Posted on 07/14/2007 11:02:40 AM PDT by bruinbirdman
I usually try to be timely, but this week in this column I admit I'm way behind. I unearthed a report released more than two years ago, but which contains such informational dynamite, its contents are worth dissecting even two years hence. So here goes.
I've often wondered why inflation is so clearly rampaging well beyond levels reported by the federal government. Case in point: On a fairly regular basis I buy 10 pound bags of carrots at my local Harris Teeter grocery store. When I started buying them two summers ago, a 10-pound bag was retailing for $3.99. It is now selling for $5.99.
I'm sure each and every one of you, dear readers, has a similar story. Or many, many, many such stories. How did we get to the point where $4 isn't shocking as the tab for a cup of coffee (or a coffee drink, as renamed by Starbucks.) How is it that when regular gas drops from $3.50 per gallon to $2.85 (as it recently did at my local gas station in suburban Washington, DC) we feel as if we're getting a bargain?
I've racked my brain trying to reconcile Labor Department reports of inflation running in the 2-3 percent range, while watching as housing, food, clothing, and transportation costs rise by double digits each quarter. Is the government hiding something? I'm no conspiracy theorist, so that explanation seems not to fit.
Here's one explanation, however, that might. In January 2005, Bear Stearns issued a report on America's growing underground labor force. It said in relevant part:
"The growing extralegal system in the United States has distorted economic statistics and government budget projections. The stealth labor force has enhanced many of the economic releases that investors follow closely. Payroll numbers understate true job growth and inflation has been artificially dampened by this seemingly endless supply of low-wage workers.....Real estate prices have been boosted by the foreign population infusion. The productivity miracle may be exaggerated because the government is incorporating the output of millions of illegal immigrants but not counting their full labor input."
In other words, illegal immigration and the underground, cash economy it creates has become so powerful a force, it artificially dampens inflation rates, boosts real estate inflation (putting home ownership beyond the ken of young Americans) and reduces the wages of the average American.
Wow, that's blockbuster news. This part of the report was barely publicized when it came out two years ago. Reporters noted its finding that there are something like 20 million illegal immigrants in the United States, compared with the popularly-cited 10 million figure. A Google search on the Internet revealed references to the inflation finding in Barron's and the Wall Street Journal.
The inflation finding should have been trumpeted on the front pages of the nation's major newspapers, on cable networks and on news Web sites. Instead, it was fairly buried. Did major news outlets bury this angle fearing its contents were not politically correct? Perhaps. But the American public may be getting the message nonetheless.
The U.S. Senate recently killed President Bush's signature effort at immigration reform that would have, in essence, granted amnesty over time to those here illegally. Senators reacted to polls showing the legislation was wildly unpopular with the American public.
Perhaps the public is beginning to wake up to the U.S. environmental destruction wrought by unfettered illegal immigration. The equation is simple. More people equals more development and consumption, more pollution and less open space.
Now we have another, this time financial, equation to contemplate. Unfettered illegal immigration boosts inflation while hiding the effects from the general public. Bear Stearns' experts could be wrong. But I doubt it. By "outing" this hidden impact of illegal immigration, let's hope we build the political will to end it, or at least slow it down.
He’s an idiot and he’s wrong.
Really? What did the Fed set the 30 year mortgage at this week? Any chance you'll share that rate sheet with the rest of us?
If you think the market is setting rates, do you also think that inflation is in the 2-3% range
Yes.
It actually does make a difference. The US debt market is about $8.5T at the end of 06. You don’t need to do much buying at the margin during treasury auctions to influence the price. This was especially true over the last 5 years or so, when Japan and China where buying up as many bonds as the government could issue. That trend is now beginning to reverse, which will make it harder to keep a cap on interest rates (though they will try).
So here’s where we part ways then, each is entitled to his opinion. Can’t really have a meaningful discussion with such a fundamental disagreement.
“If you think the market is setting rates, do you also think that inflation is in the 2-3% range. Yes.”
I’d advise you to watch the purchasing power of your CASH and see if it erodes at a rate higher than 2-3% over the coming years. Just food and energy prices alone will account for > 10% inflation annually.
And buying $300 billion in the last 6 years cuts rates from 15% to 5%? LOL!
This was especially true over the last 5 years or so, when Japan and China where buying up as many bonds as the government could issue.
Rates are lower because Japan and China are buying? That makes more sense than claiming the Fed manipulated rates to 5%.
That trend is now beginning to reverse, which will make it harder to keep a cap on interest rates (though they will try).
I know, rates actually jumped to 5.25% a few weeks ago, They're back to 5.04%.
The problem historically with using gold as money is that it was combined with fractional reserve banking. This meant that banks printed up more receipts for gold than they had in the vault (same thing they do today with the $US and fractional reserve lending). This causes the boom and bust business cycle of inflation and deflation. It doesn’t mean gold is changing value.
www.mises.org/books/desoto.pdf
This book does a great job of summarizing 500 years of world banking history. It is interesting to see that the same problems recur over and over each generation.
Ok. Are you someone who believes that the Eurodollars and large-denomination time deposits included in M3 represent money "in play"? The increase in Eurodollars has not had an inflationary effect in the U.S. Those dollars are not really doing any chasing of goods with the exception, perhaps, of real estate on both coasts.
Are you also one who believes the Fed stopped offering the M3 calculations because they want to hide the real rate of inflation? The Fed has not used money supply but rather interest rates to manage monetary policy for a long time now. The fact that M2 and M3 have increased so dramatically with modest inflation highlights this disconnect. The bond market understands this. The M3 conspiracists do not.
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.
It's that simple, huh? Just look at M3 to determine the real rate of inflation? No need to survey the actual price increases of 95,000 items in 22,000 stores? And you're lecturing me about M3 and monetary policy? The words uniquely unqualified come to mind. Do you even understand that GDP is quoted in real numbers?
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.
Do tax cuts allow for capital formation that's not inflationary? Just because money is being held outside the US doesn't mean it's inflationary. Foreign investment increases economic growth which can have an anti-inflationary effect as it creates more goods.
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
Housing is deteriorating for lots of reasons. Defaults are high but no higher than historical averages. The last few years were a statistical anomaly. The subprime market makes up only about 7% of the total mortgage market. 85% of subprime loans are currently being paid on a timely basis and less than 10% are in default. This is hardly the crisis the doomers would like us to believe. The markets are so worried about it the DOW might end the day above 14,000. Yawn. What else ya got?
Opinion? Where does the government publish all the rates it sets? Should be easy for you to find. Google it?
Just food and energy prices alone will account for > 10% inflation annually.
I wonder what % of my total purchases are food and energy?
That's funny!
Are you saying the gold standard didn't prevent inflation or deflation? LOL!
It doesn’t mean gold is changing value.
Because gold never changes in value?
Both sentences were pretty clear. I’m not sure from your response if you agree or disagree. I would recommend you read desoto’s book.
What's really funny is people who think that 5% inflation one year followed by 5% deflation the next equals price stability. Maybe you just don't understand what my historical CPI chart represents?
I disagree that we had price stability under the gold standard.
Where did I say there was price stability under a gold standard. What I did was explain to you why there was inflation and deflation under the gold standard (i.e. fractional reserve lending).
1.) Average working people, working a substantial amount under the table to avoid being kicked into a higher tax bracket. Also, I know of several men that, on top of their regular jobs, work a significant amount under the table to avoid having the courts increase their child support payments.
2.) People that are on welfare, Social Security Disability, Workman's Comp, etc. that are working under the table so they don't lose their benefits.
3.) People that just don't want to deal with the increasing burdens imposed by the state and federal government. I've posted here before about someone I knew who ran a large scrap metal outfit for over ten years with no business license, permits, never payed any tax including state and federal income, and payed all of their employees in cash under the table.
So gold didn't save us? Excellent!
Of course gold changes in value. It is a commodity that is produced at a rate of 1-2% a year. It is affected by supply and demand fundamentals. That is not related to inflation and deflation in a fractional reserve banking system based on gold.
2 different things.
Damn, you are sharp. Great response. I learned a lot.
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