Inflation rate for January 2010

James Garrett

February 19 2010

The Inflation rate as of end of January 2010 was reported on Feb. 18 2010 is showing the first very strong signs of a hyper inflated currency. No one is talking about this. Let’s do the Math and do a projection of what inflation will be if this trend continues. I expect it will continue and get much higher. We have the latest producer price index inflation number for January of 2010 that’s 1.4%. To get the yearly projected total we just multiple 1.4% times 12 months that make up a full year. This gives us a projected inflation of 16.8% a year. This is what we can expect to be the inflation trend for 2010. This is a prelude to hyper inflation. Hyperinflation is defined as 33% per year for an extended period of time or a 3 year period of 100% devaluation of a currency. The 16.8% is only half of what could be considered a hyper inflation rate. I don’t expect hyperinflation until sometime in 2011 and more than likely the second half.

The same day this report of a very high Inflation rate came out this prompted the Federal Reserve to raise the short term interest rates up by .25 % this happened after the market closed. It was announced at 4:30 PM Feb. 18 2010. Now this is only the beginning of interest rate increases and it had to start sometime. This is not the key interest rate that affects the whole economic system. I predicted in my book 2012 that both these things would happen by or in the second quarter of 2010 I was talking about the key interest rate not the short term overnight rate to the banks. This key interest rate increase will probably come in March 2010 or after the next inflation report. This is only if the inflation number comes out high like the last one did. This is what the Federal Reserve does when inflation increases they raise the interest rates. I do not expect any panic just yet. There is one of many coming in the next few quarters and years. Each will look like a disaster, one will lead to another and then another.

All our markets are tied to one another in some way directly or indirectly. Here how. The bond markets increases its interest rates can caused from the high Inflation rate. This higher Bond interest directly affects the interest rates on home mortgage loans. The mortgage rates are currently affected mostly by the 10 year Treasury bond interest rate plus about 2 %. As the interest rates on the bonds increases this increases the cost of buying a new or existing home. This negatively effects the already very week real estate sales. These higher mortgage rates push down the value of a home because of the affordability factor. The higher the interest rate the more the monthly payment is and the smaller number of people that can afford to pay the higher rates. This is accumulative. The higher the interest rates the smaller and smaller the number of people can afford to buy a home. This will cause another decline in home prices. The federal government owns 2 million homes that have been abandoned that they bought from the banks. Last year home values lost 18%. Do the math on that.

This will cause further collapses in the banking system. This will further devalue the assets of the collateral banks now hold to back up existing loans, the good ones and the bad ones. The very high Inflation rate will be the cause of a vicious cycle that will continue. The cycle that starts with the inflation rate being high has the effect on the Federal Reserve to raise interest rates. That causes interest rates to increase on home mortgages. Then that causes the already depressed real estate values to be loose more value and this has the affect of no one wants to buy a devaluing asset. This means no buyers for real estate. This means the banks and the government will be stuck with about 8 million subprime loans and houses all total by the end of 2011. This leaves no buyers or at least no wares near enough buyers. This will cause the banks to have their second big collapse before the end of 2011. The second one will be worse than the first bank collapse in September of 2008. The federal government will at some point have to take over almost the entire banking system or about 80% of the banks. Believe it or not this is only the beginning of everything I see coming at us. It’s all about the math or the numbers, plus you must follow the money.

This upcoming higher Inflation rate will all lead to an extreme devaluation of our currency the US dollar in 2011 and 2012. The devaluation of real estate also called deflation or the dropping of prices will make little difference as the interest rates increase that will have the effect of monthly payments go up. The prices of the homes will drop but the payments will increase as the interest rate increases. There’s no real help here.

Inflation rate