Thursday, March 1, 2012

Heading for double-digit inflation?

Whenever someone mentions inflation, Paul Krugman is all over the statement, trotting out the CPI which shows relatively low overall price increases at about three percent. (He holds this as "proof" that government can massively increase the monetary base and spread dollars around without having any ill economic effects.)

However, those of us who regularly go grocery shopping and who purchase fuel have seen a much different picture, one that Krugman claims does not exist. And now there is more proof that inflation is worse than what the government and its political operatives (like Krugman) have been claiming:
Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation's "sticker shock" effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.
The article continues:
The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this "everyday price index" (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.
In other words, the daily purchases definitely are in the crosshairs of inflation, and I only can imagine that things will get worse. Krugman likes to claim that commodity prices are "volatile," which supposedly explains why they have skyrocketed. It would have nothing to do with Ben Bernanke's policies at the Fed.

Of course, let us be honest. The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will "rescue" the economy. Yes, reducing real incomes of Americans by creating more dollars somehow is going to "strengthen" the economy. Right.

42 comments:

Zachriel said...

William L. Anderson: Whenever someone mentions inflation, Paul Krugman is all over the statement, trotting out the CPI which shows relatively low overall price increases at about three percent.

Yes, it indicates that there is still a great deal of slack in the economy.

William L. Anderson: In other words, the daily purchases definitely are in the crosshairs of inflation, and I only can imagine that things will get worse.

Just to be clear, that doesn't make the actual price inflation rate higher. There's still downward pressures in the housing markets, for instance. However, the shock or impact, of those prices is what people feel in their day-to-day lives.

Most of the recent increases in gasoline have little to do with monetary inflation, though, but with overseas tensions. This causes ripples into other sectors, particularly food, which is dependent on petroleum for production and distribution.

William L. Anderson: Of course, let us be honest. The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will "rescue" the economy.

In the present circumstance, moderate monetary inflation would cause money to flow into investments, and reduce the debt burden of many Americans.

LK said...

"The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will "rescue" the economy. The only think in the end that Keynesians have is inflation, and they believe that if the government inflates enough, somehow this will "rescue" the economy. "

Answer this:

(1) If the government engages in a deficit financed stimulus, covering deficits $for$ with bond issues, how does that inflate the money supply?
-----

In actual fact, monetary "stimulus" - the belief that open market operations or more radical quantitative easing will boost aggregate demand - is a monetarist idea, not a Keynesian one.

It is utterly laughable how your posts demonstrate contemptible ignorance of even basic Keynesian positions and ideas.

Keynesian economics emphasises the feeble and comparatively futile effect of monetary base expansion in situations of depression, debt deflationary environments, or poor business expectations ("pushing on a string").

Witness the actual facts about the base money created in QE1: it has mostly stayed at the Fed. Aggregate base money went from $800 billion in 2008 to about 2 trillion in early 2010, and has hovered around $2 trillion ever since. The $1.2 trillion created in QE1 has not entered the economy, but has been held by the banks as excess reserves.

Bob Roddis said...

For starters, "economies" don't have "slack", nor do they need, have or lack "traction". And the free market does not lead to unemployment or recessions.

Mike M said...

Zachriel
“Downward pressure in housing markets”

You’re conflating an attempt by the market to readjust its asset price as a consequence of a credit bubble directed at it and the cost of daily necessities.

“Most of the recent increases in gasoline have little to do with monetary inflation, though, but with overseas tensions.”
Really? Gas priced in terms of gold grams is at their lowest levels since 1976. Oh wait I know it’s because gold is “overpriced.” I suppose thousands of years as a form of money can’t possibly compare to the 40 years of the pure fiat Dollar.

The CPI is a political number not an economic statistic. But go ahead and buy the BS from the BLS and base your business and investment decisions on it. Let me know how that works out for you.

Mike Cheel said...

They are trying to get a major war going as fast as they can. Be patient guys!

ToddO said...

I love reading the comments on this blog. It is fascinating to see people in different ontologies argue over what words like inflation and aggregate mean.

I would caution the Austrians on one thing: government entities are large scale actors in our economy that do not necessarily behave rationally or in its self-interest, economically. This is true no matter how much we dislike it.

For the Keynesians, your domain of analysis is carefully constructed to ignore outliers and seek trends to rationalize government interventionism. This is disingenuous. Macroeconomic models are self-fulfilling prophecies by design. Good luck with that.

Major_Freedom said...

Zachriel:

Yes, it indicates that there is still a great deal of slack in the economy

Inflation of the money supply doesn't affect all goods equally. It enters the economy at certain points, and where it enters the economy, will enter the pockets of certain people before others. Their economic roles determine where the money goes.

Since much of the money enters the higher order capital stages and durable consumer goods first, through the banking system's lending, it takes a while for a given quantity of inflation to affect consumer prices.

By the time it does, the central bank, which is perpetually backwards looking, will slow down the printing press, and that's what pricks the boom in capital goods and durable consumer goods, or whatever else was being affected by the cheap money.

Just to be clear, that doesn't make the actual price inflation rate higher. There's still downward pressures in the housing markets, for instance. However, the shock or impact, of those prices is what people feel in their day-to-day lives.

You have a weird way of saying "I agree."

Most of the recent increases in gasoline have little to do with monetary inflation, though, but with overseas tensions. This causes ripples into other sectors, particularly food, which is dependent on petroleum for production and distribution.

I notice that rising gasoline prices and rising oil prices are never attributed to inflation, for statists like yourself. You always blame non-inflation factors.

In the present circumstance, moderate monetary inflation would cause money to flow into investments, and reduce the debt burden of many Americans.

Inflation enters the economy primarily via debt. The belief that more debt can cure too much debt, it absurd.

Not to mention the fact that those who owe money should not benefit at the lenders expense by paying back the loans in cheaper money.

Why should those who owe money catch a break? They'll just keep borrowing more if they don't learn their lesson. You want adults to become childlike.

Major_Freedom said...

LK:

(1) If the government engages in a deficit financed stimulus, covering deficits $for$ with bond issues, how does that inflate the money supply?

A policy of deficits will eventually bankrupt the country without monetization (inflation).

In actual fact, monetary "stimulus" - the belief that open market operations or more radical quantitative easing will boost aggregate demand - is a monetarist idea, not a Keynesian one.

False. Keynesians, ALL Keynesians, EVERY SINGLE ONE, EVERY SINGLE TIME, call for monetary inflation whenever they talk about aggregate demand.

Calling for zero rates, monetary inflation, AND deficits, doesn't mean that Keynesians aren't calling for monetary inflation.

Keynesians are just Monetarists plus deficits.

It is utterly laughable how your posts demonstrate contemptible ignorance of even basic Keynesian positions and ideas.

Your post is utterly, unequivocally, unadulterated risible and contemptible rubbish, garbage, false, nonsense straw man and red herring.

There, I just summated LK's entire vocabulary.

Keynesian economics emphasises the feeble and comparatively futile effect of monetary base expansion in situations of depression, debt deflationary environments, or poor business expectations ("pushing on a string").

Yet they still call for that monetary base increase. They still call for lower interest rates.

Just because they are foaming at the mouth at the earliest opportunity to declare that monetary inflation isn't increasing aggregate demand fast enough for the Keynesian's arbitrary and totally unscientific subjective satisfaction, and faux chastises it as "feeble", doesn't change the fact that Keynesians are calling for inflation just like the monetarists.

Oh, and risible, contemptible utter rubbish straw man red herring. LOL

Witness the actual facts about the base money created in QE1: it has mostly stayed at the Fed. Aggregate base money went from $800 billion in 2008 to about 2 trillion in early 2010, and has hovered around $2 trillion ever since. The $1.2 trillion created in QE1 has not entered the economy, but has been held by the banks as excess reserves.

Look at M2, retard. It's growing at 10% annualized, right as you type this risible contemptible utter nonsense rubbish risible contemptible nonsense false rubbish contemptible straw man rubbish contemptible risible.

macroman said...

Way to cherry pick the data, Prof Anderson! The Fed must be causing inflation, therefore we look only at those goods that are rising in price. Viola! Case proved.

You would think that people who put so much emphasis on price signals would be ashamed to run this argument which ignores the falling or stagnation prices of some important things - talk about not reading the price signals! maybe food is becoming scarce, and gasoline is becoming scarce and resources will shift to producing more of those things (or using less of the oil).

LK said...

"Look at M2, ... It's growing at 10% annualized, right as you type t"

M2 has grown at a rate hardly deviating from its trend line over the past few years.

http://seekingalpha.com/article/226821-m2-growth-rate-nothing-strange-or-foreboding

2% to 10% annual M2 growth rates are entirely normal.

http://www.econbrowser.com/archives/2006/05/m2_and_inflatio.html

Zachriel said...

Mike M: You’re conflating an attempt by the market to readjust its asset price as a consequence of a credit bubble directed at it and the cost of daily necessities.

Regardless, it's still a reduction in the price of an essential component of the breadbasket.

Zachriel: Most of the recent increases in gasoline have little to do with monetary inflation, though, but with overseas tensions.

Mike M: Really?

Yes. There is virtually no slack in the oil markets. As there is a chance of disruption of oil supplies, futures traders are running up the price.

Mike Cheel: They are trying to get a major war going as fast as they can. Be patient guys!

Your statement is a bit disjointed, but if you mean a war to secure oil supplies, then that is a consequence of American policy since Reagan, to use military force to maintain the supply of cheap oil, while propping up authoritarian governments in oil-rich regions.

ToddO: government entities are large scale actors in our economy that do not necessarily behave rationally or in its self-interest, economically.

Quite so.

Zachriel said...

Zachriel: Just to be clear, that doesn't make the actual price inflation rate higher. There's still downward pressures in the housing markets, for instance. However, the shock or impact, of those prices is what people feel in their day-to-day lives.

Major_Freedom: You have a weird way of saying "I agree."

It's called a clarification. William L. Anderson said the EPI (Everyday Price Index) was "more proof that inflation is worse than what the government and its political operatives (like Krugman) have been claiming". The EPI specifically excludes many fixed purchases, such as housing.

Major_Freedom: I notice that rising gasoline prices and rising oil prices are never attributed to inflation, for statists like yourself.

Sure there's inflation involved, but petrol is highly volatile, much more so than can be explained by price inflation alone.

Major_Freedom: Inflation enters the economy primarily via debt.

Yes, when the government borrows and spends, then it competes for goods and services. The increased demand can cause price inflation when there is insufficient slack in the markets. Increasing the money supply only has a tangential effect absent demand.

Major_Freedom: A policy of deficits will eventually bankrupt the country without monetization (inflation).

Which is why the U.S. will need to address the debt in the out-years. That will presumably mean increased taxes and spending cuts.

Major_Freedom: this risible contemptible utter nonsense rubbish risible contemptible nonsense false rubbish contemptible straw man rubbish contemptible risible.

Automatic response to stimuli?

Major_Freedom said...

LK:

"Look at M2, ... It's growing at 10% annualized, right as you type t"

M2 has grown at a rate hardly deviating from its trend line over the past few years.

I am not talking about the last few years. I am talking about recently.

2% to 10% annual M2 growth rates are entirely normal.

Not when the Fed promises to hold rates at zero until 2014, which means in order to do that with an increasing M2, M2 has to keep growing at these rates.

Major_Freedom said...

LK:

"Look at M2, ... It's growing at 10% annualized, right as you type t"

M2 has grown at a rate hardly deviating from its trend line over the past few years.

I am not talking about the last few years. I am talking about recently.

2% to 10% annual M2 growth rates are entirely normal.

Not when the Fed promises to hold rates at zero until 2014, which means in order to do that with an increasing M2, M2 has to keep growing at these rates.

Major_Freedom said...

Zachriel:

Major_Freedom: You have a weird way of saying "I agree."

It's called a clarification.

Call it whatever you want. Call it "we". It's a weird way of saying "I agree."

"Major_Freedom: I notice that rising gasoline prices and rising oil prices are never attributed to inflation, for statists like yourself."

Sure there's inflation involved, but petrol is highly volatile, much more so than can be explained by price inflation alone.

"Sure there's inflation involved" is a non-committed, window dressing caveat used solely for the purposes of trying to mask your ideology.

"Major_Freedom: Inflation enters the economy primarily via debt."

Yes, when the government borrows and spends, then it competes for goods and services.

I was actually referring to both government borrowing and citizens borrowing from banks. The government aren't the only people who borrow.

Thus, calling for inflation as an alleged cure to solve private debt problems, is self-defeating, as a portion of the money leaves the banking system into the private sector as debt.

The increased demand can cause price inflation when there is insufficient slack in the markets.

Borrowing money per se is not inflationary. It is a transfer of spending, not an increasing in spending. It is when the money is borrowed out of thin air. In that case it is inflationary, despite the fact that prices don't nominally rise over time. They are still higher than they otherwise would have been absent the inflation.

The presence of slack doesn't mean inflation doesn't take place. Inflation is still taking place even if prices go from 100 one period to 100 the next period. Absent the inflation, prices could have gone from 100 to say 95.

It's not an increase in demand to reduce private investment from savings and redirecting it towards government spending.

Increasing the money supply only has a tangential effect absent demand.

No, it has capital structure effects, that culminate in booms and busts, leading to millions without jobs or homes.

"Major_Freedom: A policy of deficits will eventually bankrupt the country without monetization (inflation)."

Which is why the U.S. will need to address the debt in the out-years. That will presumably mean increased taxes and spending cuts.

No no no no, not until those who benefited from the past borrowing and spending die off. THEN taxes can be raised and government spending cut. Kicking the can down the road won't work if you don't kick the can far enough to the next generation.

"Major_Freedom: this risible contemptible utter nonsense rubbish risible contemptible nonsense false rubbish contemptible straw man rubbish contemptible risible."

Automatic response to stimuli?

Nope, still choice. It's always choice. Even asking me that question presupposes choice.

Desolation Jones said...

"The cost of food, prescription drugs, and tobacco also have increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively."

And according to the manipulated government statistics trying to hide the inflation, food has increased 4.4%, more than EPI's 3.4%!
http://research.stlouisfed.org/fredgraph.png?g=5qt

The government must be in cahoots with with the EPI trying to trick everyone.

"Krugman likes to claim that commodity prices are "volatile," which supposedly explains why they have skyrocketed. It would have nothing to do with Ben Bernanke's policies at the Fed."

Even further proof that Krugman is a government operative and he's in cahoots with the EPI because even the EPI agrees with Krugman!

EPI says:

"Since 2000, rapid growth in many of the developing economies significantly boosted the demand for, and prices of, oil and other fuels. Prices of energy commodities rose rapidly and became much more volatile. "

Interesting enough, the Federal Reserve Bank of Atlanta has a special CPI index called the Flexible Price CPI that matches the movements in the everyday price index very closely.

http://www.frbatlanta.org/research/inflationproject/stickyprice/

http://www.aier.org/sites/default/files/images/stories/EB/EB201202/EB201202-2.jpg

They also have a sticky price index that includes all those other things that the everyday price index excludes like rent [obviously rent shouldn't be included in cpi because you can't eat rent!], which happens to be very low. When you combine the two indexes with the proper weights, you should get headline CPI. No surprise there.

Mike Cheel said...

@Zachriel I know this isn't about oil, per se. It's about dollar hegemony. Keeping the world a slave to our petrodollar.

I also know that war is the health of this state and right now it is quite sick. The war drums are seldom quiet.

Zachriel said...

Major_Freedom: "Sure there's inflation involved" is a non-committed, window dressing caveat used solely for the purposes of trying to mask your ideology.

Not an argument. Inflation effects on petrol prices have been overwhelmed over the short term by other factors, including threats to the supply line. Before that, the inflation signal was overwhelmed by financial shocks.

Major_Freedom: Thus, calling for inflation as an alleged cure to solve private debt problems, is self-defeating, as a portion of the money leaves the banking system into the private sector as debt.

Major_Freedom: Inflation is still taking place even if prices go from 100 one period to 100 the next period.

As usual, by changing the common meanings of terms, you make any point you are trying to make opaque to understanding. Price inflation, what most everyone calls "inflation", is defined by changes in price.

macroman said...

"The only thing keynesians have is inflation" Anderson.

Whether Anderson means price inflation or money supply inflation, or thinks they are the same thing this look wrong. In depressions keynesians seem to rely more on government spending of money borrowed from scared savers clamouring for a safe haven. So bearish are the public that now the interest rate on US debt after allowing for price inflation, is negative. Keynes had some sort of explanation for this odd circumstance, but how does an Austrian economist account for negative real interest rates, given that the fed holds less than 10% of US treasury debt, Last time I looked??

Mike M said...

Zachriel said: “Not an argument. Inflation effects on petrol prices have been overwhelmed over the short term by other factors, including threats to the supply line. Before that, the inflation signal was overwhelmed by financial shocks”

First: Go do some homework on the price of oil priced in terms of gold over the past 40 + years. No material change present.

Second: All of your analysis is flawed because your premise if flawed. You assume the USD is the static benchmark to analyze the world around it.

ekeyra said...

"Have you ever seen a sidewalk magician run the shell game, where a pea under a shell is magically shuffled around - now you see it under this shell, now you see it under that shell, now it disappears completely - or does it? The more it moves around, the more confused you get. If you can only figure out which shell the pea is hidden under, you win! But where is the pea? The point of the game, from the perspective of the street hustler, is to use complexity of motion to confuse the mark.

These are the three critical points to remember as you read further:

1 The US government has record amounts of Treasuries to sell.

2 Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.

3 The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been 'bent' worse during this crisis), because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.

For various reasons, the Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts, week after week, month after month.

Instead, it uses this three-step shell game to hide what it is doing under a layer of complexity:

Shell #1: Foreign central banks sell agency debt out of the custody account.

Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.

Shuffle, shuffle, shuffle, shuffle, shuffle, SHUFFLE, shuffle! Confused yet?

Don't be. If we remove the extraneous motion from this strange act, we find that the Federal Reserve is effectively buying government debt at auction. This is exactly, precisely what Zimbabwe did, but with one more step involved, introducing just enough complexity to keep the entire game mostly, but not completely, hidden from sight. They can scramble the shells all they want, but the pea is still there somewhere - the pea being the fact that the Fed is creating money to fund the purchase of US debt."

http://www.chrismartenson.com/blog/shell-game-how-federal-reserve-monetizing-debt/25806

macroman said...

Ekeyra

Two questions about your shell game.

1) why doesn,t this just show that foreign central banks think us treasuries are safe than freddie and Fannie debt?

2) can you make a definite prediction, before the event, about when the US will be like zimbabwe ? As LK noted, monetary base has tripled since the trough of the recession while inflation is still low by historical standards? Wouldn't,t that contradict Austrian predictions? I certainly thought it did contradict monetarist and austrian predictions and it has had a big influence on changing my thinking. If the US has Zimbabwe like inflation within say two more years I will probably change my thinking again. So what time limit would you set bothe this hyperinflation?

LK said...

"If we remove the extraneous motion from this strange act, we find that the Federal Reserve is effectively buying government debt at auction. This is exactly, precisely what Zimbabwe did, but with one more step involved,"

No, it isn't

Zimbabwe did large-scale, direct monetization of budget deficits, with severe destruction of capacity to produce output, at one point (2008) with a fiscal deficit at 82 percent of GDP.

The US budget deficit as a % of GDP is nowhere near that (fluctuating around 10%), and there are significant idle resources, unused capacity and unemployment, nothing like the third world basket case Zimbabwe.

The US dollar is also the world's reserve currency, which gives it massive capacity to import factor inputs and other commodities, from capital goods to consumer goods.

Zachriel said...

Mike M: First: Go do some homework

It's usual when purporting to make an argument to present the information required to support the argument, rather than wave your hands and say go read a book or something. Not only is it a help to our readers, but it lends discipline to your own statements when you support them before uttering them.

Zachriel: Inflation effects on petrol prices have been overwhelmed over the short term by other factors, including threats to the supply line. Before that, the inflation signal was overwhelmed by financial shocks

Mike M: the price of oil priced in terms of gold over the past 40 + years.

First, try to jive your statement about the trend over 40+ years with our statement, which concerned short term trends.

Here's inflation adjusted oil prices in dollars. Notice the short term volatility, and the huge fluctuation during financial crisis.
http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart_sm.jpg

If you were buying oil in Euros, the exchange rate for dollars varied from a high of $1.59 to a low of $1.20 over the last five years, currently $1.34; for British pounds, from $2.10 to $1.39, currently $1.59; not nearly enough to explain the fluctuations during the financial meltdown. Indeed, the dollar is stronger today against the Euro and the Pound than it was just before the financial crisis.
http://www.oanda.com/currency/historical-rates/

If you look over the last decade or so, the dollar has been relatively stable against the Euro, but was much stronger at the end of the Clinton Administration, when the U.S. was running cash surpluses.
http://2.bp.blogspot.com/-Qxj8GqXEvdc/TtLri5Of0mI/AAAAAAAAGAg/4O5NdLYaxi8/s1600/Euro.jpg

Mike M: Go do some homework on the price of oil priced in terms of gold over the past 40 + years. No material change present.

Now, to address your comment, the gold-oil ratio has fluctuated widely (by a factor of 3) over the last 40 years. There are very large "material changes present". There are obviously other factors than the relationship of price to gold.

Mike M said...

Zachriel : “It's usual when purporting to make an argument to present the information required …”

Go Google Oil priced in gold terms and you can have all the resources you want. It’s not like its hidden. I’m not interested in littering this site with endless citations in lieu of arguments. LK occupies that role.

Zachriel: “If you were buying oil in Euros …”
Euros, Pounds, Dollars are all corrupt, flawed, floating abstracts. Comparing them to oil at any given point in time is a circular exercise.

Respects the gold oil ratio has generally run in band of .05 to .10 since 1900 with periods of short term volatility for various reasons and is presently at .06. If you want to measure consistently of value and relationships do it over a long period of time.

William L. Anderson said...

The Austrians would note that "negative interest rates" are not the product of a real market, but rather are rates manipulated by the Fed.

On another post, LK recently noted that the dollar is the "world's reserve currency," implying that we could print more dollars and get away with it. I remember what happened in 1971 when the government tried to manipulate things and the whole scheme blew up in our faces.

The notion that we can continue to inflate the dollar without any negative ramifications demonstrates just how intellectually and morally bankrupt Keynesianism really is.

ekeyra said...

"2) can you make a definite prediction, before the event, about when the US will be like zimbabwe ?"

Would you like the powerball numbers too?

macroman said...

Mike M says: I’m not interested in littering this site with endless citations in lieu of arguments.

"My logic is perfect, so don't show me facts". Sounds like a perfect description of Austrian economics.

macroman said...

Anderson: The Austrians would note that "negative interest rates" are not the product of a real market, but rather are rates manipulated by the Fed.

Does that explain why no private entity is offering a higher rate of return, to attract some capital to invest profitably? Can the fed's relatively small holdings of US Treasury debt explain the negative rates.

And more important than explanations after the fact; did any Austrian say this was possible before the fact? My guess is that Austrians would have said something like: the Fed can manipulate interest rates in the short-term, but interest rate is about future good/present good exchange and the market will establish what the real rates are.

However, if an Austrian did predict the current situation before the event I would like to consider it.

Zachriel said...

Mike M: I’m not interested in littering this site with endless citations in lieu of arguments.

In other words, you can't be bothered to support your claims.

Mike M: Respects the gold oil ratio has generally run in band of .05 to .10 since 1900 with periods of short term volatility for various reasons and is presently at .06.

0.05 to .10 is a factor of two, hardly stable. Even then, you're off. Over the last 40 years, which was the period you originally stated, the ratio has varied by a factor of three. Over the last 100 years, the factor between high an low is over six.

http://media.resourceinvestor.com/resourceinvestor/historical/News/2011/2/PublishingImages/20110224-Gold-Oil.jpg

There are obviously very large "material changes present".

LK said...

"On another post, LK recently noted that the dollar is the "world's reserve currency," implying that we could print more dollars and get away with it. I remember what happened in 1971 when the government tried to manipulate things and the whole scheme blew up in our faces."

This isn't 1971, the US is not on a Bretton Woods international gold standard, and you haven't answered my question:

If the government engages in a deficit financed stimulus, covering deficits $for$ with bond issues, how does that inflate the money supply?

macroman said...

ekeyra:

"2) can you make a definite prediction, before the event, about when the US will be like zimbabwe ?"

Would you like the powerball numbers too?


So, according to Austrian economics, the economy is completely random, like powerball? Makes me wonder why von Mises and Hayek wasted their time working out a theory about the economy based on purposeful human action.

Mike M said...

Zachriel

No that means I'm not here to spoon feed you.

I said look at a 100 year chart you chose something different. Charts have to be read with interpretation of what is behind spikes both high and low. Failure to do so offers nothing meaningful.

Mike M said...

LK said "this isn't 1971".

Wow very insightful but you're right. It's worse

Your playing games. Of course it inflates the money supply. It's a question of when and where. Unless you believe the Fed will soak up the excess and thereby run interest rates up Iin a draconian fashion.

The again this isn't the Volker era is it? That option is off the table. Welcome to the new works where we paper over everything and expect no negative effects.

ekeyra said...

Macro,

You asked for a prognostication on a date and time of an event. Thats not asking for analysis or critical thinking. Thats asking for a tarot card reading or the point spread of the superbowl.

Von mises and hayeks theories are based entirely on the foundations of what information is NEVER AVAILABLE TO ANYONE, presumably a date and time for a specific event thats demands the calculation of 6 billion actors would fall into that category.

Unless human actions is simply mechanical and can be mathematically calculated, your objections are absurd.

Zachriel said...

Mike M: I said look at a 100 year chart you chose something different.

Mike, Mike, Mike.

Mike M: Go do some homework on the price of oil priced in terms of gold over the past 40 + years. No material change present.

So we looked. And we showed that you misstated the range, and more important, the significance of that range.

Mike M: I said look at a 100 year chart you chose something different.

So, let's look at the hundred year chart.
http://tinyurl.com/gold2oil

As we stated, it varies from high to low by a factor of more than six. There were wide variations in the ratio of gold-to-oil over most of the period.

Major_Freedom said...

Zachriel:

"Major_Freedom: "Sure there's inflation involved" is a non-committed, window dressing caveat used solely for the purposes of trying to mask your ideology."

Not an argument.

I agree, what you said is not an argument. It's a non-committed, window dressing caveat used solely to mask your ideology.

Inflation effects on petrol prices have been overwhelmed over the short term by other factors, including threats to the supply line.

Prove it.

Before that, the inflation signal was overwhelmed by financial shocks.

Prove it.

"Major_Freedom: Thus, calling for inflation as an alleged cure to solve private debt problems, is self-defeating, as a portion of the money leaves the banking system into the private sector as debt."

"Major_Freedom: Inflation is still taking place even if prices go from 100 one period to 100 the next period."

As usual, by changing the common meanings of terms, you make any point you are trying to make opaque to understanding.

I haven't changed anything. Your memory is just really that bad. I have always used the definition of inflation as being an increase in the quantity of money and volume of spending. I have not once wavered from it. You even asked me before about it, and I told you. Don't blame me that your memory is so terrible.

Price inflation, what most everyone calls "inflation", is defined by changes in price.

We've been over this. I know how you define it, and I use the original definition.

Since definitions are not objective claims, but verbal stipulations, I am not committed to using your definition. As long as I stick with the same definition, which I have been doing all along, then you cannot accuse me of changing definitions.

Zachriel said...

Zachriel: Inflation effects on petrol prices have been overwhelmed over the short term by other factors, including threats to the supply line.

Major_Freedom: Prove it.

We covered this above, but will do so again. The simplest way is to simply adjust the data for inflation.
http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart_sm.jpg

Major_Freedom: You even asked me before about it, and I told you.

As your use of the term is non-standard, you might just spell out monetary inflation so your meaning is clear.

macroman said...

ekeyra: "You asked for a prognostication on a date and time of an event. Thats not asking for analysis or critical thinking. Thats asking for a tarot card reading or the point spread of the superbowl. "

Sorry, I didn't make myself clearer. I was thinking of something like: "The tripling of base money from 2009-2001, will lead to Zimbabwe like hyper-inflation withing the next 2 or 3 years". Or if you don't want to stick your next out too far, "I expect inflation to be greater than 15% with a year or two, unless there is some major change in Government policy".

The idea is this: given the tripling of base money is there anything thing that could happen in the future that would make you doubt your theory?

If you can't make any predictions at all, if everything that hhappens can, after the fact, be fitted into your theory, then I woudl say the theory is no better than a theory which says "Whatever happens, happens", or "The economy is basically a random number generator".

Major_Freedom said...

Zachriel:

"Major_Freedom: Prove it."

We covered this above, but will do so again. The simplest way is to simply adjust the data for inflation.
http://inflationdata.com/inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart_sm.jpg


That is a flawed method. The way the "real" price is calculated is by indexing the price by an inflation deflator, the CPI. But inflation of the money supply doesn't affect all prices equally. It affects some goods differently than others.

Inflation of the money supply can lead to the price of oil and gasoline rising by 20% all because of inflation of the money supply, and yet consumer prices in general in thee CPI rose by something like 2% or whatever.

By deflating the nominal price of oil by a consumer price index, it will severely under-report the extent to which inflation of the money supply is the cause.

A much better metric is to compare the price of oil to the price of gold. In this way, because gold is a good measure of inflation of the money supply, then we can infer that if the rise in the price of oil is due primarily to non-inflationary factors, then it should rise relative to gold. If on the other hand oil isn't rising in price relative to gold, then we can infer that the rise in price is primarily inflation driven.

So what do we see?

http://www.businessinsider.com/everything-priced-in-gold-2012-3#us-first-class-postage-has-been-getting-cheaper-in-the-last-decade-in-terms-of-gold-despite-rising-stamp-prices-1

Second chart.

Since 2009, the price of gasoline in terms of gold has remained flat. that means that the recent run up in gasoline prices is due primarily to inflation of the money supply.

"Major_Freedom: You even asked me before about it, and I told you."

As your use of the term is non-standard, you might just spell out monetary inflation so your meaning is clear.

I shouldn't have to do that once I have already established my definition. I don't expect you to keep putting "price" in front of "inflation" every time you use the word "inflation", because unlike you, my brain is not so defective that my memory lasts only a short while.

You seriously need to improve your memory. It's total shit.

So no, I'm not going to keep saying what you want me to say. It's your responsibility to remember.

Zachriel said...

Major_Freedom: You seriously need to improve your memory.

Major_Freedom: A much better metric is to compare the price of oil to the price of gold.

Which we did above.

Century
http://tinyurl.com/gold2oil

Post-WWII
http://fintrend.com/wp-content/uploads/2011/09/Oil-vs-Gold.jpg

Major_Freedom: Since 2009, the price of gasoline in terms of gold has remained flat. that means that the recent run up in gasoline prices is due primarily to inflation of the money supply.

Notably, you ignored the wild fluctuations in 2008. But yes, inflationary pressure is part of the picture, not just monetary expansion, but a hedge against future monetary expansion.

Major_Freedom: I shouldn't have to do that once I have already established my definition.

The proper use of the term was established in the original post which concern the proper measure of price inflation.

Major_Freedom said...

Zachriel:

Major_Freedom: You seriously need to improve your memory.

Major_Freedom: A much better metric is to compare the price of oil to the price of gold.

Which we did above.

You arbitrarily said a factor of 2 in volatility of the price of oil in gold is "hardly stable."

And yet the price of oil in dollars has fluctuated by up to factor of 13 ($10 price in early 1970s, and $130 in 2008).

Gold price of oil is far LESS volatile than dollar price of oil.

If you go by volatility, gold is far superior to dollars.

Major_Freedom: Since 2009, the price of gasoline in terms of gold has remained flat. that means that the recent run up in gasoline prices is due primarily to inflation of the money supply.

Notably, you ignored the wild fluctuations in 2008.

That's because it was AFTER 2008 that the Fed engaged in massive inflation.

But yes, inflationary pressure is part of the picture, not just monetary expansion, but a hedge against future monetary expansion.

It's the major part of the picture.

Major_Freedom: I shouldn't have to do that once I have already established my definition.

The proper use of the term was established in the original post which concern the proper measure of price inflation.

No, I already established my definition of inflation. Calling your definition "proper" is not going to make my definition wrong. Definitions can't be wrong. Only substantive arguments can be wrong.

I use the original definition of inflation, and I am not about to stop using it, so at some point you're going to have to address my arguments given the definitions I use, rather than having tremendous difficulty doing some basic translating of words into your own language as you go along.