Skip to comments.Yellen’s Denial of Rising Inflation
Posted on 07/24/2014 5:56:50 PM PDT by Kaslin
Testifying before Congress last week, Federal Reserve Chairman Janet Yellen cherry-picked data on inflation by noting prices are up, on a year-over-year basis, less than the Federal Reserve's target of 2 percent.
The Labor Department's Consumer Price Index has accelerated recently and averaged 3.5 percent for the three months ending in June.
Once inflation gets out of control, history has shown it is difficult to contain without a steep and painful recession. Recognizing these dangers, Ms. Yellen's cognitive dissonance will add new life to proposals in Congress to rein in the Fed's independence.
A bill under consideration would require the Fed to submit to Congress a detailed strategy or rule for the Fed's policy instruments for example, targets for money-supply growth and lending rates to banks and essentially handcuff quick Fed responses to emerging crises.
The Dodd-Frank legislation was intended both to curb destabilizing practices on Wall Street and to permit the Fed to better respond to crises for example, the 2008 Lehman Brothers collapse, which in the absence of Fed intervention, caused the house of cards that was mortgage-backed securities to collapse and ignited the worst financial crisis since the Great Depression.
The Fed's credibility is already suffering greatly from the ill-considered actions of former Chairman Ben S. Bernanke and former Treasury Secretary Timothy F. Geithner. Together, they bailed out the biggest financial firms but largely left top officials with the exceptions of those firms seized by the federal government to continue to find creative ways to gamble and pay themselves outlandish bonuses. For example, although banks don't directly make private equity plays, they are financing those at alarming levels through questionable lending.
Instead of restoring Glass-Steagall and breaking up the biggest banks to a scale not too big to fail, they supported legislation to expand their regulatory empires with Dodd-Frank's costly regulations. Compliance costs are a big reason why ordinary folks are losing free checking and paying generally higher service fees.
Now, Ms. Yellen is ignoring the Fed mandate to ensure price stability. She has embraced the notion that if she induces enough inflation in Fed parlance at least 2 percent per annum the economy will grow more robustly.
That view has lots of support among politically liberal economists who offer little credible evidence. Yes, economists actually have rules for the abuse of statistics.
Letting inflation fly, and fibbing about it, seems to be Ms. Yellen's imprint on Fed policy, but it will likely impose devastating costs on ordinary Americans.
Labor markets are tight for specialized technical personnel, such as in the medical, oil and gas, advanced manufacturing and technology sectors, but most Americans can't get a decent raise because few seem able to leave their current employer for better pay elsewhere.
Boosting inflation to chase growth by printing money to keep interest rates low will make bankers and private equity firms happy and they donate considerable sums to Democratic candidates but it will beat the heck out of the finances of ordinary Americans.
If Ms. Yellen can't run the Fed responsibly and at least acknowledge the inflation data on her desk, the Congress will leash monetary policy in ways that make future crises a lot worse.
In the days before the Fed was established, the absence of a strong central bank with flexible powers exacerbated crises and made the economy inherently unstable, and that is where Ms. Yellen's inaction on inflation could well take us.
She doesn’t have to do her own shopping. I went to buy a bottle of coffee creamer. It had a price hanger that said Price Drop. It was 4.29, and the listed price was 4.99. Just last week, it was 3.99. I buy this stuff all the time. Take bacon. It is almost 6.00 a pound. Five years ago, you could get a pound of bacon for 1.99. Hamburger, 20% fat, is 3.99 a pound. It was 2.99 not that long ago. Coffee: I was going out and getting whole bean from the dispenser bins for 5.99 a pound just a couple of years ago. Now, it is hard to find at 7.99, and the sealed bags that used to be a pound are now 12 ounces. A cereal box used to be able to give me three good sittings of cereal, but now they are so thin they scarcely hold two bowls. Bread: 2.99 for a one-pound loaf of the store brand. Really, it was 1.99 only two years ago. That is 50% more.
Then there is gasoline. When Bush left office, it was 2.89 a gallon for regular, which is all I buy. That bastard Bush took his 2.89 gasoline with him, and all we have now is 3.99 gasoline. See, it really is Bush’s fault.
Hey Janet, have you bought any meat or gas recently? What planet do these people live on?
Two birds with one stone: They wipe out the debt AND that irritating middle class.
And they keep Social Security and pensions solvent for longer — by under-reporting inflation to keep automatic cost-of-living adjustments down.
don’t you know, we raised the chocolate ration up to 20 grams a week. we didn’t lower it from 30. you must be not thinking right, you must have faulty memory, you are weak and you won’t get help to correct it. /1984 homage
If we calculated inflation like we did in the 80’s, it has been running at almost 13% annually since barry assumed the position.
Janet Yellen can’t stop the law of supply and demand.
The supply of U.S. debt continues to be enormous. This fall, there will be significantly less demand for U.S. debt on the part of the Fed, since it has promised to stop printing money to purchase it.
So how will this demand gap be filled? To attract more U.S. bond purchases to fill the gap, the Fed will have to raise interest rates.
If China, for example, wanted to buy a billion more dollars worth of Treasury bills at their current interest rate, it would have done so by now. So only by making the bills more attractive by raising their interest rates will the billions necessary to meet our debts come flooding in.
Unless, of course, China decides to significantly increase its dollar purchases in order to keep the yuan low and make its products more attractive here, thus hurting our own manufacturing industry.
This is how our interest rates will be decided — not by an essentially powerless Fed Chairwoman making momentous decisions in a vacuum, as financial experts insist on portraying the process.
And if you're already in a
Everyone who buys any item of sustenance knows we're screwed.
The FedGov has so profoundly distorted the market in order to retain the appearance that "all is well" - nothing is sustainable - price stability for essentials to living, fixed income service, equity indexes, debt service - I could go on...
The price of firewood hasn’t changed. Big wood clubs are cheap if not free. Animal skin clothing can be had at no cost. Caves are available if you know where to find one.
Therefore, there’s no inflation.
Every food item I can think of has gone up dramatically in the last five years. Hmmn, about as long as Obama has been around the White House. Every restaurant I go to has printed new menus, with higher prices. My favorite pizza is 50 percent higher in cost than a decade ago. What the heck is this less than 2 percent annual inflation figure based on? It sure isn't based on food I eat.
“What the heck is this less than 2 percent annual inflation figure based on? It sure isn’t based on food I eat.”
The worst thing is out token “president” repeats the lie that there is no inflation, then supports minimum wage hikes to deal with that very inflation.
At least they get to screw the SS recipients out of their true inflation adjustments...
I'm one of those recipients. At least I don't have to rely on it for the food I eat. When I was young, I knew they would screw me on SS ("it's a trust, won't be taxed, only for those who put in, etc."). So I decided for the rest of my life not to rely on government and their promises. Bad enough government interferes so much with our lives, now they repeatedly lie about it.
“When I was young, I knew they would screw me on SS (”it’s a trust, won’t be taxed, only for those who put in, etc.”). So I decided for the rest of my life not to rely on government and their promises. Bad enough government interferes so much with our lives, now they repeatedly lie about it.”
The worst part of it is having to contribute when they’re already telling me the money won’t be there when I reach retirement age (which is later than current retirees). I owe those collecting now nothing, and yet their payments come from my check...
Even though I'm collecting, I too owe nothing to many others who collect. Remember, it isn't just seniors who paid into the system who are receiving SS. There's a lot of others besides dependents who were given access to receiving SS that never paid in. Thanks to our damn politicians. I was robbed. Now you and others are being robbed. And the pot is getting empty.
“There’s a lot of others besides dependents who were given access to receiving SS that never paid in. Thanks to our damn politicians. I was robbed. Now you and others are being robbed. And the pot is getting empty.”
True, and I believe a lot of the push behind these “death with dignity laws” (coupled with ObamaCare death panels) is about keeping the program solvent by eliminating recipients.
You may be right. One thing I know is that a lot of my friends and co-workers died before receiving a penny of SS, and others died soon after retirement only collecting a few years' worth of SS. If only those who paid in, were to receive SS benefits, no freaking way would the SS "trust" fund be insolvent. Too many people paid in and died without collecting what they paid in. That money alone should have kept the pot full. Politicians stole the money from workers.
“Too many people paid in and died without collecting what they paid in. That money alone should have kept the pot full. Politicians stole the money from workers.”
Good point. A co-worker was complaining that her retired mother’s SS payments weren’t enough to pay her bills, so she had to go back to work. I asked what her mother had done for a job, and she replied that she had cared for children for cash; when I asked what work she was doing now, she stated (without a trace of irony) that she had gone back to caring for kids for cash.
That this parasite received ANY SS was disgusting...
They exclude energy and food from their inflation calculation. Since energy (home heating/cooling/electricity, gas) and food make up a big chunk of people's budgets (and a dominant chunk for older people with paid-up homes), this means that the government's inflation figures are totally meaningless.