The case for higher inflation

[UWdude]

... and there's the proof. Whenever anyone announces that they know beyond the possibility of any data affecting their opinion, they've just announced that they're operating on pure prejudice, untouched by reason and evidence.

You've eaten up the psuedo-science numbers so heartily, you can't even figure out what is destructive and what is constructive anymore. It's very simple, but you have clouded and confused the issue to a whole new level, and proven black is white, and up is down.

But if its a science.... why can't they predict anything? Why is that those who look at economies as exchanges of good, predicted the collapse, when those who see it the way you do, (a series of waves and patterns and credit schemes) like Ben Bernanke, were nervously testifying "there is no way anybody could have seen this coming" Plenty of people saw it coming... people who don't buy into all the pseudo-science!!

I mean isn't part of science making observations, forming a hypothesis, and making a prediction from that hypothesis? So Alan Greenspan and Benny Bernie made bad predictions, and people like Schiff nailed it on the head. Yet... YOU, and people like YOU, still want to somehow claim the people who got it wrong...are right!! It's complete and utter madness.

I say destroying functioning cars en masse is destructive, you shout, NAY! Nay, it's constructive!! I have numbers and charts and theories by respected economists who won pseudo-Nobels saying it's good! Less stitches means more riches. Don't repair, don't fix, just throw it away, it helps the economy!

And look around, America is still rich, and we did it by consuming!!

We are in unbelievable debt, actually. We aren't rich at all.

 

[Malerin]

You've eaten up the psuedo-science numbers so heartily, you can't even figure out what is destructive and what is constructive anymore. It's very simple, but you have clouded and confused the issue to a whole new level, and proven black is white, and up is down.

But if its a science.... why can't they predict anything? Why is that those who look at economies as exchanges of good, predicted the collapse, when those who see it the way you do, (a series of waves and patterns and credit schemes) like Ben Bernanke, were nervously testifying "there is no way anybody could have seen this coming" Plenty of people saw it coming... people who don't buy into all the pseudo-science!!

I mean isn't part of science making observations, forming a hypothesis, and making a prediction from that hypothesis? So Alan Greenspan and Benny Bernie made bad predictions, and people like Schiff nailed it on the head. Yet... YOU, and people like YOU, still want to somehow claim the people who got it wrong...are right!! It's complete and utter madness.

I say destroying functioning cars en masse is destructive, you shout, NAY! Nay, it's constructive!! I have numbers and charts and theories by respected economists who won pseudo-Nobels saying it's good! Less stitches means more riches. Don't repair, don't fix, just throw it away, it helps the economy!

And look around, America is still rich, and we did it by consuming!!

We are in unbelievable debt, actually. We aren't rich at all.

Just to add to this: Back in 2006, the median price for a home in L.A. county was something like $550,000. Median household income, however, was about $60,000.

I mentioned this to my wife, who is no economist by any means. "This is going to end badly," she said. The people with the numbers, charts, and theories would have argued with her, I'm sure. It's amazing what simple common sense can tell you.

 

[Puppycow]

Intressting article on inflation

 

[UWdude]

Intressting article on inflation

from the article

This pulled us back from the brink of disaster

A "may have" should have been put in there, since it is a hypothetical, and not a fact.
This may have pulled us back from the brink of disaster

And so a surprising number of high-profile economists, on both the left and the right, think that it’s time for the Fed to try one more extraordinary measure: injecting the economy with a healthy dose of inflation.

The old "if left and right agree, it must be good" argument. As if left and right ever disagreed about helping out their wall street financiers.

If people believe that prices are going to rise in the future, they may be less cautious about spending in the present, since money that isn’t put to work will lose value. And, because inflation erodes the real value of debts, people’s debt burdens would shrink.

The first was actually observed after hyperinflation, but with 2%, I don't think so. But the second part of this is why the Fed wants to do it anyways... they want to monetize the debt. The rest of this article is fluff to obscure the real intention.

There’s also the risk of inflation getting out of control. But the historical record suggests that the risk of three-per-cent inflation turning into hyperinflation is very small.

How small? How did The New Yorker come to this "historical record" analysis? And when they are analyzing the probability to risk degree analysis, are they using the US GDP as a whole, or are they actually thinking about the absolute devastation hyperinflation would bring to the lower classes? I doubt it.

After all, we’ve had sixty years of inflation in the postwar era, yet we’re much more prosperous than we were in 1950.

Correlation is not causation. Our growing prosperity, it could be argued, is much more tied to our colonial extraction policies bolstered by world bank indebting/crashing/enslaving cycles in the third world, and our continued technological advances, than inflation.

That’s not how it feels, though: myopia leads us to focus on how much more we have to pay, rather than on how much more we earn.

Unsubstantiated psychobabble to make the article sound like it is still even in some kind of reality here on earth.

even though to Americans currently besieged by debts it would be a lifesaver.

there it is again, the truth about what inflation is, taxing everybody to pay for the debts of some.

But the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one.

"our" who is our? Let me guess, the fat cats reading the New Yorker. The economy also does not exist to reward vice and punish virtue, which is exactly what inflation does. And I hate to bring up the old pesky moral hazard that constantly upsets the bankers arguments aboitu why we should give them a bunch of free money, but monetizing the debt creates a moral hazard.

 

[Puppycow]

Our growing prosperity, it could be argued, is much more tied to our colonial extraction policies bolstered by world bank indebting/crashing/enslaving cycles in the third world

 

[daenku32]

Arguing that western prosperity is maintained by exploitation of developing nations doesn't require you to discard all economics. I'll make the connections all the time!

 

[Puppycow]

Arguing that western prosperity is maintained by exploitation of developing nations doesn't require you to discard all economics. I'll make the connections all the time!

 

[MikeMangum]

Speaking of inflation...the first ever TIPS auction with a negative yield. Apparently investors are expecting substantial inflation.

Treasury Draws Negative Yield for First Time During TIPS Sale

The Treasury sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Federal Reserve will be successful in sparking inflation.

Is Bernanke fueling up his helicopter?

 

[Puppycow]

Speaking of inflation...the first ever TIPS auction with a negative yield. Apparently investors are expecting substantial inflation.

Treasury Draws Negative Yield for First Time During TIPS Sale


Is Bernanke fueling up his helicopter?

I read that story earlier today.

Note that this is a good sign for the economy.

‘Good for the Economy’

The U.S. can only sell TIPS at a negative yield, according to McKayla Barden, a spokeswoman at the Bureau of the Public Debt. It’s not government policy to auction conventional debt at that level, she said.

The negative yield is “a reflection of where the overall rate environment is, combined with the expectation for the Fed to stoke inflation and get prices rising again, which will ultimately be good for the economy,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It does demonstrate faith in the Fed and the Fed’s ability to spur inflation, which is their desire.”

Inflation in 2010 will be 1.6 percent, according to the median estimate of 59 forecasters in a Bloomberg News survey.

 

[Francesca R]

Speaking of inflation...the first ever TIPS auction with a negative yield. Apparently investors are expecting substantial inflation.

Not really substantial inflation, no. The 5-10 year breakeven inflation rate (Fed calculation, see here) is just under 3%, but it has climbed recently, which was the Fed's desire. The trough in August 2010 in the (first) chart is approximately the date of Bernanke's Jackson Hole speech, which is where the "QE2" seed was planted.

The phenomenon with TIPS is that apparently the economy requires negative real 5 year yields merely in order to generate expected inflation of 3%. That is without precedent and speaks to the deflationary backdrop more than anything else. 5 year TIPS yields have actually been negative for a couple of months (second chart), but yesterday was the first time the Treasury issued into those prices. The TIPS yield curve is the third chart.

Note that this is a good sign for the economy.

It doesn't necessarily say anything about growth, but the reversal of falling inflation expectations is positive.

I don't follow "It’s not government policy to auction conventional debt at that level" . . . conventional (nominal) bonds can't really trade at negative yields (although implied forward nominal yields have done in the UK).

 

[drkitten]

Speaking of inflation...the first ever TIPS auction with a negative yield. Apparently investors are expecting substantial inflation.

Treasury Draws Negative Yield for First Time During TIPS Sale


Is Bernanke fueling up his helicopter?

I certainly hope so.

 

[BeAChooser]

Modest inflation (say in the 3-5% per annum range) is probably a net positive to society as a whole.

Let's hear what Keynes had to say about inflation ...

http://books.google.com/books?id=B-...9LiwDA&sa=X&oi=book_result&resnum=1&ct=result

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. ... snip ... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.

http://www.richmondfed.org/publications/research/economic_review/1981/pdf/er670101.pdf

Keynes On Inflation

... snip ...

Of these four variables Keynes paid particular attention to the expected rate of inflation, pointing out that its inclusion in the money demand function means that money demand is not completely independent of money supply. For, according to him, rapid increases in money supply may generate expectations of future inflation (expectations that constitute the anticipated depreciation cost of holding money) and thereby lower real money demand. This, he noted, implies that money growth affects prices both directly and also indirectly through the price expectations variable in the money demand function. The indirect effect magnifies the initial impact of money growth on inflation, causing prices to rise faster than the money stock itself.

In other words, Keynes said that increasing the money supply is inflationary. And then that article goes on to list the many negative aspects of inflation noted by Keynes.

Keynes did identify one area where inflation seemed to be good. From the same source ...

First, only profit inflation has the power to stimulate output and growth. "It is the teaching of this treatise," he said, "that the wealth of nations is enriched, not during income inflations, but during profit inflations ... at times, that is to say, when prices are running away from costs" [9; p. 137]. More precisely, profit inflation stimulates both current and long-term real output. It stimulates current output by raising prices relative to wages thus lowering real wages and increasing employment. And it stimulates long-term real output by shifting income from wages to profit thereby permitting faster capital accumulations and a higher rate of economic growth. In short, the effects of profit inflation include "the spirit of buoyancy and enterprise and the good employment which are engendered; but mainly the rapid growth of capital wealth and the benefits obtained from this in succeeding years" [9; p.144]. These benefits, however, are only when prices are outrunning costs, leaving a substantial margin of profit to finance investment and growth. They cannot occur in income inflations where wages rise as fast as prices and thus annihilate the very profits that constitute both the means and the inducement to economic growth. ... snip ... In this connection, he advanced the hypothesis that the early industrialization of England and France had been powered by profit inflation. "It is unthinkable," he declared, "that the difference between the amount of wealth in France and England in 1700 and the amount in 1500 could ever have been built up by thrift alone. The intervening profit inflation which created the modern world was surely worth while if we take the long view.

Which is ironic given how anti-profit Obama and the democrats seem to be, railing against profit at every turn.

Then there is this from the same source ...

Lest one wrongly conclude from the foregoing that Keynes of the Treatise was an out-and-out inflationist, three cautionary observations should be made. First, he was referring to gently rising prices and not to the rapid double-digit inflation that is unfortunately so common today. More precisely, he was referring to slow creeping secular inflation of no more than 1 to 2 percent per year. Today such mild inflation would be viewed as constituting virtual price stability. Second, his analysis of beneficial inflation refers chiefly to capital-poor preindustrial societies and not to wealthy modern capitalist economies. ... snip ... Under these conditions it is conceivable that slowly-creeping profit inflation might indeed have spurred industrialization not only by diverting resources from consumption to capital formation, but also by breaking feudal bonds, stimulating enterprise, encouraging market-oriented activity, and widening the scope of the market. These latter benefits, however, are no longer available in wealthy, market oriented modern capitalist economies that are more likely to find secular inflation a curse rather than a blessing. For this reason Keynes refrained from recommending even slightly inflationary policies for modern economies.

So you see, Keynes only recommended stimulus spending that would result in inflation UNDER 2 percent a year ... not 3-5% per year.