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There Ain't No Stinkin Inflation
Paul Krugman has yet another rant out today where he argues that there
is no inflation and unless we get some soon we will all be in trouble.
Give it a read. (Link)
I made this comment:
PK, What cave are you living in? CPI-W is up at a 7% annual rate in the past six months. (215.262 - 222.954)
Just how high do you want inflation PK? You like 9% maybe? 10% would be better?
Stop blogging. Go shopping. Inflation is very real. You just refuse to see it.
A few minutes later I saw this headline:
Krugman and those who think we ought to be printing more and spending
more than we have will not be fazed by the fact that electricity prices
are rising at low double digits on an annual basis. PK and his crowd have conveniently excluded both food and energy from their calculations.
Talk about making the data fit one’s conclusions. And this (no less) from a Nobel economist. I guess I should not complain. After all, PK is just another blogger. When it comes to sandbagging on what is happening to inflation in the country the biggest liars of all are sitting at the Federal Reserve Board.
I’ve got one thing to say for the inflation naysayers and manipulators. Just one word covers it all:
Rent
This component of core CPI is about to jump higher. When it does, it’s
going to cause the core inflation to catch up with what is happening in
the broader measures of price change. Given that Bernanke is very much
stuck on his promise to respond to core inflation “a little below 2%” he will be forced to react as this happens. At a minimum, it will tie his hands on additional easing measures.
Should things unfold like this over the next nine months or so it will
be an excellent example of just how flawed our monetary policy is.
Today, monetary policy for the USA and consequently for a significant
part of the rest of the world is totally dependent on a very flawed
yardstick. Why?
Bernanke and his cohorts want desperately to develop a methodology where
policy is made by a robot. I think that is a cheap way out of their
responsibilities. A pragmatic approach is needed. Yes, some ground rules are necessary. Ones that are understood by the markets. But, there is a degree of finesse that is required as well.
Bernanke has created a trap for himself. Rent (of all things) may well trip him up. If he lives up to his word on inflation, he may just end up tightening at the very worst time.
That would be in conflict with his other promise. This “scholar” of the
depression has said again and again that he will not make the same
mistakes of 1936 when policy was tightened and that action precipitated a
second leg of the depression.
As its stands now, one promise made by Bernanke is going to be broken. It has to. Either he will fold on his pledge of containing inflation or he will nudge policy (5-7 months from today) and history will repeat itself.
I wish he would recognize that he has created this bind and do the right thing. Go back to Princeton and write a book.
The way that the Fed manages policy requires that it always looks
backward. We need a central banker that can look forward as well. We
don’t have that today.
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Bernanke will just do what Mervyn King has done for the last five years,say the rise in inflation above the target is "temporary" and keep repeating it.
If you eat catered meals, have a cushy salary, and live in bubble-land there is never inflation.
The monarchists never experienced inflation, they simply bought gold, raised taxes and fees, and blamed "speculators".
Our modern economists are no different; Colbert, Fouquet, Keynes, Krugman...all apologists for the old and now the new aristocracy of Wall Street and Washington.
Don't even get me fucking started! You think a 15% increase in Duke Power rates is bad, try living in the Pacific Northwest. We had a 16% increase in power bills this year on top of a 6% increase last year, and just to rub salt into our wounds they added a billion or so to remove dams on the Klamath River that will have to be paid off over a generation which environmental advocates say will not fix the problem with salmon migrations as it was meant to do.
Mr. Obama did a total Enron on us, it used to be that power here was about the cheapest in the nation thanks to the hydro from the Columbia River, but last year he personally changed the rules, instead of allowing the Bonniville Power Authority to set rates and issue contracts for long-term electric power as it always was done he decided to force the power generation of the federal government from Columbia dams to sell electricity at market rates, daily.
Ah, sure, let the market set the rates all you cretins who register as republicans say, but the very first thing they did was raise rates by 6% within a week, and dictate to all who get hydro electric from the federal government know that you can take a quick and easy 16% raise for the next year or you can do it the hard way and get a 28% raise the following year. Did Oregon regulators agree? Fuck your own ass they agreed.
Then as if nature wanted to lend utter insult to injury we have had two of the wettest years on record. The Columbia River system is so overloaded with water that they have rapids where those have not been seen in 60 years. It is so bad that the power authorities have required the wind farms shut down.
July 3, 2011
The Pacific Northwest is suffering from too much of a good thing — electricity. It was a snowy winter and a wet spring, and there's lots of water behind the dams on the Columbia River, creating an oversupply of hydro power. As a result, the region's new wind farms are being ordered to throttle back — and they're not happy.
Yet my power bills are higher by 22% in just three years.
http://www.npr.org/2011/07/03/137589667/when-water-overpowers-wind-farms-get-steamed
So, with all that investment, all those tax breaks, all those ugly and destructive "green" windmills that were supposed to make our power cheaper what did we get? More electricity than they know what to do with and bills higher by more than 20%, but you stupid people must remember that that is not inflation. And there is no way it will be counted in the CPI because it is better for the salmon or some such bullshit so we are getting a hedonic good deal.
Hey, over-supply of electricity can only mean one thing, raise rates by 22%.
But that is small change compared to prices in the market, so much for avocados. Beef. Food. Rent. Fuel which has gone down significantly on the wholesale markets recently but has not dropped that much retail. Anything over $3 for gas is going to damage the macro economy, no matter what the reasons are, we still have $3.739 as the cheapest unleaded. Bad news for Wall Street and Barry O. You need to release a lot more from the SPR if you want to get people spending again. A lot. Or you could call a spade a spade and raise the level of income which is the minimum that gets taxed to $25,000 per year. You could raise the personal deduction to $18,000 per year. You could set the tax max on SS contributions to a billion per year. You could quit masturbating yourself as hope and change and actually do something different from the BushCo.
Oh well, we did not get that great Tonka truck for Christmas when we were five like we wanted and we will not get help from those that own us today.
What happens when the US Federal Reserve starts buying
stocks with money it creates and bypasses the US Treasury?
I believe the Fed has its own trading company that it uses
to purchase stocks, etc... in order to direct the market. In fact,
I bet it has been the main purchaser of stocks the past week
oout of shear fear of what would happen when 12K on the Dow
and the concurrent support level on the S&P was breached.
Especially given the economy is in the crapper and the US
must face a decline in its standard of living beyond a simple
decline in the face value of its fiat currency. The world is full
of very hungry people that will outwork and out manufacture
the US any time of the day and night. Combine that with
outsourcing, automation, Internet and the mobility of
money and people and you have a recipe for a messy
situation should people get rowdy. Extremes of living standards
are increasing and information is too readily available to
hide what's happening. All it will take is a proverbial match
and the entire patchwork of hopes, green shoots and
soft patches is going to implode into one nasty brutish
public statement of disapproval. Its one thing to replace the
soup lines wtih 199 weeks of welfare; but that only works
for so long. Then something is going to give way. The US is
as a philosophy is doomed without its old comparative advantage
oderived from the military, its FIRE economy or its industry.
Anyone have a match to spare Bitchez?
I need the Kindling. I'm burnt'...
Those cereal boxes hold more air than an [Astronauts space suit]
As long as our inflation is a little less than everbody elses inflation don't we win?
That is what will happen. Until the world succeeds in finding a new reserve currency.
"In the long run we are all dead".
"Why my Anus is gaping wide", Ben Bernanke writes his book about being repeatedly raped in the arse by Wall St Bankers!
+1 Ben is in " FULL Prolapse". Don't be junking the LEPRECHAUN!!!
Who was awarded the Nobel Memorial Prize in Economics in 2008 for someone else's theory.
Where's the epic bearded man screaming "The rent's too damn high", when you need him?
http://www.youtube.com/watch?v=Gg5SwyTvAHw
Wages are the only true indicator of inflation because if you don't have the money to pay for something, it doesn't matter how much it costs.
letter we just got from bldg materials supplier
price increases effective 7/1/11 :
insulation +15%
grey cements +5%
lime +2.5%
lighting products +10-15%
wire products +5%
ceiling tile & grid +5% (8/1)
gypsum wallboard products +20% (8/1)
metal framing products +5%
boy i'm glad i took that straw bale construction course this spring.
How did you like it?
muy bueno. easy to learn, easy to do, cheap too.
Hmmm ...
I dunno, I guess it depends where you go shopping.
I can go to Harris- Teeter in Northern Virginia and buy tomatoes for $2.99 a pound.
I can also go to Grand Mart a half- mile away from H-T and buy the same tomatoes for 99 cents a pound. Ditto with al the other food I buy (I'm a vegetarian so expensive meat is never on the menu.)
I can rent an apartment in Washington DC and pay $3,200 per month. I can (and do) rent the identical apartment in the hispanic section of Northern Virginia and pay a third of that, including all utilities plus free parking (I also don't have a car.)
I can buy a serviceable house in any number of US cities for less than a thousand dollars, including cities in Florida, the Southwest and Northeast.
In many parts of the country the cost of living is declining because people don't make enough money to support the high prices. 'Inflation' in New York City and Washington, DC is higher b/c of the higher salaries paid to hordes of lemming- 'adminstrators' (con men).
Washington and New York are the new 'mining camps' and boomtowns of the 21st century. This is where people will go to make their way in the world (by stealing from others). It makes no sense for such people to go to Buffalo or Orlando.
Like all the rest, the analysts are looking for solutions to the problem we share but in the wrong places. Bernanke did not cause this problem, but rather a defective 'progress' narrative along with the idea that we can have exponentially increasing economic activity in a resource- constrained context, and that economics -- numbers on a piece of paper -- mean more than anything else.
Bernanke cannot solve the problem, either. Only a collective attitude change and a dose of realism about energy, resources ... and values. The values are the most important, the ones outside the numbers on the paper.
We're running out of time.
I liked everything you said until the 2nd to last paragraph. Yes, B did not cause the problem, but he made it far worse. Perhaps you are not one of those who believes that this whole worldwide economic collapse was engineered, but having read Naomi Klein's book, Disaster Capitalism, I'm inclined to believe it was. Bernanke is a willing and eager participant in that planned destruction, even if his lip does quiver.
Part of the problem with the American way of life is that it is an artifact of cheap oil. The cities are sprawling with very low population density. The country as a whole is vastly underpopulated with vast tracts of wasted land much of which is losing fertility due to wasteful industrial agriculture with its fast buck mentality. If the country had a history stretching back in time to the middle ages, the population would have been much greater, the farms would be small and the land would have been preserved. Between the cities and the countryside, the country has become a wasteland, with the exception of the forests of the east and the desert or mountainous areas of the west. It is shocking to see how Americans waste land. There are vast tracts of wasted land paved over in defunct shopping centers and former industrial areas that are just left to go to seed which end up resembling the town of Pripiat near Chernobyl in Russia. It's as if the whole American culture is predicated on waste, and the way we treat land is just an example of that. Indeed, look how we waste resources on our vast military empire and its fruitless wars. Look how we waste our substance shoring up zombie banks and overpaying greedy and worthless executives. We really need to come to turns with our wasteful lifestyle.
As you say, resources are running out, yet we continue to waste them. We won't learn because that is our culture and we've never experienced anything different.
maybe more like time is running us out, but yes agreed indeed.
Just like the sands in an hour glass? Sound familiar?
These are the days of our lives!
They always seems so smart when they (talking heads) explain that the "core rate" of inflation excludes the "volitile food and energy sectors".
Yeah, leave out food and energy prices......who needs that useless crap?
I have a question from the PK article. He says that we are in a liquidity trap and that the definition of a liquidity trap is that there is nothing the Fed can do that is effective ( I assume that effective = stocks go up). I don't disagree with this. I think Bernanke is quickly running out of cards to play.
But it isn't because we need more liquidity, it is because we have a flawed system that is pumping growth on printed money, with nothing for main street. Now for my question: "What does PK think will fix the liquidity trap?", and "Why are people telling him that it isn't a liquidity trap?" I think I am missing something here.
to me rent overall is not necessarily going to be a long term increase...housing and rent both lag due to market forces taking a long time to respond with supply
the shift to more multi-family units, in walkable, more urban neighborhoods are due to a one time shift in my mind attitudes towards home ownership, attitudes of younger generation and gas prices.
As a similar example, here in MN when housing was not appreciating much, condo prices surged greatly, there was a shift and interest in inner city condos and lofts that previously had been of little interest compared to exurb cheap 4 bedroom 3 bath houses. Just because condos shot up quickly did not mean housing as a whole would shoot up that fast also, just a shift in interest.
Now it seems same thing is happening, people want to avoid ownership if job and geography might change as there is now no house appreciation to cover huge transaction cost of buying and selling, also big chance of actual depreciation may occur during short ownership period, also they want to be closer in, or want to avoid maintenance costs etc...
So right now, multi-family demand is high, but in my mind it is a blip due to a shift in type of housing in demand, not due to over all lack of housing or higher wages or higher demand to more households forming. So the apartment guys right now are the condo guys of old, their type of housing is suddenly more in demand and it will take a while for builders to catch up, but when they do, it will stop as wages not up, new kids graduating not forming households, people not less likely to double up.
I think the uptick in renting is just a temp combination of clearing of foreclosures/people losing squatted houses, high guess prices driving people toward urban cores where less empty houses than suburbs, and one time shift away from home ownership.
What you want to rent may be different than what you want to buy, but still, lots of empty houses are a competion in some way to apartment complexes. As investors buy houses and rent, they will drive down prices...but of course premium for housing close to jobs will continue as long as gas prices are higher.
Sugar could get real expensive while other food costs go down, that does not make overall food inflation, although many foods would get more expensive, if many others are still cheap.
Until I see unemployment decline, wages increase, people spreading out into more households with less people per house, I do not think rent is on steady trend up, til American worker recovers, just a blip until apt complexes are the next condos..in fact apt complexes that were condo-ized are now, once again, largely rented.
Rent Increases? In what markets? Even in the by-the-bay land of tech-bubble 2.0, rents are essentially flat; maybe there are isolated small increases in trendy spots like Capitol Hill in Seattle... but where else? All of the nationwide "job creation" is doing a great job taking pressure off rentals as more people double- and triple-up. I haven't met anyone who is a birth/death model statistic filling out a rental app... yet. Household DEformations are movin' right along. And commercial? Man, I see a lot of empty buildings all over the SF Bay Area and we are supposed to be relatively strong/healthy. Rent?
Even BLS admits on page 6 home fuel prices up 27.3% and motor fuel up 36.8% last year:
http://www.bls.gov/cpi/cpid1105.pdf
(Thanks for fixing the captcha fields to include correct negative signs)
My PM's destroy the concept.
Easy, to reduce inflation change the model.
Changing the lie works every time.
The more they meddle, the worse it will become!
BK,
"Talk about making the data fit one’s conclusions. And this (no less) from a Nobel economist."
and a Nobel president
would it not be cheaper to pay Norway to keep these two?
Even I would chip in, though I do not qualify for the tax rolls---it's only money, in this case.
There will NEVER be an alarming amount of inflation reported, because it will be offset by deflating real estate that has only begun its fall.
"That stew was so damn thin,
even them pol-i-tish-uns could a seen through it".
Wodrow Wilson Guthrie
Krugman is hilarious. He should put his blog on comedycentral.com.
it is not about inflation. That word scares the Bernanck. It was all about bailing out Wall Street and the banksters. The Fed spent all this $$ to have "asset inflation"...hoping the rise in the stock market would spur investment there and in the rest of the economy when everyone "saw" how the market was going up. Another version of all boats rising in a rising water table essentially. problem is we are all bailing now as there are leaks in the rented life boat.
You're saying that my Cheerios costing more is just a by product of the Ponzi?
A tolerable irritant under the saddles (polo ponies, actually) of the Rich and Powerful.
It's the worst of all possible worlds - biflation: inflation in your needs, deflation in your possessions and the value of your labor.
+ ∞
Very true. But heaven forbid Krasting or Krugman, (or any other so called economist) express that little truism.
I'm no economist. Never said I was.
Call me what you like. I can take almost anything. But to be called an economist is like saying I was a charlatan, a con man or maybe even a thief.
Not sure I deserve to be lumped in that crowd.
+1 General Theory
Kudlow is attracted to it like swallows to Capastrano: it's called the TED spread and that's what The Bernank wants and when Kudlow and Company see that upward sloping yield curve they say "horray." The facts have been clear since day one: the government is not bailing out not just Wall Street with this upward sloping yield curve but in fact "the country folks" down on the farm. It is really quite extraordinary if as i see it also is in fact true--and i will say "I know" if a very impressive "oil action in concert" turns into a disaster and causes prices to soar instead of fall. i stand by my words "the US transporation system is hanging by a thread." A blow up in the oil space right here, right now will absolutely obliterate a huge chunk of the North American economy.
I think the more appropriate metaphor you were looking for is "like flies to shit".
Kudlow is a Relic! Someone needs to carbon date him! Julia Gillard comes to mind.
Is he the shit or the flies?
Both. And I love San Juan!
Both
(He's also the "green shoots" that grow out of the shit when one plants "mustard seeds" in it.)
Babylon is burning... Water's gone, It's getting hot.
Babylon is Burning... Ben Bernanke, is all we got!
SING TO A REGGEAE BEAT
Here: "he will fold on his pledge of containing inflation"
In reality, it's been happening a while already.
I can't express how badly I feel when a Nobel Laureate Professor of Economics says "We need Inflation".
Illustrating that LBO'd Nobel = ignorance/statism