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Academic Insanity Costs You 2% Of You Purchasing Power Per Year
Janet Yellen, who will likely be the next Fed Chairman, is insane.
There is simply no other way to describe someone who claims inflation is below 2% today and that the Fed’s monetary tools can improve employment.
Here are her comments on these subjects.
We have made good progress, but we have farther to go to regain the ground lost in the crisis and the recession. Unemployment is down from a peak of 10 percent, but at 7.3 percent in October, it is still too high, reflecting a labor market and economy performing far short of their potential. At the same time, inflation has been running below the Federal Reserve's goal of 2 percent and is expected to continue to do so for some time.
For these reasons, the Federal Reserve is using its monetary policy tools to promote a more robust recovery. A strong recovery will ultimately enable the Fed to reduce its monetary accommodation and reliance on unconventional policy tools such as asset purchases. I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.
http://www.federalreserve.gov/newsevents/testimony/yellen20131114a.htm
First off, inflation is not below 2%. We’ve been over the fraudulent CPI data enough times for this claim alone to discredit Yellen as an economist. Even the former head of the BLS has stated that CPI is a joke and needs to be revised.
Secondarily, I fail to understand how inflation of 2% is acceptable. Why is this base assumption never challenged? At this rate, in 10 years you’ve lost roughly 20% of your purchasing power. And during the average worker’s lifetime, they will see a 40-60% decrease in purchasing power.
This is good?
Now let’s assess her claim that the Fed needs to continue its monetary policy tools to promote a robust recovery.
The official unemployment rate is highly charged politically as it is used by the media to gauge how well a particular administration is doing at generating job growth.
As such the unemployment numbers are routinely massaged to the point of no longer reflecting the true number of unemployed Americans. For this reason, I prefer to use the labor participation rate when gauging the health of the US jobs markets: this metric represents the number of Americans who are currently employed as a percentage of the total number of Americans of working age.
As you can see, the number of employed Americans of working age peaked in the late ‘90s. It has since fallen to levels not seen since the early ‘80s. Moreover, looking at this chart it is clear that job creation has failed to keep up with population growth.
This negates any claims of “recovery” in the jobs market.
In particular, I want to draw your attention to the last five years of this chart below. The US Federal Reserve began its first QE program, called QE 1, in November 2008. Since that time it has launched three other such programs, spending over $2 trillion in the process.
During this period, the labor participation rate has not once experience a sustained uptrend. Put another way, job creation has never outpaced population growth to the point of creating a significant turnaround in the jobs market. This has happened despite the recession officially “ending” in mid-2009.
The evidence here is clear. QE does not generate jobs in the broad economy. It failed for the UK, it failed for Japan. It’s failing here.
End of story.
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Phoenix Capital Research
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Jeezus H. F***ing...
All of you Keynes-bashers clearly haven't spent 10 minutes reading a single thing the man wrote. He laid out the case for small, regular inflation quite clearly in his "Treatise on Money". where he wrote (approx.)
Compound 3 and 4, and you get a situation where fewer and fewer people are at work as demand decreases. Fewer goods are in shops, and even though consumers have a lot of money, they don't spend it.
Now, compound 1 and 2 - the manufacturers are happy because people keep buying their stuff, so they make more of it. They might even hire a few extra people. Consumers are happy because they see that new jobs are being created, so they are confident buying things, and prefer to buy today whenever possible because 1) they get to enjoy the shiny new thing right now, and 2) the shiny new thing probably costs more tomorrow.
Now - and this is a very important part, children, so listen carefully - KEYNES WROTE IN THE 1910-30 PERIOD. Think - if you can - of the important differences between then and now. No TV, no interwebs, radio in its infancy, no cellphones, no Twitter - that is, communication was very slow and limited compared to today. Manufacturing was a huge percentage of the economy, dwarfing agriculture and services. Now, services dwarfs everything else. Those are enormous differences in the economic environment.
Note that the part inventory prices plays in the scenarios above. In Keynes's day, the lag time between purchasing inventory and having finished goods for sales might be months, whereas today, with Just-in-time and flexibly manufacturing, it might be a matter of days. For retailers, it might be months before their orders are delivered and the goods finally sold, even though they might have been paid for upfront. Today, those periods are again shortened to days, or even hours, in the case of on-line sales. Of course every part of the chain worried about carrying costs, and whether they would get a price that covered their costs (and that's just on the monetary issue - never mind fickle consumer tastes, natural disaster, government policy, etc., all of which can also affect demand).
But, one important difference between 'services' and 'goods' is THERE IS NO INVENTORY OF SERVICES. The dentist who had no patients on Monday can't stack up "filling" and "cleaning" hours to use when 50 patients descend on him on Tuesday. There is no carrying cost for services. The lawyer doesn't pay up front for divorce filing fees, and then hope someone calls looking for a divorce before the divorce he filed for "is out of season". And in many, but not all, services, supply is virtually infinite. Need a new cellphone account (note: not the actual phone!)? Providers can create a new one instantly. Need a new license from the DMV? presto, here it is. (I realize that medical services, rock concerts, and blow jobs from pretty and disease free hookers are all exceptions to this principle.)
What Keynes wrote in 1930 was applicable to the very different economic environment of his time. That our world has changed in many ways that no one might have imagined - cars assembled in America from parts made in China, Vietnam, Canada, and Mexico, near-seamless integration between manufacturing and sales, the overwhelming increase in world trade - has put paid to many of the premises Keynes wrote under. He had the luxury of looking at the British economy as only marginally attached to the rest of the world. Now we are all lumped in together, and what Ben and Mario do, Abe and his Chinese equivalent can only hope to mock.
Our world has changed, and some of what Keynes wrote no longer applies. However, his point that wages are always sticky downward remains as true today as it was then, and thus some inflation is necessary to allow relative repricing (which people seem to unconsciously accept so long as it's at low levels - like boiling frogs) which occurs gradually, and gives people time to adjust their own habits, as opposed to drastic step function revaluations. For example - company fires all workers making "x" dollars an hour and then hire them back at X/2 (e.g. US car makers).
Please note that none of the above assumes that I accept the 'official' inflation numbers; I think they understate the true loss of purchasing power. Also, as I've written here many times, Keynes advocated government deficits in bad times, and surpluses in good ones. Unfortunately, with universal suffrage, pandering to the poorer off means we are perpetually in 'bad times', and hence deficits never end. That today's politicians misinterpret and misapply what Keynes wrote is not a condemnation of him, but of them.
This institutionalized, targeted, inflation was about the funding of the political processes becoming the profit from fraud reinvested in more fraud. After more than a Century of the banksters being able to successfully do that in the USA, as well as dominate pretty well the whole world with their triumphant financial frauds, there is nothing left which can resist that runaway triumph of fraud.
This constant inflation is due to constantly creating new money out of nothing, through legalized counterfeiting by private banks. That kind of relentless inflation is obviously an insane thing for almost everyone else, except those near the source of that money made out of nothing, as debts. For those at its source, or nearer to that source of such fiat money, the advantages were so overwhelming that they were easily able to use some of the profits they thereby made to buy up control over the mass media, and education systems, and so on and so forth.
This kind of inflation is one of the symptoms of a terminal social sickness and insanity. The creation of "money" out of nothing by private banks is matched by the absurdities that such "money" can also disappear to nothing again. Paradoxically, there is not as much inflation as one would otherwise expect, given the degree to which astronomical amounts of new "money" are being made out of nothing as debts because, at the same time, the destruction of the underlying real economy is resulting in an almost equally massive destruction of "money" back to nothing, which is deflationary, and so, somewhat off-setting the inflation, so far.
However, as the rip saw effect of the fundamentally fraudulent financial accounting systems tears the real economy to shreds, those who are near the source of the new money made out of nothing, as debts, continue to have such overwhelming advantages to fund the political processes that nobody else can come remotely close to being able to compete with them, especially since the banksters long ago gained effective control over the mass media, and school systems, so that the vast majority of people not only do not understand how the monetary system really works, but also have been conditioned to feel that they do not want to know.
Overall, the reckless, ruthless, inflation caused by creating more and more "money" out of nothing, to attempt to overcome the destruction of "money" back to nothing, is driving irreducible, irreconcilable social polarization between those who benefit fantastically from the flow of the new "money" made out of nothing, versus those who are screwed and harmed worse and worse by that new "money" made out of nothing. However, given that the vast majority of so-called citizens have been reduced to political idiots, who have been successfully brainwashed to feel that they do not want to understand these social facts, there is no practical political point to railing against that, such as in the article above, or in my comment here.
After one understands the degree to which the profit from fraud is being successfully reinvested in more frauds, through the funding of the political processes, the inescapable conclusion is that this situation is a terminally insane social sickness, which has no way realistic ways to be repaired. Rather, what one expects is that the rip saw effects of being able to make more "money" out of nothing, despite the realities of demand destruction being caused by those effects which destroy "money" back to nothing, will eventually tear the whole society to tattered shreds.
Assuming no other man-made or natural megadisasters happen first, then the most probable trajectory appears to be that the US Dollar will lose its status as the global reserve currency. That will then result in a relatively sudden jump of inflation by about 50% during about a 5 year period. Then, many more tens of millions of Americans will find it impossible to continue to survive within the economic systems that they used to take for granted and relied upon. That will trigger the worst riots there have ever yet been anywhere in the world before, which will result in the imposition of democidal martial law, that will murder tens of millions more Americans.
To me, that looks like the most probable end game of the current runaway, constant inflation. That despite all the deflationary, demand destructions that will also be happening, the abilities to make more money out of nothing will finally prevail, which will destroy the global status of the American Dollar, in ways which the American Military can no longer prevent from happening, which will come home to American as inflation far, far worse than they have ever seen before, which will necessarily force riots to happen, which will enable the banksters to impose democidal martial law.
Meanwhile, I expect that the vast majority of the American Zombie Sheeple will not understand, primarily because they will continue to not want to understand, that the banksters set them up to be fleeced to exhaustion, and then slaughtered off. Instead, I expect that the same old stupid divided and conquered responses will predominate, so that the rioting and martial law will happen in the context of on-going social stupidities, due to the vast majority of people not understanding, and not wanting to understand, what is really happening and why.
Although I agreed with this article that apparent "Academic Insanity Costs You 2% Of You Purchasing Power Per Year," that is a relatively trivial view of the past history of the exponential growth of the basic systems of debt slavery, backed by wars based on deceits, segueing into debt insanities, matched by death insanities, on a scale which we can not conceive of at the present time. The exponential nature of this inflation will follow the mathematics of exponential growth, until it has overshot so far that it is impossible to double one more time again. Thereafter, the whole system will collapse in chaos and mass murders.
The only theoretically better alternatives would require enough people wanting to understand this set of problems enough so that they were able to agree upon a more scientifically valid set of solutions to these problems (which set of solutions can not be found by going backwards to any old-fashioned religions or ideologies.) However, I believe that to be practically impossible, and therefore, we will go through hyper-inflation finally over-topping the deflationary demand destruction factors, which will cause severe riots, and democidal martial law, after which all bets are off, since there are also a long list of possible bigger man-made and/or natural megadisasters waiting in the wings for their possible appearance on the stage of world events.
In the end, I regard articles like this one as typical of those on Zero Hedge, which is that it is interesting and valid within its frame of reference, BUT the overall real frame of reference is that our problems are actually trillions of times worse than these kinds of articles talk about. The relentless runaway exponential growth of inflation finally will overshoot, and collapse into chaos far worse that we could comprehend, at the present time, and therefore, it becomes quite impossible to predict what the world may look like after that has finally happened ...
There can only be so much quantitative changes, of the same things, just more and more, until there is finally provoked a radical change of state, in the form of qualitative changes. Like the Sun shining on the tropical oceans incrementally increases the temperatures, bit by bit, in a wide-spread way, BUT, eventually all that energy finally organizes into a massive hurricane or typhoon, the same thing can be expected to happen due to inflation. There will be more and more, on an exponential growth curve, or quantitatively more, despite the off-setting deflationary trends that match that blow for blow, until hyper-inflation of the power to make money out of nothing finally prevails, in ways which result in that hyper-inflation causing much more severe social storms to break than we could currently conceive of happening ...
All good except a 2% increase per annum for 10 years does not equate to a 20% increase from year 1 to 10. Exponential growth can be mischievous.
21.9 %.
The writer did say "roughly". :-)
Well, you're assuming she actually believes the words coming out of her mouth.
The Fed has a mandate of stable prices, not 2% inflation I thought?
"No inflation" equals not enough money in circulation to pay off existing debt. This is why the system requires growth. This system cannont survive stability, let alone contraction. It requires growth at ever-increasing rates.
Insanity.
Yeah, but that was then; this now. "When it gets serious, you have to lie".
They want inflation so they can tax you on the 60% capital gain at the end of it
Inflation will cause government payouts based on inflation adjustments to shoot up. Those paying attention would see that they're doing everything they can to keep this from happening.
The "money printing" is about filling the holes in banks' balance sheets: crashing banks tends to upset their racket...
They want inflation becasue the banking model does not work if the banks loan money on collateral that does not increase in value.
LOL, you will have inflation when there are individuals/entities trying to make more money. So, a small rate is not surprising. Competition can decrease this rate.
I saw this on a website, and it consists of real screen captures from the ACA website.
Its a good way to understand a few of the realities of ACA in about 5 to 10 minutes. This is way better than just spouting talking points of "your team"
The website commentary starts as such
1) Massive invasion of privacy even before you can get a somewhat customized budget estimate.
2) You sign away all your rights and privacy for yourself and your family, and actually authorize the Department of Homeland Security to investigate yourself and your family. And this is BEFORE you can get an actual quote.
Check it out
http://nukeprofessional.blogspot.com/2013/11/aca-obamacare-fiasco-real-d...
It's all Bush's fault.
Yeah, this is all unique to this administration...
Been asleep long?
If you can't walk on it or hold it in your hands it can be manipulated away in a flash crash.
That's the whole motive of Fiat, Theft.
Correct ! That's the right answer ! And you get 62,000, eh. eh. thingmajiggys. Whee.
Can anyone explain why currency appreciation is a bad thing? Are we supposed to believe increasing the cost of our exports is the reason? We don't export shit compared to what we import. A stronger dollar would buy more goods and put some extra wealth into the hands of regular people. And god knows we can't have that.
Please see the original post above; "this will result in 40-60% loss over the life time of the worker." Okay?. It's all a question of who's Ox is getting gored; in this case, it's your Ox, and they do the "Goring"; so it's all good. Clear? Good.
BECAUSE 2% IS LOW ENOUGH SO THAT MOST PEOPLE DON T NOTICE (OR FEEL PAIN FROM...) THE STEALTH THEFT FROM YEAR TO YEAR... THAT SIMPLE
Anybody got a chart on average wage expansion during the 1913 to 2013 time period? Just sayin'.
As you can see, the number of employed Americans of working age peaked in the late ‘90s.
just a sec...we are looking at percentages....how can we assess 'number'? To do that we'd have to know the population size for each period. This is why folks love statistics....they are so maleable, you can get away with saying what ever you like as long as the slides are only on the screen for 3 seconds.
Anyway, on the upside, many of those folks are now working for 'Tax Free' cash. Viva La Revolucion!
"I fail to understand how inflation of 2% is acceptable. Why is this base assumption never challenged? At this rate, in 10 years you’ve lost roughly 20% of your purchasing power. And during the average worker’s lifetime, they will see a 40-60% decrease in purchasing power."
You FAIL to understand even MORE...
This same SIMPLE FUCKING MATH can be applied to the impossibility of maintaining PERPETUAL "ECONOMIC" GROWTH. It's the SAME math- how about speaking to that, huh? 2% "growth" would mean that we'd DOUBLE output in only 35 years; look around you and tell me how That is likely to happen, and not only is it NOT likely (and folks like you -Phoenix Capital 'Research'- will blame everything else and completely overlook the FACT), but even IF it could happen how would that growth continue after then? Do you not understand that the exponential function wasn't invented for applying to only "inflation?"
I hope your kids pay for your ignorance.
D'oh.
more about "TOOLS"
considering Bernank's track record, missed seeing things, etc. ... she is just what they want, another TOOL
Perhaps Bitcoin is the Canary in the Coal Mine?
I believe it points out that fiat money does not equivocate to a replacement for services / hours worked as a unit of labor. The essence of money is to value and transfer something of value (work) for someone else’s something of value (work). Barter existed before money so that goods and services could be exchanged. Money became the equalizing medium replacing barter. Now we have a situation where a Central Bank / The FED can produce something of value out of thin air (fiat currency). Taking a step back 30 years, one was able to purchase goods / services utilizing credit (essentially printing money) to buy a good or service and pay for it later (with some vig (interest) to the middle-man (Bank / Credit Card Company). This worked fine as long as the individual was able to produce enough work to obtain money to pay back the loan / vig over time. The economy soars on consumption, buying goods today with tomorrow’s earnings. Now flash forward 25 years, the loans became so large that the money providers / vig earners (Banks / Financial Institutions) were not getting their money back because the level of income of the borrowers did not increase enough to meet their outlays. Sure the Banks loved the game for 20+ years, but then got caught with their pants down because a substantial portion of the purchases were collateralized by loans where people had to liquidate or lose their assets. The cycle came to an end because too much was borrowed from the future and could not be repaid. Of course during this 20+ year run, the FIRE economy (Finance, Insurance, and Real Estate) made tons of money. In fact things were so good that they began to collateralize the loans and make loans to questionable creditors. When things fell apart, instead of expecting the greedy business models to suffer, the financial industry realizing they were all essential bankrupt, screamed in unison for help, because they “were too big to fail.” The Central Banks stepped up to the plate and started all sorts of shenanigans in order to prop up basically a failed business model by printing money out of thin air in order to fill the Black Hole created by the mismatch of collateral to loan value. The solution created financial repression of the common man whom relied on his hard work to obtain something of value to exchange for something else of value. Not only could he not earn anything on his savings, but the exchange medium he received for his work was destroyed by the FED in their money printing gambit. Bitcoin represents an electronic barter system equivocating a market derived value for goods and services.
"The cycle came to an end because too much was borrowed from the future and could not be repaid."
We do a really good job of getting to this point in our "understanding," but then we fumble...
At this point there should be an honest attempt at asking WHY the future isn't capable of dlivering what needs to be "repaid." We need to realize that the "future" is NOT a bank. OK, I think that most here know this. You make this very noteworthy comment/reference:
"The essence of money is to value and transfer something of value (work)"
"WORK" It really is about the ability to do work. And work can only happen with physical inputs. Those inputs would be food for "workers" (food really being energy) or energy for machines, PLUS other raw natural materials.
What "broke down" was our ability to keep growth, increased natural material extraction rates, going. Rather than seeing it for what it is -a natural limitation- we run around putting the blame on ourselves, for incompetence etc.. (yes, we ought to be blamed, but blamed for failing to understand simple math)
Growth went to Asia. No workers = no debt service. This started over 10 years ago, here. China is taking their earnings(our old earnings) and buying resources everywhere! They're now buying up US food producers. The resources aren't gone, they're going to China.
"The resources aren't gone, they're going to China."
Resources aren't static. They are consumed.
Yes, consumption has shifted to Asia, but that is STILL consumption of finite resources.
"They're now buying up US food producers."
Sadly, no one said that we had to sell. But for a buck... That Smithfield deal is something that people just aren't understanding the importance of. I have several small folks raising hogs in my area, so, for now, the locals around here are safe.
I don't know about you guys but I'd be really happy with 2% inflation. It's a lot better than what we have now.
Yeah, try more like 7.2% here in the real world.
Shadowstats charts clocks in CPI inflation at around 8%, it reached over 10% in 2012.
Although 2% is the stated goal, I believe that over the long term, the dollar looses 1% in value each year like clock work. Seems criminal to me. Roll out the gallows.
The Keynes economic setup works on government borrowing, handing out welfare to people, then deflating the debt away. THINK THAT BIT IS OBVIOUS. Then all the new toys, gizmos add them all into this too like drones for starters.
2% was a scale from when the "true" number unemployed was far lower and the length of the period of retirment not so long. Then they thought you wouldn't notice. (Say the 50's)
Redo the math today and that rate needs to be far higher with way more welfare and bigger toys like NSA supercomputer all costs - way higher than 2% and why the debt is escalating rather fast.
BUT WAIT A SECOND you said this "At this rate, in 10 years you’ve lost roughly 20% of your purchasing power". This purchasing power 20 years ago was halving every decade and that really speeded up just prior to 2008 so that every 6-7 years your purchasing power was halved.
Inflation is way higher just under-reported ... You lose 50% of your purchasing power every decade ...
THE SITUATION IS PROBABLY FAR WORSE THAN THAT BUT NO POLITICIAN WOULD DARE TO ADMIT IT and all we get is the optimistic verion that is nothing like reality.
Of course the reported inflation rate is more fiction than truth...since they cherry pick what gets used in the figures..would be nice if we only needed to eat and fill our gas tanks 1-2x/ yr..
Rule of 72...
Compound interest and the rule of 72 . . . can we assume that the writer doesn't know the rule.
72 divided by the annual % interest (assuming it's a fixed number) gives the amount of years until the inital principle has increased by 100%.
72/2 equates to 36 years, and a working lifetime is more than 36 years ( or use to be)
Well your dollar buys now what 2 cents bought in 1913.
Happy Birthday 'Fed' 'Reserve' !
A century of screwing the American people, and still humpin' them strong.
It's all relative. How much did the average working stiff make in 1913? $10/week?
Somehow you're managing to miss the point. The point is that the dollar does not serve the "saving" function of money. Money has two functions; exchange, and savings. Dollars work fine for exchange, you can buy stuff with them; but they don't work for savings, because they "evaporate". Yes, I invented that use of the word, but I like it; so there.
Thanks SAT 800 - you saved me some effort. This also does not consider the matter of taxation since 1913. And, the fact that wars have been fought that likely wouldn't have if people had received bills in the mail each month to cover the costs. The latter have had a great impact financially and directly on people and their families for a hundred years.
Bottomline - we're getting the shaft. Imagine the real wealth we would have had if none of this had taken place these last 100 years.
Yes, it is all relative. There were far fewer regulation, taxes and fees back in 1913. And you could go out and hunt your food without a hunting permit.
Well, I lived thru the 70's. I witnessed what the were doing to us, in real time. It was ugly. After Nixon did the bankers' bidding (closing gold window, then price controls), the gas lines appeared. Not a coincidence. They'd rather keep the goods away from people than allow the price index skyrocket. Prices kept on soaring until Paul Volker put on the brakes, 10 years later. The Reagan Revolution was directly due to the bankers' theft. We've only through suffered 5 years, so far.
America's boiling frogs have been duped over the last century (quite successfully!) to believe that inflation is a natural phenomenon, like gravity or light. The American public now believes that prices just naturally go up year after year, that "moderate" annual inflation is simply how the universe works. I gotta say, it's been a pretty well executed scam!
" ... to believe that inflation is a natural phenomenon, like gravity or light. "
or obesity ?
Not only Americans, but people all around the world.
Myth: Inflation is good and create jobs. Fact: Inflation destroys savings (postponement of consumption), needed for capital formation, which reduces future surplus and hence future wages.
Inflation is, very simply put, an information signal that forces consumer to shorten the time period for postponing consumption. Inflation constitutes use of force.
You forgot to mention one important thing: inflation is a result of theft/robbery.
Inflation reduces the amount the government owes in 'today's' dollars, next year.
dontgoforit: "Inflation reduces the amount the government owes in 'today's' dollars, next year."
That inflation mechanism allows those in government to re-direct economic resources to insiders. They are able to spend what would not be possible if they were forced to send the citizens a bill for it each month.