Inflation: WHEN? HOW MUCH?

[lomiller]

but creditors are protected to the extent that they may be compensated for their loss of purchasing power by the interest rate.

So the money isn't readily available after all? I thought you just said easy credit was driving up housing prices, now you are saying lenders are protected from the effects of rising prices by the high interest rates they charge. Clearly credit can't be cheep and expensive at the same time

 

[Tippit]

So the money isn't readily available after all? I thought you just said easy credit was driving up housing prices, now you are saying lenders are protected from the effects of rising prices by the high interest rates they charge. Clearly credit can't be cheep and expensive at the same time

I'm saying interest rates, when they aren't subsidized (manipulated by the Fed) compensate lenders for expected inflation, to the degree that expectations match reality. There is no doubt that credit was cheap leading up to the housing bubble, and that the Fed was the cause. To the extent that lenders were lending at record low rates, it was a good deal for borrowers. To the extent that lenders benefitted from money created out of thin air, their cost-of-capital was negligible to begin with. The losers were the borrowers who couldn't service the debt after the bubble burst, and the lenders who held worthless paper and who weren't bailed out by the Fed.

The point is, the system is unstable, and unfair. The Fed shouldn't have the power to create money out of thin-air. Banks shouldn't be able to lend depositors money and promise it on demand at the same time. If we abolished the Fed, and FRB, we wouldn't have these massive bubbles that arbitrarily reward certain home-flippers at the expense of others. We wouldn't have scarce economic resources deployed in building homes and condos far in excess of what's needed. We wouldn't have bankers and politicians skimming massive amounts of purchasing power off of the top of the economy. Real growth would be slower, but it would be sustainable, and more accurately reflect the needs and wants of economic participants. Credit would be more expensive and less available, but there would be far less fraud and waste. Finally, government spending would be restricted by tax receipts. The government and corporations would once again be subservient to the people, as it should be. The system as it is now is a free-money binge, with politicians and bankers looting what's left of America.

 

[drkitten]

It’s almost like someone thought of all this stuff when the CPI was developed!

Lol! Not,... quite. They actually have been tinkering with the definition of the CPI for a long time; "back in the day" they did actually use housing prices as a component of the basket but found that that gave a less accurate and less useful measure of inflation than using rent equivalent. Which is why they switched -- I think the actual switch took place in the 1970s or something, so this certainly isn't "cutting-edge" research economics, by any means.

Now, of course, Tippit will regard this as proof positive that the government is cooking the books to support its lies, because "everyone knows" that inflation is what Tippit says it is, regardless of how self-contradictory Tippit's economic analysis is.

 

[drkitten]

Are you suggesting that the housing bubble was predominately a function of the supply of houses, and not the supply of money? Because you'd be wrong.

Well, so would you if you made that suggestion.

It wasn't a function of the supply of money or of the supply of houses. It was primarily a function of the demand for houses. Like any classic bubble, people wanted to buy into what they perceived as a good thing, and were willing to spend more money on housing (and by extension, less on everything else).

You can see this effect in two areas. First, while housing prices skyrocketed, prices for everything else remained more or less stable; an increase in the money supply would have produced inflation across the board. Second, the percentage of family income devoted to housing went up dramatically at the same time that rents didn't go up by much; in other words, people were deliberately choosing to pay more for a chance to own houses and invest in equity. It's not that their purchasing power had diminished (they could still have rented for about the same as they ever could), but that they chose to purchase real estate as opposed to other goods, services, or assets.

Expanding the money supply causes assets to go up nominally in price.

Which is exactly why we know that this wasn't cause by monetary expansion. Because "assets" didn't go up in price. Only "real estate" did.

When the creek rises, every house on the street is going to be underwater. If you're in the only house in the street with a flooded basement, it's not because the creek flooded.

 

[lomiller]

I'm saying interest rates, when they aren't subsidized (manipulated by the Fed) compensate lenders for expected inflation,

Since you now say the Fed subsidized these interest rates to keep them low, and you previously said these interest rates are what’s “cutting into peoples purchasing power” doesn’t that mean the Fed is subsidizing home buyers? Now whether I agree with you on either of these points, even if you are correct it’s a little difficult to see how home buyers are being shafted by receiving the benefits for these “subsidies”

 

[dudalb]

I note that both liberal and conservative on economic issues at JREF can come together on one thing: Tippit does not know much about economics.

 

[Tippit]

Since you now say the Fed subsidized these interest rates to keep them low, and you previously said these interest rates are what’s “cutting into peoples purchasing power” doesn’t that mean the Fed is subsidizing home buyers? Now whether I agree with you on either of these points, even if you are correct it’s a little difficult to see how home buyers are being shafted by receiving the benefits for these “subsidies”

I didn't say it "now", i've said it consistently, and it's obvious. Low interest rates mean fiat money creation, which is what destroys people's purchasing power. The fact that the Fed is monetizing lots of debt and driving interest rates down benefits the people who get the cheap money, and hurts those who don't. The fact that they are responsible for creating a bubble which caused a lot of those borrowers to now be underwater on their mortgages is hardly evidence for their help.

 

[Tippit]

I note that both liberal and conservative on economic issues at JREF can come together on one thing: Tippit does not know much about economics.

Being accused of ignorance by participants in what amounts to an insane political system of partisan hacks is a badge of honor. Thank you.

 

[drkitten]

Being accused of ignorance by participants in what amounts to an insane political system of partisan hacks is a badge of honor. Thank you.

"Being accused of driving on the wrong side of the street by participants in what amounts to an insane traffic control system is a badge of honor." Everyone knows that the only proper way to drive is on the left side of the street, and the entire Interstate Highway System is nothing but a conspiracy to deprive us of our God-given right to drive as we see fit, as well as to pollute the purity of our precious bodily fluids.

And no matter how many citations I get, how many times I total my vehicle, and no matter what kind of medical bills I incur, I, Tippit, will continue in my crusade to risk life and limb on this noble crusade. Because everyone knows in their heart of hearts that they are the ones on the wrong side of the road.

 

[Tippit]

And no matter how many citations I get, how many times I total my vehicle, and no matter what kind of medical bills I incur, I, Tippit, will continue in my crusade to risk life and limb on this noble crusade. Because everyone knows in their heart of hearts that they are the ones on the wrong side of the road.

The wreck is the economy, in case you hadn't noticed. This courtesy of our ethically and intellectually bankrupt monetary system. But don't let that stop you for shilling for it, after all, cushy academic jobs funded by government grants might not exist were there reform.

 

[drkitten]

after all, cushy academic jobs funded by government grants might not exist were there reform.

The real irony is that the poor, deluded fool is so out of touch that he thinks that this is actually an argument in favor of reform.

Yes, when you've "reformed" away the information economy as well as the manufacturing economy as well as the industrialized agricultural economy, there will be no more cushy academic jobs. There won't be jobs of any sort except for subsistence farmer and perhaps a few medieval-level hand craftsmen like carpenters. There also won't be out-of-season food, drugs for when you get sick, or transportation beyond what you can accomplish with your own feet and perhaps a horse.

The "cushy academic jobs" you so decry are both a cause and a symptom of exactly how well our current economic system is doing and how much excess wealth our economy can and does generate. The only reason that I can afford to work in an office instead of a field growing crops is because other people can and do grow enough crops to feed me, and have enough surplus money and time after they do that they're willing to pay me to educate their children and to research into ways to make the world a better place.

And the reason that people have that much surplus money and time is because of the research that the economic system has been able to support over the past several hundred years (starting largely with the rise of the fiat money economy and the industrial revolution). People were able to increase productivity and to increase the money supply to make it economically worthwhile to do so. Fiat money stimulates investment instead of hoarding, which in turn stimulates development, which in turn stimulates economic growth. Fractional-reserve lending makes bank lending economically practical, which in turn makes it easier to get seed capital for your idea.

Take away these two pillars of the modern economy, as Tippit desires, and you'd quickly see that you don't have a "modern" economy any more.

... but apparently it takes a very special type of stupid to want a pre-modern economy. I guess Tippit is tired of dental care and prefers to have his teeth rot out of his head because no one can afford to build dental practices.....

 

[Tippit]

Yes, when you've "reformed" away the information economy as well as the manufacturing economy as well as the industrialized agricultural economy, there will be no more cushy academic jobs. There won't be jobs of any sort except for subsistence farmer and perhaps a few medieval-level hand craftsmen like carpenters. There also won't be out-of-season food, drugs for when you get sick, or transportation beyond what you can accomplish with your own feet and perhaps a horse.

Your post is full of strawmen. I'm not interested in regulating the economy, I'm interested in preventing fraud. The implication that monetary reform would abolish the division of labor and send us back to the stone age is, quite frankly, retarded. You're out of touch in your ivory tower.

The "cushy academic jobs" you so decry are both a cause and a symptom of exactly how well our current economic system is doing and how much excess wealth our economy can and does generate. The only reason that I can afford to work in an office instead of a field growing crops is because other people can and do grow enough crops to feed me, and have enough surplus money and time after they do that they're willing to pay me to educate their children and to research into ways to make the world a better place.

The fact that people are willing to pay you for your economic propagandizing and brainwashing of youth, is simply more evidence of our failed educational system. But then, there are a lot of people getting paid to fail miserably these days, that's part of the problem. The real problem is the system that enables it.

And the reason that people have that much surplus money and time is because of the research that the economic system has been able to support over the past several hundred years (starting largely with the rise of the fiat money economy and the industrial revolution). People were able to increase productivity and to increase the money supply to make it economically worthwhile to do so. Fiat money stimulates investment instead of hoarding, which in turn stimulates development, which in turn stimulates economic growth. Fractional-reserve lending makes bank lending economically practical, which in turn makes it easier to get seed capital for your idea.

Take away these two pillars of the modern economy, as Tippit desires, and you'd quickly see that you don't have a "modern" economy any more.

The idea that our prosperity is utterly dependent on unsound money and unstable banking practices, and that we would revert to a barter economy in its absence is just another one of your lies. We don't have to be held hostage by Wall Street and Washington, DC. Our economy functions in spite of the parasites and looters.

... but apparently it takes a very special type of stupid to want a pre-modern economy. I guess Tippit is tired of dental care and prefers to have his teeth rot out of his head because no one can afford to build dental practices.....

Once again, the fact that modernity represents progress is independent of the need for monetary reform. That weak scare tactic isn't working any more.

 

[Sceptic-PK]

But then, there are a lot of people getting paid to fail miserably these days,

Really? You should really get into that, your earning potential is almost limitless.

 

[drkitten]

Your post is full of strawmen. I'm not interested in regulating the economy, I'm interested in preventing fraud. The implication that monetary reform would abolish the division of labor and send us back to the stone age is, quite frankly, retarded. [...] That weak scare tactic isn't working any more.

Yeah, I'm sure you don't believe your dentist's "weak scare tactic" about the effects of not brushing, either. Or your mechanic's "weak scare tactic" when he tells you about necessary maintenance.

 

[Puppycow]

Big Investors Fear Deflation (WSG)

Some of the world's leading investors are becoming more worried about deflation and are re-shaping their portfolios to prepare for a possible period of falling prices.

Bond-fund heavyweight Bill Gross, investment manager Jeremy Grantham and hedge-fund managers David Tepper and Alan Fournier are among the best-known investors who are bracing for a possible bout of deflation, a development that could cripple global economies and world stock markets.

The investors cite weak economic figures and a mounting consensus that global policy makers are reluctant, or unable, to take further steps to boost economic growth as reasons for their market positions.

"Deflation isn't just a topic of intellectual curiosity, it's happening," says Mr. Gross, who runs the $239 billion mutual fund Pimco Total Return Fund, citing an annualized 0.1% decline over the past two years in the U.S. consumer-price index. "It's an uncertain world that's tipping toward deflation."

 

[Chaos]

Your post is full of strawmen.

To the contrary.

I'm not interested in regulating the economy, I'm interested in preventing fraud.

You´re inventing fraud where none exists.

The implication that monetary reform would abolish the division of labor and send us back to the stone age is, quite frankly, retarded.

It is, in fact, spot on, in that your hare-brained "reforms" will cause a massive economic collapse which will send us back, if not to the stone age, then definitely to a time where there is no internet for you to spread your baloney on... and no TV... no radio. If you´re lucky, there´s still print media, but without universal literacy, I doubt it.

You're out of touch in your ivory tower.

I don´t know where you are sitting, but you´d need a strong dose of reality to merely become out of touch.

The fact that people are willing to pay you for your economic propagandizing and brainwashing of youth, is simply more evidence of our failed educational system. But then, there are a lot of people getting paid to fail miserably these days, that's part of the problem. The real problem is the system that enables it.

Translation: "I´m a total failure, but it can´t be my fault."

The idea that our prosperity is utterly dependent on unsound money and unstable banking practices, and that we would revert to a barter economy in its absence is just another one of your lies. We don't have to be held hostage by Wall Street and Washington, DC. Our economy functions in spite of the parasites and looters.

I think I may have missed the part where you present even the tiniest shred of evidence for your claims - in contrast to all the evidence drkitten provided, which you just handwave away because it doesn´t agree with your faith.

 

[soylent]

No. This sentence is a non-starter, since housing is included in the CPI; in fact, it's the single largest component (about 42% of the index).

Nonsense, housing prices don't figure directly into CPI at all. The US uses some kind of "rental equivalence". There was no bubble in housing rents, only in housing prices.

 

[drkitten]

Nonsense, housing prices don't figure directly into CPI at all. The US uses some kind of "rental equivalence".

Rental equivalent is the price of housing.

Don't confuse real estate as an investment with the price of keeping a roof over your head.

There was no bubble in housing rents, only in housing prices.

No, the bubble was in house prices, not "housing" prices.

 

[This is The End]

Is it telling that I keep track of inflation over the years by the average price of candy/candy bars at gasoline stations?

 

[ArcanumNoctis]

Inflation: 0.01

Hyperinflation: 0.000000...