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Inflation will happen – Fed or no Fed
Since the beginning of the credit crisis last summer, Fed policy has been purely inflationary - intended to convince people that they had more money and credit than they thought...and that they should spend it and invest it. But that policy can’t work forever. Eventually, consumer prices rise sharply. Then, the game is over...the Fed has to "lower inflation expectations" before it can inflate again. The hocus pocus only has a positive effect, in other words, as long as people are misled...once they catch, the jig is up.
The jig really is up. I believe that.
An entire generation has grown up with 1) a dollar with no connection to gold, 2) a dollar that actually rose against gold for 20 years, 3) Wal-mart’s Every Day Low Prices, 4) apparently inexhaustible supply of cheap labor 5) globalized markets and supply chains and 6) falling bond yields. No wonder people began to think that inflation was no problem...and never again would be. Central bankers claimed they could now control economic cycles so as to have growth without inflation...boom without bust...forever. But forever seems to have come to an end already.
Well, we've still got a forever war. That's something I guess.
Sunday Night Futures
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Weekend:
• Schedule for Week of November 24, 2024
Monday:
• At 8:30 AM ET, *Chicago Fed National Activity Index* for October. This is
a composite index of ...
7 hours ago
4 comments:
Stag,
http://www.federalreserve.gov/BoardDocs/Speeches/2003/20030531/default.htm
I read the above on The Financial Ninja blog.
Bernanke's speech bugs me. He appears to equate well being with spread sheet wealth (aka debt/fiction). Debt is a burden. If people choose it freely then so be it. Forcing it randomly upon people via negative real interest rates to bail out previous debtors is really wrong IMO.
MAB,
Nice 2003 speech.
Addressing the deflation problem would bring substantial real and psychological benefits to the Japanese economy, and ending deflation would make solving the other problems that Japan faces only that much easier.
No deflation here so far (as seen in the CPI). Substantial housing benefits (excluding all those ineffective deflation fighting subprime loans and the housing crash). Consumers have never been in a better "psychological" mood (excluding the multi-decade low in consumer confidence brought on by rising prices in necessities). Solving the other problems has been a piece of cake (excluding the price of flour and the energy needed to make the cake that is).
No fears. His negative real interest rates are creating vast hoarding opportunities for those who enjoy broken economy economics. Those same hoarding opportunities will either end up in yet another serious bust (commodity bubble), stagflation, and/or hyperinflation. The latter would be proof that he truly won the battle on deflation.
Stag,
Addressing the deflation problem would bring substantial real and psychological benefits to the Japanese economy,
Once again, it's a matter of distribution. If prices rise faster than incomes for the majority, it's unlikely psychology will improve. Unless the majority enjoys becoming poorer.
Bernanke literally wants to throw money at the problem. It's a good thing the money doesn't grow on trees. Harvesting tree money would actually invlove work. We certainly wouldn't want work to slow down our desperately needed money creation process. Free lunches.
MAB,
Once again, it's a matter of distribution.
I'll second that. Redistribution seems to be a long-term plan of ours.
Inflation redistributes the wealth from the savers to the spenders. Government is the biggest spender of all. It takes a lot of money to generate free lunches.
Then there's the redistribution of income (as seen in average wages vs. median wages).
And lastly, every Banana Republic needs to redistribute bananas. We're no exception.
WTO rules against EU again over bananas
http://uk.reuters.com/article/gc08/idUKL1934774520080519
The United States does not export bananas to the EU, but three of the biggest distributors with plantations in Latin America are U.S. multinationals -- Chiquita Brands International Inc (CQB.N: Quote, Profile, Research), Del Monte Foods Co (DLM.N: Quote, Profile, Research) and Dole Food Co.
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