Wheres the inflation?

[ThePythonicCow]

Re: Wheres the inflation?

Eat more chicken? :-)

I love those Chick-fil-A ads:

[dummass]

Re: Wheres the inflation?

Then whoever is sitting on a big stash of Dollars can buy large amounts of cheap Treasury long bonds and earn 20+% for the next 20 or 30 years, on an asset that gradually rises in price (as happened after Volcker did this back in the early 1980's.)

How will the US government fund its debt at "20+%" ?

[LargoWinch]

Re: Wheres the inflation?

Didn't say I agreed with it -- although I do think the point concerning the bond market has some merit and I'd like to see discussion about that.

jpatter666, I was commenting on the "no inflation" argument; I know that you harbor the same doubts as me regarding the deflationists story.

Now regarding the bond market, this too crossed my mind: what if they are "purchased" by the autorities with 0% money? Kinda like, I scratch your back and you scratch mine?

[Jay]

Re: Wheres the inflation?

No.

Whoops!

[sishya]

Re: Wheres the inflation?

Basmati Rice nearly doubled, because Indian/Pakistani price doubled and there is some export restriction due to food Inflation over there.
Even otherwise I mostly only see food Inflation(ie non-credit oriented commodites), but see none on credit oriented assets (like Housing...)

[Rajiv]

Re: Wheres the inflation?

Actually a nice discussion on deflation on The Automatic Earth http://theautomaticearth.blogspot.co...ed-studio.html

The article is well worth reading and understanding. I will quote and highlight some parts that I think are relevant to the discussion

It is surprising how many commenters, many of whom have for the longest time dismissed the possibility of deflation, often in a smugly superior manner, are ignorant of what it actually is. They look at Japan and ask how a country can become mired in a long and drawn-out deflation, and why the Japanese experience is so different from the rapid and accelerating deflationary spiral of the Great Depression.

They assume that central bankers possess the tools to prevent deflation, which suggests that they think those in control in other times or places must simply be too stupid to employ them. If it were so simple to prevent deflation then it would never have occurred anywhere, and yet it has.

Many persist in viewing deflation as a price phenomenon, rather than as the monetary phenomenon it always is. They cling to the notion of the fundamentals driving the credit markets, and then wonder why it is impossible to make accurate predictions. In short, the causation runs the other way. The availability of credit drives the real economy, because credit expansions are Ponzi schemes that generate large swings of positive-feedback (self-fulfilling prophecies) in both directions. It is only the context and scale that are different.

.
.
.
.
It is not that deflation is poorly understood, except by the mainstream, which unfortunately includes most economists. There are very clear and comprehensive explanations available for what deflation is and therefore why it is inevitable. We here at TAE have consistently, since our inception, pointed out the mechanism behind this critical aspect of our future. See for instance At the Top of the Great Pyramid, on the nature and critical importance of Ponzi dynamics, or The Big Picture According to TAE.

We have pointed out that credit expansion creates multiple and mutually-exclusive claims to the same pieces of underlying wealth-pie, thereby creating a fictitious wealth that will implode once people realize its existence and reality. Deflation is the chaotic elimination of excess claims to underlying real wealth - the collapse of a money supply that has come to be dominated by ephemeral credit and debt.

For those who are interested, one of the most concise formulations of inflation and deflation has been available for many years in the form of JK Galbraith's A Short History of Financial Euphoria, a history of the periodic rediscovery of leverage (and the consequences thereof) written in 1990. It is short, very clear and readable, and highly recommended. Galbraith points out that financial innovation has led to the formation of many bubbles throughout history, and that the collapse of the unpayable debt thereby created, which is deflation by definition, always follows.

JK Galbraith: "A point must be repeated: only the pathological weakness of the financial memory...allows us to believe that the modern experience of....debt...is in any way a new phenomenon."

Our current credit expansion is different only in scale, in quantity, not in quality, from what has happened time and time again in human history.

Robert Prechter, author of Conquer the Crash (2002), has been explaining deflation to anyone who would listen for many years.

A trend of credit expansion has two components: the general willingness to lend and borrow and the general ability of borrowers to pay interest and principal. These components depend respectively upon (1) the trend of people's confidence, i.e., whether both creditors and debtors think that debtors will be able to pay, and (2) the trend of production, which makes it either easier or harder in actuality for debtors to pay.

So as long as confidence and productivity increase, the supply of credit tends to expand. The expansion of credit ends when the desire or ability to sustain the trend can no longer be maintained. As confidence and productivity decrease, the supply of credit contracts....[..]

When the burden becomes too great for the economy to support and the trend reverses, reductions in lending, spending and production cause debtors to earn less money with which to pay off their debts, so defaults rise. Default and fear of default exacerbate the new trend in psychology, which in turn causes creditors to reduce lending further. A downward "spiral" begins, feeding on pessimism just as the previous boom fed on optimism. The resulting cascade of debt liquidation is a deflationary crash.

Debts are retired by paying them off, "restructuring" or default. In the first case, no value is lost; in the second, some value; in the third, all value. In desperately trying to raise cash to pay off loans, borrowers bring all kinds of assets to market, including stocks, bonds, commodities and real estate, causing their prices to plummet. The process ends only after the supply of credit falls to a level at which it is collateralized acceptably to the surviving creditors.

(Prechter has a free e-book on deflation available (free registration required) here).
.
.
.
.
.

The linked items are also very informative.

[ThePythonicCow]

Re: Wheres the inflation?

How will the US government fund its debt at "20+%" ?

I replied earlier today to your query, but the software gremlins posted my response back at the beginning of this thread.

The iTulip webmaster BDAdmin informs me that they have made some changes that might address that problem of posts getting the wrong time stamp and being misplaced on their thread.

So I post now (1) in case you missed my reply, and (2) to recommend if you or any other reader of this message sees such a problem again, or if when submitting a post, you see the error "Your submission could not be processed because the token has expired", holler. It seems that email to BDAdmin and/or FRED (I'm unsure) is the best way to holler.

[tastymannatees]

Re: Wheres the inflation?

Annual renewal on our health insurance - Self employed family of 3, no health issues,

5 choices

4 were $2200 month

1 $1700 month

Last year $1300 month for mostly the same coverage. Wife and I both crossed 55 years old mark this year which had an impact but that includes raising the deductible from 5 to $10K

[gwynedd1]

Re: Wheres the inflation?

Love this site but I tended to be more on the side of deflation. Now deflation is not everything being priced in half. Its more like stagnation. We also have seen cheaper products. So EJ was correct to note that fine dinning will not be had for 5 bucks. However there is no way we are going to see massive inflation with double digit unemployment, falling housing and debt contraction. Not that that was the position. However I do think EJ was thinking the government was going to be more populist and inflationary. Gold rising is all driven from the complete lack of faith in the financial empire and rightfully so. So its not so much that I disagree in principle but more or less on magnitude. The only new source of money has to be government.

However bear in mind its a tough call to make. It really is up to how the government reacts...or China.

However as I said before, with constant consumer debt contraction, inflation is just not going to happen. I see this month after month after month. We are closing in on 2006 levels. This stuff circulates as money.

http://www.federalreserve.gov/releases/g19/Current/
http://www.usinflationcalculator.com...-1913-to-2008/

I also said gold was range bound between 800-1000 awhile back I believe as is. That was pre-Euro meltdown. I attribute all movement of gold to the Euro crash since then. Thus gold is not pricing in inflation either.

[gwynedd1]

Re: Wheres the inflation?

That depends on which form of M you are speaking about. It also depends on which context you are speaking about. You can deflate the money supply. Its a valid statement. The circulatory forms of money will be much more in lock step with prices. However changes in less liquid forms my not reflect this reality. A general drop in prices really will represent a drop in that form of M. Now as those forms of money susceptible to hoarding are included, you are correct, and the differences will be telling.

[gwynedd1]

Re: Wheres the inflation?

You can inflate a balloon. No use going for us all to go into semantics. He does have a point that inflating or deflating a money supply may or may not do the same with prices. This includes no changes in demand. You need to account for hoarding. Money supply can rise but money velocity can fall as hoarding will do. Though as I said, with its circulating forms its mostly true.

[Starving Steve]

Re: Wheres the inflation?

Inflation is a hike in prices for the exact same services or goods. Whatever economist-frauds might babble in their Greenspanese, I see double-digit annual inflation now in British Columbia and in California.