This week will be all about inflation via the Producer Price Index () and Consumer Price Index (). I am hoping that the deflation we are importing from China will show up in the wholesale goods prices and that shelter costs (owners’ equivalent rent) will help the CPI fall within the Fed’s inflation target.
Lower crude oil prices should also help to lower both wholesale and consumer inflation. Interestingly, + agreed to boost its crude oil production by 137,000 barrels per day in October, despite a growing supply glut.
The Trump Administration’s recent ICE raid on LG Energy Solutions’ new battery plant in Georgia is sending some shockwaves, since apparently, many worker visas had expired. Before the ICE raid, South Korean companies had been struggling to get work visas. In battery plants, one official said that engineers who have expertise in production line design are “irreplaceable.” It will be interesting to see how this visa spat will be resolved. I suspect that the Trump Administration will demand that more U.S. workers be hired.
Meanwhile, the French government is on the verge of collapse as budget gridlock over paying down government debt is causing a confidence motion that may oust the French Prime Minister Francois Bayrou. The French Parliament is controlled by Marine Le Pen’s National Party. French President Emmanuel Macron does not have the authority to control Parliament’s budget resolutions and is effectively a lame duck with very little influence from his minority party. France may be the first European country to implode from aging demographics, as well as a failure to assimilate its immigrants.
Britain is the next European country to implode due to a debt crisis, caused by capital flight, aging demographics, and being overrun by immigrants that largely fail to assimilate.
The Wall Street Journal said, “Britain and France aren’t illiquid. They’re insolvent. Their future spending commitments, primarily in the form of expected social-welfare and old-age benefit payouts, far exceed any realistic estimate of the economic growth that will be available to pay those bills. This is unlikely to induce a true default crisis in either country since a market will always exist for their debt.”
The easiest way to put a Band-Aid on the growing debt crisis that Britain, France, and other countries face is to dramatically lower interest rates to try to reduce the burden of existing debt service. Japan was the template of how a country has to lower interest rates as government debt becomes unsustainable.
China now has lower than Japan and may have to devalue its currency as aging demographics take its toll. As a result, I am still expecting a global interest rate collapse, with rates in Europe being the next to fall.