Where is inflation.
Try the grocery store..
Dry beans that I bought a year ago at 1 buck a pound is 1.50
I used to stock up on Sirloin roasts at .99/lb and haven’t seen it under 4. Can’t buy hamburger for under 3 a pound.
Gasoline is twice what it was 4 yrs ago.
The real inflation is in the stuff they don’t include in the measurements.
And the bastids are going ahead with a “stealth QE3”.
It’s the collapse in velocity that is “keeping the presses running”. Knowing Bernanke’s background tells you he will do whatever is necessary to avoid the monetary mistake of the Great Depression when tightening occurred triggering a double dip sever recession. The author indicates the key issue: when velocity improves, how quickly can the Fed drain the liquidity out of the market to avoid runaway inflation. Timing will be everything.
Food, energy, education, the usual. Clinton told us last night that housing prices are finally rising, as if it were a good thing. Aren’t there stories about subprime car loans running wild? Such phenomena we never seem to tie to an increase in the money stock.
We’re fundamentally handicapped as regards monetary policy. All these indicators, all these induces. But we can’t ever tell until it’s right on top of us. The booming housing market was a badge of honor for decades before it blew up. Assuming we could tell, and knew what was happening, and furthermore impossibly knew whether it was good or bad, we couldn’t make the right move. Because by the ti.e complementary or counter actions take effect conditions have changed.
I have yet to mention our biggest handicap, in that we never know how things would look without our meddling. Inflation may not be punching us in the face, but what if prices are higher than nature would have them? Who knows?
Ten trillion in wealth destroyed. About one trillion in “printing” added back in. We’ve got quite ways to go to create structural inflation.
The inflation in food is mainly due to drought, the use of corn for fuel instead of food and animal feed, and the high price of oil/gas. In other words, not structural inflation but temporary due to weather, and temporary as to oil and stupid policy. (although high oil price will hang around if Obama wins, since that’s his policy goal.)
Here’s what’s deflated:
The value of your labor. Real estate (80% of our wealth). The value of most retirement accounts. The cost of many retail items like TVs and computers.
So, we have massive asset deflation (net worth and wages of Americans both down) and weather and policy related inflation of certain items, most noticable being food. Small inflation in truck-delivered goods due to gas prices.
The food inflation can be partially solved through policy, and the rest of it will fade when the drought fades, as droughts always do.
of course gold will increase in price, as it’s measured in US dollars
and as you dilute the value of the dollar... which they are doing to keep the markets ‘up’... those commodities that do not dilute, such as gold... will spike in price
“The liquidity is being horded and invested in “safe” assets. This is creating asset bubbles all over the world.
The biggest one of those asset bubbles are government bonds.”
It should be pointed out though that money doesn’t just sit in government bonds, the government takes those funds and spends it on entitlements, etc and it ends up circulating throughout the economy and adding inflation pressure. The bigger issue right now is that we’re still the worlds reserve currency, so much of that fiat money is spread around globally. If the dollar is ever rejected as a reserve currency and dollars are dumped then inflation will go through the roof.
Inflation is one way to pay off the massive debt. You can pay it off pennies on the dollar, just keep printing
A lot of the Control-P activity has been “sterilized”. This is like when the Federal Reserve Corporation prints up a billion dollars of paper money, wraps it in plastic, loads it on pallets and puts it in the back of a truck. At that moment, the billion dollars is added to the various M’s and appears in the money supply figures. That billion CANNOT cause any “inflation” until it is in the hands of someone who will use it to bid for workers and things in the market.
Suppose for example, the Fed drove the truck to a troubled bank and had the officers come out to the curb and climb in the truck, and put their hands on the plastic wrapped money, they could say to them, we will swap this money for that box of bad loan notes, but because of a rule we just made, you cannot take physical possession of the money you just touched, we will take the truckload of YOUR money back to our vault for safekeeping. Please sign here and thanks. Then the bank officials were dismissed and the truck driven to a secure undisclosed location. The bank could now use the “asset” to issue more loans, and THAT money would bid up wages and prices.
The above example is that of asset laundering, where a non-performing loan (which is an asset that cannot be used for fractional-reserve lending) is upgraded through the Fed into an asset that can be used for fractional reserve lending. This has the effect of restoring the lending capacity to the bank that it has before the crash in loan valuations.
Some of this “sterilized” (sequestered) money has the economic effect of only increasing the bank’s leverage of its good Tier 1 assets. The bad paper is now on the balance sheet of the Fed instead of that of the bank.
They are making a fundamental error, based on old logic:
> “At that point in time, people everywhere are going to
> understand that paper money is worthless. They will rush
> into assets which have real value.”
This would have been the case many years ago, but things have changed in a very odd way. While there is an overabundance of “virtual” money, grotesquely inflated if not liquid; at the same time there is tremendous *deflation* in paper money.
In circulation there is only enough paper money to support 5% of US daily retail trade. Were there no virtual money, paper money and coins would instantly be worth 20 times (or more) their face value. It is massively deflated.
But can’t the government just print more paper money, or higher denomination bills? In a nutshell, no. The US Bureau of Engraving and Printing has only two currency printing offices in the country, working around the clock to print a tiny amount of mostly $1 bills. Proportionately fewer higher denomination bills.
And most $100 bills are shipped out of the US to meet foreign demand for physical US currency. So they can’t make more money, and if they printed higher denomination bills, nobody could make change for them.
And this is exceptionally important to people who are using gold as a hedge, as it might preserve the value of their assets.
As gold-holders hope, the price of gold skyrockets, but this presents its own problem: priceless is almost the same as worthless, unless it can be converted to something else.
So how does this come about? First of all, an economic “judgment day” comes to the virtual money supply. Broad inflation, bank holidays, credit collapse, bond and equities failures, who knows what all.
But paper money has something that virtual money does not. The magic words “legal tender for all debts, public and private”.
Though there are all sorts of possibilities, a side effect of economic crises will likely be a specialized type of bank run, called a paper run. People will have so lost confidence in the banks and other virtual investments that they panic and want cash in hand, that cannot be taken away easily by the government or bankers.
There is a parallel to this that gold investors know well, the holding of gold futures vs. physical gold. But in this case, the public goes to the banks to try to withdraw their savings in cash.
And there is so little cash that every bank in the US will be stripped of cash within an hour, with none in reserve.
At that point the light will dawn that virtual money is worthless, because everyone will demand cash for everything.
In economics, it is called Gresham’s law, but in this case with virtual money horribly inflated, and physical cash very deflated, the end result is a “currency split”.
While the government might insist that virtual money is the same as paper money, this is not the case if the public rejects the idea. $10 billion in the bank might be worthless compared to $10 cash in your pocket.
But say the value of gold is officially $20,000/oz. The government might say that it is worth $200,000 in worthless virtual money that can’t buy anything; but a retailer could value it at $2,000/oz compared to deflated paper money, and you can buy a LOT in their store with $2,000 in paper money.
Probably as much as you could have purchased with $40,000 or $60,000 before the crisis.
So paper money will have preserved the value of your gold.
Prices should be decreasing along with money wage rates in a recession or depression. The inflation is in the fact that money prices have not been able to fall due to the increase in the money supply this time.