Skip to comments.Paul Volcker Sees No Short-Term Inflation Problem for USA ("Inflation, not a problem for years")
Posted on 10/27/2010 11:16:39 AM PDT by WebFocus
The United States does not face a problem of rising inflation for several years and also does not risk a damaging spell of falling prices, Paul Volcker, former chairman of the Federal Reserve, said Monday.
"Inflation is not a problem right now. It won't be a problem next year, it won't be a problem for several years," said Volcker, who is now chairman of the Obama administration's Economic Recovery Board.
"I see no possibility, frankly, that a deflation will take place," Volcker said during a panel discussion on financial reform at Boston College.
"Over a period of time, price stability will be conducive to a strong economy," he added.
The Fed, under Chairman Ben Bernanke, is widely expected to go ahead with efforts to spur inflation, which the central bank sees as its best chance to to lift an economy that some see as being on the verge of falling back into recession and a downward spiral in business activity.
Volcker made his reputation in the 1970s when he raised benchmark interest rates sky-high to pull the nation out of a period of stagflation a combination of high inflation and stagnant economic growth.
The current economic problems will take time to work out, Volcker said, telling a Boston College freshman that job prospects should be better by the time he graduates.
(Excerpt) Read more at cnbc.com ...
Inflation always feels good when it first starts. It seems like youre getting something for nothing. The excess liquidity flows into stocks, pumping their values. It flows into commodities, and makes them go up.
You may think you can avoid the price increase in your iScam from China, but youre not going to avoid the cost of wiping your a** - and thats where Kimberly-Clarks [Q3 earnings] warning comes in.
So around about 2013 you can kiss your savings good-bye.
I guess Volker doesn’t shop for his own groceries, huh.
That is for the peasants and slaves. It is beneath the dignty of the elite.
That`s the FIRST thing I thought when I read the story line !
They have “people” for that sort of mundane stuff and don`t notice the price of caviar.
Wonder what he’ll say AFTER the elections....?
The CPI is manipulated all the time and does not reflect REAL inflated prices for almost all commodities from wheat to sugar,etc.
Even as Paul Volcker makes this statement, something strange is going on in the bond market...
On Monday, the U.S. Treasury sold $10 billion in government bonds to investors who, if current conditions prevail, have agreed to lose money. For the first time ever, the Treasury sold debt with a negative yield. These are — TIPS (Inflation Protected Securities).
Does that mean that the investors are paying the Treasury to hold their money? And if so, why would they do that?
The answer to the first question is nothey aren’t paying Treasury for anything but the bonds, though they could lose money on the deal. And the answer to the second is that they’re BETTING THAT INFLATION WILL RISE !!
Bond investors tend to be allergic to inflation, because longer-term bonds provide a set interest payment. If a 30-year bond grants an investor $10 a year, every year, then the lower the rate of inflation, the more that money is worth. For most of the bonds it sellsactually, 93 percent of themTreasury lets investors worry about how to cope with inflation. But for that other 7 percentTIPS bondsTreasury takes inflation into account by adjusting the value of the bond according to the Consumer Price Index.
If the country experiences inflation, the Treasury marks up the value of the bond. If the country experiences deflation, it marks it down. Treasury pays interest on the adjusted value of the bond, not its face value. And it pays back the adjusted value of the bond, rather than its original face value, when it matures.
So, let’s say that you bought a $100 five-year bond with a 0.5 percent coupon at its face value. For a normal bond, Treasury would give you $2.50 in interest payments, plus your $100 back. But let’s say that inflation increased 1 percent per year over the life of your bond. With a TIPS bond, Treasury would compensate you for that change. It would mark up the bond from $100, to $101, to $102.01, to $103.03, to $104.06. Your interest payments would total about $2.56 over five years. And you would get $104.06 back when you cashed in. With a normal bond, you would have lost money in real terms. With a TIPS bond, you would have come out a bit ahead.
Investors at Monday’s auction paid $105.50 for a $100 five-year bond with a 0.5 percent coupon. All things being equal, the investors overpaidhence the negative yield. But that just means that they expect inflation to be positive for the next five years. Crunching the numbers, annual inflation for the next five years needs to be somewhere north of about 1.55 percent for the investors to break even. Any more inflation than that, and they make money.
So why do so many investors think that inflation might head upward? Because next week, the Federal Reserve is expected to announce a new round of quantitative easingprinting money, and possibly stoking inflation. Of course, not everyone believes the Fed’s policy will have that effect. In that case, these negative-yield bonds will be true to their name.
TO MAKE A LONG STORY SHORT -— THE MARKET DOES NOT BELIEVE PAUL VOLCKER !!
I wonder what world he lives in. I have four children ages 16 to 11 who we anticipate sending to college. I fully believe tuition rates will go up 5% per year before we even get there. Add this to the uptick in groceries, gas, insurance etc. How do they measure this?
My first thought was of how he sold his reputation to protect the corrupt UNocrats in the “Oil for Food” disgrace.
CNBC was told to carry Obama’s water, so it’s no surprise they are carrying Volker’s Barbara Streisand.
But the metals and commodities markets are usually pretty good predictors of where the general level of prices are headed. You're not really sticking your neck out to forecast anything, especially when you're predicting years into the future. Who will remember anyway? I think I'll pay attention to what the markets are telling me.
Never mind that products in your grocery store have reduced content (serving size whether that be food or paper towels).
5% for tuition increases, I think more. As for Volkers no inflation statement I have a unicorn that farts rainbows tied to my giant beans stalk out back by the golden goose if you believe him.
RE: I think I’ll pay attention to what the markets are telling me.
The markets are what’s REAL, anything else is just theory.
Say hello to Fredo for me ( is he alive? :)
It’s easy to say when you can keep changing the formula to suit your needs.
And the Titanic is unsinkable....
What they forget to tell us is that inflation absolutely is here: regular old inflation, that is, as opposed to “price inflation.” Money is being printed, and it’s finding its way into circulation. Due to certain other factors, it may not have the usual effect on aggregate prices. Nevertheless, it’s hard to argue prices won’t be higher than the otherwise would have been.
Oh, and you can bet new money will find an outlet and prices will go up somewhere. Say, capital-intensive investments like housing or loan-intensive industries like higher education. Just not overall.
“The CPI is manipulated all the time and does not reflect REAL inflated prices for almost all commodities from wheat to sugar,etc.”
Economists can be so damn blind. Even a legend like Milton Friedman, denouncing the Austrian business cycle theory, asked questions like “Where’s the inflation?” Hello! To take the last cycle, what about gas? What about housing? What about college? Having you been paying ANY attention?
oil, gas, gold, silver, corn, cotton, soybeans, paper, lumber, clothing all are UP and this idiot says there is no inflation. retailers are hiding the inflation by lowering portion sizes. volcker is fricken moron!!!!!!!