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Guest Post: Quantitative Easing And Its Effect On Inflation And The Economy
Submitted by Sancho Ponzi
Quantitative Easing And Its Effect On Inflation And The Economy
The Fed's response to the financial meltdown was twofold: Interest rates were effectively set at zero, and the monetary base was increased 140%. While it is not known exactly what formula the Fed used to arrive at the 140% increase of the monetary base, the expansion from roughly 800 billion to 2.2 trillion roughly correlates with the asset backed securities since purchased by the Fed.
Quantitative easing is nothing new, as between 2001 and 2006, Japan used QE to gradually increase the monetary base by about 70% in an attempt to spur loan growth and promote inflation. The extra liquidity provided by the Bank of Japan did increase lending and promote inflation, but once the liquidity was withdrawn, the deflationary pattern resumed. Apparently liquidity alone did little or nothing to promote long-term price stability.
The Fed's version of QE was even bolder in its lack of support for consumers and small businesses. Rather than an attempt to spur bank lending, Bernanke, like Paulson before him, employed QE strictly to offload toxic assets from bank balance sheets in an attempt to make banks and other financial institutions whole, with the effect of preserving historically inflated asset valuations for residential real estate. As a result, massive increases in federal spending have been required to offset the erosion of private sector GDP.
If you look at the United States economy, it becomes apparent why the Fed was 'all in' on residential asset valuations. While Japan is a net exporter, the current US economy is service-based and extremely dependent on residential and commercial construction for growth and stability. Regardless, housing prices continue falling toward their historic average price of 2X-3X annual household income, thus the Fed's intervention has merely cushioned the fall or prolonged the agony, depending on one's perspective.
By prolonging the purge and rewarding bad behavior, the Fed's policies are actually delaying any chance of recovery. Many corporations have returned to profitability due to their ability to streamline and issue stock and/or commercial paper, but millions of small businesses are going under due to curtailed bank lending and the poor economic environment, while skyrocketing federal expenditures will necessitate massive tax increases which will negatively impact consumers and businesses alike. Quantitative Easing has, by design, been selective, rewarding big business and finance at the expense of consumers and small businesses. There can be no economic recovery until consumers and small businesses recover, but the current administration has adopted policies that favor public sector growth while providing consumers with just enough assistance to assuage the masses and prevent major unrest.
Because the Fed's version of QE has been directed primarily at healing banks and preserving asset values, the withdrawal of QE will likely have little effect on the economy. Until consumers and small businesses resume spending and borrowing and banks stop parking excess reserves at the Fed, economic growth in the private sector is unlikely, and tax revenues will lag. The Federal Government will continue to deficit spend to fill the GDP hole, which does nothing to promote long-term economic health. Because of the continued slack in the economy and low velocity of money, don’t look for inflation returning any time soon.
Credit John Taylor http://johnbtaylorsblog.blogspot.com/2010/03/quantitative-easing-at-fed-...
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"Apparently liquidity alone did little or nothing to promote long-term price stability."
Because it can't
It just can't
Ha.
Inflation is here. It's in the globally-driven commodities that you and I use every day. The more the spigot is open from QE, the more acute the inflationary pressures. Its just our leaders don't measure inflation quite that way. Little wonder.
It's our standard of living that isn't going to return "any time soon". Of course, no one at the Fed would ever say that publicly.
I love the slack in the economy argument. It's like saying "We can flood the world with money and it's ok because no one else has any." To bad they never address the issue of what happens if they overdo it or heaven forbid the money trickles down and people spend it.
Hyperinflation is already baked into the cake. The dollar will die, it's only a mater of when. To believe otherwise is you have to assume that the Fed will really tighten if/when there is a recovery and that they will not push QE to far. Who here trusts the wisdom of Ben Bernanke?
You inflation diva's really need to get a clue.
From the LA Times:
Basic grocery prices up 6.2% 1st Qtr
Rising demand and reduced supply drove supermarket prices for 16 basic foods up 6.2% in the first quarter, led by gains in staples such as cheese, vegetable oil and eggs, the American Farm Bureau Federation said.
The average cost of the items for a typical consumer each week rose to $45.54 from $42.90 in the fourth quarter of 2009, the group said Monday, citing an informal survey. Costs fell 4.3% from a year earlier.
Rising the most were sliced ham, apples, bacon and boneless chicken breasts.
Hog and cattle futures jump
Hogs rose to the highest price in almost 13 years and cattle gained on speculation that U.S. meat demand will improve as warmer weather encourages consumers to grill outdoors.
Meatpackers slaughtered about 2.18 million hogs last week, up 0.7% from a year earlier, while 637,000 cattle were killed, up 4.6%, U.S. Department of Agriculture data show. Wholesale-pork prices are up 33% from a year ago, and beef prices have gained 20%, according to the USDA.
On Monday, hog futures for June settlement rose 2% to 85.05 cents a pound on the Chicago Mercantile Exchange, after touching 85.65 cents, the highest level for a most-active contract since May 1997.
Cattle futures for June delivery rose 0.7% to 94.2 cents a pound on the mercantile exchange. The price climbed 2.1% last week.
And of course CPI will be manipulated downward via the ridiculous OER component.
Yup... CPI manipulation has been baked into the cake for years...
That laptop you bought this year for $1,000 has twice the memory and speed as the one you bought last year... hence you only paid $500 for it according to the government when it calculates CPI.
I'm waiting for the CPI 'revision system' to tell me that "because the new condiments available for your hamburger make it twice as tasty... it only really cost you half as much as you are paying..."
The proof is in the pudding. Grocery prices have been slashed across the board where I live which is one of the more expensive markets. Who gives a phuck what government numbers say.
"Believe them or trust your lying eyes?"
lower quality meat with twice the fat and... there you are
ppfffttt! Like people buy food regularly. Come now we all know the only measure of the CPI that counts is TVs and other electronics. Really how often does a family eat? Surely they must regularly buy new tech toys though.
/sarcasm
And 40% of my daily spending is on Owner's Equivalent Rent, according to the government.
DIVA!
The Cost of Living is no longer considered in the "Inflation" index. The things you need to stay alive now comprise a different index altogether. It's name is being withheld until Norris Church is united in connubial bliss with Bill Clinton.
Beef, Chicken Nuggets, pomme Frites, ALL food items that nourish you, the soap you wash with, the water you drink and its disposition, 6-packs, wine, russian vodka, blue label, tater-tots, pizza rolls, Ho-Hos, Li'l Debbie Hos, and the thousands of other necessary items like loin cloths, fig leaves, bubushkas, burkas, thongs, fezzes, shoes, crocs, one holed-panties, air jordans....these are now under a separate government index which is now kept in the same filing cabinet as the real findings of the Warren Commission on the assassinations of the Kennedy Bros, Martin Luther King, Jack Ruby, and Lee Harvery Ozwald, as well as the documents prepared by AIPAC to drag the United states into the ETO instead of crushing Japan in three weeks.
For access write: Thurgood Marshall c/o US Supremes Washington D. and C. And go ahead and buy all the green bananas you want.
Concur. Even Whole Paycheck is cutting prices. I just avoid areas where inflation persists (i.e. gas, lumber) which basically means spending more time growing food and less time pursuing new business. Ergo make less and pay less tax.
Whoever thought that making the psychopaths whole and the rest of us halfed should be shot.
Niall Ferguson asserts that hyperinflation is a political phenomenon. It's not the result of monetary policy. I agree. I've seen no indication the USG is on a hyperinflation suicide mission.
Cool, so trillion dollar checks to everyone? We'll all be rich as bankers!
So Rome had it's hyper inflation because of politics not because it was coin clipping and diluting coin content? It is and always will be a monetary phenomenon. It is only political in so much that fiat currencies are faith based so when a gov goes down the currency loses all faith, the same happens when there is mass currency printing.
That's a false dichotomy - it's not let the banks fail OR write trillion dollar checks to everyone. There were also fiat currencies which were hyperinflated in recent history that are probably a better comparison to the US than Rome. (Though I do agree the US/Rome comparisons are most romantic.)
My only point is that hyperinflation is the result of willful, ongoing, negligent decision-making that have nothing to do with the basic tenets of monetary policy. (Actually that wasn't my point, it was Ferguson's.)
So the politics define money policy, it's still the fact that we have a fiat money made by nothing controlled by an unelected star chamber that allows it to happen. The value of fiat currencies is entirely faith based. The dollar/Us economy is the biggest religion on earth and by far the most important. Might as well say that hyperinflation is a religious phenomenon since it's always faith based in faith based currencies.
That's about right.
Everybody gotta believe sumptin'
Commodity prices led to inflation in Japan beginning in 2007, but the effect was short-lived. Higher prices for oil pushes up production costs, but there simply isn't sufficient purchasing power available to significantly increase consumer prices. Lower consumption due to reduced purchasing power tends to offset commodity price increases.
Interesting. Stagflation = Margin Squeeze?
Exactly, self-correcting, if you will.
Assetman, you ain't seen nothing yet. Just wait until the recent iron ore price increases start flowing through the system.
A $50K subcompact is going to be the norm. There is no way it can't be, either that or Ford will be selling cars for a -50% profit margin.
Ghost, I understand what you are getting at. What grinds at me is the whole concept of inflation vs. deflation, becuase it's the "standard of living erosion thing" that's the certainty.
QE is a means of wealth distribution, yet our Federal Reserve is using it as a means to deal with what is the masses perceive as "deflation". You and I know it's total BS, but then it gets obscured by the whole hyperinflation vs. deflation debate.
Folks, the powers that be are taking away our standard of living by propping up a protected sector of the economy by using "selected deflation" as an excuse for QE. I sure wish the Fed would look at employment and wages and behave in a similar manner to what they are doing with housing prices. But then, that would be inflationary.
Sheesh.
Agreed. Some people look at, say, M2, see that it is falling (or rising), and scream "deflation" (or "inflation").
What they fail to understand is the distribution of money. By constantly inflating then deflating assets they enable the financial system to rob the masses.
The overall price level doesn't matter in the long run, as long as asset prices are volatile while wages keep falling.
You get it, ghostface... as I'm sure there are other on this form do.
I sure wish everyone else did.
But then we'd have nothing to disagree and educate each other about... plus educating the public will only serve to hasten our collective demise...
"I sure wish the Fed would look at employment and wages and behave in a similar manner to what they are doing with housing prices."
Can you provide some examples? I'm having a hard time visualizing how the Fed would influence employment and wages.
Oh, I could certainly provide examples-- but they would most certainly be inflationary on the surface. Via money printing, the Fed could support a policy of mandatory wage controls, as an example. It may sound good that I make 8% more than last year, guaranteed, but it risks a cost-push inflationary spiral. Such a deal wouldn't necessarily make my standard of living improve-- but it wouldn't make it so fun for the banksters, either, as they would be dealing with a flat or inverted yield curve. I'm certainly not endorsing such a policy. It's silly.
But what the Fed is doing now is just as ludicrous. On the surface, ZIRP/QE was sold as a means to combat general deflationary pressures. In reality, ZIRP/QE is very targeted. Propping up housing prices (and other risk assets) via subsidized mortgage rates and zero percent borrowing for the Selcted Few keeps the market from properly clearing-- but it keeps banks in business and debtors in the game.
At the same time, savers are getting zero for staying liquid-- and would only stand to "make a decent return" if they (a) move out on the duration curve; and/or (b) accept higher levels of risk by owning "junkier" assets. Either would expose investors to interest rate and/or credit risks many investors wouldn't ordinarily want-- or need. Those who invest in such inflated assets risk losing more than just their shirts when the math finally plays out.
Assetman,
I see it differently. The FED is trying to avoid Irving Fisher's bifurcation of credits (i.e. interest rates on "good" credits go down, interest rates on "bad" credits go down, impact on spreads is 2X).
There is a huge qualitative easing component of the FED's quantitative easing. Whether it be Maiden Lane I/II/III or the foreign currency swaps or the MBS/agency purchases these all served to counter the forces working to widen spreads between good and bad credits. All the alphabet soup facilities were still more forms of qualititative easing to support markets such as ABCP, etc.
If this had not been done, the absolute blow out in spreads for any non-good credits (inc. mortgages and ABCP) would have had a self reinforcing deflationary effect -- it would have been very broad and very general. The trade is throw the FED/US Gov's balance sheet behind anything and everything to swap greater sovereign risk for lower private risk. This is what PIMCO is describing in their "unicredit" view of the world.
More food for thought: if the FED weren't trying to combat this general blow-out in spreads, why didn't they opt to purchase only Treasuries as they exploded their balance sheet? There was certainly no shortage of supply. They had every option to pursue a purely quantative easing strategy with little/no change to the mix of assets on their balance sheet.
I'm not saying the FED/US Gov will be successful, but it looks like textbook application of Irving Fisher's ideas, Bernanke's "helicopter" speech, etc.
Your point about qualitative easing is certainly true, and an overlooked aspect of what the Fed did to avoid a serious crisis. The way I see it, the massive subsidization on non-good credits, including the Mainden Lane's and the alphabet soup programs were bitter but necessary to keep the deflationary cycle from taking hold. Point well taken.
We can question whether the strategy worked down the road (due to unintended consequences), but the effect of narrowing risk spreads across the board had their intended effect as we witness it today. In fact, I think the movement in risk spreads may have been too good given the circumstances, but the market right now doesn't look at it that way.
Begrudingly so, I don't have many complaints about that. Most of those programs have been-- or are being-- phased out and have met their intended purpose. I do think, however, the Fed went overboad on the MBS purchse program-- primarily because they went in buying without really laying out a viable exit strategy. And I'm still not sure they know quite what to do with these so-called "assets". Eventually, the taxpayer is going to take a very significant hit from the most toxic of these securities-- we just don't know how much or when. Problem is, I just don't think the Fed really cares, since the underlying agency debt has the "full faith and credit" seal.
All this is in the context of a banking system that really didn't go through a real-- and I agrue, necessary-- liquidation process. Sure some assets were written down, but government intervention (a) allowed equity and bondholders a free pass; (b) allowed banks to lie about the true value of assets on the books-- and most importantly-- (c) enabled banks to pay out insidious bonuses based on profits generated from a subsidized steep yield curve.
It's the latter factor that bothers me the most-- because the Fed is still setting the bar at ZERO at the short end-- and intends on keeping that strategy until they're forced to do otherwise. Sure, a lot of what is going on in banking due to this is balance sheet repair-- but I don't think responsible savers should subsidize terrible risk management made by banks and their bond/shareholders.
The process of swapping private risk (debt) for sovereign risk (debt) sounds pretty innocuous-- except when one realizes how that sovereign debt gets paid off. Whether it's a textbook application or will be successful down the road is not the issue (i.e., define "successful")-- it's that the intended consequence was to put U.S. sovereign debt at risk, and the burden to pay back $ trillions on taxpayers backs.
I agree with the article. And this is why the TSY needs to tax the crap out of the banking system to reduce the deficit that was in fact created by them. They are coining money and paying record bonuses all with taxpayer funded funds. It’s insane, it’s corrupt and it is killing this country. These banks need to be taken apart to a manageable level where if through their own (again) stupidity the fail so be it. Most of the management of these organizations need to be locked up for theft and incompetence. They are clearly (along with the illiterate stooges in the administration) counting on the majority of the populace to be sheep.
Quaint. You seem to be under the impression that it's something other than the banksters who run the government! (smile)
Yeah, accountability. A lovely thought, but you of course know it's never going to happen. And yes, they clearly expect the overwhelming majority of the populace to behave like sheep - and sadly they're probably making a pretty damn sure bet there.
Betting on the stupidity of public is one of the safest bets in this world.
"Many corporations have returned to profitability due to their ability to streamline and issue stock and/or commercial paper..."
They can only do that for so long before they suffer like small businesses.
Quantitative easing, always and everywhere, leads to fascism.
The Bank of England has a "paper"on
QE 101: 'Putting more money into our economy
to boost spending'
http://www.bankofengland.co.uk/monetarypolicy/pdf/qe-pamphlet.pdf
But this time it's different. Trust us.
inflation = increase in the money supply>.< as in Period.
After a period of market filtration this may translate into "price" inflation.
TPTB do not need to issue another FRN/bond/electronic counter for there to be an issue.
All that is required is a repudiation of certain instruments and a flight to "anything."
With the injections (QE, etc) over the past year as well as the standing supply, the pump is primed. With the world repudiation of mark-to-fantasy and insolvent corporations under way I find it very difficult to believe that inflation will not be the outcome.
"By prolonging the purge and rewarding bad behavior, the Fed's policies are actually delaying any chance of recovery."
I believe ZIRP is also hampering a true recovery. New business ideas should be funded by savings that promise a reasonable risk-return tradeoff. ZIRP just starves some savers and forces others to hunt for yield, mainly amongst the securities of already-failed business models.
Additionally, ZIRP reduces purchasing power for retired folks on fixed incomes.
Yep not only does it discourage savings and capital formation but it also forces savers into a casino/gambling system. And much like a casino the house always wins. Though at least in a good casino I can get "free" drinks and a "free" meal in exchange for losing money. Maybe Wall Street should ship free booze to the losers. "Sorry you lost your life savings, here is a bottle of Jack Daniels. Have a good one"
ZIRP is such an insidious policy I have no option but to believe it is being pursued intentionally, to further rob the masses.
No one can look at the history of ZIRP and claim it successfully achieves its stated purpose. There is just no evidence whatsoever.
Oh they know what they are doing. We are witnessing one of the greatest robberies in world history. Done in broad daylight and without firing a shot. It's genius really.
It doesn't need to have a historical basis. People are stupid and would believe the experts if they told them that chlorine gas was a weight loss miracle. Stupid people get hustled.
I agree with what you say Shameless, but I think it is hands down the greatest robbery of all time. By far the greatest unearned wealth transfer (theft) in the history of the world, PERIOD. Probably the hardest part of it was perpetrated by Hank Paulson in fall 2008—the icebeaker on the whole concept of trillion dollar bailouts. His work in Fall 2008 was very impressive. Total extortion—hand over the 800 billion TARP or “this sucker (the economy) comes down” (bush’s words at the time I believe). Paulson came in and did what he needed to do in a VERY ballsy fashion. Paulson is a big guy (physically I mean),, was a football player at Harvard. You needed brawn for a job like that. The banks and other beneficiaries of the TARP needed someone extremely ballsy to hit hard and get the job done… they needed someone who could say “NO THE SYSTEM WILL FAIL UNLESS YOU DO THIS! Do you want to be responsible for the SYSTEM FAILING??? What makes you so sure the system will not fail?? How do you know better than the financial wizards at GS, JPM etc?? if you are wrong you will have america’s fate in your hands… so STAND DOWN A-HOLE!” They just needed someone who could pound away with the “the system will fail- we could have marshall law!” line… and someone who could bring all the most seemingly convincing arguments to bear on that discussion… H Paulson was perfect for that… Geithner could not have done it— hes too tiny timmish and worlds away from being forceful enough—too “Tim Geithnerish” for it… I cant see Bernanke doing it either--- going to Congress and slamming through that sort of legislation aggressively, when it hadn’t been done on that scale before. Bernanke can make enormously harmful decisions (obviously) but only when he is first set up as the wise one who is supposed to set a number, for example… Bernanke needs people coming to him and saying “”Which number is best Ben? 5? 4? 3? 0? “ then Ben picks a number “lets go with 0” and gives a justification which is as perfectly parsed as it is perfectly harmful. That Ben can do. Only Hank could cram down the throats of an unsuspecting populace something like TARP with no precedent for the scale of it set previously before him. If he tried that with 535 people who had solid knowledge of basic economics and basically sound moral fiber as well, they would laugh at him. Maybe each member would not be able to take him on on their own, but with the 535 (or whatever number it is), collectively considering what he was saying, they would say “no a-hole, go to hell, we cant do that … and it would eventually ruin OUR careers too at some point…. So nice try, but go to hell dude, and where do you get off with the attitude and that kind of presumption??”
History will obviously at some point have to look back at this period and say this was the era of the Great Robbery. I think it still remains to be seen whether americans will accept it once it sinks in what happened. It has already largely happened, but it has obviously not fully sunk in yet. I know people say that America is all about porn and donuts, and I agree of course in some sense. But when a porn and donuts person has a few days in a row where he can afford neither porn NOR donuts, im not sure he would be so pleasant. The corollary to that is that there are probably two types of porn and donuts people—1) those who are able to live with the knowledge that he will surely get porn and donuts at some point in the future if they are deprived for a few days of both in the present and 2) those who get pretty cranky after a few days of being deprived of both.
The thing is , of course, that HYPERINFLATION IS A VERY DEVIOUS FINANCIAL PHENOMENON… knowledgeable speculators and the wealthy aristocracy become more wealthy (because they know the right asset plays to make), while the great mass of dollar holders and of course wage earners are impoverished. From a financial elite perspective, there is the further beauty now that so many middle class people are staying away from stocks (do the money flows confirm this? I think they do) or at least are getting back into the wrong stocks. Arent most Americans piled into bond funds or cash now? Lol Perfect
And re. the inflation vs. deflation debate— and really the whole debate of the US economy and where it might be going— I think the answer is simple --“it’s the deficit, stupid”. Deficit is 1.5 trillion now. Nothing is being done to restructure the economy to produce more—i.e. to begin the long movement back to a manufacturing economy from a service economy. How many people do you know who work at a factory? I know zero. Ive never known any… and I don’t think its entirely a function of my personal experience. We aren’t restructuring the economy therefore tax revenues will not increase—they will continue to decrease strongly (in real terms). Govt spending is increasing massively. So the govt of course has to borrow more, and in an environment where there is less and less appetite from foreigners for debt. Will foreigners fund our deficits for the next 10 years? The CBO says we will have a 1 trillion dollar deficit every year for the next 10 years. That is the PLAN NOW lol… and someone on here said they see no evidence that the govt is heading toward hyperinflationary suicide… lol… What will be the sum total in increases to the national debt from the deficit over the next 10 years? Do you believe the CBO & administration when they say the sum total of budget deficits will be 9 or 10 trillion over the next 10 years (1 trillion newly borrowed money each year)? Do you think it might be more like 30 trillion? Or would it be more fitting if we were using the word quadrillion? I think in 10 years we will either revalue the currency and issue new currency or we will be using the word quadrillion for something other than the “sum total of derivatives in the shadow banking system”. I think 1 quadrillion sounds like a good national debt target for 2020. Cmon if the govt says the cost of something 10 years from now is going to be 10 trillion, you know its AT LEAST gonna be 100 trillion. Cmon now. Lets say this years deficit is 1.5 trillion. Next years will be what—say 2 trillion? 2013 : 3 trillion? What will the National debt be at that point – maybe 20 trillion? What will the tax revenues be at that point - 2.5 trillion? What will the interest payment on the nat debt be in 2012—1.2 trillion maybe? I think the curve of it will be something like that. I would think a good part of the debt would have to be monetized at that point- printing dollars and handing them out by the hundreds of billions to soldiers, mailmen, HUD employees. When the govt has to outright print money/ monetize debt at that point, the only debate will be between the hyperinflationists and the hyperinflationary holocaust-ists… So I think it all comes down to the simple argument—“it’s the deficit, stupid” 80% of people are so averse to math tho—or rather the scaled comparison of numbers… its funny…
Could we have Forrest Law as well as Marshall Law?
Could we have Forrest Law as well as Marshall Law?
This is exactly why Ben needs to go. I can't believe Obama is so stupid, or so corrupt, to keep this idiot at the helm. When it all goes down, I believe Ben should get even more credit for the collapse then Greenspan, as Ben should have learned from the past.
This guy is a threat to us all.
Why would Zimbabwe Ben get blamed? They have primed the pump to shift blame to China aka The Yellow Menace "Those darn savers bought our debt and took our jobs! Lets get 'em!". Look for the media, pundits, and gov to blame China when we finally force them to panic out of their holdings. Will be a great excuse to kick on price and wage controls too.
Gideon Gono is still head of the Central Bank of Zimbabwe after all. They blamed hte West and America for the inflation, same leadership has held on to power. Why should we expect any different here?
HAHAAHAHAHAHHAAAAHAHAHAHAAAHAHAHAAAHAHAA!!! You're in for a rude awakening, my friend.
I may be wrong, but if inflation does heat up, Bernanke's $1 trillion of MBS trash won't be attractive to investors at anywhere near par. Imagine the implications of a 25-40% haircut on the liquidation of the Fed's asset backed securities.
Odd that small stocks are skyrocketing higher when the prospects for small companies seems rather marginal?
Inflation beats deflation anytime.
There will have to be something like quantitative easing again because there just isn't enough tax money nor enough other money to finance the trillions in Federal Debt. Or interest rates will be doubling from here, or more.
At 10% I'd buy a bond. At 15% I'd buy 2.
I'm hoping precious metals keep me safe with all the tom-foolery with money printing here and all over the world.
Good article until that last sentence. What Taylor should have said is, “Don’t look for the Fed to say there’s any inflation anytime soon.” The Fed is not controlling price inflation: it’s controlling what’s said about inflation.
The government and Fed are best at using explanations that make them look good. And if the figures don’t support their explanations, they use the magic of "hedonics" and all its attendant distortions to lower the impact of rising costs to manufacture low inflation on the CPI.
But that doesn’t mean we have to fall for it.
Bill Fleckenstein is right: "In a social democracy with a fiat currency, all roads lead to inflation."
We are looking more like a banana republic everyday....
Just wait until we get Petraeus on the president ticket. Then we can hit every single banana republic stereotype.
Genius idea. Forget two steps forward one step back. More like....
Two steps back Ten Steps backward.
The effects of inflation and the falling value of the dollar are the same. I think that even if the dollar is strong vs. other weak currencies, that the value of the dollar can still be falling anyway.
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