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On The 2% Target Inflation Rate
Over the past week, numerous people have inquired about the utility and practicality of the 2% "target" inflation rate held sacred to central banks the world over. Why 2%? And, more importantly, why not more... much more. Will the Fed ever get to targeting hyperinflation as a monetary policy goal, and if we ever get to that ludicrous position, can this be implemented in practice? Are the days of 2% target rates over? This is not just some theoretical whimsical musing - these questions are predicated by a recent IMF report which hypothesized that a 4% inflation rate "might prove superior to the traditional 2% target rate in helping to minimize the impact of future economic shocks." Furthermore, the higher the target rate, the greater the stimulus flexibility, as ZIRP would then become a perpetual component of capital markets, and recurring fiscal stimuli would be the norm as opposed to the outlier. We present a TD Securities report by Eric Lascelles which answers all questions about "why 2%", and what will happen when 2 becomes 4, then 8, then 16, etc, until the second coming of Rudolf von Havenstein is finally confirmed.
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To borrow from Irwin Schiff's classic book, why don't we make everyone taller by decreasing a foot to 11 inches, or make everyone live longer by making a year be only 9 months?
The possibilities are endless.
Its only wrong if someone gets caught. That said, right now is a good time to play Travis Tritt's, Ten feet tall and bulletproof (http://www.ilike.com/artist/Travis+Tritt/track/Ten+Feet+Tall+And+Bulletp...)
Is that from How an Economy Grows and Why It Doesn't? I've been meaning to read that. Worth it?
I read through half of it at a book store. Its a classic.
They want you to pay for that, Costanza...
It's from "The Kingdom of Moltz". It's a must read.
http://www.constitution.org/tax/us-ic/schiff/moltz.pdf
Thanks.
Rusty,
In my opinion Irwin Schiff does not understand that we live as assets of a corporation in receivership for which a "Consitution" was created. A Constitution is an agreement for the payment of debt and delegates for the original 13 colonies signed this document, obliging then "C"itizens to pay the debt.
Of course the US corporation has been through several interations since 1789, like a default on payment in 1859 and in 1929 and in 1999. Each time further levels of responsibility were taken as it was proven to the Banksters that the US corporation and its assets could not handle those responsibilities. At this point for Irwin to harp that we are protected under the US Constitution is a sad thing. The US Court system that Irwin has been playing footsie with will not bring itself to correct Irwin's lack of knowledge, but with its infinite resources it will also play with him for the remainder of his days.
He can portray himself as a freedom fighter and a smarter man for having "figured it out." It is also true that you do have choice here, so really if being like Irwin is how you wish to live then that's cool, but if you want to read and research and see that there are other perspectives, that might even be more robust, then go for it.
Perfect first post.
"In the case of a higher inflation target, savers would be punished - precisely the group that should be encouraged"
Main issue in 1 sentence. Savers seem to always be the ones getting fucked, the ones who were fiscally responsible.
The Fed isn't going to increase rates any time soon - this would hurt any (negligible) recovery attempting to take place. Perhaps Canada could slowly start raising its rate (without waiting for the US), maybe Australia too. Countries that could deal with a stronger currency, and where the carry trade should start.
The Fed is more concerned about protecting creditors from defaults than anything else. Deflation would cause widespread defaults as loans made prior would go further and further underwater. But this would eventually lead to a grand reset, a capitalist redistribution in the true Darwinian sense, which in turn would lead us out of crisis more rapidly and open up worlds of opportunity.
But the Fed is acting as a political organization, protecting the decaying corpse of the old economic system, keeping wealth concentrated in certain hands.
Savers make out during deflation, when 'cash is king'.
Targeting 4% (i.e. 10% CPI) is like having a fiat currency based on coins made of dry ice.
Because 2% is code for 6%. New math...new CPI math
It's code for "whatever happens".
They do something, stand back all curled up and observe the consequences, fight the fire it creates and then task some hack with creating a mathematical model of how whatever happened was what they expected would happen.
Nailed it!
Tough situation to control; long dead-time process with lots of multi-order "adjustments" being made. Milton Friedman is looking more and more the genius.
- Ned
I think it is foolish to have a fixed target and it would be more reasonable to have a flexible target. Let's say a meaningful target would be - 2 to 5 % & FED would not interfere unless the target is breached. My reason, the rate of inflation/deflation is a market signal and artificially fixing it is the same as distorting the informational content of this signal. When inflation rises without the supply shocks (OIL, etc) or work of the printing press, it's the best signal that economy is facing an asset bubble. Abnormal rate outside a certain range should be targeted because it creates unneeded uncertainty and makes it harder for businesses to plan in the near future.
At any rate, I am pretty sure that my view will be the heretical one in the face of mainstream econ schools for ages to come.
As to why FED sets that target, my bet it has to do with beliefs embodies by the Chicago school / active monetary micromanaging of economy. Some will say we must grow monetary supply so it can reflect the economic growth. However it raises a question, weren't we growing in the hundred years prior to setting fixed money supply/inflationary targets?
Ideally monetary supply should be growing with the rate of population growth, if growing at all.
I think it is foolish to have any target! What the fuck is a cartel doing, controlling the price of money? How about a target of 0% as is their mandate. If it isn't their mandate or it isn't in the realm of possibilities for these fucktards, then it's time for them to piss off. This school, that school shit is driving me up the wall. Just leave my savings alone and keep your grimy fucking hands out of my pocket. FUCK I HATE THIS SHIT.
Which work experience fucking retard came up with the bright idea to raise the target to 4%, on the assumption that it would eliminate future shocks in the economy? Not in mine it wouldn't, noticible when I get to draw down on my destroyed savings. How long are we going to have to swallow this type of shit without qualification?
The Fed and CBs have no idea what the cost of borrowing money should be. Only the markets can make that determination, through price discovery, even though price discovery is not perfect and mistakes (misallocation of capital) are made at times. The actors making the mistakes are the actors that should be liquidated and that is the way capitalisim is supposed to work.
This entire article is bull shit and an example of how CB policy is legitimatized. The azz hats in the ivory towers would be out of work if they did not have an economy to toy with and then 'muse' and write books, on the outcomes of their experiments...then teach their bs conclusions to new economic students.
Fact is, CBs, along with misguided fiscal policies, have totally fucked up the free markets of the world by their meddeling. Savers and small businesses are continually being screwed. CBs exist, in the main, to continue to transfer the ever diminishing purchasing power of the real economy to the fucking bankers.
The only way I have found to get out of their clutches, and it is admittedly not a perfect solution, is to buy PMs and a few other hard assets, disperse them, and hold on for dear life.
I don't think the Fed or CBs will increase rates anytime soon, if ever again. We are living in their failing experiment, on the verge of total collapse. This fucking article is nothing but a stamp of approval on a failed experiment (or an excuse in advance, when they will claim a slight change in interest rate policy would have made all the difference) ...
Someday the bond markets are going to drag these azz hats out of their ivory towers and back into reality.
"The only way I have found to get out of their clutches, and it is admittedly not a perfect solution, is to buy PMs and a few other hard assets, disperse them, and hold on for dear life."
And of course, don't draw maps ;-)
Now that we're going to see some short term deflation, I would expect the CBs go for more than 2% YOY.
Uncle Bennie and the like are skating on thin ice, they probably think that 4% is more conservative, or as we call it volatile.
Why 2%? Because these people are CLUELESS FUCKING IDIOTS.
They don't KNOW anything because Economics is NOT A SCIENCE
What the article does not take into account is the increasing complexity of the system being affected. The cause/effect relationships have been altered. There's too many global interdependencies. It isn't as simple as pressing a green button or a red button anymore.
2% is more sinister than it sounds. 2% compounded annually is fucking theft.
+1.
The CBs get away with it because very, very, few citizens understand the exponential function...Most don't even know that the Fed exists and if they have heard of it they have not a clue what it is doing, or supposed to do.
I recently experienced a presentation to a bunch of 'pissed off' citizens. The speaker described what was going on in the most basic terms with no math. The citizens did not get one damn word of what the presenter was trying to get across to them...they were clueless. Not one person in the audience could ask a question after the short presentation!
Bread and circus has made mush of their brains.
the wheels on the bus go round and round...
••
∞ ∞ ∞
the fed-dividuals manning the pump-a-go-round better be mighty careful or some unlucky nation-bank
(i.e. no longer a nation-state)
is going to fly off into the hot-dog stand and the whole world's gonna sue itself to death because the carnival was insured by the International Risk Illimination Group (IRIG) of upperunder dakota.
∞ ∞ ∞
••
i say we back our new globobucks with baseball cards.
it's for the privblic good, after all.
"a 4% inflation rate "might prove superior to the traditional 2% target rate in helping to minimize the impact of future economic shocks."
In other words, they plan to rip off the current bond holders.
them, too...
"These two issues- fiscal discipline and the inflation target- are not as unrelated as they first seem. In fact, the second represents a form of penance for the first" (?)
Since when was fiscal discipline a sin?
"A higher inflation target- for all of the noxious odor it generates- undoubtedly allows CBs to more readily contain FUTURE financial crises" . Bullshit, I've heard all that crap before.
Yep, sustainable growth. Sustain that growth and it will only take 15 years for the purchasing power of your savings to be destroyed.
At 2% - $1million buys halve what it did in 36 years
At 5% it halves in 12 Years
At 10% - it halves in 7.6 years
At 20 % it halves in 3.6 years - This also works for energy (oil), fish, population or any finite thing.
Rule 72 tells you it is dangerous to go any tick above 0%. Inflation is Silent theft for savers and heaven for borrowers. P+I means you must have inflation as (I) does not really stand for (I)nterest it stand for (I)nflation. Toilet paper, Whiskey and dried egg powder have value. Fiat currency is way to abrasive on assholes unless you are Lloyd B and have enough of Other peoples money to burn. The days of a buck a beer are now a (very) recent memory.
relax:
http://tinyurl.com/Just-over-a-buck-a-beer
Even a target of zero isn't zero cost. It implies that the government should take the general increase in productivity rather than the general public.
Even a target of zero isn't zero cost. It implies that the government should take the general increase in productivity rather than the general public.
That has been something that I have been trying to figure out, dose the fed/gov get all the inflation money plus the productivity that we grow as they keep printing more money and if so dose that mean that we get 2 or 3% inflating tax plus 2 or 3 percent productivey theft for a total of another 4 to 6 % hidden taxes.
Yes, they get 4%+. Under the gold standard, the trend was for prices to fall by 1%-2% a year because the money supply (gold) grew more slowly than the economy. So forget what the "target" should be. The central bank should simply be abolished so that it can't create money for the state to spend (on mostly nefarious things) and so that savings slowly grow over time, without being eroded by inflation and taxes on interest "income". The current system is execrable and deserves to end with all the principals and their apologists having their assets confiscated and being sent to a colony that is run, for the rest of their miserable lives, according to what they have professed to be proper, while they get to watch the rest of the world outpace their godforsaken shithole.
TYLER -Thank You. This is why ZH is the Best of the Web.
I've posed the Inflation Target question a couple times. So, targeted inflation is theft from savers by political means (economics is political). Don't savers provided the capital needed by the borrower's - I know in fractional reserve banking the savers need only supply the first dollar of every 20 dollars lent but, doesn't someone have to save that dollar or will the FED (a private political not economic company) create that one as well so that savers aren't needed in the first place? IF 2% is the target but we all know that the real inflation in the economy is more like 6-7% then is 2% always achievable just because some political agency says it's 2%?
Is the political truth "better a borrower than saver be?" If Economics actually exists (I prefer pure math over theory) and that is the construct then we are indeed going down the rabbit hole. Penalize the savers and reward the borrowers.
'IF 2% is the target but we all know that the real inflation in the economy is more like 6-7% then is 2% always achievable just because some political agency says it's 2%?'
NO!
The Fed and all CB, IMF, BIS, et al, can jaw bone about higher inflation targeting but I do not expect to see rates raised anytime soon, if ever again.
Check out this video of where we are and where we are likely headed...Marc Farber, 'Mirror, Mirror On The Wall'.
http://paul.kedrosky.com/archives/2010/05/marc_faber_mirr.html
I can't believe the use of the politically incorrect term of "target". Doesn't that imply shooting something? Maybe that's why our collective "foot" is bleeding.
More like our collective "ass".
Their target is hyperinflation - it matters not where they're supposedly aiming.
Inflation is theft--how about 0%?!
Updated DOW charts :
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
So am I missing something or are they suggesting that the best way to deal with financial crises caused by too much debt is to mandate more debt growth relative to GDP at all times?