Posted on 07/14/2007 11:02:40 AM PDT by bruinbirdman
Good grief....don’t sound hysterical. Coins ADD UP to DOLLARS.
I see this was not addressed.
yitbos
Birdman, you said:
“My house is up 100%, my portfolio has doubled in the last 5 years. It is good to stay ahead of inflation.”
You aren’t beating inflation:
1) The money supply (M3) has doubled in the last 5 years
2) gasoline has more than doubled in the last 5 years
3) food prices have more than doubled in the last 5 years (http://money.cnn.com/2007/06/19/news/economy/commodity_prices/index.htm)
I can confidently say that prices will probably be up at least another 100% 5 years from now in 2012.
You don’t say what’s in your portfolio, but unless it’s energy and other commodities, you won’t be beating inflation for the next 5 years either. And good luck trying for another 100% appreciation on your house by 2012 too.
“Fortunately, the people who manage interest rates are smart enough to ignore these folks.”
What do you think the price of money is? It is called “interest rates”. Interest rates should be set by the free market, as they were before the Fed.
In addition to its central planning gig, the fed’s other main job is to “sell” the $US by understating inflation. Core or Headline, it doesn’t matter, the published inflation rates are far below reality.
Yeah, just look at all that price stability we had under the gold standard. The Fed has done a pretty good job managing monetary policy through interest rates since 1982. That stability has helped create the environment for capital formation and innovation that has made our economy and net worth dramatically increase since.
In addition to its central planning gig, the feds other main job is to sell the $US by understating inflation. Core or Headline, it doesnt matter, the published inflation rates are far below reality.
Is that why our the 10-year T-bill is yielding just 5%? Because inflation is so much higher than what's being reported? All those people who make money buying and selling bonds, who have access to so much information, are all, in reality, losing huge amounts of money because they don't know what the real rate of inflation is? But you do? Sorry. That horse doesn't ride.
The appreciation of assets are coming out faster than they can accummulate. Unless the fED acts to raise rates, which will kill the buisness cysle, we are headed to .55. That is not a place where any of us want to be.
You didn’t answer my question. Do you think interest rates should be centrally managed or set by the free market?
I don’t know that commenting on tbond prices would be helpful. If you don’t think inflation is higher than 5%, you also are not likely to understand the reasons why bond rates are not higher (hint - if you want to “set” or “control” interest rates, you buy bonds to keep rates down. look at the balance sheet of the fed and see how their inventory of bonds has been piling up. they are printing money to buy these bonds - this will cause yet more inflation)
Maybe the people who think the rate of inflation is +15% annually don't have any idea what they're talking about.
1) The money supply (M3) has doubled in the last 5 years
Is that based on supply or demand? Is all that money staying in the US? Do you know the components of M3? Many of the components have nothing to do with the supply of money available for spending. Besides, the Fed has used interest rates, rather than money supply, to spearhead monetary policy for about 25 years now.
2) gasoline has more than doubled in the last 5 years
3) food prices have more than doubled in the last 5 years
First of all overall food prices haven't doubled over the past five years. That's nonsense. As long as the available money supply doesn't increase faster than our GDP growth there will not be inflation. People who spend more for gas and food will spend less on other things. As Friedman said: Inflation is always and everywhere a monetary phenomenon. Inflation is caused by too much money chasing after too few goods.
I can confidently say that prices will probably be up at least another 100% 5 years from now in 2012.
Based on what, you're feelings? I suppose you also know where interest rates are going. LOL
You dont say whats in your portfolio, but unless its energy and other commodities, you wont be beating inflation for the next 5 years either.
Corporate earnings are at record highs but the only way to beat inflation is with commodities? How much food do you keep in your survival shelter?
And good luck trying for another 100% appreciation on your house by 2012 too.
If inflation increases 100% over the next five years so will value of his home. Doesn't inflation increase the value of tangible assets? Or is our imminent economic collapse going to make all assets valueless?
“Is that why our the 10-year T-bill is yielding just 5%? Because inflation is so much higher than what’s being reported? All those people who make money buying and selling bonds, who have access to so much information, are all, in reality, losing huge amounts of money because they don’t know what the real rate of inflation is? But you do? Sorry. That horse doesn’t ride.”
One more piece of advice for you:
Keep all your assets in cash, earning 5%. Check back with us in 5 years and see if you can purchase the same amount of energy, health care, food, higher education as you can today. You’ll then understand that central planners frequently hold “real” interest rates below the rate of inflation.
If you don’t want to wait 5 years to find out how poorly cash is holding up its purchasing power, do a thought experiment and roll back 5 years ago to 2002. If you had kept any amount of cash earning the sub-5% interest rates of the time, do you think you could buy the same amount of goods today?
I did answer your question. If by the "free market" you mean the gold standard, you can plainly see from my chart that except for a few hiccups, the Fed has done a much better job of creating price stability (especially since '82) than we had under the gold standard. I like what works.
I dont know that commenting on tbond prices would be helpful. If you dont think inflation is higher than 5%, you also are not likely to understand the reasons why bond rates are not higher
You predict 100% inflation over the next five years and you think all those smart folks in the bond market are buying 10-year bonds so they can lose their asses?
(hint - if you want to set or control interest rates, you buy bonds to keep rates down. look at the balance sheet of the fed and see how their inventory of bonds has been piling up. they are printing money to buy these bonds - this will cause yet more inflation)
Again, all those people buying long term debt are doing so, oblivious to what's so obvious to you, to lose money? I think those people are a lot smarter than you give them credit. Knowing what you know must have made you a wealthy person indeed.
#1 (question on M3). Your questions indicate you don’t know what M3 is. Would take to long to explain, go read up on it.
#2 (food prices). Your implied definition of inflation is actually correct, which is why I’m surprised you missed the point. Inflation is in fact the growth of money over and above the growth of goods and services (GDP). Now, if we know M3 is growing at GREATER than 10%, but GDP is quoted as 2-3%, then we know by definition that there is inflation.
#3 (prices up another 100% in 5 years) - see comments on #2. All that money that is being printed and is currently being held outside the US will come home (examples: China sinking $3billion into hedge funds) and will drive up prices.
#4 (housing) - housing is deteriorating because the “monthly payment consumer” is not able to make the payments on his ARM loan. Defaults are increasing drastically - read up on the 2 Bear Stearns CDO hedge funds that just went to $0 this week. They held mortgage derivatives
LOL!!!!!! I guess I’m done here...you are a lost cause.
“the Fed has done a much better job of creating price stability (especially since ‘82) than we had under the gold standard. I like what works.”
Why don't you show us the Fed's balance sheet? Prove your point.
Shadow Stats? That guy is funny!
They do have google to help find this kind of stuff, but here’s a chart for you from the St. Louis Fed. Looks like exponential growth to me.
Interest rates are still set by the market.
He knows his stuff, it’s good that he’s sharing.
(hint - if you want to set or control interest rates, you buy bonds to keep rates down. look at the balance sheet of the fed and see how their inventory of bonds has been piling up. they are printing money to buy these bonds - this will cause yet more inflation)
You think $800 billion in bond purchases, $300 billion since 9/11, would be enough to pull the "true" interest rate from 15% (your rough inflation rate in post #44) down to 5%? In a $13 trillion economy? That's funny!
I wonder how much extra debt was issued since 9/11? I guess if you issue $200 billion and the Fed buys $100 billion, in your mind that would keep rates below the "true" rate?
All countries have central banks, and interest rates the world over are set through central planning.
http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070628/default.htm
http://en.wikipedia.org/wiki/Federal_funds_rate
If you think the market is setting rates, do you also think that inflation is in the 2-3% range (which would imply long rates in the 5% range is OK). The 2 concepts are inconsistent.
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