The enemy of the Banks is Deflation and tools such as zero interest rates (ZIRP or low rates) and increasing inflation are used to keep deflation at bay.
Thus the currency wars continue and the reminder from past currency wars is military wars followed as national economies faltered. ~Ron
The European Central Bank
Keeping deflation at bay may involve controversial new policies this year
Jan 4th 2014
SINCE the financial crisis the European Central Bank (ECB) has ploughed a solitary course, reflecting its unique status as a monetary authority without a state. While other big central banks, notably America’s Federal Reserve, adopted quantitative easing—buying government bonds by creating money—to stimulate recovery, the ECB relied mainly on lowering interest rates and providing unlimited liquidity to banks on longer terms and against worse collateral. But as the Fed phases out its asset-buying programme in 2014, it may be the ECB’s turn to become unorthodox.
Under Mario Draghi the ECB has taken bold steps. Two years ago it provided banks with €1 trillion ($1.3 trillion) of cheap three-year variable-rate loans to avert a funding crisis. In September 2012 it countered euro break-up fears by pledging, if necessary, to buy unlimited amounts of government bonds for countries besieged by the markets. But the threat now is a slide towards deflation, a worry in the euro area because debt is high in many states and deflation raises its burden in real terms.
Bernanke: ‘Even Low Inflation Can Create Problems’
Low U.S. inflation poses risks to the economy by leaving it vulnerable to shocks, Federal Reserve Chairman Ben Bernanke said on Friday.
Asked about whether the goal of Fed policies was to raise inflation or lower interest rates, Mr. Bernanke emphasized the latter.
The Fed in 2012 established a long-run inflation target of 2%. Inflation has been running well below that level this year [As the Fed erroneously measures inflation; REAL INFLATION IS MUCH HIGHER].
Referring to the Fed’s second round of bond buys in 2010, he said then “the goal was to avoid deflation. Deflation is not a zero sum thing. Even low inflation can create problems.” He said, “inflation then, like today, was very soft but even more so.
Inflation is Already Here… But It’s Being Masked
Since 2007, the world’s Central Banks have collectively put more than $10 trillion into the financial system since 2008. To put that number into perspective, it’s equal to roughly 15% of global GDP.
This kind of money printing is literally unheard of in modern history. And it has set the stage for a roaring wave of inflation to hit the financial system. Indeed, the first signs are already showing up… not in the “official” Government data (which is bogus) but in how those who run businesses around the globe are acting.
Most people believe that when inflation hits, prices have to go higher. This is true, but higher prices can be manifested in multiple ways. Firms usually do not simply raise prices in nominal terms as price elasticity can kill revenues because it would hurt sales.
Instead, companies resort to a number of strategies to maintain profit margins without hurting their sales. One of them is to simply leave part of a package EMPTY, thereby selling LESS product for the SAME price (a hidden price hike).
Food manufacturers, like the politicians currently debating health reform, may have a solution to the obesity crisis: Feed Americans a lot of hot air. But this heated air is not just a figure of speech for packaged goods companies including Ralcorp Holdings’ (RAH) Post Foods and PepsiCo (PEP) subsidiaries Frito-Lay and Quaker.
In many packaged products, as much as 50% of the contents is just empty space, an investigation by Consumer Reports reveals. And we consumers are buying that nothingness every day.
Another tactic corporation use is to simply sell smaller packages for the SAME price (another means of selling less for MORE= a price hike).
U.S. Companies Shrink Packages as Food Prices Rise
Large food companies have recently announced that they will raise the prices they charge grocery retailers for commodities-based products. For example, a chocolate bar will cost more soon: Hershey last week announced a 10% increase for most of its confectionery goods.
Of course, straightforward price hikes could cause consumers to buy less of those products or to choose less costly store brands. So in many cases, food companies are trying a different tactic: Keeping the price of an item the same while decreasing the amount of food in the package. The company recoups the costs of the rise in commodities and hopes consumers don’t notice that they’re getting less of the product for the same price.
However, perhaps the most scandalous policy employed by companies looking to engage in stealth price hikes is to swap out higher quality ingredients for lower quality/ lower cost alternatives. One bigname coffee maker was caught doing this just a few years ago.
Reuters is reporting that many of America’s major brands have been quietly tweaking their coffee blends. While most coffee companies consider their blends trade secrets, and are loath to disclose exactly what goes into them, both circumstantial and direct evidence suggests they’re now substituting lower-grade Robusta beans for some of their pricier Arabica, and degrading the quality of our coffee…
At least one coffee roaster has admitted it. In November, Massimo Zanetti USA, which roasts for both Chock full o’Nuts and Hills Bros., publicly confirmed upping its Robusta usage by 25% this year.
Why the switcheroo? Prepare to not be shocked. The answer is: price.
Last year, a shortage of Arabica caused prices of the premium bean to spike as high as $3 a pound — $2 more than what a pound of Robusta would cost. This compares to a five-year historical trend of Arabica costing closer to 70 cents more than Robusta. In recent weeks, the trend has reversed, with Arabica prices falling to just a 62-cent premium over Robusta.
In simple terms, inflation is already around us, though it’s not yet showing up in LITERAL price hikes. Instead, we’re all paying MORE for LESS. And it’s only a matter of time before the situation really gets out of control.
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