Thursday, September 20, 2007

A Deflation Argument

This is a chart of the change in the seasonally adjusted CPI-U over the previous three months and then annualized. The trend line is a 3rd order polynomial. It just seemed to fit the data best in my opinion.

I know that this might sound like heresy these days, but it is possible that Bernanke did time the rate cut right. History (and our housing market) might even show he was a bit late.

I could go either way on this (and often do!).

Source Data: Consumer Price Indexes (CPI)


Anonymous said...

Thank god for the Jan. 2006 and Jan 2007 rate cuts that reversed the trends!

Stagflationary Mark said...


I can easily explain the trend reversals.

In 2006, a relatively large hedge fund tracking the flapping of seven butterfly wings in Argentina placed its bets on the world economy while another hedge fund was tracking three flapping butterfly wings in North Korea. The combination was brutal to the housing market.

One year later, the standing waves created from the flapping of these ten butterfly wings pushed one butterfly located in Central America 1.3 inches southward towards South America, which had a severe impact on the price of goods and services within North America due to its proximity.

That's how leveraged we are! :)