Posted on 10/27/2013 1:10:29 PM PDT by reaganaut1
WASHINGTON — Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.
“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”
The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year. Some Fed officials cite the slower pace of inflation as a reason, alongside reducing unemployment, to continue the central bank’s stimulus campaign.
(Excerpt) Read more at nytimes.com ...
I noticed some ice cream containers are down to 1.75 and 1.5 quarts.
As long as the US is still the 500 ton gorilla of the commercial world, which so far it is, the whole world will probably keep on colluding on US fiat money while loudly bitching and moaning. China, to save face, needs to keep on saying it got something for its cheap goods even if it’s a heap of IOUs.
Money is what people believe it to be, ultimately. Yes, supply and demand matter. However most of this QE funny money is not getting out to the street. It’s sitting in funny bank accounts. If not on the street, it can’t inflate street prices.
IMHO of course.
Or use that new $1 Trillion coin one Dem proposed.
By keeping interest rates artificially low, the government penalizes savers by offering them 0% on their money and rewards borrowers. It is considered a stealth tax on the middle class.
Damn that metric system.
I give thanks every day for people who will take my dollars for their foreign assets. While you think that the US is a 500 ton gorilla, I think the US is a 500 ton house of cards.
And, yes, the velocity of the money supply has collapsed. And Basel III is forcing banks to buy sovereign debt that will ultimately collapse.
But as Milton Friedmen told us, inflation is always and everywhere a monetary phenomenon. It’s just a matter of time.
Hey, it worked for Ceaucescu in Romania! Vegetables exported for cash— people starving.
Yes, it stinks to not have high rates and total safety combined with total liquidity.
It is considered a stealth tax on the middle class.
Everyone I know in the middle class has a decent sized mortgage.
Ultimately what makes an economy go is just plain work.
What the money is, whether it’s hunks or green paper or cockle shells, is secondary to that.
Relative changes in the value of money do stink to those who count their fortunes in mediums of currency.
The biblical admonition as far as worldly wealth could be closely paraphrased as easy come, easy go. Don’t put your treasure here. Do use your worldly assets, the mammon of unrighteousness, as you can to “make friends” who will “greet you in heavenly dwellings.”
Heh heh!
Hunks OF green paper. I’d like to know what the dollar to hunk exchange rate is....
Probably true for the amounts that Bernanke printed to buy mortgage securities. Mainly that was intended to prop up the big banks by allowing them to churn mortgages based on ever lower rates. Now that rates have bottomed there will be one last refi rush and then no more. At that point Yellow will have to fall back to direct monetary infusions.
A second stream of funny money went to the politicians who printed up treasuries for the money. They spent that money on the street but that street leads mainly to Wall St and China. An obamaphone is a gift to Verizon and to some Chinese corporations.
I have 50 trillion dollars.
Taped on the wall behind my monitor.
50 trillion Zimbabwe.
If you can print it, it is essentially worthless.
Ironically, the banking industry would be devastated by inflation. Imagine what happens when you have even 2%-3% inflation after so many people have been refinancing 30-year mortgages at 4%-5% interest rates in the last couple of years.
The solution to that problem is to get your money out of the bank and lend it directly to people instead. I know this sounds overly simple, but I don’t know of anything out there that prevents like-minded conservatives from pooling their money and creating some kind of lending institution or credit union to do things for themselves that banks can’t do for them.
I never understood that approach to doing business. It must cost a company a fortune to retool their facilities to repackage their products like that into different sized containers.
You raise a good point. Money supply is only one part of inflationary pressures in a currency. If a government triples the money supply but the velocity of money declines by two-thirds, there likely won’t be much inflationary pressure at all.
I used to want to slap the crap out of folks I met online who believed inflation was good.
Now I just imagine the look on their faces when they wake up to find all their money is good for nothing but kindling. Makes me feel a whole lot better.
You'd have to look at the average life of the bond.
People move, trade up, trade down, retire, die.....many things that cause their mortgages to be paid off in less than 30 years.
Of course the dollar is pegged...to debt.
Here is how it can be devalued: the government says all bonds issued before date x must be traded in for a new series issued date y with a couple of zeros chopped off the coupon. Bonds not traded in become valueless.
Now your $10000 bond becomes a $100 bond.
Inflation leads to redistribution of wealth and income from creditor to debtors and from new and late money to old and early money.It also leads to increased tax revenues and increased impoverishment of everyone whose income or assets are contractually fixed in terms of a definite sum of money.
Inflation decreases the means of saving and the motive to save which leads to decreased capital accumulation and destruction of capital.
Inflation also causes a reversal of safety which leads to unproductive use of saving and increased hoarding, which leads to decreased capital accumulation.
Inflation leads to a prosperity delusion which leads to overconsumption which leads to decreased capital accumulation.
Inflation causes malinvestment and the withdrawal of wealth effect which leads to decreased capital accumulation.
Decreased capital accumulation leads to:
1) decreased total productive ability which leads to decreased accumulation of physical capital goods which creates a negative feedback leading to even less total productive ability.
2) decreased real profits and real wage rates and impoverishment of the masses due to the rise in average prices which leads to decrease purchasing power.
3)economic decline (rust belt)and decay (infrastructure)
Inflationary recovery feeds on itself and can lead to hyperinflation, which requires money contraction to slow it down which leads to another recession or depression.
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