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 ...
No it isn't.
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.
Since all Treasury bonds are electronic now, that would be very simple.
But that would be defaulting on the debt, not devaluing the currency.
It wouldn't be defaulting on the debt. It would be repaying the debt with a devalued currency. Paid in full.
IIRC Turkey actually did revalue their currency the same way a number of years ago. Recall issued currency and replace it with smaller denominated currency.
That’s exactly right and it’s basic econ 101 which I studied half a century ago. Gov’t’s itch to pay off their debts with inflated dollars which is the main reason we went off the gold standard. The ONLY THING that makes gov’ts hold back on inflation is fear of pitchforks. Inflation is a friend to no one except gov’t. PRODUCTION is what makes an economy grow-—not phony money.
No. Paying back a $10,000 debt with $100 is defaulting on your debt.
Recall issued currency and replace it with smaller denominated currency.
Currency and bonds are not the same thing.
Inflation is friend to all debtors, not just government.
I’m not an economist nor have I played one on TV. But I’ve read many of today’s good (conservative) ones, and few note this about our very unusual state today.
We currently have both strong deflationary pressures, and strong inflationary pressures. For now, they are holding things on the edge of a razor. The slightest additional pressure in either direction will likely push things toward inflation then hyperinflation. Or deflation, total collapse of the economy, jobs, etc. - like the Great Depression.
No one knows which way the wind will blow. One or the other is inevitable. Both will be disastrous - the Fed/gov fear deflation far more, for they cannot control it. They at least have some control over inflation - until hyperinflation hits. Then, they cannot control that either (Weimar, Zimbabwe).
There are few strategies that will protect you from both hyperinflation and deflation (contrary to John T. Reed IMHO).
God help us.
It comes from teaching generation after generation that a “little inflation is good” and the government can manage economies.
This is typical liberal thinking and mindset. It's true that a higher price means higher profits, but not in an inflationary environment. The driver there is higher costs on business which then passes them on to the consumer. How does that improve profits?
Rising wages that don't improve because of productivity improvements or improvements in the marginal value of labor don't help workers. Those same workers are now chasing the very goods that are rising in price in conjunction with their wages.
A fixed debt level during an inflationary event does mean stealing, from the lender, and creditors are quick to learn that. So you either get shorter borrowing time horizons, contract payments linked to inflation, or reduced lending on low margin loans.
Inflation also encourages people and businesses to borrow money and spend it more quickly. This statement is just plain stupid and would be obvious to a near zombie, if he'd just think about it for a moment.
Sadly, Obamabot no think.
Inflation benefits profligate borrowers...like the US Government.
Deflation resolves itself and has done so historically. What we’re seeing via Central Banks is fascism - government management over the economy. They’ll fail at this.
Also, we need to consider that you can have a very healthy economy with persistent deflation. This would be an economy with a robust entrepreneurial marketplace and continuing growth in productivity that outpaces the population growth. This would be Nirvana and would look like the US in the 1800s, pre-progressivism.
All government is overhead. The absence of government is anarchy. So everyone can agree that we need some government.
What occurs, though, is government forgets that it is here to serve us, not the other way around. Government also attracts those that cannot make it in a competitive market environment. Their skill set is manipulation, obsequiousness and egoism. Not winning they manage the system to make them a winner.
The failure, to my mind, occurred with Teddy Roosevelt’s trust busting. He “solved” a non-problem, but created the belief that government could solve problems. Take a look at the response to the 1920-21 recession. Government did next to nothing, the Fed twiddled its thumbs, and things reset themselves.
Hoover’s and then FDR’s interventionist attitudes are what exacerbated and then extended the Great Depression. I’d like to see a return to the bank clearing house era and an insurance system, strict banking laws for savers (savings banks and credit unions), no government mortgage guarantees or tax subsidies of debt interest, and full responsibility of investors for their investment decisions.
The bubbles we’ve experienced in the latter half of the 20th century to today are a direct result of the Fed making government intervention possible via low interest rates.
.... I was actually referring to the wording in the Q.E. plan that I heard on a financial planning show a few weeks ago. The hosts stated something to the fact that the QE was written up and planned in such a way that the value of the dollar would be devalued over the next few decades to compensate for the excessive printing of money. However the devaluation would not begin until a certain set time which I think they said either 2014 or 2016. Since they are now talking about another QE the devaluation would probably be deferred until that one ends which is of course dependent on the strength and stability of the economy at that time.
What I am saying is that it is a planned and timed event that will be dependent upon the stabilization of the economy (whenever that will be). The more QE's there are the larger the amount of devaluation. My guess is that they will keep on mounting more QE's until King Obama is no longer our King. This will create the illusion that everything was just fine and functioning well until the next leader of the country takes over.
I don’t think they are different size- they just changed the printing
“My guess is that they will keep on mounting more QE’s until King Obama is no longer our King. This will create the illusion that everything was just fine and functioning well until the next leader of the country takes over. “
Unless of coarse the next leader is Queen Hillary. Then what to do, what to do. I like your tag line but I think we have passed that point already.
...how are higher prices going to help anything?
Yes, I remember Keynies say it was impossible. Yet we had 4 years of Carter's "malaise", not to mentions double digit mortgage interest. I remember, because we were looking at buying a house at the time. 18% or more interest on a mortgage? Really? We gave up and kept renting.
So, similar to the same old tired media and self-agrandizing Phd's spouting we were heading into a new ice age (Time magazine proclaimed so in the '70's); or a population bomb where almost half the world would die from starvation (Newsweek or maybe Time proclaimed such); or that there were no differences between boys and girls (pretty sure that was Time rag); and now try to claim the worlds is going to die from human global warming.
Sorry for the run-on sentence.
I try to be fair, and watch CNN occasionally, but saw some pundit was talking about "global warming" because of the awful smog in China. He said, "This is undisputable proof that we humans are causing the planet to warm". Yes, the smog in China is really bad, but to extrapolate that to rising seas that will flood every coastline is just damn ridiculous.
What he didn't bother to mention that even the "global warming" mongers at the IPCC mentioned in their latest report that there has been NO to ANY significant increase in global warming in the last 15 years. Of course, it was at the end of the report.
Who gives these people their doctorates? Sheesh, I'm a GED person and can read between the lines and add 2 plus 2 regarding Sun activity. Apparently, academia is failing everyone, including the teachers. Like that's news.
The above said, pretty much believe that anyone with a new theory about anything and articulate well in writing get a doctorate. If it works within the mindset of the collective professors, than you're good to go. Right or wrong. Just write what your professors want to hear.
While it's difficult to define what things are "worth", I would posit that the total value of some tangible or paper commodity cannot exceed the time-adjusted value of the total benefit that can be realized from that commodity. If Million Corporation, whose sole goal is to maintain a stack of $1,000,000 in currency, sells 10,000 shares at $100 each, then liquidating the company would yield about $100 for each share, so each share could be said to be worth $100. If someone buys a share for $150, that person immediately takes a $50 loss and the seller profits $50 in the sale. Conversely, if someone sells as share for $75, that person takes a $25 loss and the buyer makes an immediate $25 profit. The buyer or seller may for some reason think the stock is worth less or more than $100, but the asset has a certain value, and the fact that it may sell for more or less than that doesn't significantly change the fundamental value of the asset.
The Fed might attempt to increase the money supply in such a way as to mask the immediate effects, but once the currency is diluted in such a way that it can't readily be recalled, the currency will be immediately reduced in value, whether or not its price immediately reflects that.
If you are living off cash savings, have no other source(s) of income and don't have assets whose values will increase with inflation, you're screwed.
Funny. My copy of the Constitution indicates gold/silver and something called ‘Congress’, not this ‘Fed’ being.
IMHO, is was the illegality of Wilson, FDR, Kennedy and Nixon; along with their cohorts in the Coinage Act of ‘65 that have allowed the economic enslavement of our posterity.
Funny how we survived 150+ years before the Socialist overtaking the Republic by pegging the $$ to gold/silver.
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