Posted on 10/22/2015 8:43:19 AM PDT by Kaslin
In a world in which the Cold War is a fading memory, North Korea and Cuba endure as museums of communism, so no one will forget how criminally insane it always was. In a world haunted by the specter of persistently falling prices, some countries are creating severe inflation, so we can be grateful for its virtual disappearance.
One of the governments providing this public service is that of Venezuela, where the currency has lost so much value that even robbers reject it. A recent carjacking victim told The New York Times his armed captors had no interest in his bolivars. They only wanted to know whether he had U.S. dollars stashed somewhere.
That sort of thing happens when annual inflation is over 150 percent. Feeding a family of five for a month cost three times more in August than it did a year before. Shortages abound; black markets are proliferating; and Venezuelans find themselves bartering goods and services to get by.
The source of the malady is plain: a socialist government that has mismanaged the economy, which is also feeling the pain of falling world prices for oil, the nation's chief export. "There's been a lack of respect and understanding of the implication of money printing and excessive money creation on the economy," former International Monetary Fund official Claudio Loser told The Wall Street Journal.
The more currency that is produced the less anyone wants it. "People are literally getting rid of money faster than the government can print it," Bank of America economist Francisco Rodriguez said.
Venezuelans find that their misery has only a little company. The yearly rate in Argentina has run above 20 percent for years and is now around 30 percent. Malawi is at 24 percent. Each day, the coins and bills their citizens carry buy less than the day before.
This may be hard for Americans to imagine, given their recent experience. On average, over the past five years, the consumer price index has risen at the minimal rate of 2 percent annually, and the inflation rate hasn't reached 4 percent since 1991. Many adults have never had the dread experience of watching prices rising rapidly across the board year after year.
Their elders, who were not so lucky, retain a fear of inflation in their bone marrow. Baby boomers were raised on lurid tales of hyperinflation in 1920s Germany, when consumers had to carry piles of money in wheelbarrows to do their normal shopping. That wasn't the worst of it. The trauma, we were taught, led to the rise of Adolf Hitler.
In the 1970s, we got our own taste of it. The U.S. inflation rate soared into double digits and stayed there. A bag of groceries that cost $20 in 1972 cost $46 in 1982. The price of gold skyrocketed from $38 per ounce to $615. Not much imagination was needed to picture a sudden run on wheelbarrows.
It didn't happen, thanks to a Federal Reserve that, in the early 1980s, slammed on the brakes by raising interest rates and curbing monetary growth. Since then, inflation has stayed tame -- to the point that these days, the debate is about whether we have enough of it. Charles Evans, president of the Federal Reserve Bank of Chicago, recently argued that the central bank shouldn't raise interest rates until "we begin to see some sustained upward movement in core inflation."
That view is at odds with the demands of those Republicans who have been predicting a nasty outbreak of inflation since at least 2009. Conservatives once had to battle to get liberals to recognize the harm done by creating too much money. But rather than celebrate their victory, they keep fighting the last war. As a result, they ignore the new danger, which takes the form of deflation and slow growth.
In September, the Bureau of Labor Statistics reported that U.S. inflation over the previous year was zero. The European Union's inflation was less than zero. Japan is in the same territory. Falling commodity prices are a threat to developing countries whose economies depend on exporting raw materials. A little inflation might be a good thing for growth.
No one would have imagined a couple of decades ago that we would learn how to stop high inflation and keep it stopped. Like communism, it can still be found in a few places. But like communism, it's no longer much of a threat.
Can you use it as a measure of inflation? No more than you can claim that the new 8.5 oz cans of soda are a measure of inflation. But they are.
When the same dollar buys a lower quantity or quality of merchandise than it did last year, that effectively is inflation. Difficult to measure, but easily visible to the consumer all the same.
Exactly, so many people keep getting this wrong. Thank you for making the same point I was going to post.
Thanks for the kind words. I’ve posted the same before on FR and received angry responses. I guess some people, including Conservatives fall for the propaganda.
If one looks at long term charts, the really harmful or noteworthy periods of inflation in the United States were due to war. Our only period of hyperinflation was after and I believe during the Revolutionary war.
Countries like Venezuela and Zimbabwe are different. Their governments destroyed production and the politicians stole what money or assets they could.
Inflation in Venezuela is due to printing money. Inflation in Zimbabwe was due to printing money. The reason that they printed money is because they previously destroyed production and stole (confiscated) assets and they wanted to pay out welfare payments without any tax base. Solution: print money.
The main reason our own money printing doesn't create (much) inflation is that the printed money is being used to buy assets from banks and being handed to politicians . The politicians are not turning around and handing it out as welfare to any great extent like the Venezuelans do. So it is not creating a lot of real inflation. But it is creating some as previous posters have noted.
Many people underestimate the effects of low employment growth, productivity, low or negative income growth, negative income and wealth effect, relative to pre-Great Recession period (in large part due to fiscal and regulatory policies of Obama administration) as well as cheaper production of many goods and services due to automation, disunionization and importation of deflationary or disinflationary trends from parts of Europe and Asia, and more recently huge "tax cut" for consumers in the form of lower oil / gasoline and energy (coal, NG) and commodities (iron, steel, copper etc.) prices which dampened the rise of consumer prices (different sectors are affected differently to these inputs) which are countering generally inflationary administration policies, like ObamaCare, rabid "environmentalism," financial regulations etc. etc. ...
From The Bacon-Cheeseburger Index - B (sub), by Robin Goldwyn Blumenthal, 2015 October 03
Janet Yellen is plotting the monetary future using complex data points that consider inflation, employment, and productivity. But one brokerage is resorting to more tangible evidence: bacon cheeseburgers. Nicholas Colas, chief market strategist at Convergex, a global brokerage based in New York, tracks "off the grid" economic indicators. He found that measuring the prices of ingredients in a bacon cheeseburger can determine the impact of inflation. Colas tracked prices for ground beef, cheese, and bacon since 1980 — he left off the bun "in deference to history and those on a low-carb diet." It turns out the bacon-cheeseburger index reveals deflation over the past few months. On a year-over-year basis, the ingredients fell 2.9% in June, 1.2% in July, and 2.7% in August. Historically, bacon-cheeseburger deflation has signaled a slowing economy, he notes. "Go back through the price history, and negative 3% to 4% price declines for bacon cheeseburgers are often a sign that the Fed needs to cut interest rates and push liquidity into the domestic economy. I know that sounds weird, but the last time our bacon cheeseburger showed negative price trends of this magnitude was in 2009. Before that, it was 1998 [Asia crisis] and 1991-92 [Gulf War I]." Will Yellen heed the warning and delay rate hikes? Colas urges her to sink her teeth into this issue: "Even if bacon cheeseburgers aren't on the cafeteria menu at Fed HQ, Chair Yellen would do well to heed the sizzle of deflationary pressures." Uh-oh: The last time the bacon-cheeseburger index showed deflationary trends of this magnitude was 2009.
Also have to keep in mind that "inflation" or more properly, CPIs, are measured year-over-year, so comparing the price of certain goods or services today to the prices of decade ago is not a proper measurement of consumer price increases or decreases.
Also, the increase in money supply (or more accurately in this case, US Dollar supply) whichever Mx you want to use, will not necessarily show up in consumer price increases, since it's used and in high demand all over the world, even at a ZIRP rate, since quite a few countries have effective negative interest rate of return.
Reagan has a huge war expenditure and that should have generated inflation according to your theory, but it did not.
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It’s not a theory, it’s an observed fact. Reagan’s military expenditures as a portion of GDP were nothing compared to the Revolutionary war, the Civil War or WWII.
I'm sticking to the Snickers Index.
Inflation in Venezuela is due to printing money. Inflation in Zimbabwe was due to printing money. The reason that they printed money is because they previously destroyed production and stole (confiscated) assets and they wanted to pay out welfare payments without any tax base. Solution: print money.
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I agree. Thanks for confirming what I said.
That has been my assessment as well. Higher milage tires might or might not be available for a particular vehicle. There are tire manufactures that claim ~90K tread life. Those tires have close to twice as much tread as your standard all season tire and have lower speed ratings. If you want that kind of tire, you have to find out if it is available before you buy the car. Your not going to find that kind of tire being available for sports cars or higher end sedans...
Here's how you save on pickles:
1. When empty, save the jar and the juice.
2. In mid-summer, go to a farmer's market. Buy a bunch of pickling cucumbers when they're plentiful and at their cheapest.
2b (alternative) Grow your own pickling cucmbers in your garden. There are several nice pickling types: Sumter, County Fair, Picklebush, to name a few.
3. Scrub cucumbers with a vegetable brush under hot water, and then place in jar of pickle juice.
4. Fill to top. If cucumbers stick out above juice, top jar with salt water.
5. Keep jar in refrigerator. After 1 week, start eating. They get better with time.
I have three giant jars in fridge right now from summer cukes from the garden. I have 5 more not in the fridge but ones I pickled from scratch (not from leftover juice). I also pickle jalapeno and banana peppers.
6 ozs (170 grams)
Well I know for a fact that that exact brand of Tuna was $0.50 in 2008 ( used to eat tuna and crackers for breakfast several times a week back then) and is now $0.95 at the same store I bought it from back then.
If we calculate 6 oz/0.50 vs 5 0z/0.95, I believe we will discover that the increase in cost is 2.28 times, meaning over 100%.
Also this web page confirms the price at over $1.00 per can. (You have to attempt to buy it. They sell a 24 pack for $26.74.)
2% annually my ass... only because they leave out a crapload of things.... Like food... and energy... the 2 things you can’t live without... while Shale natural gas has lowered energy and gas is off its highs, food prices are outrageous.
Beef is easly up 30% in a few years, as well as other food stables.. etc.
2% is a joke, paying way more for things now than I was 5 years ago.
Well you noticed who the author is, didn’t you?
Thanks for the tip. I do that with cabbage leaves, which works out pretty good. Gotta eat 'em fast though. Left some in for a couple of months and they turned leathery.
Fixed.
“I don’t know all of this with any certainty. Just trying to advance the conversation here.....”
You’re on the right track. People tend to see any price rise in familiar items as a result of inflation but food price hikes can be caused by crop failure or the killing off of animal herds for disease or because government regulation increases the costs of farmers.
Foreign demand also drives up our prices- we made China wealthy and they now compete with us to buy things, food included.
True inflation is a monetary event that causes widespread price hikes in everything, not just food or some other particular sector.
Inflation will reveal itself in rising interest rates because bond investors will demand an inflation premium. Interest rates have been miniscule since the beginning of Dubya’s term, this isn’t what you see in an inflationary environment.
Ronald Reagan and Paul Volcker worked together to break the back of inflation. Volcker bringing monetary growth to a halt was part of coordinated strategy and it played a major role in ending inflation.
bird flu causes egg prices to spike...but that’s not “inflation”...and so on.
good post...
personally...I think we are in a soft depression...
Volcker also brought the economy to a halt, which devalues the currency by reducing goods and services, and that’s inflationary. At best it’s a wash. In practice all he did was cause a nasty recession.
I have read that Reagan gave Volcker the green light to do what he did. Nobody’s perfect.
Slashing government growth and regulations along with an increase in private sector growth and productivity is the only way.
“personally...I think we are in a soft depression...”
That’s my suspicion as well and it’s not hard to guess the reason why.
There was a massive collapse in financial assets owned by banks when the housing bubble popped and millions of people defaulted on their mortgages. A very large number of banks found themselves without the assets to support their outstanding loans, they were technically bankrupt.
The hard depression and massive deflation of the 1930s was the result of one third of our banks going under. We could have experienced a replay of that except for some safeguards put in place in the banking system, FDIC being one, and the fact that the Fed learned from its 1930s experience and was proactive in keeping banks afloat this time. It appears that that was what TARP was for, although it was done without protecting the taxpayers IMO.
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