The Foreclosure Dump

[the DRIZZLE]

Could you please explain exactly why nominal tax revenue, and therefore wages and profit, would go up?

I see quite the opposite if inflation really sinks its teeth in, commodities go up (a TON of which we buy from elsewhere) and wages stay relatively the same. Even if they remain dead even on an internal basis we still import a ton of stuff and those prices will either drastically increase or you will see margin collapse. Producers within the US that use any of those commodities will likely see the latter as the consumer simply won't be able to bear the price increases.

At the same time our cost to service the debt shoots the moon and I mean bigtime as the bond market prices in the inflation. This will also cause interest rates to rise which will kill the housing market anyway. Entitlement spending, which along with servicing our debt, consumed ALL of last years revenue by law must be increased but we won't even be able to cover that because our interest payments have consumed a much larger chunk of our revenue.

Pretty much the worst case scenario. I doubt even our politicians are that dumb.

Sure I can explain. Wages only stay fixed in the short run (google sticky wages). In the long run they adjust to a new price level. Along the same lines entitlement spending is also sticky. It doesn't adjust daily with inflation but I most programs adjust once a year. Once wages adjust the other things you mentioned like import prices cancel out as well.

 

[Trianon]

Sure I can explain. Wages only stay fixed in the short run (google sticky wages). In the long run they adjust to a new price level. .

Well, this adjustment will take really long this time, in my industry (power electronics) management has put salary freezes for 4+ years, arguing that they did so to prevent layoffs. The only meaningful way to get a raise for technical professional in my field would be to change jobs often, but that negates all benefits of having full-ime job. In a mean time inflation is kicking my butt where it hurts, energy and food prices came up quite a bit in 2010.

 

[chucky2]

Just wait until China and India starts getting their large population trained up to offer 1st and 2nd class services at 2.5 world rates. Accounting? Auditing? Legal? Project Management? Consulting? No problemo...wait, how much are the American's charging to do what we're already doing everything else of in house? Wow...no wonder you came to us...we're 1/6th the price for the same result. Yes indeed, thanks for the new business!

American peon white collar: WTF?!?!!?

American upper management white collar: D@mn we're good, look at our stock price!

10 years pass....

American upper management white collar: No Congressperson, we were just totally unaware how outsourcing the majority of our whole company offshore, except of course the totally unreplaceable Upper Management (because who could possibly do our job?), could be bad for the country as a whole. Besides it's not our job to worry about the country our company was founded in, we were born in, live in, our kids will live in, etc. etc....only Wall Street is important. Oh, btw, we're still having dinner later this week right?

The worst is absolutely yet to come....

Chuck

 

[Darwin333]

Sure I can explain. Wages only stay fixed in the short run (google sticky wages). In the long run they adjust to a new price level. Along the same lines entitlement spending is also sticky. It doesn't adjust daily with inflation but I most programs adjust once a year. Once wages adjust the other things you mentioned like import prices cancel out as well.

Given our current employment situation I highly doubt that wages would rise nearly as fast as inflation and even if they do that "lull" would destroy the economy. The stock market would face either severe loss of consumer spending or margin collapse. Either would be a disaster and the latter is quite possible in the near future.

Yes, entitlements adjust once a year and lets assume that "lull" is 3 years. Do you think the bond market will continue to support our entire government including part of our mandatory spending? Furthermore, wouldn't the bond market price in the inflation and perhaps even price in the fact that we can't even cover mandatory spending with our revenue? Do you know what our current roll over is on ALL of our existing debt? A little over 4 years, thats what it is. Do you know what a modest increase in the interest rate we pay on our debt would do to the federal budget?

Why would internal inflation cause wages to balance with goods purchased externally? The stuff we import would see a greater rise in price then the stuff we purchase internally so why would wages keep up with the higher of the two? Why didn't wages go up when we saw greatly inflated energy prices not long ago?

 

[alphatarget1]

Like I said- "Idiots" haven't changed. The fact that Repubs regained the HOR in 2010 just shows how many there really are in this country.

I bet most of the "Idiots" you speak of voted for Obama and D who are poor and have no place in getting a home in the first place, just sayin'.

 

[the DRIZZLE]

Given our current employment situation I highly doubt that wages would rise nearly as fast as inflation and even if they do that "lull" would destroy the economy. The stock market would face either severe loss of consumer spending or margin collapse. Either would be a disaster and the latter is quite possible in the near future.

Yes, entitlements adjust once a year and lets assume that "lull" is 3 years. Do you think the bond market will continue to support our entire government including part of our mandatory spending? Furthermore, wouldn't the bond market price in the inflation and perhaps even price in the fact that we can't even cover mandatory spending with our revenue? Do you know what our current roll over is on ALL of our existing debt? A little over 4 years, thats what it is. Do you know what a modest increase in the interest rate we pay on our debt would do to the federal budget?

Why would internal inflation cause wages to balance with goods purchased externally? The stuff we import would see a greater rise in price then the stuff we purchase internally so why would wages keep up with the higher of the two? Why didn't wages go up when we saw greatly inflated energy prices not long ago?

The adjustment doesn't take that long, usually one pay cycle which is a year. For example in poor counties with hyper inflation wages often change weekly or monthly. This is Macro Econ 101 stuff. It's basically the same thing Federal reserve does in every recession, except normally they are just trying to offset deflation and not willfully cause inflation. It is actually good for companies in the short run as they can change higher prices while their labor costs are fixed.

But you've exactly right about interest rates and the bond market. That's the true cost of doing this. Interest rates on long term US debt will go up, and foreign investors won't want to invest here. The high interest rates also crowd out domestic investment in good projects. It's bad policy but like I said in my original post, the alternative is letting housing prices adjust to their real value which would lead to a rash of strategic defaults that could collapse the banking system. The Fed prefers inflation over this even if its worse in the long run.