% in September. That’s the worst showing since 1974. Analysts had forecast a drop of 0.8%
It’s being blamed on the weather, of course. Ike! Gustav!
But with finance devastated, industrial production shuttered and the auto-industry on life support, you kind of want to know: what are we doing around here these days? How on earth is unemployment as low as it is? How long can that last?
It’s way obviously too early in the morning to even contemplate the answers to those questions.
Instead, let’s address an inflation related problem here. The Fed has been pouring out dollars for a year now. Meanwhile, we’re doing less work and making less stuff. That looks like a recipe for inflation but the consumer price index is dropping. How’s that? Well, remember that inflation doesn’t have to occur in the kind of across the board way that shows up in the CPI. Instead, it can pour into bubbles in specific assets. (Need an example? How about housing, circa 2002-2007?) So what’s looking bubbilicous right now?
We asked an analyst with one of those major international non-government entities that specialize in telling emerging market countries how to emerge.
“I think the bubble is in financial assets,” she said. Her conclusion is that the global liquidity provisions and bailouts were allowing banks to hold assets at inflated prices. Got that? She thinks we’re in a financial bubble now. What a miserable idea.