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Guest Post: Inflationary Policy Is WMD on Babyboomers
Submitted by Bo Peng
Moderate inflation is good. This has been held as self-evident truth in modern monetary policy. But this will quickly become antisocial as the entire west goes through a structural change in demographics caused by babyboomer retirement. BoJ seems to have realized this early and well; they have managed their social transition with remarkably success, despite much sneering from western economists (I argued here that the Japanese lost decades is in fact a great achievement that US will only wish to match in 10 years). ECB seems to have realized this judging from their proclaimed resolve for austerity as opposed to unlimited simulus. The big question is: when will Fed and US government realize this?
The reason for this fundamental shift is simple: soon-to-be retirees need to save but inflationary policy sacrifices savers for the sake of stimulating economic growth.
In normal demographics, this works because most people get to participate in the growing economy by staying employed or employing; even though everybody's savings get eroded by moderate inflation, there's a good chance that most will be more than compensated by increasing earnings. Retirees are net payers for inflation because they can't replenish with inceasing earnings, as is always the case. But if they're a small group, the society pretends they don't exist and moves merrily on.
Starting from right now, however, as babyboomers go into retirement or start deligently (perhaps belatedly) saving for retirement, inflationary policy will cause much more pain than ever seen before. Even under "moderate inflation" scenario, it's still a significant erosion of buying pwoer and living standard over 10, 20, 30 years. The effect will be quite painfully clear, and soon, for those living on fixed income.
As I said in the earlier article, we will some day, one way or another, realize that Japanese style stagnation is the best possible outcome during this transition. We are becoming a savers society whether you like it or not. Do we cope with it or fight a losing battle in which everyone loses?
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No de-flation... No in-flation...
Austerity...
Buy Gold...
The end is near...
Bla, Bla Fucking Bla...
Sweet Light Crude... has peaked... $200 bbl oil... or more... It is not about money, there is tons of money everywhere...
JW, this boomer is trying like Hell to cut his expenses and buy more gold! But, there is only so much that one can do, and so little to know what will happen... I think those with any wealth should diversify, really diversify.
Anyone who is not scared shi'iteless does not have a working brain.
+1,000
Well said. Diversify. A little bit Real Estate, a little bit of PMs (including PB to protect your Ag Au). But fear not, if you are prepared (more than most), which it sounds like you are.
Remember, You don't have to be faster than a bear - you only have to be faster than the slowest camper. And all the Zhers are faster than the slowest campers.
Navigator,
Early for me, what is PB?
Personal Bodyguard?.
Pb is from Plumbum, Latin name for lead which is the byproduct of broken down uranium, U-238 being the most common isotope 235 is the fission-grade stuff.
Danka!
Peanut butter, of course! Here is how it works: you put a plate of peanut butter cookies on top of your gold bars. When the thieves break in to to steal your gold, they eat the cookies and get really thirsty. They then discover that there isn't any milk in the house (this is the important part), and go back home to get some milk to drink. All of the gold stays safe and sound because they are too thirsty to even consider lugging all that heavy gold back and forth.
Hi DoChen,
Buy some silver if you haven't. Gonna outperform (tho out-volatile as well) gold.
DosZap, dlmaniac,
I think PB = Pb = lead, you should know that Dos! And don't forget your Pb high-speed delivery systems!
Got my Ag and Pt as well.
Great weekend guys!
Do,
Danka,missed it on the elemental chart...
No prob here on that score............hell of a deal at AIM Surplus right now, ck it out.(:>
The author misses the point that repaying debt is counted as "savings".
The middle class - or what is left of it - is certainly not saving as they are busy repaying that 2004 trip in Europe at 29.9% interest.
There is no savings and won't be for a very long time. Compounding this is gubmint policies of real negative interest rates.
largo,
I think Americans miss the point.
I have been debt free except for utilities,home repairs, life things, for over 20yrs (and I am not THAT old).
Sorry, never use plastic except for convienence, and when the statement hits,it's inthe mail IN full next day..............never took that 24.9% Trip.
Only idiots do that.
In this nightmare we are living in, repayment of debt is admirable, and is always the MORAL and right thing to do.
However, (and this realates to SS/MC, in this regard).
Repaying debt,that is going to be forgiven, or defaulted on, and the honorable among us, the one's that had jobs,cash, will be the one's getting screwed,we doubled down, and got ready.
Meanwhile, back in D.C., the crooks and thieves that have governed everyone except themselves,are figuring out new way's to screw the Americans that have carried the country, and it's economy for the past 60yrs.
As usual, No good deed goes unpunished.
"I think those with any wealth should diversify, really diversify."
That's why I buy silver too.
It is very difficult to defend against apocalypse. However, the author is all wrong here. He starts from the point of acceptance and a continuation of the status quo. If the assumption is not questioned, how can we address the problem?
The author might enjoy Japan's slow descent into poverty while the CB's enrich themselves, but I don't.
The answer lies in the institution of actual free markets with private property protection and a form of exchange that is never leveraged- asset backed 100%.
Of course this would dramatically shrink government. This implies revolution. It is the tough choice, it is the only choice that provides for the opportunity of a real future and expansion of liberty.
It is really this simple. Human action is the best determinate of markets. Not mathematics, liquidity, velocity or debt. Kill the Keynsian/monetarist trap.
Let's throw world peace into the mix. Might as well go for broke if we are going to pursue pie-in-the-sky goals. You said it yourself, "Human action is the best determinant...". So act already. "This implies revolution." So, revolt fer chrissakes. Posting at ZH is nice, and your ideas are worthy of consideration, but you've not laid out a plan of action. And "human action" is what you advocate. Let's get started. Gimme step one. How can I violently disagree with you and get the media to separate us from concerted effort if you don't lay down some concrete goals?
The steps needed are these:
1. educate, educate, educate
2. Creation of local community based economies with local currency, preferably silver and gold. This is illegal.
3. Stop paying taxes. This is illegal.
4. Create enough support within the community to band together against inevitable police action. Numbers is the best game we have. This is illegal.
5. Recognize the difficulty of the action and the cost that will have to be borne.
6. Stop voting-stop giving the government legitimacy.
7. Stop sending our children to war. Teach your children that patriotism is a propaganda trap that allows the rich to create war at no cost to themselves. Let them fight the wars.
8. Turn off your TV and educate yourselves and your children.
9. Stop living the "American Dream" and start creating a life worth living.
10. Stop asking the government to solve your problems. We do not need the government, we legitimize their tyranny when we ask for their help.
Please feel free to add to the list Rocky...
Here is my contribution to the "education" part... using XL FVSCHEDULE...
Quick guide: How much of your savings are destroyed by inflation?
1% inflation over 30 years destroys 26% of principal
2% inflation over 30 years destroys 45% of principal
3% inflation over 30 years destroys 57% of principal
Actual U.S. inflation (SGS) since 1980 destroyed 90% of principal
When even just 1% inflation over 30 years kills 1/4 of the value of the saved capital it should come as no surprise that actual inflation killed 90% of the value of savings over 30 years, due to several years of a horrible near-10% inflation which will destroy roughly half of any savings made in only 10 years.
Sean, you have taken the first step already. If we could just add 2 more to the list we'd have a 12 Step Program! I hear those are popular.
Some of the steps are in the anarchist's handbook, of course. That means going underground in order to commence. I'm with ya.
I'd add #11 in the form of "Eschew debt". The best way to do that is to store wealth in precious metals (physical). It takes FRNs out of the circuit. PMs are nobody's debt. A sort of the-buck-stops-here system. Trade in PMs whenever possible. I'll bet the guy at the farmer's market will trade you half a bushel of corn for a 1963 Washington quarter.
Who else wants to add to the list? It would be good to refine it to 12 as that's a nice number. Combine #1 and #8 to make room since that falls under "Education". Combine #4 and #9 under the title of "Gain Self Sufficiency", etc.
#4 is called a militia and is not illegal.
Taking arms up against your government is illegal.
Let's throw it back over to King George and get his opinion on this.
George...can I call you George?...what's your gut feeling here George?...legal or illegal?...we only have ten seconds ;-)
So is driving 70 in a 60 speed zone. Sometimes you just have to.
Not when their as corrupt as hell.Unconstitutional, and bordering on Fascism.
The Founders would have long ago put a stop to this shit.
Not all of them.
Hamilton would have an enormous erection at the strength of the Federal gov't.
"7. Stop sending our children to war. Teach your children that patriotism is a propaganda trap that allows the rich to create war at no cost to themselves. Let them fight the wars."
... and then send them against the "inevitable police action", since I assume "get slaughtered and bulldozed into a mass grave" isn't going to be added to your list at any point.
Steps 1-6 have been done before. Step 7 is war.
I agree JW, of course am a troll and a shill so it probably doesn't mean much
gold will be trading at 200 in a few months, you heard it here first
You may have been on the site too long? Might I recommend some porn sites for some R&R?
Please do.
Orrrr, if I may be allowed the privilege of entering fantasy land for a bit...
Tell everyone Social Security was a complete hoax and they've been had. Not another penny collected or paid out, ever. That will be the boomers punishment for blindly accepting stupidity in their leaders and programs for their entire lives, so fucking up this country. Then, in that same night, eliminate all Federal taxes and replace them with the APT tax. And, for good measure, repeal the 17th Amendment, then institute ONE term limits on both houses of Congress and the Presidency.
That should shake shit up, but in case it's not wild enough, let's close all military bases and bring all troops home. End all foreign aid, and surround the entire US border. Give illegals 30 days to leave the country. After 30 days all residences will undergo a one time search. All remaining discovered illegals will be executed. This program is to be completed within one year. Thereafter anyone harboring, employing or in any way aiding an illegal will surrender all assets and serve life without parole.
Then, if all that isn't sufficient to get things hoppin like a kangaroo on acid, repeal the legal tender laws.
/hallucinduced spiel
A lucid hallucinduced spiel.
Wow, Conrad! That was a better hallucination / fantasy than I ever got while on LSD (or anything else) when I was in college! <--- Did I really write that?
If we got 40% of your fantasy, that would help a lot!
+ (a very well deserved) $1245
EDIT: Hi Village!
They're laying the papers right again these days. Doom and gloom abounds, yet...
http://www.youtube.com/watch?v=Li-HVSdjQFg
H1-B's and L-1's should be deported as well. Most are in the United States illegally, the result of fraudulent statements (ie: there's a 'shortage' of engineers) made by their slave-owners.
RFO!
Right Friggin' On, junksters
Great policy. Sounds like a plan we can follow.
Gotta go, a unicorn just flew out of my ass.
(Apologies for all bold, yet wanted this to stand out so it was read and understood that THE SYSTEM is flawed right from the beginning)
Simple Math Folks that is DOOMED to fail:
L = Loan
I = Interest
P = Paid Loan
Thus: L+I=P
Problem is banksters create money out of thin air for the LOAN, the money to pay the INTEREST is never created and thus the PAID LOAN can never be achieved.
Sure you could argue that if the value if the item went up, then the formula works out when it is sold, yet what if said item (such as a home in today's marketplace) goes down in value. Perhaps now you understand why this housing crisis is massive to the problems of the bankster system and the private member owned Federal Reserve is screwed. The problem is made far worse due to Wall Street's multiplier effect of bundling and selling this paper junk.
"In the absence of a gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good and thereafter decline to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as claims on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to be able to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard." -- Alan Greenspan before he became a Madoff, 'Gold and Economic Freedom' in 1966.
You may find this interesting: http://mises.org/daily/4569
Well you better get ready to clean your own hotel room, pick your own fruits and veggies, wash your own dishes when eating out etc. We need the illegals, they do the work lazy americans, (e.g. bloggers) won't touch. And immigrants always have done these lowly, but necessary jobs. Hurray for immigrants!
To amplify: Anyone who has not read The Jungle by Upton Sinclair should do so. Caution, not a happy book.
Socialist propaganda. We didn't convert to communism, and things got better from that time.
If you are recommending it as an indictment of the meat packing industry, I would suggest you read the more modern "Fast Food Nation".
Anyone who has not read 'The Jungle' ....
Read the book, worked a summer or two in a beef/pork/lamb processing plant and I still eat sausage. I also worked a couple of summers in a turkey processing plant, and there's something about the concentrated odor of tons of turkey gravy being cooked at once that put me off turkey for a couple of years. Never lost my taste for beef.
The Jungle is ancient history now, if it was even totally true back then. The state of journalism in the time of Sinclair wasn't much better than the meat plants Sinclair was complaining about.
John,
Wanna bet they won't do those jobs NOW?.
Stop paying UE and see what they will be willing to do.
an oversupply of (illegal) labor keeps the natural wage rate suppressed. remove this excess and citizens will be cleaning and picking for a more decent wage. the illegal labor trade in this country thereby becomes a sort of slave class - now in rebellion, i might add (seen Machete yet?)
According to McCain and Lindsay Graham, that must mean it's time to import Guatemalans who are willing to do jobs illegal Mexicans inside America won't do.
Or, perhaps the costs for these services will simply rise, leading to:
A - a mass realization that inflation + stagnant wages has real world consequences (political change)
B - less eating out, more localized food supplies, less staying in hotels
Well, hey, don't let the facts get in the way of a good rant, never mind that it's pure fantasy and lies.
The facts are that we did quite well before the flood of cheap labor. The farm labor actually made a decent living, and some even considered themselves as middle class (owning a home even), before the wages got knocked down. Food was even affordable back in the 70's and 80's.
Room cleaning and fast food, construction and other work was even available to high school and college students back then. I remember it well.
You're just repeating propaganda which is designed to keep labor wages low, and has no basis in fact.
Really. So you believe that if we eliminated federal welfare payments, the "lazy Americans" wouldn't take whatever job they could to eat? And that farm producers would not find a way to stay competitive even without indentured servants? And that small scale farmers wouldn't pop up in every region when it becomes more financially competitive to produce fruits locally than in mega farms using Mexican slaves?
You are paying 20% more for that apple, whether at the cash register or to uncle sam in Federal taxes.
"After 30 days all residences will undergo a one time search. "
Good luck with that. That would indeed be like watching a kangaroo on acid.
I mean really...we just had a myriad of domestic & international governmental agencies investigate a couple cats who duct taped cell a phone onto a bottle of Pepto Bismol and placed it into luggage in the belly of a passenger jet.
They concluded this is perfectly normal...LOL...everyone does it apparently except me.
So, when the "federally mandated home invasions" begin they will no doubt be shocked...shocked I say...to find the many mixed race families living in the country at variance with the census...ROTFLMAO.
That was fun ;-)
Conrad,
Evidently you have some smarts, you get past the Captcha's.
This however is so IGNORANT on your part, I find it sureal.
"That will be the boomers punishment for blindly accepting stupidity in their leaders and programs for their entire lives, so fucking up this country."
Get the Fk out of dodge dummy.......
This program has been around Far longer than Boomers.
Started by FDRin the 30's,Boomers Gen's did not start until around '43.
You pay SS/MC taxes?,your part of the problem NOW also, do you want to pay?, neither did/do they/we.....So shut the Fk up.
Stop blaming Americans for simply obeying the rules, and laws.
If your so gung fucking HO on this,pls place the blame where it belongs.
Life's not fair, they have a lot more of MY money than yours.
I want it back............just mine, no one else's.
So you have no leg to stand on to whine ,piss, and moan like a little Bitch.
Why should Boomers get fkd for doing what all Americans have done since the 30's.
Grow the Fk up.I am tired of this BLAME game on certain age groups.
End of Rant.
Congratulations, you, along with the boomers, were stupid enough to hand your money over to a system you do not agree with. You were ineffective, or, more probably, uniterested, in creating political change, and now you resort to whining about fairness, and name calling. You are the EXACT reason this country is fucked. It's shameful enough those living in the 30s allowed Roosevelt to strong-arm the courts with the threat of packing them. But to continually let this go on for another 70 years?! Disgraceful.
Yes, I have paid money into those programs. I don't anymore. Like any bad investment, I cut my losses and moved on. Even if I do have to enter back into the system at some point I will never expect to see any of that money. Fuck it. I'm not gonna cry about it. However, in the meantime, I'm not going to spend my time watching American Idol or SportsCenter, I'm going to be continually working to back candidates and policies that I believe in. I am going to do my part to bring about change that can save this country from destruction.
So, to all you Statists out there, we're coming for you. It starts in November.
On the other hand, the Bearing (who just could not put up with office politics, whether in the private sector or w/ .gov) put in VERY LITTLE MONEY into Social Security...
So, for me it is irrelevant that I do not qualify for that "benefit".
I feel better looking out for myself and my family without .gov and bankster "help".
Conrad,
What do you think I have been doing?.Sorry, I cannot break the laws, wasn't brought up that way.
Plus, until my parents died, that system worked like a champ........
You won't find a more Politically active member here most likely, MY congresscritters, and the WH, know me by first name, I give them hell on a LOT of issues.
How exactly am "I" one person supposed to stop a system that's been going on for 70yrs.
Play the blame game all you want.....facts are facts, and laws are laws.
The only differnce here is IF you took a few hundred K from me, I would hunt you down like dog.
Bottom line, once more, No good deed(playing by the rules), goes unpunished.
Soon, I think that's going to be history.
First of all, deflation will kill retirees faster than inflation. With inflation you at least stand a chance of seeing your pension paid, albeit at a diminishing value. With deflation many pensions will go belly up, leaving the retirees with nothing at all. I'm not at all sure the Japanese experience has been kind to retirees, and it will turn decidedly ugly when the defaults begin.
Second, Japan's savings rate has plunged over the "lost decades" so I don't see how following their example will force us all to become a "savers society".
The Japanese personal savings rate has plummeted to 2 % now BUT corporate savings rate has risen to over 20 %. Hard to explain the conundrum but there it is.
Sounds like a return to the Asian Model that built Japan (and now China)... hidden subsidies to business from consumers/workers is a big part of it.
And now Cambodia.
Cambodia aims to construct Asia's tallest building, it will top the Taipei 101 Tower, the Shanghai World Financial Centre and Kuala Lumpur's Petronas Towers
http://www.radioaustralianews.net.au/stories/201009/3001007.htm?=
I say that after a time all the workers will not be able to understand each other and construction will stop. Building a tower that tall will reduce language to babel. Must be the thinning atmosphere or something. Since we're all on acid today...
Asia is the home of 'Tower Envy'. The peak (ahem) in Europe was reached with the Commerzbank tower in Frankfurt. 'Nuff said.
I'll opt for the deflation, TCS.
My neighbor, a public employee who retired at 53, receives more than $200,000 a year from his public employee benefits, with a guaranteed annual 3% inflation rate bump up. Plus, in addition, he was allowed a 401(k). It’s killing us, all right; inflation, not deflation.
Since the development of the Fed, the central bankers have used the currency as a weapon. It’s like the mugger who stops you on the street, puts a gun in your ribs and takes your money. Only in this case, the currency never did belong to you. It belongs to them, and they use it to accrue power. And you either enter into their high risk games or they take your money through inflation. IOW, you buys a FRBN ticket and you takes your chances.
It boils down to the fact that the fiat money belongs to them: they print it, they set the value, and if you don’t play, they cancel its value.
Since the Fed’s inception in 1913, the dollar has lost 95 percent of its purchasing power. And according to the Dollar Vigilante, “By many measures, a $1 Dollar in 1913 is the equivalent to $1,000 today. Says DV, “Over and over again ratios of 1000:1 reappear.” One example given by DV is the Titanic—the most expensive ship ever built at the time in 1912 at $7.5 million in US Dollars. Today, the most expensive ship currently being built is the Queen Elizabeth class aircraft carrier for the English Navy. The cost in US Dollars is $6.1 billion. The ratio: 813:1.
The plight of today’s savers reminds me of Alice’s position when she told the Queen that she did not want jam today.
“You couldn’t have it, if you did want it,” the Queen said. “The rule is, jam tomorrow and jam yesterday—but never jam today.”
Alice objected: “It must come sometimes to ‘jam today.’”
The Queen: “No, it can’t. It’s jam every other day: today isn’t any other day, you know.”
Try to imagine how productive someone in the private sector not in on some kind of scam would have to be to get a pension like that. It boggles the mind.
But, I'm curious, does he admit that this mountain of swag is unearned?
moderate inflation is bad....so is moderate deflation....each of these monetary outcomes is a transfer of wealth which benefits banksters only....it is theft pure and simple - its advocates being evil.
accepting stagnation as genius means accepting the status quo of centrally planned economies and its centrally planned currencies which is something i will never do....may you live in interesting times - just as we all do now.
of course the baby boomer's made their socialist bed in which they will soon lie....the problem with socialism is that you soon run out of other peoples' monies....and the wealthy will have no compassion on the suffering - they have enriched themselves at the expense of others (that's what moderate inflation is all about charlie brown)
fortunately yahushua told us what the end of such self-absorbed people is.....the first shall be last and the last shall be first.
tony,
Since I already went off above,this will be short.
"the baby boomer's made their socialist bed in which they will soon lie."
How did people not born,do that?.One more time for the mentally challenged.
FDR started this Program, I was not close to being born.
So how would anyone on this site, have a choice about SS?or MC taxes, and the rules that go with it.?
If you work/ed, and you were not a thief, you paid.NO Choice.
Dos, you know that you can decline to pay SS taxes right?
http://www.compensationstandards.com/Files/Decline.htm
thats a form to decline accepting benefit payments. I'm sure the system would love for EVERYONE to take this option
so who has the fabled form for declining PARTICIPATION in the system?
Form 4029, unfortunately you have to be a minister performing "qualified services" for a recognized church. This must be why my grandfather was discussing it with my family.
information taken from IRS publication 15a section 3
why is moderate inflation bad ?
Two part answer:
Part 1 - http://legal-dictionary.thefreedictionary.com/robbery
Part 2 - http://upload.wikimedia.org/wikipedia/commons/c/c6/Exp.svg
http://legal-dictionary.thefreedictionary.com/counterfeiting
Because it causes prices to rise. Then unions form to try and push up wages.
With constant deflation (increased purchasing power of money over time) there is no need for wages to rise because the raise is built right in through deflation.
http://www.youtube.com/watch?v=LhKC6F_-uzk&feature=player_embedded
How much better the world would be if that were the type of Guido on Jersey Shore.
If you have sound money or tightly controlled government issued fiat, deflation might be a good thing. But with a regulated market, an autonomous central bank owned by profit seeking banks utilizing fractional reserve rules, Keynesian principled money-as-debt, inflation is the only way to keep the game going.
Deflation in a vacuum is great, but we all know that the US is never going to actually pay back all their debts. They will inflate a lot of it away, because when the debt service hits the knee of the exponential curve you have to either change the time scale or default under accelerating compound interest.
Neither is acceptable any more. Inflation is the only answer in order for you and I to pay for it all.
Well I'm no economist but seems that in a fiat currency organic price increase/decrease (i.e. inflation/deflation) due to a shift in production without an increase/decrease in the money supply isn't theft but can be punishing/rewarding to savers. However, the type we are talking about is brought about by bankers/government increasing the money supply on purpose in a proportion that is greater than the increase in production (i.e. what goes on today and I assume this "good" inflation you are talking about).
This policy causes upward changes in prices based in the fiat unit as the number of fiat units in the system goes up in proportion to the assets/units of labor available in the system.
Now by just changing the money supply, it can be argued by the snake oil Ivy league Keynesian economists, the government/banker isn't "directly" sneaking into your bed room and giving you a very unpleasant dry rape job while going through your piggy bank. As if the government was is some way compelled to increase the money supply, and this increase was transparent an educated population would be able to invest the savings in some sort of asset that wouldn't be "inflated" away (another reason for the real estate bubble) therefore avoiding the currency devaluation.
If you look at the gov/banker kleptocracy and the way this really works, the increase in the money supply is planned and obfuscated at all costs (why did M3 stop being reported? why is gold being suppressed?, why is deflation being avoided like the plague?, why are interest rates depressed?). True savers are tricked into trusting the currency as a store of value and punished by having their savings eroded away, and or consumed by transaction costs getting into or out of the other asset classes that serve as some store of value.
The motivations for this type of inflation are pretty simple. It makes debt payment/service easier for Government so that unmitigated growth can continue and ensure the eventual government control of the economy. It also assists the bankers/corporations as most importantly it increases the barriers to entry for capital intensive endeavors. This allows those with the resources to take control of the few asset classes that are storable and able to resist the devalution of the fiat currency.
I disagree with the argument that organic deflation is some sort of theft (especially in a non-fiat currency), as deflation if done naturally rewards savers, but if "engineered" the PTB can take newly created fiat units and buy assets on the cheap before the inflationist policies are resumed.
So for me it's pretty simple. Increases in the money supply aren't necessarily bad as the money supply should increase in proportion to GDP so that there isn't a fiat unit shortage and consumers overly punished. But what is going on today I believe is planned and nefarious. The fact that the purchasing price of the dollar has been eroded to the point where it is since 1973 speaks volumes. (depending on the metric you use upwards of 90%) You may feel better about yourself as your salary goes up a few percentage points a year (or if you are a credit card millionaire debt whore), but the engineered inflation along with manufactured inflation statistics are used to surpress interest rates therefore eroding any savings in the fiat currency. High transaction costs are placed on assets that could avoid the devaluation of the fiat unit, and debt is encouraged for consumption items.
This will continue until the ponzi scheme gig is up and the propaganda lies are exposed, at that point the ultimate in Minsky moments will be realized.
Don't you want your currency to have it's full value? I do.. all the time, from now and into the future.
Someone will have to explain to me how inflation creates economic growth. It seems that all it does is make the money I have worth less.
How can this EVER be good?
It only gives the illusion of growth:
-Bob: "Wow! My 401K went up 15% this year!"
-Jane: "Big woop! A Happy Meal is $63.79"
Keep a tight grip on your burger! See this site for the comparitive cost of a Big Mac around the globe's economy. Norway and Switzerland have pricey burgers, probably a function of local rocks in the ranchland and strong local economies with strong currencies.
http://www.oanda.com/currency/big-mac-index
<EOM>"
A very ominous sign of things to come that has been hushed in MSM:
Mozambique Food Riots Spark Fears Worldwide (at least 7 dead)
http://www.cbc.ca/consumer/story/2010/09/03/con-mozambique-food-riot.html
Residents of Mozambique’s capital, Maputo, were on strike for a second day yesterday in a protest over higher food and utility prices. At least seven people have died in clashes with police and another 280 injured, Cabinet spokesman Alberto Nkutumula said yesterday.
India had gas riots/strikes earlier this year.
I do get tired of the "we wish for a little inflation" argument. OK, but inflation in what? Food, gas, tuition, health care? And what happens to the savers with ZIRP and inflation in needs-pricing? And exporting inflation to emerging economies in commodities priced in dollars?
Who is this helping - oh, the banksters. The true owners of the Fed.
Not news to me. I watch BBC news as well as a few other outlets.
When J6P sees this it is a curiosity, not being able to correlate and all.
"Them silly Mozambiquieans (er, whatever)... why didn't they take the SUV on down to the local food bank and git some free food."
This is a no-kidding report: I was watching a report of activity at a food bank someplace in these great United States. A lady pulled up in an Escalade, popped the rear door which opens by its little self, they load in boxes of food and close the door. She drives off. I'm surprised she wasn't wearing a Nixon mask like a bank robber. Wouldn't want the brunch ladies to see her on the TV begging for food. JFC, why didn't they follow her home and help her open those pesky cans as well? Why does the media not call folks out on this garbage? Take her license number and follow her botoxed ass home to see the real picture. Cynical? Me? Never.
One-eighth of all Americans are receiving USDA Food Stamp assistance. More qualify but they won't take the "benefit". The breadlines are hidden by USPS mail delivery today.
All discussions about the degrees of inflation ignore that it is a binary situation, like being pregnant. A difference between pregnancy and inflation is in their progression, with inflation being an exponential problem with compound interest driving it. There are other important differences, like how you get there, but the binary aspect illustrates a key factor.
Poor illiterate Africans.
They are their own worst enemies.They do not get it.
They allow their goats to eat everything green, then when that's gone, the climb trees and cut the branches off those.
Creating a vast desert, that continues to grow, and grow.
Farmlands are sparse, and the soil is turning to shit.Won't grow a damned thing.
The Sahara is growing at an exponential rate.
Of all the countries in the world, Africa has been the genocide capitol, and compared to Oil rich countries, recive damned little aid, and what is allowed in,get's stolen by some tin horn murdering tribal leader....
This is a pox on the civilized world, what has been allowed to go on there, simply because their Black,and have no oil to steal.
+ 1,000,000 on poor Africa and how it has been raped over and over.
Now China as rapist?
Japan had a positive balance of trade in every year of their so called "Lost Decade". That alone is better than the US can dream for. Japan only screwed up because they listened to President Clinton who advised Keynsian solutions to reinflate the bubble from the 1980's, even though Clinton wasn't practicing the same in the US.
Quote of the day:
“So far we are not declaring any crisis, it’s premature,” Abdolreza Abbassian, senior grains economist at the FAO, said. “But we are not saying it’s not a tight situation. It’s a very tight situation.”
"despite much sneering from western economists " - "the Japanese lost decades is in fact a great achievement that US will only wish to match in 10 years"
I think this has merit, and that Japan's 'stagnation' is viewed through an incorrect prism. I don't know the exact statistics, but if you have GDP at -1%, but population decrease of 3%, your economy is actually growing. Am I hhhhrite?
We don't have the patience for two lost decades. Different ball game now, anyway. We have a whole library of information about hopeless debt, massive fraud, stalled economies, and the train rolls on with happy talk drowning out warnings that the bridge is out. So far, no one in the media has mentioned silver closed at 19.949. I'd love to read the comments at lemetropolecafe but my subscription ran out and I'm out of work.
Tree,
Snagged a wad myself, Turk see's it at $30.00 very soon, and after it breaches $23.50, maybe a lot more.
If this shitstorm is not stopped, it will be at at least $100.00oz, soon.(after that, maybe back to the old std ratio 15-1).
Finally, some light at the end of the silver mine!
Tell that to the people who have to pay ever increasing amounts for basic living expenses. The Japanese don't live in tiny apartments because of culture, they do it because they can't afford larger rooms.
tm,
Also, Japan has NO Land, no room to grow.
So what does austerity mean in a country where so many people are on public assistance? Sounds like austerity=social unrest.
It depends. Austerity could mean many many different things.
What if austerity in the U.S. means cutting the defense budget in half and seriously attacking corporate welfare but not doing much in the way of changing "public assistance"?
I suspect that Japan's deflation policy may have been motivated by a desire to keep the yen weak. Low inflation means that interest rates can be kept low which encourages the carry trade where people borrow yen at low interest rates, use the yen to buy dollars, and use the dollars to purchase UST's paying higher interest rates. Of course if the yen suddenly appreciates, you can loose a lot of money doing this, but until recently I think that most people were assuming that the BoJ was waiting in the background ready to step in if the yen started to rise too much. The carry trade also requires a sufficient difference in interest rates between the US and Japan.
Recently both of these conditions have been fading. US interest rates have been dropping, the yen has been rising, and the BoJ is nowhere in sight. So anyone who had been engaging in the yen/dollar carry trade may be hurting about now. We probably won't know who has been burned by this for another quarter or two.
One unfortunate effect of low interest rates in Japan is that it has enabled the Japanese government to build up a huge mountain of debt. If interest rates were 0%, you could borrow forever and never worry about paying it back. If interest rates are 1%, you can borrow for a very long time before the interest payments finally get you. The Japanese government has debts of about 1000T yen and revenues of 37T yen, a debt/income ratio of about 25. (Think of an individual who makes $50K/year with debts of $1.25 million). This is a huge tower of debt and when it finally collapses, the effects are going to be massive.
Perhaps a lot of the low growth that Japan has experienced in the past couple of decades is due to demographic issues: an aging population due to a low birthrate and low immigration. The US will also face demographic headwinds in the coming decades, but they don't seem to be quite as serious as the ones Japan faces.
"Social Safety Nets" were supposed to catch falling people and prevent a hard fall, but it turns out that these same nets are performing their other function: Ensnaring the unwary and allowing them to be harvested. To what end, one wonders.
Safety nets are fine, but somebody has to be holding up the net. Makers vs Takers has been a declining ratio for some time now.
The boomers are in bad shape regardless ... because in general their wealth NOW is too thin. If your wealth is zero, inflation or deflation will still leave you with... zero.
Yes, but it's an ever-inflating zero. That's much better than a boring old stagnant zero that never changes.
We Boomers are all about change. (Got any you can spare? Especially those pre-1965 dimes, quarters and halves. Thank you, God bless you.)
Japan will never be the US, or vice-versa. Too many huge dissimilarities make it an apples to oranges comparison.
The central premise, that inflation is toxic to retirees (in this case boomers) is correct. Those on fixed incomes always suffer most during inflation. However there's another twist this time: deflation exists for boomers too. Total household net worth is deflating in terms of incomes, real estate, and anticipated retirement assets (as a result of government cut backs combined with low prevailing yields and higher risk for investments). But inflation is coming, is already starting to appear.
MESHUGGE
http://williambanzai7.blogspot.com/2010/09/meshugge.html
Inflation at any rate is a hidden tax that devalues our purchasing power of the currency we use. Even at 2% inflation, the purchasing power of the currency loses value over a long term - a vehicle for the higher-ups to rip off the working man, and for governments to bump up lower wage earners into higher tax brackets over 1 generation.
I have a copy of a local restaurants menu from 1956 - the meatball sandwich was $0.30 then, today it's $6.50 - the math is terrible - the restauranteur must pay income tax at higher rate, the sales tax is 'x' higher, the consumer must earn (and pay taxes on) the higher earnings in order to buy said sandwich, and pays a greater percentage of his/her earnings for said sandwich - all due to inflation.
The only winners with inflation are Central Banks and Governments - all others suffer.
Return to a currency based on PMs and end the insanity and inflation.
I attended a little event the other night and one of the topics was about naval uniform history. The presenter waved around a pay chart that he'd found in one of the pockets of the mid-century uniforms on display. He said that the chart showed the highest pay for an enlisted at the time was around $400 per month and then proudly said "we've come a long way!"
And the crowd all laughed and clapped.
And I stood in the back and looked at my kids and I wanted to cry.
If you where to look at an inflation adjusted dollar chart... I am sure you would more easily realize that the pay scale has in fact declined... so when you are crying, cry for the right reasons.
Starting from right now, however, as babyboomers go into retirement or start deligently (perhaps belatedly) saving for retirement, inflationary policy will cause much more pain than ever seen before. -- Bo Peng
Inflation in some ways is the broken promise. It’s the method bankers use to extract a commission from those U.S. citizens who refused to let them handle their money through usury.
Realistically, it is a joke to call the modern monetary system’s fiat dollar a medium of exchange. In Bernanke’s world, like Keynes’ world, the money citizens earn belongs to the marketplace. And nowhere does that modern marketplace address the plight of savers.
To have earned dollars throughout years of labor, planning to exchange those dollars later for equal value, has become one of the most unsuccessful investment strategies in U.S. financial history. To have counted on fiat currency as a medium of exchange was to have counted on an object alien to America’s former free enterprise system where a handshake was a contract and prices were stable, as from 1800 to 1900.
The fiat dollar, it turns out, belongs to the international bankers. It was only a ticket to play in the bankers’ game; for a show that each month costs a little more.
The government’s drive to sweep down to save the housing market for the mortgage bankers – 5%, to 4%, to 3% -- and to use ZIRP and QE to rebuild the stock market for the investment bankers, is the burglary of the life savings of the most frugal and productive of America’s citizens.
And, no, savers were not “hoarding money,” as Keynes and Mankiw would charge. They simply intended to spend it when it was most needed—in their retirement years, or for a newer car or a better house, or to open a small business. But, no! That’s not allowed—that money earned in 1970 or 1980 the bankers wanted then, and if you still manage to have some of it, they will take it now, in inflation.
You don’t believe me? Here are the rates I received today for a $100,000 certificate of deposit: Union, 1 year, 0.90, 2 year, 1.50; Provident, 1 year, 0.55, 2 year, 0.9; Pacific Service, 1 year, .85, 2 year, 1.25, 18 month, .95 with bump-up; Keypoint, 1 year, .85, 2 year, 1.15; Valley Credit, 1 year, 1.05, 2 year, 1.70; Patelco, 1 year, 0.70, 2 year, 1.10.
A saver is not looking to get rich; he would be happy simply to exchange his savings when needed for equal value; the interest rate he is seeking is simply to combat inflation, which is NOT 2% or 3% as Bernanke would have it; it is 8.6%. The Shadow Government Statistics (SGS)-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was about 8.6% (8.57% for those using the extra digit) in July, versus 8.4% in June.
A saver wants what he was promised—what he worked a day for yesterday, he wants in equal return today. What he sold a business for yesterday, he wants to be of equal worth today. Yet today, with inflation at 8.6%, 0.75% is the baby boomer’s meager value guarantee from the U.S. government on the money he earned 10 years ago, 5 years ago, or 1 year ago. The $1 million received for a business sold in 1957 is a negative $6.82 million in buying power today.
We TBTFs need your money, says Bernanke, you boomers need to forget about the things you wanted—for your retirement, for your health care, for a comfortable little place to wile away your days. Get that money on the table; put your chips in the pot, or we’ll inflate it away. Or the broker’s line –you can’t expect to provide for your future without taking risk (whatever risk you’re comfortable with, of course), but you have to have some risk to make your money grow. You can’t just SAAAVE.
Saving, of course, is very risky under a fiat money system. Every baby boomer and/or saver knows Bernanke’s inflation figures are a lie. They know what they worked for yesterday, and they know what it will buy today. The con men at the Fed, by destroying the dollar as a medium of exchange, have robbed the average saver of his standard of living by wiping him out financially.
"fiat currency as a medium of exchange"
FRN's work just fine as a medium of exchange
where they don't work at all is as a store of value
I know that is what you meant but it's important to use the right words so we don't add to the confusion about money, inflation, deflation, etc
another point we need to be clear on is "currency based on ____" where the blank might be oil, gold, silver, bedpans, whatever - if we allow the banksters to implement another currency that is non-convertible to something tangible, we will be right back in the same boat we are in now
the difference, and what we need to be clear about in our language, is that the next reserve currency will be CONVERTIBLE to something tangible - ie, I can take my pretty pieces of paper to my local bank and CONVERT them to gold, boxes of granola or twinkies
when a currency is convertible to something tangible, the people can choose whether a piece of paper or the tangible item is a better store of value
the French government in the 1960's chose to convert rapidly debased FRN's for tangible gold - this is what led to Nixon closing the gold window in 1971 before all the gold was gone
for an example of a non-convertible currency that is 'based on' gold, look no further than the Euro - at its inception, it was supposedly BACKED by 15% gold but nobody could take their Euros to the bank and exchange them for actual gold - ie, the gold backing was just a marketing strategy to help people accept the Euro
and check out State Farm - they are offering a whopping 1.9% on $100K CDs
JR,
Thank You for setting the record straight........and my condolences to you for paying the bank, to hold your 100k.Because you may as well keep it at home, and not allow them to use it in their SYSTEM.
W/Real Inflation at near 10%, all of us w/CD's, IRA's, are getting fkd.
Just because we're not 20's/30's any longer doesn't mean we are to blame, any more than that age group.
If you watch/ed your house, you will do well.If you fkd it off, it's on you.
IF the Gv't made you do something, as long as there is a Gv't they OWE it, and have a moral obligation to hold up their end of the deal.
They must,or else.
They, nor we, want to see the OR else.
Picking the winners and losers, and in line with the government’s message to babyboomers, reminds me of standing in line at Slim’s Donuts at 6 a.m. every morning where this sign’s hanging on the wall:
I can only satisfy one person a day, and today is not your day. And tomorrow is not looking very good either.
OR else, is right.
Dos, They don't owe you anything. You paid a tax, and it did what it was designed to do. It provided a backstop for the needy on the years that you paid it. Many of those recieving benefits never paid into the system anyway (disabled...). Social Security is CHARITY, and nothing more. You just happen to be the one paying for that charity.
I agree JR. Bernankie wants everyone to put their money at risk. That is so the Bankers can eventually convert your Money into their Money. You will watch the value of your account go down, down, down and cannot do any thing about it. At least with the Money in a Savings account you have your principal. In Wall Street you almost never walk away with your principal.
The Market takes your money little by little until you have a lot less than you put in. The reason the Street keeps talking about long term investors. If Wall Street takes say 50% of your principal (which they can spend today) eventually over 40 ro 50 years you will have your principal back after Inflation and devaluation of the Dollar.
It is just smoke and mirrors. The Street takes money from your principal today and tells you to hold because in 40 years you will have your money back thru Inflation and the devaluation of the dollar.
Think, how does Wall Street take out Billions in bonuses thru trading in the Market, without it comming out of someones Retirement account?
Absolutely! And here are the cold, hard facts.
According to NowAndFutures.com.(with charts):
Almost 90% of the Dow’s gains since 1963 is inflation.
Over 80% of the Dow’s gain since 1900 is inflation.
The average compounded total (Dow) return per year through 2007 is about 6.5%. When corrected by CPI, it’s about 3.4%…and with full CPI+lies corrections included, it’s about 2.8%. In other words, almost 60% of the total return is inflation only…and that’s before fees, commissions and taxes.
That is why I think Rental Real Estate is a better play on investment. Great leverage. You put 20% down and you can leverage 80% of the value. With Rental Real Estate you also get to depreciate the value over time which keeps you from paying taxes on your Rents. You do not have to pay taxes on the gain if you never sell. Your Heirs get the property at fair market value when you die.
Rental income is passive income and does not go against Social Security. Plus, the Rents go up with inflation.
The drawback is that you have to maintain the property. Rent the property. Pay taxes, insurance and the Mortgage on the property. Over time the Tenants will pay off the Mortgage and that is when it becomes a great Retirement vehicle. This requires work and time. It is not a get rich scheme but over time it works well.
It's a challenging situation. The boomers initially paid substantial amounts into SS accounts etc, and expects this money to be paid out when they exit the labour market. They also paid to protect their children, educate them, they financed wars and sent a man to the moon. They therefore expect to be taken care of when they retire.
The problem, however, is that they also elected officials who tapped into the nations savings accounts - SS, especially. So when they retire, the money no longer exists - it's been paid out in medicare/medicaid, unfinanced wars, and bridges to nowhere. Unhappy with this, they will elect officials who promise to tax the next generation even harder, which this generation obviously will have an issue with.
It's a classic case of having your cake and eating it. And you can be damn sure the boomers will do everything not to understand or take responsibility for this, aided by retard presenters on Fox News who will blame it on gay marriage, illegal immigrants, or Bryan Adams
And your generation gave us Obama. You owe us big time. We expect you to work 10 hours a day, six days a week. No internet at work. Who's Bryan Adams?
Yeah, because everything was OBVIOUSLY fine and dandy up until Jan 21, 2009.
Exactly. Who's Bryan Adams?
Well, according to your generation, he's a heavy metal rocker out of Canada.
For a Boomer this is a Heavy Metal Rocker.
Where's this Canada you speak of?
Not hardly, you think we're senile?, I dig BA's music, not this GAGA Shit.
Lady Gag, as I refer to her/him/it.
EK,
I didn't vote for LBJ.........did U?
And I have/had ZERO control over who's hands have been in the till.
If I had, they would not be breathing,guaranteed.
Face it,none of us can control our Representatives,none.Vote em' out, ok.....so sorry, damage done.
Just look at what the Obammy Admin has done since he took power.The Democrats have passed untold more billions of dollars of programs, with very few GOP votes.
Their Socialists, their degreed, and very smart, yet stupid.
I Love Left wing liberals, they love to spend money, as long as it's other folks money.
If it were up to me, NOT ONE swinging weiner would be allowed into any office, that had a net worth over a million bucks.
GWB spent more money than all the POTUS before him, in eight years.
ObamUH, has spent more than ALL POTUS, including BUSH in less than 24 months.
I was 13 and a big Goldwater supporter. I blame Mom for not saving all those Goldwater buttons. I had a bag full. Would make nice gifts. But Goldwater welcomed the Dixiecrats in. Bad move, Barry. And he hired illegals on his Arizona ranch.
But, Social Security was never intended to go to people on Welfare who never paid into the system. Or the Children of Welfare Recipients. Or to eldery people that imigrated to the United States that never paid into the system. All of the above people also get Medicare or Medicade.
The money has been dolled out to people who never paid a dime in. As we know from statistics that there are in some cases 4 generations of people on Welfare. None of them worked or contributed. The Democrats need to continue to dole money out to these people for their votes. There used to be a poll tax if you did not own property and pay property taxes. When the poll tax went so did the Democracy.
The draining of the Social Security Trust Fund has nothing to do with the boomers. It has to do with all of the people that have drained the fund that never paid in and were given benefits they never deserved.
" There used to be a poll tax if you did not own property and pay property taxes. When the poll tax went so did the Democracy."
the question of who is entitled to vote is the key difference I see between the Republic that our founding fathers left us and the democracy that we have today
only stake-holders should be allowed to vote - the lady picking up gov't supplied food in her Escalade is clearly not a stake-holder, nor is the 4th generation of people on welfare, etc
I agree. Why should people that do not pay any taxes and get Welfare from the Government get to vote on how to spend our taxes and Money?
It does not make sense to me that someone that is not contributing to the tax pool gets to vote on how to spend the money of those who do contribute to the tax pool.
That is why our Founding Fathers had a poll tax. So, the people that did not contribute could not control those who did.
Actually, it wasn't the Boomers who put a man on the moon. Were there any 23 year old or younger astronauts who landed on the moon? Were Werner Von Braun or Gene Krantz 23 years old at that time?
The generation before the Boomers were the ones who put a man on the moon.
And here I stopped reading. If inflation is so self-evidently good, why are all the jobs in China? Why is the USA deindustrializing?
This crazy economists that believe that going from bubble to bubble is a good thing are going to blow us all up.
The jobs are in China because production is cheaper there. But inflation is rampant in China.
A small bit of inflation IS a good thing. It encourages riskier investment propositions, which in turn means more, and cheaper, capital for emerging businesses, which in turn leads to higher likelyhood of success, and hence more jobs.
Then why did the USA industrialized under a hard money monetary system? The big USA industrialization happened when prices were going down. But then, when the USA government adopts inflationary policies the USA starts to deindustrialize.
If you see the history of the British empire you will see a similar picture. During the XVIII century the British empire had a (more or less) hard money system and his industries were the envy of the world. During the XIX century it followed inflationary policies and it started the deindustrialization.
The reason is that not all investments are good investments, therefore more investment is not necessarily better if its not done right. Following inflationary policies deindustrializes a country, as history show. Its also easy to explain why:
Inflation does not only brings higher prices, but also lower interest rates. The interest rates are a basic factor (among others) when investing, because its the price of financing the project. A project might not be profitable with 6% rates but it might be at 3%. This is specially true for long term investments. Therefore artificially lowering interest rates makes entrepeneurs start more long term investments than they really should. All this investments bid resources away from other projects. This is in fact, a bubble. The bubbled industry is temporarely profitable and therefore can outpay other industries for the labor and resources. Therefore part of the production has to be outsourced. At the moment this seems a good deal because the bubbled industry seems to be a more valuable activity.
But when the bubble bursts and all this investments are revealed as malinvestments, there is a problem. The country where the productive industry has moved is now specialized to some degree and has achieved a better productivity in that activity, while the country with the bubble has reduced it because less people were developing it. Therefore its not profitable to do that activity in the country with the bubble anymore (a industrialized country is always more productive than a low wage country, regardless of the mambo jambo to justify China growth).
The sensible solution would be to allow the after bubble correction to happen, purge all the malinvestments, save and invest again under a sound monetary system, to start new productive industry. The problem is that the government reaction is usually to lower more the interest rates to re-inflate the bubble, with the effect of destroying even more productive industry, that is sent to other countries.
And it gets to a point that the capital structure is so distorted that not even 0% interest rates and crazy money printing re-inflates the bubble.
And here we are.
I agree that low interest rates lead to mainvestment. But the US de-industrialized due to cheap oil transport, wage arbitrage, tax policies that encouraged offshore production, and the industrialization policy and currency manipulation of China
I agree in some parts.
The USA tax policy is horrible and certainly has played a role in helping the deindustrialization along with the inflationary policies. I saw a picture of Obama at the beginning of his term, where he was reading the famous book that proposes the model where the USA investigates and develops new technology and other countries build the devices for consumption. And this book and its theories have been famous among previous presidents as well, both republicans and democrats.
When you talk about wage arbitrage you have to think that wage is not all that matters about labor. The access to capital (meaning the machines, not money) is key. One expensive worker with the proper capital is way more productive than a bunch of low wage workers and can be cheaper. The USA was competing without a problem with low wage countries for a long long time, and with less protectionist policies than it has now. How was that posible? Because the capital investments where adequate, and that allowed for high salary wokers to be way more productive than low salary workers and therefore the high salary worker was cheaper. This has changed because of the malinvestements produced by the inflationary policies as explained before. You have to think that the realocation of resources and labour re-training takes time, and during this time your competitors are getting even better. In fact, the USA right now still outcompetes a lot of countries with very low wages.
The currency manipulation discussion has surprised me always. First, China is not doing anything that the USA or Europe dont do. The USA and Europe also heavily manipulate their currencies. That is the central bank job, and we all have one. But the key issue about this matter is that there has been a lot of countries that have tied their currency to the USA dollar, and usually they have gone bankrupt (think Argentina). Why is that not prove that the policy is bad for a country? The reality is that China has industrialized in spite of the chinese government mercantilist policies (and in big part thanks to the "free zones" that the government has allowed in the cost). One of the consequences of the mercantilist policies is the housing bubble that they have and that its going to pop sooner or later.
As you say, “One expensive worker with the proper capital is way more productive than a bunch of low wage workers and can be cheaper.”
Henry Hazlit, in Economics in One Lesson, refutes the fallacy that there is a fixed limit to the amount of new capital that can be absorbed or used for capital expansion... “in a free economy, in which wages, costs and prices are left to the free play of the competitive market.”
This doesn't work, of course, when the process is impeded by controlling politicians and bureaucrats such as Nancy Pelosi and Newt Gingrich, by all-powerful criminal gangs such as Goldman Sachs who control the seats of political power and by central bank money lenders empowered to impose the bondage of credit slavery upon a captured civilization through control of its money supply.
Said Hazlitt in 1946, updated in 1979, in support of your premise:
“If [additional capital] is set aside and saved, it will absorb itself and pay for itself. For producers invest in new capital goods—that is, they buy new and better and more ingenious tools—because these tools reduce costs of production …
“The steady reduction of unit costs of production by the addition of new capital does either one of two things, or both. It reduces the cost of goods to consumers, and it increases the wages of the labor that uses the new equipment because it increases the productive power of that labor. Thus a new machine benefits both the people who work on it directly and the great body of consumers …
“In the case of the workers who use the new machines it increases their real wages in a double way by increasing their money wages as well. A typical illustration is the automobile industry. The American automobile industry pays the highest wages in the world, and among the very highest even in America. Yet (until about 1960) American motorcar makers could undersell the rest of the world, because their unit cost was lower. And the secret was that the capital used in making American automobiles was greater per worker and per car than anywhere else in the world…
"It is true that the U.S. has been losing its world economic leadership in recent years, but because of our own anticapitalist governmental policies, not because of ‘economic maturity.’”
Henry Hazlitt is always great.
This is spot on.
I don't recall having said that perpetually lower interest rates were a good thing. Should interest rates be 1%? No. Should they be 20%? No. There's a common middle ground, neither of those two make for an optimal economy. As for where the rate should be exactly would make for a rather long debate.
Is a long debate because its impossible for one human or group of humans to know where the interest rates should be, because the interest rates are the result of the billions and billions of choices that people voluntarely do every moment. That information is impossible to even know. Therefore central planning of interest rates is a economic impossibility and a disaster, like any kind of central planning. That is why the debate is long, because its a discussion over a impossibility. Interest rates should be set by the people, not by a bunch of central planners in a marble building.
And even if you for some extrange reason believe that central planning is possible, if you look at history you can see that being able to set the interest rates in a geografic area because you manage the monopoly on money has always always always been abused, and has led to poverty and authoritarian regimes. They have allowed the banking system to over expand credit leading to bubbles, and for the government to print new money and divert resources from productive activities to where the rulers decided. Also, all the big wars have been financed by inflation. Only because of those precedents one should be very wary about centrally planned interest rates. When some people justify centrally planned interest rates when they are an impossibility its not random, specially giving the examples in history.
"The interest rate is merely the special name for the price of loaned capital. It is a price like any other… To argue, on the basis of an extreme example, that the volume of real savings would not be reduced by a substantial fall in the interest rate, is like arguing that the total production of sugar would not be reuced by a substantial fall of its price because the efficient, low-cost producers would still raise as much as before." Those are the words of Henry Hazlitt who, according to H.L. Mencken, was "one of the few economists in human history who could really write."
But Hazlitt, of course, was speaking of a former America with its free economy, where costs and prices essentially were left to the competitive market. It's different now; Ben Bernanke makes those decisions.
"The effect of keeping interest rates artificially low, in fact, is eventually the same as that of keeping any other price below the natural market. it increases demand and reduces supply. It increases the demand for capital and reduces the supply of real capital. It creates economic distortions.” – Henry Hazlitt
"Economic distortion" is where we are now, but just where that is, is anybody's guess.
The price of money is no more difficult than setting the price of anything else. Supply and demand, bitches!
I wish the fed would set rates at 20%. At that point, lots of people decide that they can do very well for themselves by undercutting them slightly. 19%? Finally, a real return on savings! Then other savers decide they can undercut those savers, and they bid each other all the way down to... whatever the real market price of money is. It's an auction, a meeting of the minds between supply and demand, not a debate, and it would happen in a matter of days. Then automatically adjust going into the future.
This is essentially what Volker did. Unfortunately, ever since then, the government has been in the business of undercutting savers.
Gee, there's an angle I never thought of. The Boomers finally awake to the evils of inflation after relying on years of it to boost their salaries to unsustainably high levels. Then, having secured the best jobs in the land and locking the following generations into menial or no labour while they continue to dominate the big corporate titans that they will by dint of political power ensure are adequately supported or even bailed out by big government, they will use their peak earning years to accumulate savings, and having realised savings are killed by inflation, they will again flex their political muscles to ensure a deflationary policy takes hold in America to further boost their savings. Might I finally have to start agreeing with other ZH posters that deflation really is on the horizon, or will I continue to believe the vast majority is oblivious to the evils of inflation and continue to hold my expectations for an inflationary future?
I think you are correct that there is somewhat of a generational conflict here. If you are a boomer who expects to live on a pension or social security, you would prefer deflation to keep prices down and the value of the dollar up. If you are a millennial with a lot of debt and no job, deflation would suck, but inflation could wipe your debt away as long as your interest rates are fixed.
If you are a Gen-xer, you'll probably get screwed in some deflationary/inflationary whipsaw where the rules are changed to benefit the boomers (so what else is new).
If you have a lot of assets now and diversify (regardless of your generation), you may be just fine if you are not too greedy or too stupid.
"you are correct that there is somewhat of a generational conflict here"
check out Strauss and Howe's, "Fourth Turning"
lots of paradigms will be upset and overturned in the next few years - it is possible that the Boomers will become targets of the younger generation's anger / frustration
Good stuff! Maybe the seeds of revolution will take root in the fertile soil of a totally screwed generation -- and I don't mean the Boomers. Being a Boomer I can tell you that we, as a group, are in for some real shocks. The system so carefully set up is going topsy-turvey. I will relish the times when it starts. I like a good fight, and just might be on the side of the younger generation.
We should have drowned them as pups. Don't matter, we have more guns.
OK you stumped me.
So what is it inflation or deflation?
"Gee, there's an angle I never thought of."
Gee there's an angle I never thought of...fostering generational warfare.
Outstanding.
And how is Lindsey Lohan these days?
nmewn-
Why, she's in "Recovery Summer!"
and she might even make it!
- Ned
"Why, she's in "Recovery Summer!"
Our spoiled youngsters seem to be having the same problems we had and our parents before us.
Some seem to be laboring under some misconception that merely existing requires no further effort on their part or is optional. This thought process, somehow, makes it the parents fault...LOL.
Soon this misconception morphs into a full blown psychosis, followed by a contract with Vito (hereinafter referred to as the vote) to take what's left of their parents meager savings earned to date, to be handed over to them now.
Of course they had not considered that Vito has no lasting allegiance to them. He is only contracting out his services for a time with them. He knows they will have children as well.
Vito is very patient, cunning and is paid very well for inflicting pain on each passing generation. Probably the Boomers biggest failing is sheltering their children from Vito or any knowledge of Vito. But it doesn't mean he doesn't exist...they're learning he most certainly does.
My wife is sheltering my daughter and it's bugging the sh....out of me. I'm trying to get her up and running. Suppose I'd better get ready for the day she meets Vito as you put it. Good reason to increase my silver holdings a home vault.
Mine was taught from an early age to never lie to Mom & Dad. No matter what they have done they will be protected by Mom & Dad. Anything, everything else simply doesn't matter.
I can't put too fine a point on this...friends (ours or theirs) don't matter, teachers, government or law. None of it. It is family. It is blood.
They are also taught everything we have will be theirs...in time.
So helping family in need is as natural as breathing IMHO. But we, as parents, get to set the goals & limits, if any. When they stand on their own hind legs and have kids they get to do the same with theirs. The Golden Rule...LOL.
Just explain to her who Vito is so she will recognize him when he comes trolling around ;-)
You might consider divorcing the wife, kicking her and the daughter out on their tails, and shacking up with some other poor slob's otherwise overly dependent daughter. May as well get some benefit for your troubles.
+1.