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Ken Rogoff Warns Of The Exaggerated Death Of Inflation
Authored by Kenneth Rogoff, originally posted at The Guardian,
Is the era of high inflation gone forever? In a world of slow growth, high debt, and tremendous distributional pressures, whether inflation is dead or merely dormant is an important question. Yes, massive institutional improvements concerning central banks have created formidable barriers to high inflation. But a significant part of a central bank's credibility ultimately derives from the broader macroeconomic environment in which it operates.
In the first half of the 1990s, annual inflation averaged 40% in Africa, 230% in Latin America, and 360% in the transition economies of eastern Europe. And, in the early 1980s, advanced-economy inflation averaged nearly 10%. Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity.
They are wrong to do so. No matter how much central banks may wish to present the level of inflation as a mere technocratic decision, it is ultimately a social choice. And some of the very pressures that helped to contain inflation for the past two decades have been retreating.
In the years preceding the financial crisis, increasing globalisation and technological advances made it much easier for central banks to deliver both solid growth and low inflation. This was not the case in the 1970s, when stagnating productivity and rising commodity prices turned central bankers into scapegoats, not heroes.
True, back then, monetary authorities were working with old-fashioned Keynesian macroeconomic models, which encouraged the delusion that monetary policy could indefinitely boost the economy with low inflation and low interest rates. Central bankers today are no longer so naive, and the public is better informed. But a country's long-term inflation rate is still the outcome of political choices not technocratic decisions. As the choices become more difficult, the risk to price stability grows.
A quick tour of emerging markets reveals that inflation is far from dead. According to the International Monetary Fund's April 2014 World Economic Outlook, inflation in 2013 reached 6.2% in Brazil, 6.4% in Indonesia, 6.6% in Vietnam, 6.8% in Russia, 7.5% in Turkey, 8.5% in Nigeria, 9.5% in India, 10.6% in Argentina, and a whopping 40.7% in Venezuela. These levels may be a big improvement from the early 1990s, but they certainly are not evidence of inflation's demise.
Yes, advanced economies are in a very different position today, but they are hardly immune. Many of the same pundits who never imagined that advanced economies could have massive financial crises are now sure that advanced economies can never have inflation crises.
More fundamentally, where, exactly, does one draw the line between advanced economies and emerging markets? The eurozone, for example, is a blur. Imagine that there was no euro and that the southern countries had retained their own currencies – Italy with the lira, Spain with the peseta, Greece with the drachma, and so on. Would these countries today have an inflation profile more like the US and Germany or more like Brazil and Turkey?
Most likely, they would be somewhere in between. The European periphery would have benefited from the same institutional advances in central banking as everyone else; but there is no particular reason to suppose that its political structures would have evolved in a radically different way. The public in the southern countries embraced the euro precisely because the northern countries' commitment to price stability gave them a currency with enormous anti-inflation credibility.
As it turned out, the euro was not quite the free lunch that it seemed to be. The gain in inflation credibility was offset by weak debt credibility. If the European periphery countries had their own currencies, it is likely that debt problems would morph right back into elevated inflation.
I am not arguing that inflation will return anytime soon in safe-haven economies such as the US or Japan. Though US labour markets are tightening, and the new Fed chair has emphatically emphasised the importance of maximum employment, there is still little risk of high inflation in the near future.
Still, over the longer run, there is no guarantee that any central bank will be able to hold the line in the face of adverse shocks such as continuing slow productivity growth, high debt levels, and pressure to reduce inequality through government transfers. The risk would be particularly high in the event of other major shocks – say, a general rise in global real interest rates.
Recognising that inflation is only dormant renders foolish the oft-stated claim that any country with a flexible exchange rate has nothing to fear from high debt, as long as debt is issued in its own currency. Imagine again that Italy had its own currency instead of the euro. Certainly, the country would have much less to fear from an overnight run on debt. Nevertheless, given the huge governance problems that Italy still faces, there is every chance that its inflation rate would look more like Brazil's or Turkey's, with any debt problems spilling over faster price growth.
Modern central banking has worked wonders to bring down inflation. Ultimately, however, a central bank's anti-inflation policies can work only within the context of a macroeconomic and political framework that is consistent with price stability. Inflation may be dormant, but it is certainly not dead.
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Inflation is dormant?
Unless you have to eat.
Introducing the $7.76 Big Mac
http://money.cnn.com/2014/07/24/investing/big-mac-price/index.html
you'd have to pay me 1 trillion before i eat a big mac.
This whole article should have a sarc tag. Where is the mention of the interest rate derivitives that create demand for US paper so they can keep pumping money to banks so they can lend it back to the treasury at interest to keep velocity from soaring, which would create inflation and then generate paper profits so they get bonuses?
The lies about inflation are everywhere. In the grocery stores especially.
Took my son to college and drove through DC and through NYC to Boston. The tolls through DL and MD were like $25 for one way. These people pay that every day? WTF!!
Printing money and debasing your currency is by definition INFLATION. They just have very creative ways to hide it but it will come out. And when it does it will be very ugly.
Soon brought to you by the Federal Reserve and the western Central banks. Several trillion dollars to buy a Big Mac.
Check out the Big Mac index as applied to inflation. Which is more accurate? The Big Mac index or the CPI.
http://auminabox.com/why-the-big-macs-rising-prices-are-more-alarming-th...
Only if you believe the "official" CPI, which now excludes most items one would consider basic needs.
In the USA, wages are stagnant for decades. Yes, inflation in assets and items subject to resource scarcity. Inflation elsewhere? Not going to happen. And when the credit bubble bursts, it's deflation squared.
That debt load gets heavier and heavier. More and more revenue goes to service debt. Deflation it will be. First.
Rogoff and the others are full of shit. They cry deflation when it suits their needs. Then they scream inflation in a lame ass attempt to stimulate spending.
Deflation will be quite selective; as it is already.
Exceptionally so for the top 10%.
As their income is outpacing inflation massively.
Not the remainder of the income bracket however.
Inflation is occurring on the things you NEED
You NEED to eat. You NEED to stay warm during winter. You NEED to pay taxes (which sure aren't going down)
DEFLATION is occurring on the things you DON'T need
You don't need new appliances, you don't need a new fully loaded car, you don't need every new electronic gadget under the sun.
You NEED to have a place to live but DON'T need to own it. Rents are going up far faster than house prices (which are still declining in some areas - usually places without jobs where you DON'T want to live).
Up until recently the US had managed to export the inflation related to the $US - all those excess dollars were driving up food prices worldwide as banks and wall street money went into commodities. Just wait until the rest of the world starts dropping the $US and exchjanging their holdings for TANGIBLE assets.
All the trillions of dollars rushing to buy something, anything , of value will send the velocity of the $US into hyperdrive - pushing up prices as dollars compete in buying assets while the dollar is still worth something. At some point NOBODY will want to be holdiong $US paper. When THAT happens you're going to see inflation on a scale that makes Weimar look like child's play. In the past whenever you've had a currency printed to death there have been alernative 'stores of value' - other currencies that could serve as safe havens. There is nothing large enough to accommodate demand that will arise when the world decides to dump the $US. Expect the rest of the world to buy up anything and everything they can in the US - at ANY price - simply to have SOMETHING of value instead of paper holdings.
Anyone who has to pay for energy, either fuel or food, with their local currency, knows inflation is alive and well.
Rothschild still gets their cut.
RoR,
Sure prices are rising but money velocity is on the deck and ain't getting up. Right now, the credit bubble expands and the price of consumer goods rises. That may not happen once the bubble bursts. Now if you're saying the bubble will NEVER burst, keep in mind that never is a very long time.
good article. Buy gold bitchez.
I respectfully disagree for now. Cash is king right now. Gold may get a bounce short term but will go lower before it is time to buy and hold the shiny metals. Gold at $1050. Siver $15-$16. Then I will agree with your post.
I do hope you are right and I am wrong. Have to much money tied up in the gold miners. GDX, GDXJ.
If you want some Zimbabwe cash.....I can hook you up right now.
If you wait to buy gold when you have too....it will be too late.
There's a BIG difference between the price of paper gold hitting $1050 (and paper silver hitting $15) and being able to buy physical at those prices.
No shock if the price of paper gold tanks to $1000 - you won't be able to buy ANY physical at those prices. Same for silver.
Given the past behavior of these highly manipulated markets, it's very possible to see major drops in price. It's happened before with massive uncovered short sales. BUT there is never any physical available for purchase at those prices. Premiums shoot up for any actual physical buys - if anyone is willing to sell at all.
I thoughroughlly expect the price of paper gold and silver to tank - frankly I expect them to go to 0 because PAPER gold and silver will be worth NOTHING. There won't be ANY physical backing most paper versions of gold and silver when the game finally falls apart so their price will go to nothing. REAL physical will be unobtainable at that point - until the financial mess works itself out and stabilizes. That process will not be short and sweet but long and VERY messy - with paper fortunes turning to merde.
AU and AG are something you want for the long term. They're something you want to hold onto until the manipulators can no longer manipulate.
Insurance, not investment?
Both? All I know is that this shitshow cannot last forever. What I want to see when it ends is a money supply that cannot be manipulated by a select few.
Holding 2014 silver eagles just in case. Don't need to buy more unless the price is right. I'm going broke just feeding my M1A scout squad.
PB: The other PM
PB=practice bullets? I'm stocking up on 308 Winchester (7.62x51) Federal American Eagle 168gr. Open Tip Match Ammo. Going to the range today, watch my hard earned dollars go bang and fly.
I can't seem to stock pile any .45 ACP ammo though, I shoot them faster than I can buy them.:)
I've got a Dillon 550B and a Rockchucker. I'm partial to the 155 Palmas for 30 cal. Probably not the most effective against body armor, but I can speak from what I've witnessed first hand that they are devistating to flesh and they'll be a bit flatter than the 168s. My M1 loves them.
By "Pb" I think he means this stuff.
The value of fiat continues to decrease when measured against life's essentials such as education, housing, food, entertainment, alcohol, health care, energy, childcare, the only thing that has not increased are wages and employment. The American standard of living has decreased in direct proportion to inflation. Once upon a time the "American Dream" was achievable by the majority of Americans with a single head of house hold income. Those were the days before cellphones intruded on free time. Nowadays everyone works....for less..with no end in sight. The dream is dead, retirement is dead, there is only today and no promise of a better tomorrow.
The future will be the local production of necessities. That is where we should be headed, but heading in that direction takes profits and power away from the globalists. Kill K Street.
entertainment & alcohol are not life essential !
they are mind control essential.
put the pot instead, replaces both easily.
especially if you consider trhe quality of the entertainment we are being fed with by hollywood & the likes or the quality of the wine being mass produced
"Still, over the longer run, there is no guarantee that any central bank will be able to hold the line in the face of adverse shocks such as continuing slow productivity growth, high debt levels, and pressure to reduce inequality through government transfers."
The assumption is that governments are under pressure to reduce inequality through transfers.
Notice that the more programs that 'developed' governments instituted in the last 30+ years the higher the level of inequality has become?
I would argue that the results betray the true objectives of govenment itself as constituted. Government is indeed designed to transfer wealth. However: the data accrued seems to indicate that transmission of wealth from the general citizenry/economy into the hands of oligarchs and .gov bureaucrats is the actual intention.
Government transfer mechanisms aren't market driven and never have been.
The FED and the IRS could give a shit less about real world economics!
Print/loan more -all at interest. Tax/expropriate more -arbitrarily. WHY would these institutions or the people running them care about economics at all? The 'economy' doesn't matter to protected classes of counterfeiters and wealth extractors.
Government economists state 2+2 = 5.
Government say there is no inflation.
So it must be true! gubbermint says so.
They have even reconfigured the definition of inflation.
Merrium Webster: "a continual increase in the price of goods and services"
Babylon 10 " increase in the supply of money in relation to the amount of goods available resulting in a rise in prices; "
Babylon 10 being the closest in my opinion.
Sorry, but I don't trust much of what comes out of the Guardian. They have become a government mouth piece. Which, for me, brings Snowden issue into question.
Since Greenwald departed The Guardian to join The Intercept/Firstlook (and thereby took Snowden with him, in a manner of speaking), it seems a bit strained to connect the Snowden revelations to The Guardian, itself, except for having served as Greenwald's initial delivery vehicle of convenience.
"Modern central banking has worked wonders to bring down inflation."
What a bizarre and counter-factual statement.
During the period of the Gold Standard (not to be confused with the phony "Gold Exchange Standard") the inflation rate was basically zero for a century and was the basis for most world trade. Under the reign of modern central banks issuing fiat paper money, inflation has steadily eroded purchasing power. For a similar 100 year period, the US dollar has declined in value by 95%.
Inflation is caused by governments over-spending current revenues and pretending to pay for current expenditures by issuing ever-rising debt -- at interest -- which can only be paid off by ever-rising taxes on future revenues. Eventually that "promise" becomes politically impossible, but fiat nevertheless continues to be steadily issued in excess of economic growth.
This isn't a perpetual motion machine, except in the short term and mostly only for the rich. In the longer term, it invariably destroys accumulated wealth -- both public and private -- which is the foundation of a shared civilization.
Inflation is not caused by government overspending. If you correct for real inflation you see that gov spending has decreased since 1971, the year the gold standard defaulted and also peak oil in the US. All coincidence? And as a % of GDP, gov spending has hardly gone up at all in the last 50 years.
Debt is rising because we have a debt based monetary system, end if story. All money is made from debt and that system must grow exponentially.
The genius' that run the economies of the world still can't make things work correctly, even with all their computers and theories. They always seem to forget that economists originally described how the work actually worked; not how it's supposed to work, or even how they want it to work. I doubt the world's economy will ever be "fine-tuned".
Communists have their theories that we now understand are useless (but there are still those who think they can make them work despite all of the evidence to the contrary). Socialists also have their theories and there are those who are prepared to bankrupt the entire world in an attempt to prove those theories correct.
The present system we have in the Western World just serves to make the Elite rich and powerful, mostly powerful (which is what they really want). They see the rest of us as slaves and Useful Idiots.
We must stop thinking of an economy as a machine, but instead as a living entity that merely has to be fed and directed like a domesticated animal. Politicians must be severely punished for flogging or starving that animal. It should be mostly left alone to work at it's own speed, some years slow; some years fast, but just leave it alone!
The model has to match reality, not the other way around.
In the Inflation vs. Deflation debate, deflation has the upper hand as this article purports...
http://www.globaldeflationnews.com/inflation-vs-deflation-part-1which-on...
Deflation is the other phase of the cycle.
Bernanke wrote: Deflation, making sure it doesn't happen here. The other phase of a cycle always happens. Bernanke can't prevent it.
Hyperinflation. It creates the same shortages, but the banksters come out on top instead of the bottom.
Unit prices are clearly rising. That seems incontrovertible.
You can buy a 60" LCD for $499 in 2014 which cost $1500 in 2008, however the cost of ground beef, chicken, pork, tomatoes, eggs, milk has just about doubled.
Which one do you think the government puts more weight in when accounting for inflation?
One you might buy once in ten years, the others you need every day.
Real inflation has been running between 15-20% a year since Obama took office.
Only going to get worse, because in addition to inflation, the regs and Obamacare will mean less SME competitors to the entrenched interests, so they'll have moats to stave off competition, and reduce supply for everyone. In other words, neo-feudalism and artifiicial shortages.
It is my opinion that the purpose of the Untied States government as presently constituted is specifically to create artificial scarcity and associated violences.
The objective is to profit from:
1. artificial scarcity. ( Inflation is a form of this. )
2. perpetual income streams disguised as debt.
3. use of the eventual natural violent response of the populace to the repression of artificial scarcity and perpetual revenue stream expropriations as a pretext for increasing extraction from the real economy by the oligarchy and associated bureaucracy under the guise of security and stability necessities.
1. Create the artificial scarcities and secure monopolies for goods and services.
2. Gouge the consumers and repress entrepreneurship. ( This generates a violent response. )
3. Rob the citizenry via taxation purportedly to solve #1 & #2.
4A. Pocket the inflation/price gouging opportunities created by .gov fiefdoms and artificially generated scarcities.
4B. Pocket the .GOV check, bennies & retirements. None of these can ever be defaulted and are excluded from the supposed market fundamentals that have driven down the labor participation rate and excluded labor from any part of the productivity gains of the last 30+years..
My homeowner's policy doubled in 2 years w/o even filing a claim. One insurance co. told me it was due to Hurricane Sandy. I've had homeowner's for 30 years and this is the first time that's happened. This includes filing a claim after Hugo.
village-idiot: The genius' that run the economies of the world still can't make things work correctly....
Nope, it's working wonderfully for the Crooks. They're running away wih your wealth.
i think he tried to dumb this down and ended up sounding dumb.
fiat money by definition is inflationary. banks can cause inflation by releasing more money than is needed or wanted or, in the sort of special case of the stagflation caused by the oil embargo, money was needed to fill the gap of the new normal doubling(?) of oil prices. the fed action today is another macro example. inflation goes where the money goes. the money is being funneled directly to asset buyers so equities and real estate go up and where there is no money the standard of living goes down because of higher rents, higher commodity costs therefore higher energy bills and food bills(not to mention the effect of the "turn our food into fuel" corn ethanol subsidies).
so far inflation has not trickled down from the wealthy enough to cause serious inflation but that is, ultimately, the goal of all honest fiat central bankers. politics are just a tool in the shed.
'i think he tried to dumb this down and ended up sounding dumb.'
- it's written for Guardian readers
I have come to the conclusion that while inflation appears tame and government claims it is low it is growing. The seeds have been planted, and the number of them is somewhat shocking. Inflation lurks beneath the surface and is hidden away in the dark corners of our future.
Want to know where the real cost of things is going, just look at the replacement cost from recent storms and natural disasters. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/06/inflation-lurks-beneath-and-hidde...
Big Mac? Gold? Big Mac? Gold? Big Mac? Gold?....
Decisions, decisions.
Ah, you overlook something. You wrote,
"Today, high inflation seems so remote that many analysts treat it as little more than a theoretical curiosity."
Beginning in 1970, the feds began a practice of re-defining the Consumer Price Index to omit categories that showed unacceptable rises in prices. As a result, the reported CPI today is near 1%; but, according to the 1970 formula, it's closer to 10%. See 'Bad News...'
Another item here is the spectacle of near panic by regulators, central bankers and media regarding the prospect of DEFLATION... as if the world will end if it occurs.
And no one asks the right queston: 'Why the panic?'
The answer is that inflation penalizes productive and thrifty classes and rewards bandit and useless classes of mankind.
Deflation does the opposite.
For example, with inflation, a producer is paid with a currency less valueable compared to its value when he agreed to provide his product: he loses x amount on the trade while the buyer gains x amount. However, if the buyer is a saver, he simultaneously loses 1,000 x on his savings/investments.
Thus, both producer and thrifty lose (are punished) with inflation.
With these considerations, it should be easy to see why bandit and useless classes become over agitated when the prospect of deflation looms over them.
The financial world would end in a deflationary scenario. Then the US trade deficit would end and the US would /will turn into a third world basket case.
Limits to Growth report.
Capital will flow from industry into agriculture in order to feed ourselves on polluted, degraded soils.
What are we finding? No cost rises in industrial prices and cost rises in foods.
More to follow.
Since they change what and how they look at every number, its all bullshit. GOOD OR BAD, its all bullshit.