Get ready for the inflation carnage

how long have you been calling for inflation?

evans-pritchard has been fairly spot on thus far.

oh, and didn't you point out earlier (today!!) that personal incomes (capital gains) are seriously diminished, possibly because of the fed's zero interest rate policy?

you're a mess of contradictions, rs.

Give it 12-18 months. Inflation is a very sneaky enemy.

is that 12-18 months from the last 12-18 months ago you predicted it?

ar, you sound almost like the re bulls mocking the bears with the statement, "next year, next year."

As far as I can tell, "inflation" is this country's only realistic solution to solving its budget/debt problems.

I think A.R. needs to take a valiuum. Lives for confrontation a little too much.. and the complains when trolls follow her around her postings.

no, sunday, i'm talking specifically about rs's claims that inflation is imminent.

but i'm also happy to go on record as saying that i see only deflation for any number of years. the deleveraging process is still in its infancy. unless china pulls a miracle out of its economic ass i don't see inflation occurring generally. some commodities maybe, but not general wage and pricee inflation.

The best part about the "inflation" solution is that the government gets to tell the people what the "inflation %" is... They can redefine the components to come up with whatever % they want.

AR, defining the exact time frame is tricky for sure. I don't disagree that deflation in certain areas is likely, but I'm personally more worried about inflation in the long run in a wealth preservation/ retirement planning perspective.

In any case, I just thought your comment was funny, not because I disagree with you, but because of how it sounded.

There's a new dialect that can be witnessed in mainstream media news and Easy Stree. It's called "Aboutese." Here's how you too, can speak it...

just practice use words like "fucktard and libertarian socialist"

Here’s what you need to know about an Aboutese society. The first principle is to accept that the English language is being replaced with a language that combines curse words with proper nouns.

To the extent that real inflation is about a lot of money chasing a diminishing supply of goods and services, I don't see how that happens. Clearly there is a lot of money but not in places where it can be used to purchase goods and services. And we have such a worldwide capacity glut it's hard to see how a diminishing supply could occur.

That was very well spoken.

"As far as I can tell, "inflation" is this country's only realistic solution to solving its budget/debt problems"

Agreed. That and a dash of creative default.

Realistic? I'm not sure, but certainly the easiest and most likely solution. I do not believe Bernanke will show the courage or the clairvoyance to sop up the excess money at the right time. And certainly depreciating the dollar is an easier politically than raising taxes or cutting spending.

rs. just keep on being deceptive. i never used the phrase libertarian socialist. but feel free to lie and say i did.

Shoudn't that be fidiot?

We'll have inflation because people will at some point value comodities more than worthless paper.

http://www.theonion.com/articles/us-economy-grinds-to-halt-as-nation-realizes-money,2912/

WASHINGTON—The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.

What began as a routine report before the Senate Finance Committee Tuesday ended with Bernanke passionately disavowing the entire concept of currency, and negating in an instant the very foundation of the world's largest economy.

"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."

"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."

fidiot. yes.

depreciating the dollar isn't as easy as you might think.

According to witnesses, Finance Committee members sat in thunderstruck silence for several moments until Sen. Orrin Hatch (R-UT) finally shouted out, "Oh my God, he's right. It's all a mirage. All of it—the money, our whole economy—it's all a lie!"

Saying that something will happen, inflation because it appears that nothing else can happen is less and less reasonable in today's world. Basicaly, you're saying that you are completely discounting the possibility of something occurring that has never occurred before, at least in quite that way.

Haven't the last few years proven the fallacy of that logic?

chasingwamus, default, yes. but on the local level. the feds will starve the states, who will starves the counties, who will starve the cities.

the states can't technically default. but they can starve the cities.

How long did it take for the housing bubble? It took two presidents Clinton and George W working toghether before it all came together.

rs, when I say 'inflation being the only realistic solution', I am saying other solutions are unrealistic because there's no political will to carry them out. So I'm not saying it's the 'most likely solution', I'm saying it's really the only 'realistic' solution.

But riversider, all you want to do is criticize. Endlessly.

the feds will starve the states, who will starves the counties, who will starve the cities.

and it gets paid for how? through taxes or inflation? The conclusion is very obvious. The currency will get debased.

More criticism

ChasingWamus: "...That and a dash of creative default."

You meant only at the local level right?

everyone knows that eventually the federal government will bail out the states. This is what part of the first stimulus package was all about and Why Obama counts the jobs not lost..

Nobody knows. Everything is uncertain these days. All you do is ramble on and present your nonsense as facts.

I think the Fed will do some kind of "default lite" like tax Treasury redemptions and reduce Govt. worker benefits. It probably won't go full-Amero for a while, though.

Sunday, I agree with you.
And inflation will come, labor costs are rising in china and more dollars eventually translates to higher prices. For now, weak credit demand and the Euro crisis is holding this reality off.

really, clinton? try greenspan. and bush, particularly pre-reelection when he desperately needed growth. want some sources? some charts and numbers? there was a bubble 1998 forward, due to greenspan, which slowed because of the early 2000's recession which led to MUCH greater bubble policies, and the really evil bubble didn't take off until after 2002, after they had eviscerated lending standards.. but nice try.

I can't understand you nothing starts with the letter "F"

The credit bubble had its underpinnings under the Clinton administration. It came to it's logical conclusion under George W Bush.

It's really that simple.

Dont you mean foopid?

no, it's really not.

you're always the one who says that there were regs available to avoid problems, they just needed to be used.

under clinton they were used. yes, getting rid of GS was a mistake, but the real problems occurred when under the bush administration when all regulations were ignored, and the agencies were told to be asleep and stay asleep.

it's really that simple.

Under Clinton derivatives were deregulated and pressure was applied to lower lending standards for mortgages.
Brooksley Born occurred under Clinton. I'll give you that Greenspan was at the Fed during this time but the Time Magazine cover had Rubin and Summers standing right next to him.

no, under clinton pressure was not applied to lower lending standards to very many mortgages. that was bush.

http://www.nytimes.com/1999/09/30/business/fannie-mae-eases-credit-to-aid-mortgage-lending.html

WASHINGTON, Sept. 29— In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

I don't believe in blaming the politicians. I believe in blaming the people who voted for them and those who didn't campaign hard enough for their opponents.

What the liberals fail to realize is there's a conflict imposed upon the regulators by the politicians. Easy credit and good lending practices are concepts that do not go hand in hand. When you say lend to minorities and people with an impaired credit history you are telling institutions to not lend prudently.

I understand all about risk based pricing, but to not understand the inherent conflict is just naive.

Sunday, that's why George Carlin never voted. He didn't want anyone to say he was responsible for voting the bum in.

RS, but I would have blamed George for not supporting the bum's opponent.

It was a joke, but your point is valid.

"I'm on a low budget,
WHAT DID YOU SAY?
low budget,
I THOUGHT YOU SAID THAT!..." ("Low Budget" Ray Davies , The Kinks )

The kinks rock!

The thought of you rocking is hilarious. Unless, we're tailing about a chair.

Riversider: You know good music!

Well i'm not dumb but I can't understand why she walk like a woman and talk like a man.

Now what woman talk like man on Easy Street?

I met her in a bar,
down in old SoHo
Where they drink champagne
and it tastes just like cherry cola,
C-O-L-A -- cola
LOLA, L-O-L-A
LOLA!..." ("Lola" Ray Davies , The Kinks )

Truth, the Kinks rock!
I got into them big time in the 80's I think they enjoyed a renaissance then

Cause he gets up in the morning,
And he goes to work at nine,
And he comes back home at five-thirty,
Gets the same train every time.
'Cause his world is built 'round punctuality,
It never fails.

And he's oh, so good,
And he's oh, so fine,
And he's oh, so healthy,
In his body and his mind.
He's a well respected man about town,
Doing the best things so conservatively.

Riversider: To this day, Ray's accountant at that time, still thinks that song was written about him.

Truth!

Do you remember how funny you thought greenecounty ect were? This creature is the same person just screwing with all of us.

Be aware.

Truth, I did not know that. Good stuff!

Last time. Be aware.

C.C. : If you want to sing along; figure out a way to log on. Don't you have any friends who will allow you to use their e-mail?

Riversider: Yeah. He also thinks that "Dedicated Follower Of Fashion" is about him, too.

i never would have guessed that truth would have been an RS supporter. live and learn.

or that alanhart would be a hardline Tea Partier border patrol maniac

sunday, quite frankly i blame all of this on gore. i know he won, really, but it could have been an undisputed landslide if the turd had only embraced clinton.

actually, sunday, that's a bit silly. you might only want to judge the people who vote, but the process of taking a bill to regs is definitely dependent on those in office. i used to work for the govt, you'd be amazed at what happens to the bill between becoming law and the regs.

i know he won

So how long have you believed this conspiracy? I suppose you think the Democrats conspired against Goldman Sachs as well.

Al Gore? You must be kidding..

http://www.nydailynews.com/news/national/2010/07/21/2010-07-21_al_gore_former_vice_president_probed_by_police_for_sexual_misconduct_with_two_ma.html

Not sure if it makes me a pessimist, but I always think that if someone else was in charge, it could have always been worse. Yes, it can always be worse.

sunday, i agree.

Poor RS, still wedded to an economic theory that doesn't work.

You want to look at what happens to "inflation," check out Japan. In case you didn't notice, we're currently suffering from deflation - a far worse phenomenon.

The big reason people perceive the status quo as deflation is because of the decline in housing,principally rent. Is this deflation or over-supply? Add to that steady inceases in food costs. A visit to Citarella and Fairway should tell you food is up, price of fish, coffee, fruits, vegetables all going up. Unions in the NY area have not had reductions in pay, but the opposite.

Fortunately the government's CPI calculations hide most of this. At some point this will not be the case? How long did it take for the people predicting a housing crash/credit bubble pop to be right? A number of years..

Try going to a walmart.

aboutready really gets ridiculous sometimes. Point out the economic failings of Clinton, and the liberals get crazy. Under Clinton (who reappointed Greenspan, so I don't see how Clinton is somehow absolved from things Greenspan did), lending standards were eased and derivatives markets were deregulated. Lots of people are at fault, but Clinton was President when it happened.

With the Obama administration exploding national debt to unprecedented levels, it is foolish to say deflation is more of a concern than inflation. Obama and Congress is taking the coward's way out in dealing with the budget and economy. Inflation is the biggest long-term concern.

steve can't understand anything beyond freshman-level economic theory. He is stuck with the Keynesian theories of the 1970s, which have been shown multiple times since to not work. He brings up Japan, which is the poster-example of the failures of Keynesianism. Laughable.

Add to that an increase Yuan and rising Chinese wages. There's such a lack of understanding on the forces that kept a lid on inflation in the past. And add to that the bias in CPI statistics to understate inflation.

Harry Reid & Nancy Pelosi just said Social Security is safe and funded. I assume they will sing a different tune after mid-term elections.

Prediction: Cost of living increase used in indexing social security benefits will move away from CPI-W to the national average wage index which I understand would limit increases more than CPI

Clinton reappointed Greenspan because he saw more votes in being like Ronald Reagan than being like Jimmy Carter. Clinton is not an idealogue.

RS, your "prediction" belies your ignorance: Social Security is already indexed to average wages, not to inflation or the CPI or the CPI-W.

"Is this deflation or over-supply?"

There you go again with "inflation" as a strictly monetary phenomenon, which of course undermines your complaint about prices: according to your monetarist theories (which are provably wrong) inflation is a change in the value of money, not a change in prices. Prices have nothing to do with inflation, according to the neo-Classicists: they are the effect, not the cause.

In truth, your question is circular: deflation is caused by an oversupply of a product AT A PARTICULAR PRICE. It means there's no demand. Being a supply-sider, you would deny that that could be true.

"Clinton reappointed Greenspan because he saw more votes in being like Ronald Reagan than being like Jimmy Carter."

Just plain silly. Reagan didn't reappoint Volcker because Volcker whipped inflation (remember Jerry Ford's useful anti-inflation campaign, "Whip Inflation Now," and Richard Nixon's wage and price controls?). The truth is, Republicans claim they support what Democrats actually do - defeating inflation, balancing the budget, defending national security. Republicans are good spinmeisters, but Voodoo Economics and Preemptive Wars have made us worse off in the long-run, not better off.

The theories sound nice, but they don't work.

for those who are anticipating inflation, what are you doing about it? buying real estate, gold? i am thinking of taking advantage of the really low interest rates to buy some investment properties in brooklyn and queens. rent them out, and in 10 years time both rents and values should be much higher. thats probably better than having the downpayments lie in a bank account. thoughts?

Maintaining short durations on fixed income investments. Buying Gold. If an acceptable DSCR ratio was to be found , then yes buying with borrowed moeny makes sense.

For Mr. Hx.
--------------------------------------------------------------------------------
plus tie cost-of-living increases to wages rather than the consumer price index
-----------------------------------------------------------------------------------
BOSTON (MarketWatch) -- The time has come for the nation to face some facts and, according to Republican Rep. John Boehner, the House minority leader, that means fixing Social Security by hiking the normal retirement age to 70 for future retirees, from the current 67.

Boehner wants to increase the retirement age to 70 for people who have at least 20 years until retirement, ******plus tie cost-of-living increases to wages rather than the consumer price index*****, and limit payments so they only go to people who need them, according to published reports. The current Social Security "normal retirement age" for those born in 1960 or later is 67.

http://www.marketwatch.com/story/fix-social-security-by-hiking-retirement-age-2010-07-02

stevejhx is wrong again and doesn't understand that of which he speaks. At least he is consistent in his mistakes and falsehoods.

LIC,
It's ok to be wrong, but arrogant to be wrong and at the same time use words like, "ignorance"

Those that have predicted inflation have been wrong, and saying that it will eventually come is not much of a prediction.

Here are some of my predictions

-Eventually the housing market will fall
-Eventually the housing market will rise
-Eventually there will be inflation
-Eventually there will be deflation

I will be right on a 4, eventually.

It just proves that Boehner is an idiot:

http://www.ssa.gov/OACT/COLA/AWI.html

The COLA increases are minor compared to the wage-indexed portion of Social Security benefits, as wages tend to increase faster than inflation. And COLA increases are not indexed exactly to the CPI: they are increased to the CPI plus other factors:

http://www.ssa.gov/OACT/COLA/colaapplic.html

By indexing your initial benefits to wages rather than inflation, you are starting workers off at much higher initial benefits - those initial benefits are then adjusted by COLA, which is CPI-W plus adjustments. That is what contributes to the high cost of social security.

Boehner wants to "fix" Social Security in the sense in which male dogs are "fixed."

Steve -- why do you say Social Security is "expensive"? By comparison with the alternatives -- private sector pensions that invite highly paid executives to find clever ways to default; private sector disability insurance and investment funds that must fund large bonuses and be bailed out after each financial crisis; or the regular depressions and cat food of the pre-New Deal economy -- it looks rather cheap and effective.

http://blogs.ft.com/martin-wolf-exchange/2010/07/25/the-political-genius-of-supply-side-economics/

financeguy, I'm all for Social Security & single-payer health care systems paid for through tax revenue.

I'm also in favor of wage-indexed social security, and of raising the retirement age to 70, and of making social security payable on all earned income, not capped, and of eliminating the AMT.

It is, nonetheless, expensive.

AR, good article, and very true. Supply-side economics works only at the margins: with marginal tax rates in the 90% range, which they used to be. There is no tangible economic benefit from tax cuts at current levels, unless you believe in Nixon's trickle-down economics, and that didn't work either.

The Ron Paul / Ayn Rand / Riversider / LICC economic model DOES NOT WORK. Not theoretically, not empirically. Eliminating most transfer payments (unemployment, social security) will make matters worse, not better. Inflation is a price phenomenon, driven by wages, not a monetary phenomenon. Supply-side economics makes no sense.

There are, however, things that do make sense: a national value-added (or the more streamlined sales) tax, simplifying the tax code (especially for states, which should just be a percentage of federal taxes paid), reducing corporate tax rates, getting health care costs under control, getting rid of the mortgage interest tax deduction. The world would be a happier place.

I also posted it because of wolfs commentary on default, which I thought was grim.

yes, there are measures that could be taken. I'm not particularly hopeful that they'll occur.

Yes, a VAT will increase out economic output and put people back to work....

steve is good at making definitive statements. Mistaken, wrong statements, but stated in a definitive manner.

Keynesian policies have failed since the 1930s, have failed miserably since the 1970s, but supply-side economics makes no sense?? Wow.

You can't have it both ways, RS: you can't advocate that tax cuts will increase economic output and put people back to work when they haven't and - except in cases of very high marginal tax rates - they don't, while at the same time arguing that increasing revenue to balance the budget will decrease economic output and cause people to lose their jobs. It's not borne out by the empirical evidence.

Your only solution is to cut spending. Where? Privatizing social security would be a disaster, as the experiment in Chile showed. Eliminating transfer payments like unemployment would be disastrous, as it would decrease demand and cause abject poverty and social chaos. You don't want to reduce the defense budget, but constant borrowing - and paying interest on the debt - is actually more expensive than just plain old taxation.

If you want to reduce costs, you start with health care: government is a far more efficient provider of health care than private insurance companies. Not perfect, but much better. You DO raise the retirement age, you DO eliminate the income cap on social security, you DO reinstitute the estate tax, you DO reduce the military budget, you DO change public-sector pensions.

You do a lot of things on the credit AND debit side of the equation. But merely promising that reducing taxes is the cure-all to everything is disingenuous, if not downright dishonest. It doesn't work.

The places with the highest taxes are also, with the exception of very small tax havens, the richest places on earth.

"Keynesian policies have failed since the 1930s, have failed miserably since the 1970s."

There is no such thing as a "Keynesian policy" - it is a comprehensive economic theory, accepted by approximately 99% of the world. What failed in the 1930's was neoclassical economic theory, cutting the deficit in the middle of a depression.

What failed in the 1970's was Nixon's "trickle-down" economics. The course was reversed by Paul Volcker, a Keynesian if ever there was one.

Or, provide some details for a change. If you are going to say that Keynes supported high marginal tax rates, you would be wrong.

I'm realistic, Consumption is 70% of GDP. In the past consumption was accomplished through consumer borrowing over increases in wages. The Keynsian solution won't work because the multiplier effect is not as high as keysnians would like and ignores "T". C+I+G.. WHERE'S THE TAXES?

What the government can do is lower the tax rate for corporations and close the loop holes, promote free trade and cut the deficit.

Keynesian policies referred to policies set forth by governments based upon Keynesian economic theories.

It is amazing that steve really couldn't understand what was meant by that phrase.

steve goes with this straw man argument again. Who is saying that the answer to everything is to cut taxes? Most conservatives are calling for cutting government spending to reduce debt and deficits.

It amazes me that there are people out there who think we've repealed the business cycle.
Let's get our house in order, reduce the deficit and put in place a good tax code that promotes growth and enter into more free trade agreements. The consumer is not going to be there for a while, we need to promote trade with other countries. As Milton Friedman pointed out when all countries trade with each other economic output increases. If we were to wall off the united states and stop trading our economy would plummet.

This thread is groundhog day in Econ 101. Why don't you guys go argue about how many angels can fit on the head of a pin?

RS, who has ever made the claim that the business cycle has been repealed? The point of the exercise is not to get into a situation that is difficult to get out of, such as deflation, and to prevent the situation from getting worse, which is what transfer payments do.

The question is what a "a good tax code that promotes growth" actually is - there is NO evidence that cutting marginal rates from the current levels will do that. That "tax code that promotes code" was in effect before the Bush tax cuts, which contributed in large measure to the bind we're in today.

Typically LICC nonsense: no specific answers to anything. Except that "cutting government spending" in a recession is the WRONG thing to do; it's what they did in 1938, to disastrous effect.

Which again begs the question: what are you willing to cut?

I do not believe we are at risk for deflation.

You do make a good point, if we decrease the capital gains rate, it may not promote capital formation but rather the liquidation of previous assets.

We have high corporate tax rates, yet lower effective corporate tax rates. There's too much in the way of deductions and credits, that only creates inefficiencies in the system. I think growht would be enhanced by making the tax system less a factor in economic decision making.

Of course getting rid of sugar,ethanol and various other subsidies and can only improve the deficit and allow us to lower the tax rate furhter or to pay for our debt.

If we can agree the business cycle has not been repealed then we should stop the economy from catching cold every time someone sneezes or coughs. The Fed's medecine from 2000 tech bubble.. well it's like curing a runny nose with chemotherapy.

"I do not believe we are at risk for deflation."

It's not a question of belief: look at the CPI numbers, and you will find they are somewhere between negative and zero.

The business cycle has not been repealed, but it can (and should) be ameliorated, enervated, lest we go through the 1800's again. The Fed's medicine alone was not what caused the problem - it was a combination of too easy money and too little regulatory oversight, too much leverage. The Fed should go back to the old way of managing inflation not by targeting the inflation rate, but by targeting the money supply and velocity, as Volcker did. It works much better.