Deflation, inflation? Where are we?

[bamacre]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

 

[MagnusTheBrewer]

Ask the unemployed.

 

[dank69]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

What prices are increasing?

 

[bamacre]

What prices are increasing?

Cotton, soybean, sugar, corn, to name a few.

 

[Fear No Evil]

What prices are increasing?

Food. Utilities such as electricity, water, sewer, TV, internet, garbage collection etc.. Credit card interest rates, bank fees, teller fees, loan origination fees, etc.. Building materials.. wood, metal, supplies..

 

[Fear No Evil]

Cotton, soybean, sugar, corn, to name a few.

Chicken prices are up because of those things as well, Turkey, Bacon, and others.

 

[Moonbeam]

People are saving money.

 

[dank69]

Hmm, that is odd because prices at my local stores have not increased one bit.

 

[BigDH01]

Cotton, soybean, sugar, corn, to name a few.

Odd choices for an Austrian that fundamentally believes that inflation is rooted in money supply and not poor weather leading to poor harvests.

 

[Aegeon]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

You're basically mistaken.

Food prices are going up, but other things such as cars and the like have not. Sometimes the big picture on costs gets a bit complex, such a Redbox giving an option to rent DVDs more cheaply than Blockbuster was offering in the past. Its probably true that local governments are raising fees for various services right now that don't get factored into the picture, but the overall picture is not a real inflationary environment for the moment. If inflation was actually a real concern for the markets, long term US savings bonds would definitely be paying substancially higher interest rates than they are now. (There simply wouldn't be enough investors if virtually everyone viewed them as simply a ripoff as an investment.)

 

[BigDH01]

You're basically mistaken.

Food prices are going up, but other things such as cars and the like have not. Sometimes the big picture on costs gets a bit complex, such a Redbox giving an option to rent DVDs more cheaply than Blockbuster was offering in the past. Its probably true that local governments are raising fees for various services right now that don't get factored into the picture, but the overall picture is not a real inflationary environment for the moment. If inflation was actually a real concern for the markets, long term US savings bonds would definitely be paying substancially higher interest rates than they are now. (There simply wouldn't be enough investors if virtually everyone viewed them as simply a ripoff as an investment.)

And the real reason food prices are going up is not an increase in money supply, it's because yields are off this year...

http://blogs.desmoinesregister.com/...-drops-iowa-corn-harvest-10-bushels-per-acre/

(note, I'm agreeing with you)

 

[RbSX]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

You answered your own question, your dollar sucks dick so imports cost more, and your manufacturing industry is anemic at best so you are prey of other nations.

 

[Anarchist420]

We're not in a period of deflation. The CPI method used now understates inflation. The dollar just reached the lowest since April 95 in comparison to the Yen. The real increase in money supply is probably 4%. I've noticed a lot of prices going up.

 

[Moonbeam]

We're not in a period of deflation. The CPI method used now understates inflation. The dollar just reached the lowest since April 95 in comparison to the Yen. The real increase in money supply is probably 4%. I've noticed a lot of prices going up.

Notice any polyps?

 

[PJABBER]

Looking at fiscal and monetary policies, one would think we're in a period of deflation. And I suppose housing prices are still dropping. But how can we be in a period of deflation when prices of almost everything but housing are increasing, and the dollar itself decreasing? And if we are facing inflation now, why are we continuing to inflate?

You may think that is the question. But it is not.

I see that what we get in the end is wholly dependent on who wins their argument - the bankers or the consultants, the quants, the economists or the anti-économistes.

 

[QuantumPion]

I think we currently have neither deflation nor inflation, because the fed is printing money like crazy to offset the destruction of debt caused by the housing crisis.

 

[PJABBER]

Actually, even having a thread on this topic in ATP&N always reminds me of Albert Einstein.

Einstein dies and goes to heaven only to be informed that his room is not yet ready. "I hope you will not mind waiting in a dormitory. We are very sorry, but it's the best we can do and you will have to share the room with others" he is told by the doorman.

Einstein says that this is no problem at all and that there is no need to make such a great fuss. So the doorman leads him to the dorm. They enter and Albert is introduced to all of the present inhabitants. "See, Here is your first room mate. He has an IQ of 180!"

"Why that's wonderful!" Says Albert. "We can discuss mathematics!"

"And here is your second room mate. His IQ is 150!"

"Why that's wonderful!" Says Albert. "We can discuss physics!"

"And here is your third room mate. His IQ is 100!"

"That's wonderful! We can discuss the latest plays at the theater!"

Just then another man moves out to capture Albert's hand and shake it. "I'm your last room mate and I'm sorry, but my IQ is only 80."

Albert smiles back at him and says, "So, where do you think interest rates are headed?"

 

[piasabird]

The US Govt computations are a bit misleading. They do not count the prices of food and gas and other commodities in the inflation figures. Even if the value of houses is going down it is only helping rich people or more affluent upper middle class, or people with a steady higher than average income. Also if you already have a loan for a house deflation means you are losing money.

Our current monetary policy is trying to compensate for the lack of a money flow into business and high unemployment rates and a reduction in personal funds available as discretionary spending. Also Congress has been noncommittal about the expiring Bush Tax Cuts. This is causing uneasiness in the market and also uncertainty about people's financial future. This is causing people to save as much money as possible because they are uncertain about their future employment.

This means that people are unwilling to purchase certain high-dollar items making the supply of said items to be high and demand for them to be low. So some items are going down in price in an attempt to sell them. This does not mean there is no economy but an economy based more on the lowest common denominator and bare necissity. People still need to eat and they still need clothes, and they still need a car to go to work. Often the sell of beer and cheap alcohol goes up as depression sets in. So some stores like Wall-mart actually thrive in a slower economy because more people have discretionary money.

When the US Govt borrows money it lowers the value of the dollar so our money also buys less. What the Govt has tried to do concerning health care is also driving up the cost of health care for everyone. This just adds to the misery of the people.

 

[juiio]

Both.

In terms of raw money supply, we've had inflation recently:

However, credit is contracting:

The system can't sustain credit contraction. You can probably theorize what steps will be taken to fight off the effects of credit contraction.

 

[Aegeon]

Both.

In terms of raw money supply, we've had inflation recently:

The blunt reality is the assumption that increased money supply always leads to inflation is simply wrong.

Again, if significant inflation was a real concern for the markets, it would simply not be possible for current 5 Year Treasury note yields to be about 1.1 percent, and ten year treasury notes being sold with a yield of 2.39 percent.
http://www.businessweek.com/news/20...s-fall-to-record-lows-on-fed-buy-outlook.html

What a yield of 1.1 percent means is that if inflation is significantly higher than this for the next 5, you're effectively stuck losing money on your treasury note purchase which is an obviously undesirable position to be in.

 

[juiio]

The blunt reality is the assumption that increased money supply always leads to inflation is simply wrong.

If you kept reading my post, you'd see that I said credit is contracting. If you look at the numbers, the contraction of credit currently dwarfs the expansion of money supply.

 

[PJABBER]

I blame it all on Bernanke. Columbia Business School Dean Glenn Hubbard saw it coming.

 

[bamacre]

Odd choices for an Austrian that fundamentally believes that inflation is rooted in money supply and not poor weather leading to poor harvests.

I honestly had no idea about the "poor harvests." So perhaps, imperfect examples.

But how can we be dealing with deflation when the dollar is falling and gold and silver are going up? BTW, I'm using the modern definitions of inflation and deflation (I am fully aware of the "older" definitions). So, we can agree (here) that inflation is rising prices and deflation is falling prices. Do we have falling prices outside of the housing market?

 

[bamacre]

I blame it all on Bernanke. Columbia Business School Dean Glenn Hubbard saw it coming.

No Greenspan?

 

[bamacre]

The blunt reality is the assumption that increased money supply always leads to inflation is simply wrong.

Is it? Now, we can all admit that it doesn't always lead to inflation across the board (price increases everywhere). But that doesn't make the statement less true.