Posts
China to freeze energy prices
SHANGHAI -- Seeking to allay public discontent over inflation, China's government Wednesday froze prices on gasoline and other energy sources and warned of punishment for hoarding.
Quick question. How does one's inflation expectations change when there are penalties for hoarding? I can't speak for you, but I'd secretly be inclined to hoard even more (secretly of course).
That helped push the year-over-year inflation rate to 6.9% in November, an 11-year high.
This plan was also used successfully by us in the 1970s.
President Nixon Imposes Wage and Price Controls
August 15, 1971. In a move widely applauded by the public and a fair number of (but by no means all) economists, President Nixon imposed wage and price controls. The 90 day freeze was unprecedented in peacetime, but such drastic measures were thought necessary. Inflation had been raging, exceeding 6% briefly in 1970 and persisting above 4% in 1971. By the prevailing historical standards, such inflation rates were thought to be completely intolerable.
When I say the plan was used successfully, I actually mean that it was an absolute and utter failure.
While there were skeptics in August, 1971, there were a great many who thought "temporary" wage and price controls could cure inflation. By 1974, this notion was thoroughly discredited, and attention gradually turned toward a monetary approach to inflation.
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
-
At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
16 hours ago
5 comments:
Stag,
"While there were skeptics in August, 1971, there were a great many who thought "temporary" wage and price controls could cure inflation."
Sounds a lot like our current situation: Temporay tax rebates. Temporary increases to conforming loan limits. Temporary treasury auction facilities. Temporary mortgage freezes. Temporary emergency fed rate cuts. Temporary increases in the budget deficit. Temporary negative interest rates forcing prudent investors to abandon caution and maintain equity values (national wealth). Temporary bi-partisan congressional support (now you no we're screwed).
Hopefully its just "temporary" insanity.
One more similarity: Inflation above 4%!
MAB,
Temporary negative interest rates forcing prudent investors to abandon caution and maintain equity values (national wealth).
It seems to have worked. Few wanted TIPS at today's auction apparently. Of course, I just locked in a positive 1.75% real return (before taxes) for the next 20 years AND got it at a discount (making the yield 1.807%).
To put it in some kind of perspective, I represented 1/156th of our nation's noncompetitive bidders today (it really wasn't all that big of a bid, far less than the typical home loan these days). Where was everyone else? Swinging for the fences again?
http://wwws.publicdebt.treas.gov/AI/pdf/oft0124081.pdf
Individual investors can only participate directly through noncompetitive bidding. We represented just 0.4% ($37,505,000)of the total accepted bids ($8,974,275,000). It seems the middlemen were out in force today though (the other 99.6%). Thank goodness for them! I wonder what they're going to do with all those TIPS!
(I don't really wonder. The public will have access to what's left of the real yield once they pay middleman fees more than likely.)
As a side note, check out the last 30-Year nominal treasury auction.
http://www.treasurydirect.gov/instit/annceresult/press/preanre/2007/ofn1108071.pdf
Note that the noncompetitive bidders such as myself bought a mere 0.03% ($2,864,000 out of $7,566,895,000). It seems we noncompetitive bidders are rather stagflationary long-term and have "no interest" (pun intended) in locking in low long-term rates in a world seeing $90 oil. Go figure.
Oh well! As long as somebody keeps buying the nominal treasuries inflation expectations will continue to appear tame! We've at least got that going for us, lol.
The treasury markets seem to think that 30 years from now our dollars will be able to buy all sorts of stuff at reasonable prices. That's certainly what's been working for the last 20 years anyway. Anything that's been working 20 years surely must continue to work forever! *sarcasm*
Stag,
Noncompetitive bid rate for TIPS was > 10X that of 30 year. That seems significant. Makes sense though, 20/30 years is a long time.
If things get bad, I suspect the Gov't will just get a new yard stick.
MAB,
If things get bad, I suspect the Gov't will just get a new yard stick.
They haven't taken me up on my idea of backing the currency with canned green beans yet (presumably because it would show what's wrong with fractional reserve banking, since you can't loan out two cans if customers only deposit one can).
So here's another idea. Perhaps the government would be interested in owner equivalent canned green bean rentals. It seems a waste for me to simply stock up for potentially bad times when I could be renting those cans out.
I might even consider renting canned goods out, assuming I could get insurance through a reputable Wall Street firm. I'd want a guarantee that the rental cans would be returned to me in times of crisis (with a few extra bonus cans as interest). Of course, if the insurer doesn't have an adequate stock of green beans, I'm not sure how they'd be paying me back either (especially if the guy I loaned the cans to actually ate the contents).
Why worry though! Let's just assume that if the insurance holds up fine during the good times (when we don't actually need it) then it will also hold up fine during the bad times.
Post a Comment