Economics is not hard - Part I: Don’t let professional economists tell you otherwise

[Chomsky]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

iTulip's premier chart slut strikes again - thanks!

Does anyone here know why the price of rice spiked in early 2008?

Couldn't have had anything to do with OIL, could it?

COM.GIF

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Couldn't have had anything to do with OIL, could it?

There are indeed certain similarities between those two curves.

[Chris Coles]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

iTulip's premier chart slut strikes again - thanks!

Does anyone here know why the price of rice spiked in early 2008?

Surely the chart is a classic example of a market movement caused by speculators discovering somewhere previously undiscovered to place their bets, ride to top and put to the bottom?

[Chomsky]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

There are indeed certain similarities between those two curves.

Food riots occurred around the world when oil spiked, because food prices were dragged upward along with the price of oil.

[raja]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

raja: Do the banks have no fear of a derivative meltdown?
Originally Posted by bart
It's a very small fear - they can be incredibly arrogant, and they think they can hedge any risk - or invent an instrument that will hedge a given risk or risks.

Bart, thanks for your response . . . .

A follow-up question:

If high inflation starts to occur, and if the arrogant bankers' hedges against inflation begin to flail, will TPTB then be forced to halt inflation to save the banks? (we're assuming here EJ's contention that inflation/deflation is a political decision, so inflation can be reversed.)

This would kill inflation . . . POOM would be cut very short . . . and Deflation would commence in a big way.

It the gov't tried to bail out the banks in response to a massive derivatives collapse, wouldn't that quickly lead to HYPERINFLATION, since the sums of money needed would be in the trillions?

If either of the above scenarios were to play out, we would have to amend EJ's theory to Ka Ka POOM Ka Ka Ka Ka . . . . or . . . HYPERinflation.

[bart]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

iTulip's premier chart slut strikes again - thanks!

Does anyone here know why the price of rice spiked in early 2008?

Check this:
http://en.wikipedia.org/wiki/Rice_shortage

My opinion - a combination of weather, inflation, fear and speculation.


Here's a pretty decent look at the entire area:
http://en.wikipedia.org/wiki/2007%E2...d_price_crisis

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Check this:

Thanks, bart.

[bart]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Bart, thanks for your response . . . .

A follow-up question:

If high inflation starts to occur, and if the arrogant bankers' hedges against inflation begin to flail, will TPTB then be forced to halt inflation to save the banks? (we're assuming here EJ's contention that inflation/deflation is a political decision, so inflation can be reversed.)

This would kill inflation . . . POOM would be cut very short . . . and Deflation would commence in a big way.

It the gov't tried to bail out the banks in response to a massive derivatives collapse, wouldn't that quickly lead to HYPERINFLATION, since the sums of money needed would be in the trillions?

If either of the above scenarios were to play out, we would have to amend EJ's theory to Ka Ka POOM Ka Ka Ka Ka . . . . or . . . HYPERinflation.

Very rough set of questions, since it depends so much on those things called human politicians that tend to blow with the wind - especially when we have a President who talks a good game but comes up short in the area of effective & sane actions.

Volcker was backed by both Carter and Reagan (a historical demonstration of how inflation and its control are mostly a political decision). In other words, eventually yes - the PTBs & elites will be forced to bring inflation under better control... much like they'll be forced to bring "deflation" under control too.
Don't forget that current inflation as measured by CPI without lies is running at least 5-6% currently, on a trailing basis.

Timing is of course the main issue, and who knows at this point - way too many variables. Do also consider that if there is a "derivatives collapse", the rest of the world will have basically the same problems. US non shadow derivatives are "only" about 1/3 of the world total - per the OCC and BIS.

Like EJ, I don't believe that we'll truly have hyperinflation - but I won't totally exclude it either. I can foresee a year with 25-40%+ inflation though, primarily due to international dollar value loss.

Amen on the KaKa... ... and more seriously, there's more than a small possibility in my opinion that volatility & uncertainty & political games will cause a period of KaPoomKaPoomKaPoom. We've sort of been going through one in the last few months.

[chr5648]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise



Green is fed funds rate, orange is rough rice. Right when the fed funds rate was dropped, price for rough rice skyrocketed. Replace rough rice with any commodity and you get the same result. Oil included too. This is more government interference and manipulation in the markets, their interventions in the fed funds created a tax for consumers in food commodities and oil.

You guys are amateurs.

[ThePythonicCow]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Right when the fed funds rate was dropped, price for rough rice skyrocketed. ... This is more government interference and manipulation in the markets

Are you speaking tongue in cheek?

If you're speaking seriously, then may I suggest you not confuse correlation with causation. There were likely other events that caused both these changes.

Note also near the end of 2009, when the fed funds rate fell again. This time rice fell as well.

[dummass]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

There were likely other events that caused both these changes.

My wife and I have a farm in an area where rice is grown. If I recall, the price of fertilizer was very high at the time. They don't grow rice in our area without fertilizer. Since few had the resources to plant that year, there were shortages.

[chr5648]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Are you speaking tongue in cheek?

If you're speaking seriously, then may I suggest you not confuse correlation with causation. There were likely other events that caused both these changes.

Note also near the end of 2009, when the fed funds rate fell again. This time rice fell as well.

Market structure changes with endogenous and exogenous variables. Carry trade, participants, sentiment, volume, etc.

If you also remember at the time the beginning of the 4th quarter tarp and a whole bunch of bailouts occurred. Most importantly confidence and credibility was lost among almost all market participants. Deleveraging and fear was the name of the game. If you notice there was that huge spike of the fed funds rate that one day and then the further collapse of markets.

The market structure now is completely different than it was 6 months ago, a year ago, and even 2 years ago.

[raja]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

there's more than a small possibility in my opinion that volatility & uncertainty & political games will cause a period of KaPoomKaPoomKaPoom. We've sort of been going through one in the last few months.

I think that there are limits to the power of TPTB: political, e.g. French Revolution; financial, e.g. a derivatives implosion; mathematical, e.g., the Ponzi scheme that is our out-of-control debt games; peak oil; etc. When EJ predicts that TPTB will print money and cause an inflationary POOM, that is only one possible scenario among many, in part due to the fact that TPTB may lose control . . . or they may simply create deflation because they think that better serves their self interest . . . or as Bart suggested, we may get KaPoomKaPoomKaPoom.

When I read the different predictions out there from educated, intelligent people, which run the gamit from minor recession to deflationary depression to hyperinflation to major societal collapse, that tells me that there are too many variables for anyone to have any real certainty of what the future holds. (Even if an analyst has a stellar performance record, as we all know, past performance doesn't guarantee future results.) Yet, we know the future is coming, and the investment decisions we make now will determine our fate. Personally, I'd love to know whether we're going to have inflation or deflation or both, but I don't think it's possible to know, so I'm diversified to cover every scenario (that is survivable and does not require fleeing to another country).

In addition to my daily readings of iTulip, Denninger, Krugman, ZH, the MSM, and others, what I'd like to find is a discussion forum that is agnostic on the future, where all possible scenarios are examined in a systematic, critical and energetic way. ZH is the closest to that, but the info there is chaotic and fragmented. (By the way, I get a lot out of their post comments, but there are so many I rarely get through them all.)

[rdrees]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Wow, I have never had the experience of someone citing figures supporting my argument while they are attempting to contradict my argument. You paid less in 2010 than you did in 2006 and you say that "proves" that prices have significantly risen? Astounding!

Why do you assume that an arbitrary number that Safeway says a hypothetical person would pay is the "price?" You didn't pay that price! Safeway didn't require you to pay that price! How can you say that's the price?

Sure, some suckers probably don't sign up for that free Safeway Club card and pay through the nose, but that has got to be a small minority of customers. But let's assume 25% of consumers are crazy enough not to take advantage of lower prices that Safeway is visibly offering for a nominal one-time investment of 5 minutes of your time. I couldn't find any figures online, but I would assume that a 25% sucker rate is being very generous. That means the actual average price Safeway gets per unit is basically flat. At a 25%/75% split, average price in 2006 would be $13.72 while today would be $13.76

Even if it's a 50/50 split of suckers to normal people who would generally prefer to pay less, which I cannot imagine being the case, the average price in 2006 would be $16.44 while today would be $17.96, a four year price increase of a little over 9%, which averages out to barely over a 2% yearly inflation rate.

Remember, my point is not that we will see deflation of any major kind (though I do think we've seen some of what I would call deflation). My point is that EJ was wrong when he said we'd see significant inflation by now. Basically flat prices for four years is NOT significant inflation. And I think it's a major stretch to call 2% yearly inflation "significant" inflation of the kind that you would want to specifically structure your investments around. 2% yearly inflation is basically the kind of background steady inflation that has been the hallmark of healthy, growing, modern economies. And really, even if that 50/50 split were correct, does a 4 year inflation rate of a little over 9% really matter than much when the increase in personal income was over 10.5% during that same time period? http://www.bea.gov/national/nipaweb/...ate&JavaBox=no

So I appreciate very much your Safeway comparison receipts, as I think it pretty clearly demonstrates that EJ was wrong on this particular call, as much as he may be right about other things.

[c1ue]

Re: Economics is not hard - Part I: Don’t let professional economists tell you otherwise

Wow, I have never had the experience of someone citing figures supporting my argument while they are attempting to contradict my argument. You paid less in 2010 than you did in 2006 and you say that "proves" that prices have significantly risen? Astounding!

Wow, clearly you didn't read the entire post, nor comprehend what was actually written.

An anecdotal sale - which happens once every 3 months or so - is hardly deflation.

Were I to dig more carefully, I guarantee I can find a lower price in the 2006-2010 period.

The list prices are up and the average price paid is almost certainly up.

Bart's data also is quite consistent with what I see - while you CAN find some things cheaper due to clearance or whatever, it is quite clear from the dollar totals that prices have gone up.

So if you want to believe EJ is wrong, so be it.

From what I can see, you want to see deflation and so you do.