Posted on 02/26/2006 3:43:27 PM PST by peyton randolph
bttt
So again with no data?
But by what objective measure is 2 percent inflation better or "safer" than 2 percent deflation
If 70% of households own a home, 70% will be hurt by dropping home values. Borrowers real interest rate will be higher. Manufacturers, farmers, commodity producers will be hurt by falling prices for their goods. They will lay off workers.
hence changes in the CPI ex food and energy are a better indication of the general trend
Do you agree?
... and your point is?
CPI numbers are there for all to see. Whining about "Core is great if you don't eat or use energy" is juvenile.
roughly the same degree of comfort
Those airbags keep more people alive. That's got to be worth something.
You corn syrup example is an argument for diminished quality not the benefits of substitution.
That's funny. Yes, when filet gets too expensive and people substitute chicken, I think it's safe to say the chicken is lower quality. That's why it's cheaper.
and the benchmark product is readily available and sold in quantity.
If you mean cane sugar, yes, but not in processed food (as much).
Theft is funny isn't it. Party hardy.
Neither is deflation and depression.
One last question: What other parts of the Constitution do you believe should ignored when special interests deems it expedient?
I'm sorry, which part was ignored?
For a general outline of the debt issue at a basic level try the following secondary source. http://mwhodges.home.att.net/nat-debt/debt-nat.htm
"If 70% of households own a home, 70% will be hurt by dropping home values."
You seem to believe that I am advocating a systematic deflation. Take a couple of deep breathes and read what I have written.
In any event, in a stable / honest money environment, until homeowners sell, the only conceivable harm"harm" is that the refi cash extraction cycle based on asset appreciation is not available. When the homeowner ultimately sells the dollars they receive under a stable [honest] money approach would have the same purchasing power as the dollars they borrowed. The economic position is the same with any gain or loss reflective of a true change in economic value as opposed to being a function of the liquidity sloshing around.
Based on the exchanges we have had until now I believe that you fancy yourself a free markets sort. Why then do you believe that the Government and the Government's proxy should consistently dink around with the price, and quality / quantity of money.
There is nothing written in stone that the Government must continuously debase the currency to benefit debtors.
"Borrowers real interest rate will be higher."
Sounds like an admission that it is theft or if you prefer a milder term, another form of subsidy or transfer payment. Or maybe price controls in terms of manipulating the price of money [interest]. If you are looking for a welfare payment, be honest about it, if only with yourself.
"Manufacturers, farmers, commodity producers will be hurt by falling prices for their goods."
And benefited by lower costs.
"They will lay off workers."
Maybe, How about some facts [and if you are going to cite the 1930s please look at the rest of the series post World War I.
[In regard to the usefulness of the "core rate calculation] "Do you agree?"
Sure, I think you were quoting me. Additional analysis can be useful.
" CPI numbers are there for all to see. Whining about "Core is great if you don't eat or use energy" is juvenile.
If the purpose of the headline number is tell the average Joe what happened to his purchasing power last month, the full up number is more appropriate. Often times the five minute news blurbs on radio only report the core.
Over longer periods of time, core rate is indeed only a better measure of the general price level if you don't eat or use energy. What part of that statement is inaccurate or emotional? "
Those airbags keep more people alive. That's got to be worth something."
Quality improvements are worth something. I will restate what I wrote in an earlier post about quality hedonics. These adjustments have some merit, but could be used to report whatever adjusted number desired, if that is the intent. Absent motive, the adjustments are conceptually valid, but are still highly subjective.
"That's funny. Yes, when filet [sic] gets too expensive and people substitute chicken, I think it's safe to say the chicken is lower quality. That's why it's cheaper."
Yup and via the substitution process for lower value items, the new and improved CPI market basket gets a lower price going forward without reflecting what the index would have been with the fillet. That is how many substitutions work. The fact that a consumer can scrimp is not a drop in the general price level for consumers.
" Neither is deflation and depression."
I have never, and am not advocating "deflation and depression." OTOH, you are apparently advocating theft by deception.
"I'm sorry, which part [of the Constitution ed.] was ignored?"
Read what the constitution has to say about money. Read the tenth amendment. Then try to determine how the Fed and systematic monetary debasement fit into a Constitutional framework.
You seem to be fearful of deflation, but unconcerned about debt. Are you unaware that it is cascading debt defaults that drive significant deflations? Based on that, you should be concerned about the willingness of American and Americans to pile on more and more debt. As debt builds, it becomes increasingly difficult to strike a balance. One a tipping point is reached -- Weimar or Japan [or worse].
Party hardy dude.
You seem to think I'm advocating a systematic inflation. Because the Fed is not perfect and monetary policy works with a lag, 2% inflation is safer than 0% because there is a smaller chance of going from 2% inflation into deflation than going from 0% into deflation. Yes, in a perfect world, if possible, 0% inflation is better than 2%.
Sounds like an admission that it is theft or if you prefer a milder term, another form of subsidy or transfer payment.
No, just an admission that if you make real interest rates higher you will get less borrowing. If that doesn't bother you, that's fine. If the reduced borrowing leads to less output and fewer jobs and that doesn't bother you, that's fine.
Based on the exchanges we have had until now I believe that you fancy yourself a free markets sort. Why then do you believe that the Government and the Government's proxy should consistently dink around with the price, and quality / quantity of money.
If there were a workable way to set the money supply so it wasn't "dinked around with" I'd be all for it. Gold won't work anymore, so dink we must.
And benefited by lower costs.
Unfortunately, the savings won't outweigh the pain. Consumers will benefit. During the Great Depression, the 75% who were employed probably enjoyed the lower prices. The other 25% were screwed. Manufacturers who aren't driven out of business will benefit, the rest (and their employees, creditors, suppliers) will be screwed.
Often times the five minute news blurbs on radio only report the core.
The MSM reports whatever makes Bush look worse. And then they report the Core rate with the if you don't eat or use energy snarkiness.
The fact that a consumer can scrimp is not a drop in the general price level for consumers.
I thought CPI was based on a basket of goods purchased by the "typical consumer"? If the typical consumer changes the items purchased.......
Read what the constitution has to say about money. Read the tenth amendment. Then try to determine how the Fed and systematic monetary debasement fit into a Constitutional framework.
If only gold and silver were still practical.
You seem to be fearful of deflation, but unconcerned about debt.
Who said I'm unconcerned about debt? I do know deflation makes it more difficult to pay off debt.
Based on that, you should be concerned about the willingness of American and Americans to pile on more and more debt.
Yes, debt is rising. And so is net worth.
Party hardy dude.
Keep looking for the black lining.
"Yes, in a perfect world, if possible, 0% inflation is better than 2%."
Agreed as to the zero percent. However, I do not know who is taking the gloomy view of the current economic situation. If this economy cannot withstand a minor [for example a two percent] deflation, maybe it is more fragile than I thought.
"No, just an admission that if you make real interest rates higher you will get less borrowing. If that doesn't bother you, that's fine. If the reduced borrowing leads to less output and fewer jobs and that doesn't bother you, that's fine."
True as to the effect of higher true interest rates. However, manipulation of interest rates almost by definitions causes economic distortions through false signals to the economy. Maybe it really is easier for the Government / Fed to pick the ideal price of money [interest] than to fix / manipulate other prices to someones version of perfection. My concern remains that through constant manipulation of interest rates a lot of bad [or at least economically distorted] decisions have been made.
"If there were a workable way to set the money supply so it wasn't "dinked around with" I'd be all for it. Gold won't work anymore, so dink we must."
Maybe. As previously indicated, I would settle for a target of zero inflation.
BTW, with a gold exchange standard, most transactions would probably continue to be settled by lots of ones and zeros.
One other little tidbit, which is probably more coincidence than anything else: @$20.83 per ounce gold at the time the Fed was established and an approximate 96 percent loss in the purchasing power of the dollar over the period since 1913, you end up with a gold price in the same general range as the current price.
"Unfortunately, the savings won't outweigh the pain. Consumers will benefit. During the Great Depression, the 75% who were employed probably enjoyed the lower prices. The other 25% were screwed. Manufacturers who aren't driven out of business will benefit, the rest (and their employees, creditors, suppliers) will be screwed."
Do you foresee a calamity occurring solely due to a mild deflation? In any event, please recognize that it is the level of debt that causes and inflicts the most serious pain in a deflation.
"The MSM reports whatever makes Bush look worse. And then they report the Core rate with the if you don't eat or use energy snarkiness."
Actually, I think the MSM is more kind that I might be one this one -- usually "the core rate [which excludes food and energy]" sometimes followed by the "CPI including food and energy."
" If only gold and silver were still practical."
You may or may not be right. There is probably some price of Gold where a gold exchange standard would work, but the implementation would involve a higher gold price, more faith than most private holders of gold have in governments, and a consequential bout of inflation as at least some privately held gold was being monetized at higher than then prevailing market prices.
I am still very against Washington's dangerous tendency to ignore any part of the Constitution it finds inconvenient. Witness the numerous violations of the plain language of the Second and Tenth Amendments.
"I thought CPI was based on a basket of goods purchased by the "typical consumer"? If the typical consumer changes the items purchased......."
Correct, but my point was that to be an honest measure, the chicken for fillet substitution should also be reflected in the quality adjustment as well, not just as blip downward through the magic of substitution. IIRC that is not how it is done.
" Who said I'm unconcerned about debt? I do know deflation makes it more difficult to pay off debt."
It does at that. However, hopefully I adequately described the role that unserviceable debt has in triggering deflations -- particularly truly serious deflations.An absence of excessive debt equates to a very low probability of nasty deflations.
" Yes, debt is rising. And so is net worth."
Read the quote from Greenie in my earlier post again addressing the realities associated with unrealized gains from asset inflation. Greenie probably understands our current position a lot better than an examination of his policies would indicate. Some of the conspiratorial types even believe that he has been acting out the Francisco D'Anconia role from Atlas Shrugged. My best guess is that he believes in the theory that more pain later is preferable than a little pain now theory. My opinion is it might be better for his perceived place in history, but not for the American people.
In any event, the point is that inflating asset prices can deflate even in a loose monetary environment e.g. California real estate 15 years ago, NASDAQ in 2000. It did not take a general / monetary deflation to trigger those slides. If we have a significant real estate decline in more than a few markets, watch out for Fannie and Freddie and if they go ... BTW, continuation of the housing bubble does nothing but make a bust at some point in time much more likely.
There needs to be a margin of safety [savings and modest debt leveraging]. The long term trends indicate to me that the margin of safety is eroding. Without a margin of safety, cascading defaults can bring on the nastiest form of the deflation you fear so much.
I think we have thoroughly expressed our opinions. I congratulate you on having at least given considerable thought to monetary risks. I really do wish you well.
The problem is not the price that gold is monetized at. The problem is that after that point, the gold supply expands at some rate, maybe 2% a year, that is slower than the long term growth rate of the economy. Then we'll have long term deflation.
In any event, the point is that inflating asset prices can deflate even in a loose monetary environment e.g. California real estate 15 years ago, NASDAQ in 2000. It did not take a general / monetary deflation to trigger those slides.
IIRC, Greenspan inflated the money supply pre-Y2K and started to deflate in January 2000. I thought that, as well as the Microsoft persecution, led to the bubble popping.
I think we have thoroughly expressed our opinions. I congratulate you on having at least given considerable thought to monetary risks. I really do wish you well.
Good luck to you as well.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.