Inflation skyrockets to highest level since 1990 -CNN

[Dissipate]

By the way, gold is skyrocketing as we speak. Good thing I have a 100% reserve gold backed savings account, inflation is almost meaningless to me at this point. It is going to be fun watching all the sheeple bitch and moan about this inflation though. GoldMoney

 

[43st]

Originally posted by: Dissipate
By the way, gold is skyrocketing as we speak. Good thing I have a 100% reserve gold backed savings account, inflation is almost meaningless to me at this point. It is going to be fun watching all the sheeple bitch and moan about this inflation though. GoldMoney

Yup... and we can all watch you pay for a roll of toilet paper with your "valuable" gold bars.

 

[Dissipate]

Originally posted by: Thera

Originally posted by: Dissipate
By the way, gold is skyrocketing as we speak. Good thing I have a 100% reserve gold backed savings account, inflation is almost meaningless to me at this point. It is going to be fun watching all the sheeple bitch and moan about this inflation though. GoldMoney

Yup... and we can all watch you pay for a roll of toilet paper with your "valuable" gold bars.

Unfortunately I do not have enough to cash out for a gold bar. I can take delivery of my gold via kitco.com though. I can also sell my gold at the spot rate at any time and have the funds deposited into my checking account.

 

[3chordcharlie]

Originally posted by: Dissipate

Originally posted by: 3chordcharlie

Originally posted by: Dissipate

The Fed's Grasping Invisible Hand

by George F. Smith

The only touble is that isn't the current policy; look up the contribution of seignorage to the government budget; it's miniscule.

We already went over this before. The banks magnify by a factor of 10 any seignorage. Text

But that banks, not the government receive any benefit from this.

 

[3chordcharlie]

Originally posted by: Thump553
Things must have changed since I got my economics degree a while back. I've never heard any theory that makes a distinction between "price increases" and inflation. Price increases are what cause inflation. Prices increasing faster than income IS real inflation.

Apparently they have - what you are talking about is 'price change'. Inflation is devaluation of currency; you can have inflation and falling nominal prices at the same time, if the real price is falling fast enough.

I am facing very real inflation, where the costs of what I purchase are increasing much more rapidly than my wages (which, in fact, are declining in the Bush years). Your television example is a good point to indicate what I think is wrong with the over-emphasis on the general inflation index (the so-called CPI). Most people (except hobbists) buy TVs only when they need a new one-every 5-15 years. I could care less if TVs doubled in price tomorrow-I have no intention of buying one any time in the foreseeable future and if I was, and the price got prohibitive, I just wouldn't. Price increases in the "marketbasket" of what a typical consumer does buy are the only true indication of inflation that is relevant to all of us.

No, they are the only indication of price change, once they are corrected for any inflation (or, rarely if ever, defaltion) of currency value over the reference time period. Inflation and price increases often occur at the same time, but they are not intrinsically linked. In fact pure inflation simply devalues debt and savings; income should increase to compensate after a frictional period of 'stickiness' ("sticky" is actually a technical term referring to the tendency of prices and/or wages to 'stick' at current levels through short-term fluctuations in what should be their equilibrium value).

The current amount of damage to the economy has been masked in large part by the cheaper interest rates engineered by the Federal Reserve. A huge portion of our economy is presently funded by cash generated by mortgage refinances and home equity loans. Thirty years ago, nearly all homeowners would have their house paid off in full when they reached age 60 or so. The exact opposite is true now-most people in their fifties and sixties owe much more money on their houses now than when they bought them. We have already passed the bottom of the interest rates, which could not be driven any lower. At this delicate point, even a slowdown in home value increase (much less a downturn) will result in economic diaster.

I see the US on the cusp of a renewed and troublesome bout of inflation. If Bush destablizes things enough so that the US dollar is no longer treated as the world's basic currency (replaced by the eurodollar or something else) then the American economy will undergo a serious and fundamental decline. We will become the new Britain, post WWII.

I don't disagree with the potential for currency destabilization worldwide right now; things aren't awful but they aren't good, either.

I just want to make sure you talk about 'inflation' when you mean inflation, and 'price changes' when you mean price changes.

Increases in the price of gas/oil/etc which are well above and beyond the market inflation rate are definitely price changes, not inflation.

 

[Dissipate]

Originally posted by: 3chordcharlie

Originally posted by: Dissipate

Originally posted by: 3chordcharlie

Originally posted by: Dissipate

The Fed's Grasping Invisible Hand

by George F. Smith

The only touble is that isn't the current policy; look up the contribution of seignorage to the government budget; it's miniscule.

We already went over this before. The banks magnify by a factor of 10 any seignorage. Text

But that banks, not the government receive any benefit from this.

Are you kidding me?

Plus let's not forget all the political "donations" the banks make.

 

[3chordcharlie]

Originally posted by: Dissipate
Are you kidding me?

Plus let's not forget all the political "donations" the banks make.

I'm afraid you're out in the cold on this one

While it is possible, and occurs frequently, most western nations currently have little or no inflation directly due to the government printing money.

They may have inflation due to federal reserve type bodies attempting to use lending rates to stabilize the economy (and you're welcome to argue that this is inapproriate) but government revenue from printing money is inconsequential in western nations at this time.

 

[Dissipate]

Originally posted by: 3chordcharlie

Originally posted by: Dissipate
Are you kidding me?

Plus let's not forget all the political "donations" the banks make.

I'm afraid you're out in the cold on this one

While it is possible, and occurs frequently, most western nations currently have little or no inflation directly due to the government printing money.

They may have inflation due to federal reserve type bodies attempting to use lending rates to stabilize the economy (and you're welcome to argue that this is inapproriate) but government revenue from printing money is inconsequential in western nations at this time.

Inconsequential?? I do not think so. It is the source of all inflation.

 

[KMurphy]

Originally posted by: GoPackGo

Originally posted by: Vic

Originally posted by: b0mbrman
Uh...people with lots of money will be hurt the most...Isn't that totally intuitive?

People with lots of debt will be happy...

You are correct, it is investors who will be hurt the most, although inflation could drive up interest rates and that could hurt debtors with adjustable rate loans (i.e. credit cards). Remains to be seen if this isn't just a brief spike though, as the increase in the core was minimal.

Fuel prices are starting to come down.

Gas is down to under $1.80 again...supplies are good.

Now that the election is over and if things in Iraq could get stablized maybe the prices will wall further.

Over-priced fuel is bad for everybody, even for the oil companies believe it or not.

Over-priced fuel (oil) is not bad for the large integrated oil companies. Upstream (exploration and production) benefit significantly from higher oil prices with the PSA's (production sharing agreements) they have with host oil producing nations. Upstream accounts for up to %75 of net profit. Thier downstream operations (refining & supply, chemicals and marketing) differ with oil price fluctuations. Refining profits more from expensive gas, while chemicals profits more from cheap gas.

The real impact of higher priced oil is that while great for producing nations in the short term; it really starts to make non-conventional energy sources more attractive = very bad for them. That is why OPEC has such tight control over oil production and would rather target a price that is not too high or low. Maximze profits and minimize alternative source developement.

The reason oil is high right now is production infrastructure was over built in the late 70's and early 80's. Demand has now caught up with wordwide production capacity. Investors are shy to begin devloping new production infrastructure due to the extremely long time it takes for projects to come on stream. Also, there are fewer places to develop; not necessarily a shortage of oil.

Oil prices will only drop significantly if there is a competing alternative on the horizon, or new production infrastructure is brought online quickly & new geographical locations are opened for development. Neither will happen any time soon. Host countries are being stingy with PSA's and lack the technology/expertise to extract oil from deep water or lack pipeline networks to transport it over land.

As soon as any viable alternative energy source looks attractive at $40-$50 dollar oil, it will be adjusted down to $30-$40 (neglecting government credits/stipends). That is why coal liquification, shale oil extraction and tar sands projects, as well as mass produceable renewable sources are not significant energy producers today.

 

[3chordcharlie]

Originally posted by: Dissipate

Originally posted by: 3chordcharlie

Originally posted by: Dissipate
Are you kidding me?

Plus let's not forget all the political "donations" the banks make.

I'm afraid you're out in the cold on this one

While it is possible, and occurs frequently, most western nations currently have little or no inflation directly due to the government printing money.

They may have inflation due to federal reserve type bodies attempting to use lending rates to stabilize the economy (and you're welcome to argue that this is inapproriate) but government revenue from printing money is inconsequential in western nations at this time.

Inconsequential?? I do not think so. It is the source of all inflation.

No, it is the source of onflation caused by an increase in the strict money supply (not any caused by veloicity changes, or increases in less liquid money, which are not controlled by the fed).

Even if it were the source of 'all inflation' it would still be inconsequential, at least since sometime in the 90's. Inflation is currently still quite low, and prevents appreciating the real value of held debt, which is more dangerous to the stability of the economy than is a similarly small erosion of savings and debt.

If you want to call it an insurance scheme in which all net-savers pay premiums to reduce the number of destabilizing bankruptcies in the economy, you're welcome to attack it from that angle. But the one you're taking at the moment is not very convincing.

 

[Dissipate]

Originally posted by: 3chordcharlie

Originally posted by: Dissipate

Originally posted by: 3chordcharlie

Originally posted by: Dissipate
Are you kidding me?

Plus let's not forget all the political "donations" the banks make.

I'm afraid you're out in the cold on this one

While it is possible, and occurs frequently, most western nations currently have little or no inflation directly due to the government printing money.

They may have inflation due to federal reserve type bodies attempting to use lending rates to stabilize the economy (and you're welcome to argue that this is inapproriate) but government revenue from printing money is inconsequential in western nations at this time.

Inconsequential?? I do not think so. It is the source of all inflation.

No, it is the source of onflation caused by an increase in the strict money supply (not any caused by veloicity changes, or increases in less liquid money, which are not controlled by the fed).

Even if it were the source of 'all inflation' it would still be inconsequential, at least since sometime in the 90's. Inflation is currently still quite low, and prevents appreciating the real value of held debt, which is more dangerous to the stability of the economy than is a similarly small erosion of savings and debt.

If you want to call it an insurance scheme in which all net-savers pay premiums to reduce the number of destabilizing bankruptcies in the economy, you're welcome to attack it from that angle. But the one you're taking at the moment is not very convincing.

Pah-lese. Now you are trying to blame it on changes in the velocity of money?

While economists disagree about many issues, there is near unanimity about this one: continuing inflation occurs when the rate of growth of the money supply consistently exceeds the growth rate of output.

In another area:

The gap between the average growth rate of money and the average growth rate of output determines average inflation.3

Then in a footnote:

To be complete, inflation depends on the growth rate of the "velocity" of money-the frequency with which money is turned over-as well as on the gap between the average growth rates of money and output. For the United States, the average growth rate of velocity (for the M2 measure of money) has been zero over the past 40 years.

Laurence Ball- Laurence Ball is an assistant professor of economics at Princeton University and a visiting scholar in the Research Department of the Philidelphia Fed.

From What Cuases Inflation? Business Review 1993

 

[3chordcharlie]

You're mistaking my argument - I was clarifying what portion of inflation the actual supply of money causes; I wasn't making an argument that velocity currently contributes to inflation, but rather that your definition was incomplete. Note that M2 includes money not directly accounted for in paper currency. Also note that all the money in the system (essentially) has run through the reserve system, so a 1% increase in the amount of paper money does not 'get multiplied by 10' (implying a 10% increase in the money supply. It gets multiplied by 10 (or whatever the reserve system converges to) resulting in a 1% increase in the effective money supply.

The fact remains that inflation is STILL at a very low level, so it can't really be blamed for much at the moment.

 

[Dissipate]

Originally posted by: 3chordcharlie
You're mistaking my argument - I was clarifying what portion of inflation the actual supply of money causes; I wasn't making an argument that velocity currently contributes to inflation, but rather that your definition was incomplete. Note that M2 includes money not directly accounted for in paper currency. Also note that all the money in the system (essentially) has run through the reserve system, so a 1% increase in the amount of paper money does not 'get multiplied by 10' (implying a 10% increase in the money supply. It gets multiplied by 10 (or whatever the reserve system converges to) resulting in a 1% increase in the effective money supply.

The fact remains that inflation is STILL at a very low level, so it can't really be blamed for much at the moment.

Regardless of how "low" it is, and I am assuming you are using government statistics to make that claim, it is still a tax and a transfer of wealth from people to the banks and the government. In addition, it causes economic distortions.

 

[3chordcharlie]

Originally posted by: Dissipate
Regardless of how "low" it is, and I am assuming you are using government statistics to make that claim, it is still a tax and a transfer of wealth from people to the banks and the government. In addition, it causes economic distortions.

Deflation and inflation of gold used to cause economic distortions too. Some of them were severe (remember - you guys had a very divisive election that boiled down to not much more than the currency issue). Can you imagine what would have happened under the massive population increase of the baby boom under a gold standard? It would have been disastrous. At least now we can pick and choose which distortions to accept with greater efficacy than under a mined currency scheme

Don't worry, the next time a recession hits I promise not to advocate public make-work projects financed by debt; the Keynesian multiplier is well and truly out of my system (it lasted about 2 minutes of thought just to make sure it was as ridiculous as it sounded, during the same class it was taught), and hopefully out of the government's system, too.

 

[Dissipate]

Originally posted by: 3chordcharlie

Originally posted by: Dissipate
Regardless of how "low" it is, and I am assuming you are using government statistics to make that claim, it is still a tax and a transfer of wealth from people to the banks and the government. In addition, it causes economic distortions.

Deflation and inflation of gold used to cause economic distortions too. Some of them were severe (remember - you guys had a very divisive election that boiled down to not much more than the currency issue). Can you imagine what would have happened under the massive population increase of the baby boom under a gold standard? It would have been disastrous. At least now we can pick and choose which distortions to accept with greater efficacy than under a mined currency scheme

Don't worry, the next time a recession hits I promise not to advocate public make-work projects financed by debt; the Keynesian multiplier is well and truly out of my system (it lasted about 2 minutes of thought just to make sure it was as ridiculous as it sounded, during the same class it was taught), and hopefully out of the government's system, too.

I'll take gold over government paper tokens any day of the week. Here is a revisionist account of money and banking in the U.S.

 

[Dissipate]

Once again the Mises Institute puts the entire book online.

History of Money and Banking

Read the introduction of that book especially. It explains what I have been talking about this whole time: the difference between a priori theories to interpret history and the empirical positivist approach found in the mainstream schools.

 

[3chordcharlie]

Well that's 500 pages of reading to find out if the author places any weight on the undisputable fact that gold supply caused destabilizing deflation before the gold rush, and creditor-damaging inflation after.

Reading 10 pages in the pre-war period already shows that the author confuses ill-advised monetary policy (based on poor understanding of how money works; understandable at the time) with proof that a fiat currency system is inherently unmanageable.

 

[Dissipate]

Originally posted by: 3chordcharlie
Well that's 500 pages of reading to find out if the author places any weight on the undisputable fact that gold supply caused destabilizing deflation before the gold rush, and creditor-damaging inflation after.

Reading 10 pages in the pre-war period already shows that the author confuses ill-advised monetary policy (based on poor understanding of how money works; understandable at the time) with proof that a fiat currency system is inherently unmanageable.

Fiat currency is inherently unmanageable. Currency is inherently unmanageable just like every other industry is. You cannot manage something that has millions of individual actors influencing things at the same time, no matter how much data you think you might have.

Also, you still have not answered my question which I posed in the PM: If people reject fiat on their own accord will economic disaster ensue? Also, I gave you a plausible scenario in the future that will cause people to reject fiat.

 

[Dissipate]

BTW, gold is now over $445 an ounce.

 

[3chordcharlie]

Originally posted by: Dissipate
BTW, gold is now over $445 an ounce.

That's not good for your case that gold is stable.

as for the PM, I'm still pretending to do homework, but permanent economic disaster is unlikely; people can work under almost any system.

Would the destabilizing effects of currency collapse be the same as in every other case of currency collapse (usually hyperinflation)? Absolutely.

In the short term, the effects would be devastating.

 

[GrGr]

I have posted this article before but it is a good and accurate take on the situation I think:

Rest of world gets sick of propping up Bush's deficit

January 5, 2004
SMH Australia


The US economy is reflating fast. Too fast? Much depends on Asia, John Garnaut writes.

The global flirtation with deflation is already last year's story. It has been washed away by torrents of money that the US Federal Reserve and the White House have let loose on the world.

The US central bank has never been so committed to keeping the price of money low. Few American presidents have been so profligate. With the help of Wall Street's financial markets, which are linking savers with spenders more efficiently than ever, their monetary and fiscal policies have reflated the world's economies.

Fed Chairman Alan Greenspan and President Bush kick-started the US economy to have it roaring at an annualised 8.2 per cent in the September quarter. They also helped rescue East Asia from years of deflation, via a complex monetary and currency reaction.

Higher prices are certain to flow through import prices to Australia, mitigated in the short term by the strength of the seemingly irrepressible Australian dollar.

This supports a long-term inflation argument put last month by the Reserve Bank governor, Ian Macfarlane, when justifying why he pushed rates up to 5.25 per cent.

Japan's annual inflation rate turned positive in October for the first time since 1998.

China, accused of exporting deflation to the rest of the world, has just seen inflation turn positive and then shoot to 3 per cent in November, the highest since 1997.

While US monthly data shows inflation remaining low, the market expects it to pick up soon. Expectations can be measured by the gap between yields on US 10-year nominal Treasury bonds and inflation-indexed Treasuries. It has roughly doubled to 2.65 per cent since early 2002.

Similar "reflationary" trends are emerging in Korea, Taiwan, Hong Kong and Malaysia.

But if 2003 goes down as the year Greenspan and Bush saved the world from deflation, then the subsequent years may record how America was laid low by the cure.

The extreme stimulus policies have been so successful that economists and market players expect they may soon be dancing to an unloved retro tune: seventies-style accelerating inflation.

Harvinder Kalirai, State Street Global Market's Asia Pacific strategist, says it is difficult to underestimate what ultra-low 1 per cent interest rates will do to an American economy which he calculates is already growing at capacity.

US interest rates are now further below the American GDP growth rate than at any time since the 1970s. The "output gap" that measures the difference between the economy's production and potential has probably already closed.

By the end of next year, Kalirai predicts the effects of a falling US dollar on US import prices, rising prices transmitted through Chinese and Japanese exports, and a tight US labour market (despite rising unemployment) will translate into a US inflation reading above 3 per cent.

"The Fed's goal is not to avoid deflation but to create inflation" says Kalirai.

"The scope for upward adjustments for US rates is quite dramatic."

Economists like Kalirai say the US dollar's fall was triggered by the extreme monetary and fiscal policies of Greenspan and Bush, which lowered the purchasing power of the US dollar.

Their liquidity glut is now being transmitted to the rest of the world by frenetic central bank buying in foreign exchange dealing rooms.

Since the March quarter of 2002, when US interest rates slipped below GDP growth rates for the first time (and the greenback began its tumble), East Asian central bankers have purchased hundreds of billions of US dollars to stop their own currencies from appreciating. They have parked their American dollars in US Treasuries, which Bush has been issuing to finance his $US500 billion ($666 billion) deficit.

The People's Bank of China, the Bank of Japan and other East Asian central banks have literally been printing money to finance their US Treasuries purchases. Their exporters and foreign investment recipients have swapped excess US dollars for newly printed renminbi and yen.

This process of absorbing balance of payments surpluses has left both China and Japan awash with cash. The rate of new money supply has almost doubled in both countries, lifting China from deflation caused by excess supply and Japan from deflation caused by weak demand.

The American liquidity glut has led the Bank of Japan to impose the monetary policies that economists have been advocating for years, perhaps by accident. Growth and inflation are curing what had seemed an intractable bad debt problem for its banks.

Conversely, the buying of US Treasuries by East Asian central banks has slowed the slide in the US dollar. It has also maintained prices for US Treasuries, which has kept American long-term interest rates low.

So far, so good.

But some, such as Australia's top econocrat, Treasury Secretary Ken Henry, believes a dramatic crunch could come when the central banks of China and Japan decide to stop paying the bills for Greenspan and Bush.

In June, Henry said America's budget and current account deficits amounted to a "substantial risk for international financial stability".

If, or when, the rest of the world decides to stop funnelling the $US2 billion per working day that the US needs to pay for its spending, Henry says we're all in for "an economic adjustment of major proportions".

American interest rates would skyrocket and the greenback would drop like a stone, for starters, which is why Henry argued so hard for the Reserve Bank board to drop interest rates pre-emptively this year.

One of Henry's colleagues on the Reserve Bank board, Warwick McKibbin, is not concerned about the quantum of America's record 5 per cent, $US500 billion current account deficit, but he is very worried about its composition.

An ANU economist and professorial fellow at the Lowy Institute, Professor McKibbin is doing the sums on the incomprehensibly large $US7000 billion in tax cuts and security spending - 10 times Australia's annual economic output - that has been lumped on to America's 10-year deficit projection since Bush's election three years ago.

His modelling concludes that the deficit "explosion" would leave the US economy "unambiguously worse off in the medium and long term".

"I think that the story for the next couple of years will be how the world economy will adjust to that sort of expansion in the US," says McKibbin.

He is now modelling the consequences of such a move and thinks they could be dramatic.

McKibbin says the record US current account deficit will lower world growth by diverting investment spending to the US - until the massive fiscal component scares investors away.

A financial system shake-out in the US could wound the American economy but may not be all detrimental to the rest of the world.

American consumers will be forced to finance their own public and private debts, causing US interest rates to rise and investment to fall.

"Rather than financing the fiscal deficits from willing foreigners, the funds are now drawn from within the US economy through higher interest rates, reducing private investment," says McKibbin.

He estimates that the US fiscal deficit will depress American equity markets and lop 6 per cent from GDP within 10 years.

On the plus side, his modelling shows investor "flight" will boost growth in the rest of the world because their money would be redirected.

Australia's fund managers would redirect the disproportionately large investments they send to US markets and Australia would benefit as other countries redirected their investments here.

Seven months on, it seems Ken Henry's major adjustment has begun in earnest. There are early signs that the rest of the world is no longer happy to fund American spending.

State Street's portfolio flow indicators suggests the quality of capital inflows into the US is rapidly declining. Equity inflows have increased into most world markets in the past two months, except for the US.

Total investment flows to the US are declining, compounding the US dollar's two year fall, which McKibbin attributes to investor concerns about country risk.

"That happens in some smaller countries but is quite unusual in the US - at least since the second world war," says McKibbin.

There has been dissension on the Bank of Japan board about whether to extend its US dollar-buying program.

And if Chinese inflation accelerates too far, the People's Bank of China could choose to loosen its currency peg and slow its purchases of US dollars.

Only faith from the East Asian central banks - or perhaps a continuation of the American economy's phenomenal productivity rates - may stand between the US and a currency fall, interest rate spike, investment slump, equity market fall and sub-standard economic growth.

Meanwhile, the Bush Administration continues to lobby China to appreciate its currency.

"The US better be careful about getting what it wished for," says Kalirai. Economic officials in Australia and across the world are practising their crash positions.

 

[Alistar7]

This is not due to Bush's horrible fiscal policy, place the blame on the Fed and Greenspan.

 

[conjur]

Originally posted by: Alistar7
This is not due to Bush's horrible fiscal policy, place the blame on the Fed and Greenspan.

At least you admit Bush's fiscal policy is horrible. And, blaming Greenspan for Bush's tax cuts is like blaming a McDonald's store manager for corporate decisions.

 

[Alistar7]

Granted that is my opinion, it's not like I am agreeing with something that can be proven to be factual. What would be remarkable is if you would stop ignoring facts completely conjur.

 

[conjur]

Uh...what facts?