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.
The “amount printed” above should be 2 trillion, not 1, sorry.
Your post highlights for me one of the huge problems with thinking in aggragates. All this loss, and the printing presses have been humming but can’t match that so everything should balance out, thinks Bernanke. Well, we only pretend it’s aokay until velocity gets away from us, or the structure of the entire money supply isn’t out of control. But is that so? Was 08 about “structural inflation”? Yes and no.
It was inflation in a few related industties: banking (as always), securities, housing construction, insurance, debt holding, etc. Our precious aggregates didn’t see it coming, only those with rather elaborate theories or horse sense about when the other side of the cycle’s coming did. But here’s the thing: inflation caused the meltdown. That is, not higher prices or higher velocity across the entire economy, but asset bubbles sparked by the malinvestment of extra money sitting around waiting for an outlet. The important thing is not how much money there is or how fast it’s changing hands or how high are prices, but whether the prices are market prices (whether they actually tell us the truth) and whether the money’s being spent correctly.
You can worry about timing, but let’s just assume that by some miracle Bernanke cuts off the spout before we exceed the limit of what was lost in 08. Does that mean we made up whet was lost? Not at all. It doesn’t even mean we won’t have runaway inflation. But nevermind. The point is, the money must not only be pumped in without overfilling the tub. It must also be spent correctly. If it is funneled disproportionately into losing prospects like the housing bubble or the dotcom bubble, the economy as a whole loses. And that’s something aggregates can’t see until after it has led to recession.
So I trust not in everything being okay while “structural inflation” is absent. I don’t even worry about limited price inflation as such. Sometimes it’s a drought, as you say. Sometimes it’s a bubble caused by easy money as in higher education, which won’t sink the economy. But something will, or some things will; they always do. And in the meantime they will be ignored in tabor of chasing down general price inflation and too much velocity.
Though it might seem sensible, the math doesn't really run quite that way. Wealth was destroyed but not MONEY. A very important distinction.
As an example, say I buy an uninsured house for $100,000 and it burns down. Yes I lost my "wealth" of 100 grand but the $100,000 I paid the contractor is still in circulation, as is the $100,000 with the would have been buyer of my home. IOW, the same amount of money exists as did before I lost my house, but not the same amount of wealth.
Dig?
Central banks creating money out of thin air won't in any way ameliorate my burnt $100,000 of wealth. In fact, it won't help anyone else get wealthier or restore lost wealth anywhere. All that happens through central bank intervention is the currency - at some future point - will be devalued and the unsustainability "can" gets kicked down the road.
Oh, the other thing that happens is the central bankers get interest on everything they print and hence get filthy rich by ripping us off through inflation.