May jobs #'s are in +280k, 2.3% increase in hrly wage uemp 5.5

[fskimospy]

So you simply do not have the capability of doing it (or you can't find any data to support your theory, I'll assume the former until you disprove it). That explains why you don't understand my simplified data. I can only debate a dataless moron so long. Please come back when you have the ability to post data.

You are the personification of the Dunning-Krueger effect in this circumstance. You're making ridiculous demands for data that you would know were ridiculous if you had a better understanding of what compiling that data would mean. This is what competent analysis requires.

You're getting angry because you've been exposed repeatedly for citing data you don't understand and studies you don't understand. When called out on it you ignore your mistakes. This is not the sign of someone discussing an issue with understanding or good faith.

 

[chucky2]

LOL at you guys trying to converse with Nick...

 

[OverVolt]

LOL at you guys trying to converse with Nick...

Its like talking to a brick wall. Its kind of like a monologue because the only person thinking is not him.

 

[dullard]

Yeah, for one your data is just all off. For instance, you reference Table 26 in the BLS PDF, but incorrectly state that the CPI-U was 9.56% for 1983, when Table 26 actually says the CPI-U (average of 1983) was 3.2%. Your St. Louis Fed link (output to PDF and dividing by 12) gives me an average of 9.09% for the Fed Funds rate 1983, while you state it was 2.56%. Here is a link to my Excel output from St. Louis Fed.

Sorry, I accidently transposed the labels of the data when I posted them into my post. Thanks for pointing that error out. I have corrected it in my post above.

My point remains the same. CPI and interest rates tend to go hand-in-hand. CPI and interest rates were both at local minimums in Dec 1976. CPI and interest rates were both at or near local maximums in Mar 1980. The bulk of Volker's term was lowering interest rates which went with lowered CPI.

My claim vs eskimospy's claim:
My claim in as few words as I can make it: CPI and inflation rates are positively correlated (when one is high the other is high; when one is low the other is low). Eskimospy's claim is that they are negatively correlated (when one is high the other is low). From post #13 in this thread:

Second, you have the relationship between interest rates and inflation backwards. Higher interest rates make inflation LOWER, not higher. A fed rate of around 4% would cause a catastrophic deflationary spiral.

My challenge to Anandtech P&N:
Many central banks are strongly considering increasing inflation rates. I don't have a perfect crystal ball for forcasting the Fed. But I suspect that the US Fed wants to raise rates before the next election is in full swing. Thus interest rates will likely start to increase this winter and then pause during the summer/fall of 2016 and then maybe start increasing again after the election is over. I also suspect that other coutries will start raising rates as well (without the election hiatis). All of these increases will likely be quite slight and timid. If that occurs, three things can happen:
1) CPI can increase, like I feel it would (although the change would be timid if interest rate changes are timid).
2) CPI can be roughly the same.
3) CPI can decrease, putting us at or near deflation territory (as eskimospy claims).

Lets find out who is correct. How long should we wait? Lets go 3 to 5 years out and observe during that time period. 3 to 5 years from now are inflation and CPI both up from today's values? Or is one up and one down? Lets have actual data show if I am correct or if eskimospy is correct.

Challenge Basis:
Current US CPI-U (Seasonally adjusted for Apr 2015, from Table A of http://www.bls.gov/cpi/cpid1504.pdf): 0.1%.
Current US Federal Funds Rate average for Apr 2015 (https://research.stlouisfed.org/fred2/series/FEDFUNDS/downloaddata): 0.12%.

Challenge Verification:
Approximately annually I will post the current seasonally adjusted CPI-U from the BLS website and the current federal funds rate from the St. Louis Fed website. If the websites or website links change, I will post the same data as best as I can from a similar website. The latest revisions, if any, to that data will be used.

I claim that in the 3 to 5 year period from now that if the US Federal Funds Rate would be higher than that basis, then US CPI-U will also be higher. Eskimospy's first claim said we'd be in deflation if the Federal Funds rate goes higher.

Potential Challenge Extension:
The US Fed could sit on interest rates during that time period. If so, I would be willing to extend the length of time for the challenge to be 3 to 5 years after the US Fed finally does raise the federal funds rates.

 

[dullard]

Wait, what? How does the second disprove the first? Are you seriously playing a semantics game here?

Yes, but it is a very important sematics game. The absolute value of a variable is fundamentally different from the change in value of that variable.

Also you still haven't addressed your, to put it nicely, extremely specious claim that lowering the fed funds target rate (which is different from the effective fed funds rate in the St. Louis data, btw) leads to lower inflation.

I have addressed my "specious" claim in this thread and other threads. But the basic version of it is this: virtually all companies have debt. Debt comes at a cost. Increase the cost, through increasing the interest that they pay, and companies have two options:

1) Pass on the cost to the customer if they can (higher prices directly from this higher interest rate).

or

2) Eat the cost increase which over time leads to less supply. With less profit, companies produce less or get out of that area entirely. Lower supply leads to higher prices (higher prices indirectly from this higher interest rate).

When interest rates are lowered, that is lower costs to businesses which tends to lead to more supply. They may be drawn in buy the larger profit margins. Or, they may take the low rates to expand their operations. Either way supply tends to increase with lower interest rates.

Looking at this only from the demand side (higher rates MAY suppress demand and lower rates MAY stimulate higher demand) and ignoring the supply side (higher rates usually lead to lower supply and lower rates usually lead to more supply) is a fundamentally flawed analysis. Not only does that analysis ignore the supply half of the picture. But it focusses on the least reliable demand half of the picture. Things like massive consumer debt and recessions often override this stimulation of low interest rates since the customer can only buy with lower rates if they have a job and not too much other debt. And irrational exuberance / poor education often leads to customers ignoring the additional cost of higher interest rates. Thus they may not even curtail demand.

 

[dank69]

...

My claim vs eskimospy's claim:
My claim in as few words as I can make it: CPI and inflation rates are positively correlated (when one is high the other is high; when one is low the other is low). Eskimospy's claim is that they are negatively correlated (when one is high the other is low). From post #13 in this thread:


...

I think this is where you are getting confused. That is not his claim as I understand it. The claim is that raising interest rates causes inflation to slow down. There is a huge difference between saying that and saying rates are high when inflation is low.

 

[fskimospy]

Sorry, I accidently transposed the labels of the data when I posted them into my post. Thanks for pointing that error out. I have corrected it in my post above.

My point remains the same. CPI and interest rates tend to go hand-in-hand. CPI and interest rates were both at local minimums in Dec 1976. CPI and interest rates were both at or near local maximums in Mar 1980. The bulk of Volker's term was lowering interest rates which went with lowered CPI.

My claim vs eskimospy's claim:
My claim in as few words as I can make it: CPI and inflation rates are positively correlated (when one is high the other is high; when one is low the other is low). Eskimospy's claim is that they are negatively correlated (when one is high the other is low). From post #13 in this thread:

Incorrect. I said an increase in interest rates would cause a decrease in inflation. That in no way requires that when interest rates are high that inflation will be low. You attempted to claim that saying 'higher rates will make inflation lower' is a statement of absolute value, when it is clearly a statement of relative value. Either you failed to understand what I wrote, which is fine, or you're trying to escape from a failed argument, which is stupid.

My challenge to Anandtech P&N:
Many central banks are strongly considering increasing inflation rates. I don't have a perfect crystal ball for forcasting the Fed. But I suspect that the US Fed wants to raise rates before the next election is in full swing. Thus interest rates will likely start to increase this winter and then pause during the summer/fall of 2016 and then maybe start increasing again after the election is over. I also suspect that other coutries will start raising rates as well (without the election hiatis). All of these increases will likely be quite slight and timid. If that occurs, three things can happen:
1) CPI can increase, like I feel it would (although the change would be timid if interest rate changes are timid).
2) CPI can be roughly the same.
3) CPI can decrease, putting us at or near deflation territory (as eskimospy claims).

This is, yet again, a fundamental misunderstanding of inflation. Increasing interest rates causes inflation to decrease, all other things being equal. Simply seeing CPI go up or down wouldn't prove anything unless you were actually willing to analyze the other inputs into it.

Lets find out who is correct. How long should we wait? Lets go 3 to 5 years out and observe during that time period. 3 to 5 years from now are inflation and CPI both up from today's values? Or is one up and one down? Lets have actual data show if I am correct or if eskimospy is correct.

Challenge Basis:
Current US CPI-U (Seasonally adjusted for Apr 2015, from Table A of http://www.bls.gov/cpi/cpid1504.pdf): 0.1%.
Current US Federal Funds Rate average for Apr 2015 (https://research.stlouisfed.org/fred2/series/FEDFUNDS/downloaddata): 0.12%.

Challenge Verification:
Approximately annually I will post the current seasonally adjusted CPI-U from the BLS website and the current federal funds rate from the St. Louis Fed website. If the websites or website links change, I will post the same data as best as I can from a similar website. The latest revisions, if any, to that data will be used.

I claim that in the 3 to 5 year period from now that if the US Federal Funds Rate would be higher than that basis, then US CPI-U will also be higher. Eskimospy's first claim said we'd be in deflation if the Federal Funds rate goes higher.

This is false. I said we would be in deflation if we increased it to ~4% as you suggested. Please read my posts more carefully in the future.

Regardless, your entire challenge is based on your lack of understanding of how inflation works. I will posit you a real challenge: a time lagged, inverse relationship between a change in nominal interest rates and inflation will remain after controlling for fiscal policy, other non-interest rate monetary policy, international economic conditions, technological disruption, and short term economic expectations.

How about that one? By the way, since you thought it was no trouble for me to assemble such a dataset before, clearly you think it would be no trouble for you to do the same, so no complaints. Hopefully now you realize what an actually competent analysis requires. (and honestly, this is still a very rudimentary one)

 

[dullard]

I think this is where you are getting confused. That is not his claim as I understand it. The claim is that raising interest rates causes inflation to slow down. There is a huge difference between saying that and saying rates are high when inflation is low.

Eskimospy can correct his mistake in post #13 and I'll shut up.

 

[dullard]

I will posit you a real challenge: a time lagged, inverse relationship between a change in nominal interest rates and inflation will remain after controlling for fiscal policy, other non-interest rate monetary policy, international economic conditions, technological disruption, and short term economic expectations.

How about that one? By the way, since you thought it was no trouble for me to assemble such a dataset before, clearly you think it would be no trouble for you to do the same, so no complaints. Hopefully now you realize what an actually competent analysis requires. (and honestly, this is still a very rudimentary one)

Sure. I've answered basically every request of yours. So, it is your turn next. After you post the data for all of my requests, I'll do so for all of yours.

 

[dank69]

Eskimospy can correct his mistake in post #13 and I'll shut up.

So he should change "higher interest rates make inflation LOWER, not higher" to "higher interest rates make inflation LOWER, not higher"?

 

[ivwshane]

Eskimospy can correct his mistake in post #13 and I'll shut up.

What mistake is that? The one where you wish to change the context of his post?

 

[fskimospy]

Eskimospy can correct his mistake in post #13 and I'll shut up.

It's not a mistake, in fact you appear to be literally the only person who has interpreted it this way. Wouldn't that make it more likely that you are the one who has made the mistake?

I don't care if you admit it or not, but it would be helpful if you'd stop trying to press your wrong understanding of it on the rest of us.

 

[dullard]

I don't care if you admit it or not, but it would be helpful if you'd stop trying to press your wrong understanding of it on the rest of us.

Post your data and I'll post mine. Heck, we can write a good paper about it. I could use another.

Point blank: If interest rates rise in the next few years, what do you think will happen to CPI?
Try 0.5%, 1%, 2%, and 4% for possible federal fund rates. But you can suggest your own.

 

[fskimospy]

Sure. I've answered basically every request of yours. So, it is your turn next. After you post the data for all of my requests, I'll do so for all of yours.

Like I said, the data for your requests would lead us to a fundamentally wrong analysis of inflation. I have no interest in doing that. You would fail a stats 101 class if you attempted to analyze a relationship while not controlling for known confounding relationships.

If you're interested in having a 'bet' of sorts I'm more than willing to do it, based on the framework I put forth. Honestly, this is what you should want as well.

 

[fskimospy]

Point blank: If interest rates rise in the next year or so, what do you think will happen to CPI?

That strongly depends on performance of the US economy, wage growth, international growth, etc, etc. If all of those were to remain identical, then CPI would decrease. They will not remain identical though, so you need to control for them. That you're even asking it like that tells me that you still don't get it.

This is the whole point of I'm trying to get you to grasp.

 

[dullard]

That strongly depends on performance of the US economy, wage growth, international growth, etc, etc. If all of those were to remain identical, then CPI would decrease. They will not remain identical though, so you need to control for them. That you're even asking it like that tells me that you still don't get it.

This is the whole point of I'm trying to get you to grasp.

You gave a very definitive answer in post #13 (fed rates of 4% would cause deflationary spiral). Are you backing out now?

 

[fskimospy]

You gave a very definitive answer in post #13. Are you backing out now?

I gave a very definitive answer to what would happen if the fed raised rates by 375 basis points in the next 6 months, because that kind of contractionary monetary policy in current conditions would be absolutely insane. It's also never, ever going to happen.

I've made my position on this issue abundantly clear to you, repeatedly. I don't blame you for not understanding it initially, as communication problems can happen to anyone. I do blame you for doggedly trying to force your incorrect understanding on the rest of us in an attempt to 'win' something.

I am perfectly comfortable in conducting the sort of test you want, I just want to do so competently. (and so should you) It of course would be far easier just to rely on the work of economists that have far more intelligence, experience, and resources than either one of us to do the work for us, but if you insist then go ahead and compile a competent data set for us.

 

[Blackjack200]

The expectation is that as the economy recovers, employment and wages will increase and inflation will start to pick up. The fed's policy at that point will be to raise rates to keep inflation moderate. So I think it's kind of disingenuous to say "let's see what happens to inflation if interest rates go up."

I watched Bernanke's lectures posted on the Fed, and at one point he was talking about the misconception of the idea that the Fed can use interest rates like a gas pedal for the economy. You have lots of factors impacting interest rates, and the Fed is more using interest rates to keep everything smooth by responding to market changes with purchases and sales of securities.

 

[dullard]

I gave a very definitive answer to what would happen if the fed raised rates by 375 basis points in the next 6 months, because that kind of contractionary monetary policy in current conditions would be absolutely insane. It's also never, ever going to happen.

I am perfectly comfortable in conducting the sort of test you want, I just want to do so competently. (and so should you).

Who said 375 basis points in the next 6 months? You made that time limit part up yourself and didn't bother to post it. The fed has never made a sizable move like that suddenly (especially not after years of no changes and low interest rates). I simply said we need to get back towards 4% interest rates. I admit that I didn't give a time frame either. But I was assuming realistic changes to the rates (typically quarter percent here and there testing the waters, but a half percent rise on the way up is not out of the question). If you want to have useful discussions online, you have to tell us when you are only discussing oddball cases (like an out of the blue massive jump in interest rates in a short period of time), otherwise we will assume you are talking typical situations.

If you are comfortable doing that test competently, then please do so. I have done many things you have asked in this thread. You have done virtually nothing but spout contradictory garbage. First you claim a deflationary spiral then you claim no one can predict what will happen without knowing a lot of other factors. First you claim that it is the value of rates that matter (higher vs lower) then later you claim it is changes in rates that matter. You can't have it both ways.

It is time for you to man up and prove your worth. Post the data and your analysis competently.

 

[fskimospy]

Who said 375 basis points in the next 6 months? You made that time limit part up yourself and didn't bother to post it. The fed has never made a sizable move like that suddenly (especially not after years of no changes and low interest rates). I simply said we need to get back towards 4% interest rates. I admit that I didn't give a time frame either. But I was assuming realistic changes to the rates (typically quarter percent here and there testing the waters, but a half percent rise on the way up is not out of the question). If you want to have useful discussions online, you have to tell us when you are only discussing oddball cases (like an out of the blue massive jump in interest rates in a short period of time), otherwise we will assume you are talking typical situations.

If you believed that higher interest rates lead to higher inflation, then we should immediately increase interest rates, as a persistent lack of inflation is one of our primary problems. If I could lower interest rates enough to spark inflation I would do so immediately, for example.

If you are comfortable doing that test competently, then please do so. I have done many things you have asked in this thread. You have done virtually nothing but spout contradictory garbage.

You're back to ignoring what other people say when it doesn't suit you. I explicitly told you that I find the exercise a waste of time but am willing to do it if you compile the data. You had no problem asking me to do it, so by that logic it should be something you are willing to do as well. If it isn't, then looks like you're out of luck.

First you claim a deflationary spiral then you claim no one can predict what will happen without knowing a lot of other factors. First you claim that it is the value of rates that matter (higher vs lower) then later you claim it is changes in rates that matter. You can't have it both ways.

Yes, if you make a single move of such a catastrophic nature that is likely to overwhelm other factors.

Otherwise, this is a case of you not just ignoring me, but several other people who are telling you that you didn't understand what you read. My position has been exactly the same the entire time, and you have been informed repeatedly of this by several people. You are literally the only one to make this mistake. Continuing to repeat that mistake won't make it any better.

Like I said, I don't blame you for misinterpreting what I wrote to begin with, but I do blame you for continuing to try and do so because you're trying to win an argument. It's dishonest.

It is time for you to man up and prove your worth. Post the data and your analysis competently.

Attempting to bait me into doing your work for you by challenging me to man up means nothing to me. You're the one who wants to do this, so you're the one that will do the work. I'm perfectly comfortable accepting the position of every monetary authority on earth.

 

[chucky2]

See Joey, that's the beauty of an argument. 'Cause if you argue correctly, you're never wrong. LOL

 

[sandorski]

See Joey, that's the beauty of an argument. 'Cause if you argue correctly, you're never wrong. LOL

No. However, if you argue Incorrectly you are probably wrong.

 

[DCal430]

I don't want to battle you either. But calling it "sound policy" is quite debatable. Lets get around the current situation where lowering rates didn't help and now we can't easilly lower them any further. Please show me a situation where lowering rates can be shown to CAUSE a meaningful and sustained increase in inflation. If that isn't possible show me a case where they are actually correlated. And please don't just point to a bunch of talking heads and political appointees that simply claim it is sound policy. I'd honestly like actual proof behind those claims.

Do you understand how the feds actually lower interest rate. They do it by I creasing the supply of money. The more money in the market the higher inflation will be.

 

[DCal430]

When the feds raise rates, they set a target rate and achieve this but decreasing the supply of money in the market. The less money in the market, the less people have to spend. The higher the price of goods become.

The feds adjust the supply of money buy buying and selling government debt, and adjusting reserve requirements. This is basic economics.

 

[OverVolt]

Do you understand how the feds actually lower interest rate. They do it by I creasing the supply of money. The more money in the market the higher inflation will be.

In practice it causes money velocity to plummet dumbass.

Sorry there just isn't a nice way to put it.

The smart money is on very little/no inflation in reality.

Most of the printed money is parked on stagnant balance sheets. It does nothing.

I'm assuming you are a gold bug or something.