Back to reality: Inflation is coming

[Little-Acorn]

Inflation happens when you have a lot more printed money chasing the same amount of goods and services. It can happen when people work less and produce less... or when the government prints a lot more money while people's work and production don't increase enough to cover it.

Guess what: The government has recently been printing more money... a LOT more.

Here's a chart from the Federal Reserve. According to the Federal Reserve, "The Adjusted Monetary Base is the sum of currency (including coin) in circulation outside Federal Reserve Banks and the U.S. Treasury, plus deposits held by depository institutions at Federal Reserve Banks." (from http://timeline.stlouisfed.org/index.cfm?p=data&rd_id=18)

http://research.stlouisfed.org/fredgraph.png?height=600&width=1000&id=AMBNS&scale=Left&range=Max&cosd=1918-01-01&coed=2011-03-01&line_color=%230000ff&link_values=false&line_style=Solid&mark_type=NONE&mw=4&lw=1&ost=-99999&oet=99999&mma=0&fml=a&fq=Monthly&fam=avg&fgst=lin&transformation=lin&vintage_date=2011-05-03&revision_date=2011-05-03
Chart is from http://research.stlouisfed.org/fred2/graph/?chart_type=line&width=1000&height=600&preserve_ratio=true&s[1][id]=AMBNS

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Uh-oh.

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[red states rule]

Jimmy Carter must be one of Obam's political heros

Can yu say Misery Index?

[fj1200]

Inflation happens when you have a lot more printed money chasing the same amount of goods and services...


Uh-oh.

While I agree I do think you have the wrong graph.

http://www.kitco.com/charts/popup/au3650nyb.html

[logroller]

The eq of exchange has four componants, it's not just GDP and money. I'm not arguing for quantitative easing mind you, but its more complex than "more money= inflation." Velocity for example-
http://upload.wikimedia.org/wikipedia/commons/thumb/4/47/M2VelocityEMratioUS052009.png/800px-M2VelocityEMratioUS052009.png



Understand we want inflation, just gradually, along with the other componants increasing as well. Manipulating the money supply with respect to velocity is meant to stabilize the other side of the EQ (price and GDP). But with stability you inevitably reduce growth potential, that's why a free market is better in the long run, greater growth. Grrr-down with the Fed.

[red states rule]

http://images2.cpcache.com/product/437279122v2_480x480_Front.jpg

[fj1200]

The eq of exchange has four componants, it's not just GDP and money. I'm not arguing for quantitative easing mind you, but its more complex than "more money= inflation." Velocity for example-

Understand we want inflation, just gradually, along with the other componants increasing as well. Manipulating the money supply with respect to velocity is meant to stabilize the other side of the EQ (price and GDP). But with stability you inevitably reduce growth potential, that's why a free market is better in the long run, greater growth. Grrr-down with the Fed.

Good call on the velocity, it's included in the Quantity Theory of Money (http://en.wikipedia.org/wiki/Quantity_theory_of_money) equation.

But don't buy into the "we want inflation" camp. Monetary stability is superior.

[logroller]

Good call on the velocity, it's included in the Quantity Theory of Money (http://en.wikipedia.org/wiki/Quantity_theory_of_money) equation.

But don't buy into the "we want inflation" camp. Monetary stability is superior.

Let's not argue semantics- eq of exchange (MV=PQ) is a componant of the Qtheoryof$, right? Rudimentary perhaps, but it nonetheless explains how inflation behaves respective of monetary quantity.
In the current discussion I'll grant you the theory is probably more on topic, but to explain what I needed to, EQ of Exchange sufficed. The Qtheory is far more complex.

I had assumed you'd favor long-run monetarists strategies, including a general trend of inflation--- what's your critique "sticky prices", short-run instability?,

[fj1200]

Let's not argue semantics- eq of exchange (MV=PQ) is a componant of the Qtheoryof$, right? Rudimentary perhaps, but it nonetheless explains how inflation behaves respective of monetary quantity.
In the current discussion I'll grant you the theory is probably more on topic, but to explain what I needed to, EQ of Exchange sufficed. The Qtheory is far more complex.

I wasn't arguing, only expanding. You were right on target.


I had assumed you'd favor long-run monetarists strategies, including a general trend of inflation--- what's your critique "sticky prices", short-run instability?,

I think Monetarists should be banished from central banks the world over. You can't control inflation by controlling the growth of the money supply because there are far to many factors in play, not the least of which are fiscal policies that are constantly changed especially when a new regime is installed in DC. Inflation is insidious and a tax on the poor.

Are you referring to anything in particular re: sticky prices and short-run instability?

[logroller]

I wasn't arguing, only expanding. You were right on target.



I think Monetarists should be banished from central banks the world over. You can't control inflation by controlling the growth of the money supply because there are far to many factors in play, not the least of which are fiscal policies that are constantly changed especially when a new regime is installed in DC. Inflation is insidious and a tax on the poor.

Are you referring to anything in particular re: sticky prices and short-run instability?

10-4. policy failure. Alas theories don't bode well with the realities of politics. Monetarists need much time to reap the positive gains, policies are too short-sided to accomodate such.

[Little-Acorn]

Understand we want inflation,

What you mean "we", kimosabe?

Inflation isn't a "tax on the poor", whoever they are. It's a tax on people who save for the future.

I can put enough money in the bank to buy a pretty nice car today. Ten or twenty years of inflation later, there's barely enough in there to buy a mid-level bicycle. Even though nobody ever took a dime out of the account in all that time.

OTOH, if I borrow enough money from you to buy a pretty nice car today, ten or twenty years of inflation later, I can discharge the debt by paying you barely enough to buy a bicycle. So long, sucker.

Were you wondering how the government plans to discharge most of the National Debt? Now you know.

You didn't think inflation was accidental, did you? Where do you think the country's enormous debt from WWII went... when we never balanced the Federal budget since then, much less paid even a dime of it back (except for a few pittance amounts in the 1950s)?

We never paid that debt back. We just made it worth a lot less... at a cost of making EVERYONE'S money worth a lot less. Sorry, thrifty savers. Thanks for your cash. See you later.

[logroller]

What you mean "we", kimosabe?

Inflation isn't a "tax on the poor", whoever they are. It's a tax on people who save for the future.

I can put enough money in the bank to buy a pretty nice car today. Ten or twenty years of inflation later, there's barely enough in there to buy a mid-level bicycle. Even though nobody ever took a dime out of the account in all that time.

OTOH, if I borrow enough money from you to buy a pretty nice car today, ten or twenty years of inflation later, I can discharge the debt by paying you barely enough to buy a bicycle. So long, sucker.

Were you wondering how the government plans to discharge most of the National Debt? Now you know.

You didn't think inflation was accidental, did you? Where do you think the country's enormous debt from WWII went... when we never balanced the Federal budget since then, much less paid even a dime of it back (except for a few pittance amounts in the 1950s)?

We never paid that debt back. We just made it worth a lot less... at a cost of making EVERYONE'S money worth a lot less. Sorry, thrifty savers. Thanks for your cash. See you later.

Perhaps want was too strong a word. I merely stated that to elude to the overall growth of economic pie involves every aspect increasing, including price. The issue is the price increasing faster than the gdp, IMO opinion this is because of people chasing the lower priced items of lesser global economies, ie outsourcing. As our monetary stability decreases due to net imports, those lower prices for goods and srvcs found abroad grow due to our lust for consuming externally produced lower-price goods rather than the higher priced items supported by our production markets. Exemplified by our how we export high value items like jumbojets and computer software, but import clothing and kids-meal toys.

The Fed wants to play a shill game to moderate velocityXmoneysupply. I wanna beat the inflation curve through investment, and banking for consumables doesn't cut it; rather investment into those who produce consumables does. That's why those who rely on consumable spending alone(the poor) are 'taxed' heavily by inflation, because their earnings are exhausted and thus can't reap the future returns which would reflect any price inflation.

[fj1200]

Perhaps want was too strong a word. I merely stated that to elude to the overall growth of economic pie involves every aspect increasing, including price. The issue is the price increasing faster than the gdp, IMO opinion this is because of people chasing the lower priced items of lesser global economies, ie outsourcing. As our monetary stability decreases due to net imports, those lower prices for goods and srvcs found abroad grow due to our lust for consuming externally produced lower-price goods rather than the higher priced items supported by our production markets. Exemplified by our how we export high value items like jumbojets and computer software, but import clothing and kids-meal toys.

I don't think those two issues are anywhere close to being related. If anything debasing our own security, relative to others, would make the US more competitive, relative to others, but at a cost of inflation. Inflation is not worth the price.


The Fed wants to play a shill game to moderate velocityXmoneysupply. I wanna beat the inflation curve through investment, and banking for consumables doesn't cut it; rather investment into those who produce consumables does. That's why those who rely on consumable spending alone(the poor) are 'taxed' heavily by inflation, because their earnings are exhausted and thus can't reap the future returns which would reflect any price inflation.

True, the wealthy can afford inflation because they generally have assets that grow with inflation.

[logroller]

I don't think those two issues are anywhere close to being related. If anything debasing our own security, relative to others, would make the US more competitive, relative to others, but at a cost of inflation. Inflation is not worth the price.



True, the wealthy can afford inflation because they generally have assets that grow with inflation.

Agreed, but which two issues? Net importing affects money supply and inflation, more dollars leave than are returned, ie money chases goods-- goods come, money leaves; so we print more money, more goods come, more money leaves...

As to the second, that's a much more clear explanation, thankyou.

[fj1200]

Agreed, but which two issues? Net importing affects money supply and inflation, more dollars leave than are returned, ie money chases goods-- goods come, money leaves; so we print more money, more goods come, more money leaves...

Import/Export and monetary stability. We import with goods in exchange for dollars, those dollars will come back eventually to buy goods/assets/etc. Monetary stability can be achieved regardless of that relationship. We've run trade deficits for years and have had a stable currency. Don't forget we import low-profit goods but retain much of the high-profit services portion of that; Apple makes much more on the sale of the ipod/phone/pad than the outsource who manufactures it.

We also get a free benefit of being the reserve currency.


As to the second, that's a much more clear explanation, thankyou.

:salute:

[Kathianne]

Double dip is 'official' at least according to The Atlantic:

http://www.theatlantic.com/business/archive/2011/05/the-double-dips-official-home-prices-fall-to-new-low/238423/


The Double Dip's Official: Home Prices Fall to New Low
By Daniel Indiviglio

National home prices are officially on the hunt for a new bottom. After beginning to decline again this summer, once the home buyer credit expired, home prices hit a new post-bubble low in April, according to housing industry consulting firm Clear Capital. It reports that national home prices now sit 0.7% below their March 2009 low. Over the past nine months, they're down 11.5%.

Here's the chart from Clear Capital showing the descent of national home prices:

http://i53.tinypic.com/mt77k2.png