Posted on 04/23/2008 12:04:37 AM PDT by bruinbirdman
The Fed has a tough act. It must check wholesale prices, up 6.9% in March from a year earlier, while still trimming interest rates to keep the economy from slipping off a cliff. Way too subtle for many foreign governments, which don't so much tame inflation as bludgeon it.
In Fiji, where inflation has doubled in the last year, to 8%, authorities are enforcing a long ignored ban on holding gold or foreign currency, requiring folks to "surrender" those assets to a dealer. Don't try hoarding in Zimbabwe, where "cash barons, smugglers and other illicit dealers" get blamed for inflation--now surpassing an annualized 100,000%--and an 80% unemployment rate. Robert Mugabe's thugocracy has attacked inflation by browbeating merchants into slashing prices, jailing anyone caught converting the Zimbabwean dollar into a foreign currency, forcing businesses to deposit cash into banks daily and even restricting the purchase of livestock, since many citizens consider cattle a safer bet than a savings account. Result: Prices can still double in a day.
Venezuela deals with 20% inflation by spending more on social services. Hugo Chávez must think that no one will notice how much more expensive the necessities are if they're subsidized. In Iran, after the economics minister conceded his hands were tied when it came to fighting inflation (18% a year), President Ahmadinejad canned him.
A few heads of state have tried to legislate the problem away. With rice prices doubling in the past year, Filipino President Gloria Macapagal-Arroyo has introduced a massive program to boost production of the grain--and raided warehouses suspected of hoarding. (Remember Gerald R. Ford's "Whip Inflation Now" that, among other things, encouraged farmers to plant more to keep food prices low?)"
(Excerpt) Read more at forbes.com ...
"India has taken a novel approach to its 7% inflation rate--at least where steel, a commodity nearly as critical as rice, is concerned. Now the New Delhi government is hinting that it might regulate prices. The threat spurred the nation's steelmakers to lower prices a smidgen. They weren't happy about it, since they're already paying more for coke and iron ore. Some populist politicians want to ban steel futures contracts, which they claim artificially drive up prices. That hasn't happened, though India has outlawed contracts in some grains."
"Alas, none of the above seems to work for long. Lowering inflation typically involves pain: recession, interest rate hikes or both. "A price increase is a message about scarcity," notes Alexander Tabarrok, an economist at George Mason University. "Price controls are like shooting the messenger."
The Fed isn’t part of the solution, it’s part of the problem. When you keep printing money 24/7/365 inflation is the result.
So, you would disagree Milton Friedman (?). That is, the Fed is pushing on a string?
You mean would I disagree WITH Milton Friedman? I think that’s what you meant so I will answer by saying no, I don’t disagree with him but I think this current Fed isn’t even pushing on that string anymore. Lowering interest rates as fast as they have is contributing to inflation, not keeping it in check.
''Inflation is everywhere and at all times a monetary phenomenon.''
He is and always has been exactly right in that sentiment. Therefore, since government control the supply of money, inflation is entirely a governmental phenomenon.
Yet (unsurprisingly), when inflation becomes or threatens to become toxic, goobermint's first reaction is to try (laughably) to restrict the citizenry's methods of conducting commerce.
Case in point? Nixon's idiotic, utterly insane, peacetime wage/price controls in 1971.
And the ''controls'' failed miserably, of course. The only question was who was MORE miserable -- the lunatic price controllers, when their schemes bit the big wazoo, or the ordinary citizen, who paid dearly for these morons' attempt at Godhood.
Looks like we're for it again, m'friend -- the a&&holes in DC have never learnt from their mistakes. and are about to repeat them in one variation or another, all in the name of the ''public good'', to be sure (...that was sarcasm, if you missed it). Hell's bells, they've never even ACKNOWLEDGED their mistakes at ''managing'' an economy, as if a legitimate free mkt economy required much managing.
Yup everyone says we need the government to save us from the free market - what free market? This inflation isn’t really a free market problem to begin with. Sure, demand is up across the globe, but its the Fed that caused the dollar to lose a third or more of its purchasing power.
The dollar can fall the easier way or the harder way. So far, it’s been falling the easier way. If you believe that current inflation is terrible, imagine rapid deflation for some products combined with continued inflation for other products.
‘’Inflation is everywhere and at all times a monetary phenomenon.’’
He is and always has been exactly right in that sentiment. Therefore, since government control the supply of money, inflation is entirely a governmental phenomenon.
Hold on...run that past me again...
The defintion of inflation is too much money chasing too few goods, and a very sound one it is, too.
When production of goods and services cannot keep up with the supply of money, for whatever reason, inflation ensues.
Are you old enough to remember the 1970s? That's when the US got its first modern (i.e. post-WW II) dose of close-to super-inflation. We're in for another dose, right here, right now -- same reason.
In the 1970s, it was the cumulative result of LBJ's ''guns-and-butter'' policy plus Nixon's closing of the gold window, plus of course the one-world clowns encouraging the Arabs to strike at Israel (and then, when Israel kicked their arses, retaliating with the first oil embargo).
These days, it's the goobermint restrictions on energy production, the impending bankruptcy of numerous goobermint pension schemes (which requires them to print ''money'' to keep the game going a bit longer), the utterly lunatic concept of burning food to get a poor mass-mkt fuel, and of course the ascendance of the one-worlders, who quite naturaly find a populace stuck with a depreciating currency MUCH more amenable to their blandishments.
Frankly, I'm astonished you didn't see the point of my argument first time around. What's up with that?
You gave an excellent explanation of the cause of inflation - not just increased money supply but also decreased supply of goods - but then followed it up with this pointless jibe. The guy asked politely after all: it does no good to browbeat him.
Thank you agere_contra
Sorry I dont know what happened to the line spacing on that last post.
Whats up with it is that it is a logical disconnection, or rather two logical disconnections.
“The definition of inflation is too much money chasing too few goods, and a very sound one it is, too. When production of goods and services cannot keep up with the supply of money, for whatever reason, inflation ensues.”
That’s quite correct, but from that it follows, logically, two reasons why that could be so. Either one, the mints are producing too much money or two, there is a sudden drop in production or supply of some goods or services (or I suppose there is a third, namely both are true). Now the government has a lot of control over how much money is printed, but much less about production. Even with a monopoly of printing cash, it takes time to add or remove money from circulation, so their control is a long way from being absolute.
There are lots of other factors that affect how much money is in the economy. The influence of investors and speculators (which is the main reason why oil prices are shooting up now), the policies of foreign governments, the actions of the international stock markets, your aunt enid stuffing her life savings under the mattress rather than in a bank account, what people choose to do with their money...are they saving it, are they spending it? If they are spending what are they spending on? That kind of question illustrates why some sectors of the economy are under inflationary pressure and some are deflating. To have absolute control of how much money was in the economy would mean the government being able to TELL you what to spend your money on, and I certainly wouldn’t want that! The fact that they cannot or do not do that places some of the control out of their hands (and a good thing too!)
The government doesn’t even have an absolute control of money going in, if the stats on the amount of counterfeit dollars around are even remotely accurate. There are certain nations of a far eastern nature (cough - China) who are extremely adept at “making” money out of the US in that way.
I understand your desire to bash the “goobermint” - after all, they are very guilty of a lot of extremely bad fiscal policies, some of which you illustrate. But to say that they are totally to blame is frankly unfair - and what is more it lets some of these clowns in Wall Street and Madison Avenue off the hook.
Lowering interest rates as fast as they have is contributing to inflation, not keeping it in check.
I have to disagree. The lower interest rates are having virtually no effect on inflation. Almost all current inflation is due to falling dollar values and high levels of imports.
In Septemeber of 2007 home heating oil in Maine was 2.89 today it is 3.69. folks are trying to lock in for next eyar at 4.14. K-1, ten years ago, sold for 50 cents a gallon, today it is 4.15.
Falling dollar rates are due to lower US interest rates. They go hand in hand.
Falling dollar rates are due to lower US interest rates. They go hand in hand.
Not entirely. Dollar values were falling even as Bernanke was raising rates a year ago.
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