A Litttle More Non-Inflation

Two links to posts here today. First by Ed Dolan: Falling Gasoline Prices bring Inflation to a Four Year Low.  See this chart.

Inflation per BLS

Well compare that to what I’ve said here. We see again (and again and again…) the folks yelling inflation have been wrong for years, are still wrong,and I surmise will be wrong over the next few more. It’s really OK to be wrong, after all it’s economics and sometimes things become a bit different than we expect. But truely smart people can usually learn from the mistakes and data. Not everyone.

Todays second winner is a takedown of the inflation hawks claiming the dollar has lost huge value in the past couple years. We know differently. Barry Ritholtz hammers them with facts: Has the Dollar Really Lost 97 Percent of Its Value? in this Bloomberg winner.

 “One of the favorite tropes of the “End the Fed” crowd is the “falling purchasing power of the U.S. dollar.” Google that phrase, and you will be rewarded with 91,100,000 results. (drop the “U.S.” and it doubles to 187,000,000 results).

The problem is, nearly all of these arguments are wrong.

As Matt Busigin of Macrofugue points out (echoed by Joe Wiesenthal of Business Insider), measuring the buying power of cash by functionally burying it in Mason Jars in the backyard is a misleading and inappropriate metric.”

But why can’t the wrong at least be quiet for a bit…maybe allow Congress to govern on the data, not the hope of a few.

3 thoughts on “A Litttle More Non-Inflation

  1. Jim P

    You lost me on this one. CPI aside, the Fed cannot simply print more money, as it has been doing with QE, without devaluing the dollar. Evidence in reduced buying power. Bloomberg argument based on Tbills avoids the net loss returns of the trillions deposited in banks. I.e., even a 1% rise in CPI yields inflationary negative return on dollars in bank deposits at.25%.

    Having said that, I have not worried about CPI so much as loss of real wealth due to govt and Fed policies that led to collapse and continue to permit same behavior by banks, including too big to fail.

    Your thoughts?

    Reply
    1. Steve Post author

      Paragraph two is spot on. We are slowly allowing a regression to the non-regulated policies which created and fueled the crises of 08. Few are willing to take on the Street and the Bank Execs, but we need to…think our leadership could learn.

      Inflation. It doesn’t seem reasonable for us who learned about econ when we had a gold standard. Of for that matter from the many texts still used today …teaching econ as IF there were a gold standard.. But in fact yes, with a fiat currency we can print money without devaluing the dollar, in many circumstances anyway. One of those being now, when there is so much idle capacity, both in facilities and the labor force in the economy. In short, what causes inflation with a fiat currency structure is demand exceeding supply. All our currently idle capacity precludes that and will likely so at the current slow growth rate for the next 5 + years.

      That said, the Fed QE is not the best policy. If our Government understood economics, quit the party bickering they would stamp out a couple $T dollar coins, walk over to the fed, deposit them for credit and then start buying infrastructure…roads, communications, bridges, etc. Would put people to work, in turn would buy things and kick-start this economy, meanwhile preparing the backbone to carry/support it when it begins t purr on it’s own. Then dial back the printing/stimulus/spending accordingly. QE goes to the wrong level…but was the only action left and understood by Bernanke to be the last stand. I’d hate to think where we might be (depression maybe) if someone hadn’t injected dome money…it really is better than what our House/Senate have done … nothing.

      On the other hand, when a bank decides my house is worth $100k more than it was, loans me the $100k, they credit accounts receivable, debit cash on hand, and credit their own income stream (interest due). What really just happened is the bank “printed” money in the form of x’s and o’s in the computer accounts. Not one bit of cash or property changed hands. We call(ed) that progress. That cash all simply disappeared and the Gov…by constitution the only ones allowed to “print” money…is making it back into the exchange system while the same group is calling it inflationary, confusing the public.

      Resident expert on Modern Monetary Theory is Ken Simpson who has done a couple guest posts here. The Big Picture, How it Works is at http://americanmoneylies.com/2013/09/money-the-big-picture/ Ken has read all the work by Mosley, Wray, Mitchel and the other ground breakers today. Even the old school Nobel laureate Krugman is in the school of spending more directly now, taper later. Lots here in earlier posts comparing the value of the US dollar in pretty much any way I can slice it to make the point the Inflation Mongers are off the mark.

      BTW, Ken Simpson has just published a book A Vision They Died For – regarding the Bolshevik revolution. Lots of great bit not found within the history written by the victors, Neat stuff.

      Reply
  2. Jim P

    Agree that borrowing/printing to fund long term assets like infrastructure would improve economy, but pols chose pork instead.

    Good work. Thanks.

    Reply

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