Posted on 10/22/2015 8:43:19 AM PDT by Kaslin
In a world in which the Cold War is a fading memory, North Korea and Cuba endure as museums of communism, so no one will forget how criminally insane it always was. In a world haunted by the specter of persistently falling prices, some countries are creating severe inflation, so we can be grateful for its virtual disappearance.
One of the governments providing this public service is that of Venezuela, where the currency has lost so much value that even robbers reject it. A recent carjacking victim told The New York Times his armed captors had no interest in his bolivars. They only wanted to know whether he had U.S. dollars stashed somewhere.
That sort of thing happens when annual inflation is over 150 percent. Feeding a family of five for a month cost three times more in August than it did a year before. Shortages abound; black markets are proliferating; and Venezuelans find themselves bartering goods and services to get by.
The source of the malady is plain: a socialist government that has mismanaged the economy, which is also feeling the pain of falling world prices for oil, the nation's chief export. "There's been a lack of respect and understanding of the implication of money printing and excessive money creation on the economy," former International Monetary Fund official Claudio Loser told The Wall Street Journal.
The more currency that is produced the less anyone wants it. "People are literally getting rid of money faster than the government can print it," Bank of America economist Francisco Rodriguez said.
Venezuelans find that their misery has only a little company. The yearly rate in Argentina has run above 20 percent for years and is now around 30 percent. Malawi is at 24 percent. Each day, the coins and bills their citizens carry buy less than the day before.
This may be hard for Americans to imagine, given their recent experience. On average, over the past five years, the consumer price index has risen at the minimal rate of 2 percent annually, and the inflation rate hasn't reached 4 percent since 1991. Many adults have never had the dread experience of watching prices rising rapidly across the board year after year.
Their elders, who were not so lucky, retain a fear of inflation in their bone marrow. Baby boomers were raised on lurid tales of hyperinflation in 1920s Germany, when consumers had to carry piles of money in wheelbarrows to do their normal shopping. That wasn't the worst of it. The trauma, we were taught, led to the rise of Adolf Hitler.
In the 1970s, we got our own taste of it. The U.S. inflation rate soared into double digits and stayed there. A bag of groceries that cost $20 in 1972 cost $46 in 1982. The price of gold skyrocketed from $38 per ounce to $615. Not much imagination was needed to picture a sudden run on wheelbarrows.
It didn't happen, thanks to a Federal Reserve that, in the early 1980s, slammed on the brakes by raising interest rates and curbing monetary growth. Since then, inflation has stayed tame -- to the point that these days, the debate is about whether we have enough of it. Charles Evans, president of the Federal Reserve Bank of Chicago, recently argued that the central bank shouldn't raise interest rates until "we begin to see some sustained upward movement in core inflation."
That view is at odds with the demands of those Republicans who have been predicting a nasty outbreak of inflation since at least 2009. Conservatives once had to battle to get liberals to recognize the harm done by creating too much money. But rather than celebrate their victory, they keep fighting the last war. As a result, they ignore the new danger, which takes the form of deflation and slow growth.
In September, the Bureau of Labor Statistics reported that U.S. inflation over the previous year was zero. The European Union's inflation was less than zero. Japan is in the same territory. Falling commodity prices are a threat to developing countries whose economies depend on exporting raw materials. A little inflation might be a good thing for growth.
No one would have imagined a couple of decades ago that we would learn how to stop high inflation and keep it stopped. Like communism, it can still be found in a few places. But like communism, it's no longer much of a threat.
“Volcker also brought the economy to a halt, which devalues the currency “
Actually it has the opposite effect on the dollar. Halting inflation made the dollar very strong, far more than the Reagan economic team expected.
“I have read that Reagan gave Volcker the green light to do what he did. Nobody’s perfect.”
Well if they hadn’t done that inflation wouldn’t have ceased. Part of the problem was breaking the inflationary expectations and behavior of the public at large. We were spending money as fast as we got it because we expected it to continue to devalue, so monetary velocity was through the roof. Slamming the breaks on credit growth stopped that.
Actually it has the opposite effect on the dollar.
...
Go ahead and explain how reducing the production of goods and services strengthens a currency.
All Volcker had to do was reduce money creation to match Reagan’s policies of smaller government and more private sector productivity. Volcker went way too far. And inflation wasn’t halted, it was reduced.
Funny how you and other Conservatives choose to toe the line of Democrat Volcker and others who believe that only Big Government can solve problems.
yes
So....is the price of crude even going to go up?
“Go ahead and explain how reducing the production of goods and services strengthens a currency.”
I wasn’t speaking of a reduction of goods and services, I said reducing monetary growth. Evidently you don’t bother to read.
And your complaint about lost production is identical to what Yale’s Keynesian economist James Tobin was saying against the Reagan-Volcker program so spare me your pretense of knowing what you’re talking about.
One of the biggest factors holding down crude apparently is the glut of natural gas brought about by fracking. Firms that can substitute cheaper NG for petroleum will continue to do it. Iran coming back online is also a factor. Business cycle. It’s supply and demand affecting oil right now, not inflation.
I hadn’t thought of the natural gas point. Good point.
You are a professional economist, I think?
Thank you for your patience here. Most of us are trying to learn stuff and participate in a good faith discussion.
So back to the point of beef, and the price of feed, the price of corn, etc.
I just saw this from an NYT article;
“Corn, the most valuable crop in the country, has fallen to $3.78 a bushel from $7.50 three years ago.”
So I’m not sure I understand. If corn costs half what it was three years ago, then unless beef cow feed is something other than corn (I don’t really know), then the cost of feed should be going down, also.
Something tells me that our whole system is a bit chaotic, and there’s not easy answers to a lot of these questions.
But we do know this:
beef is up.
gasoline is down (and crude is down).
coffee is up.
eggs were up earlier this year (bird flu).
That accounts for most of my purchases right there.....
I’m not surprised that you don’t understand. You want to feel safe and secure with the Big Government propaganda.
From the time US energy policy shifted under EPA mandates, corn increased in price continuously in every year until 2013 except for 2008-2009. Corn [and most other commodities] was flat during that period because of the onset of the recession. There was also a crash in the price of ethanol at that time, because there was substantial drawdown in consumer mileage. For a period of about 5 months, people really weren't going anywhere.
Before the expansion of ethanol, corn had historically traded in the $2.00-$3.50 range. During the years from 2005 - 2013 its price rose dramatically. One consequence of that was the livestock growers switched to other feedstocks; beef steers and dairy beef will east just about any indigestible biomass you put in front of them. That reduced the price of corn, as did the EPA moratorium on increasing the mandate during that time, and other factors like lower international demand [the overall world economy is slowing, regardless of what lies you've been told.]
Considering the consumer price of an agricultural output against agricultural inputs on a spot basis is usually tricky. Commodities markets have to some degree been stabilized by the advent of futures and other smoothing forces, but spikes and crashes still happen all the time and they aren't reflected back into the consumer end of market in realtime. The actual transfer-function depends in very complicated ways on weather, imports, exports, trade agreements, existing stocks, demands in non-consumer markets ... you name it.
The bottom line is that the long term trendline for corn prices have been increasing, and the reason for that is clear. This despite the fact that, as always, US farmers continue to farm more productively than ever.
With all of the money that Obama dumped into the economy at the beginning of his reign, it is impossible for their NOT to be inflation.
I see the inflation whenever I go to the grocery store. Food is expensive, these days—and my salary is not growing as fast as food prices.
really helpful. thank you. i need to study your post in detail, but thanks.
Interesting that you signed up to post an answer. I read the link and I see nothing that states they look at decreased portion size at the same price.
Ground beef is about $5.00 a pound, I used to pay that for steak.
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But the shrink-ray on non-fresh food is disconcerting.
I buy Lesueur peas. About 5 years ago, they were about $1.05 a can, frequently going on sale for $.80 (or so). Now they are $1.85 or so, about an 80% increase. The size has remained the same so at least no hidden shrinkage/price increase.
No one would have imagined a couple of decades ago that we would learn how to stop high inflation and keep it stopped. Like communism, it can still be found in a few places. But like communism, it’s no longer much of a threat.
Regarding the article. There is NEVER pure deflation or inflation. There will be deflation of some things and inflation of other things.
PLACE YOUR BETS.......................
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