Friday, April 15, 2011

Scariest Headline of the Year

April 15, 2011
Without Wage Growth, Inflation Can’t Stick: Bernanke Is Right to Ignore CPI, Levy Says

On the one hand, I think it is arrogant to say that inflation can't stick. We have exported roughly $10 trillion (adjusted for inflation) in paper as part of our cumulative trade deficit. Surely that alone should make us at least entertain the possibility that inflation could occur. Further, the idea of ignoring the CPI seems more than a bit ridiculous to me. I might be biased though. The majority of my investments are tied to the CPI (TIPS and I-Bonds).

On the other hand, I continue to believe we are trying to combine the deflationary Great Depression and the inflationary 1970s. I can therefore very much sympathize with the following quote from the article. I think it backs my theory.

In sum, Levy believes the lack of wage growth means Americans won't be able to pay higher prices for very long, and the higher cost of food and energy will cause them to cut back on spending for discretionary items, like vacations and eating out.

And on that third hand, Americans are not the center of the universe. If the universe determines that Americans will see inflation, then Americans will see inflation. I do think we can see some of that in universal oil prices, universal gold prices, and universal silver prices. How much of that trickles into national toilet paper prices has yet to be determined.

9 comments:

getyourselfconnected said...

Hey Mark! Great post, I had quite a few thoughts on it but its geting late. Good to see you my man.

Stagflationary Mark said...

I should probably mention the reasons I consider this to be the scariest headline of the year.

1. Without Wage Growth
2. Inflation Can't Stick
3. Bernanke Is Right to Ignore CPI

I might not have been all that clear in my post, lol. Sigh.

Stagflationary Mark said...

GYSC,

I'm inching my way back into more posting activity it would seem. :)

Stagflationary Mark said...

I should also mention that I'm only speaking about economic headlines here in America.

There's Japan of course. Those headlines were clearly scarier.

And on a local level, this is scarier yet.

Postal worker caught on camera using yard as bathroom

Mr Slippery said...

The hard thing for most people to get about inflation is that is happens asynchronously. The people with first access to new credit money (government and banks) get to spend it into the economy at full value.

The new money drives prices up for different goods and services at different rates depending on the preferences of those that get to spend it first. Then, it moves through the economy until those at the bottom get it by which time many things they want to buy have been driven up in price by the first spenders.

Insidious and evil, but great if you are a government or bank or one of their boot licking lackeys.

Stagflationary Mark said...

Mr Slippery,

I agree! I think those same thoughts when I am hoarding stuff at Costco and Sam's Club.

If inflation does appear and remains persistent, then those who hoarded early will do better then those who hoarded later.

Those who are living paycheck to paycheck do not have the ability to hoard though, or worse, they have hoarded nearly useless items and are paying rent to store them in many of this country's many self-storage units. Sigh.

Stagflationary Mark said...

One more thought.

I'm not necessarily predicting that we will see persistent inflation.

I heard Jim Chanos speak again recently. I turn a bit deflationary just listening to him. He seems like a very smart man to me and we heckle a common interest: China.

Troy said...

There is another class of goods that economists have been trained to unsee . . . land.

Show me flat wages and escalating food, government, energy, health costs, and I'll show you a land market under pressure.

The existing stock of housing has a current production cost of $200/mo or so -- that's how much it costs to make economically available, and that's how far rents can drop.

Stagflationary Mark said...

Troy,

There is another class of goods that economists have been trained to unsee...

Very amusing way to word it!