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The Great Inflation
#1
This may not be the best article to begin this thread, but there will certainly be more to come. The point is that with the continued printing of money, and the next round of QEII coming, it will be "Inflation", not deflation that is going to be our main problem. This is just another case of Keynesian bone-headed Intellectual Laziness. We are in the front end of a major inflationary period. And even if the Fed gets it's act together Today, it will not be able to curb what is already in the pipeline.

Here is a good example:Secret Walmart Survey Shows Inflation Already Here.

What is going on is a perception, at the Fed and amongst Keynesian experts(so called), who are worried about the non-existant monster, deflation. Look for double digit inflation, coming to a theatre near you,......soon.
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#2
Great, so my savings will be worthless?
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#3
Here is what FEE says about this.

Quote:Something Besides Money Growth Causes Inflation? It Just Ain't So
The Root Cause of Inflation Is a Settled Matter for Most Economists


Howard Baetier Jr.

Some economic phenomena can result from a variety of causes. A temporary increase in unemployment, for example, might be caused by a sudden, disruptive change in production technology, or in trade patterns, or in labor or tax laws; or it could be caused by natural disasters or wars, or by recessions due to monetary or fiscal policy. In such cases the exact cause is unclear.

By contrast, a few economic phenomena have one and only one root origin; when we see the effect, we can be sure of the cause. One of these is inflation. Its root cause is a settled matter for most economists. In the words of the great Milton Friedman, whose masterwork with Anna Schwartz, A Monetary History of the United States, did a lot to settle the matter, “Inflation is always and everywhere a monetary phenomenon.”

Unfortunately, many educated commentators have not learned this important truth. One of these is Robert Samuelson, who wrote in the Washington Post (“The Upside of Recession?” April 25) that government subsidies can increase inflation and that recessions can reduce it. But that ain’t so.

To understand Friedman’s aphorism, let us consider this thought experiment: Suppose tonight, as we sleep, Harry Potter flies across the country and waves his magic wand to cast a money-doubling spell. The spell has no effect on the amount of goods and services; it affects only money. Every nickel becomes a dime, every quarter becomes a 50-cent piece, every dollar becomes two, every ten-dollar bill becomes a twenty, every checking account doubles its balance—in short, the money supply doubles overnight. What would we expect to happen to prices over the next day or two?

Even if no one knew that everybody else’s money holdings had also increased, we would expect to see prices rise very fast as sellers discover that they can charge more for their goods than they could yesterday. Picture automobile dealerships. As people perceived an apparent sudden increase in their “wealth”—it’s not wealth, it’s just money, but they don’t know that yet—many of them would head out excitedly to buy a new car. The dealerships would see many more customers than yesterday, all willing to pay much more than yesterday. The dealers would quickly raise their prices, realizing that they can charge more for their cars (which are no more numerous than yesterday). A similar process would occur at every store, market, online retailer, and real-estate agency in the land, and soon the price of just about everything would (to oversimplify a bit) approximately double.

The experiment illustrates the core of Friedman’s insight—the general level of prices is a consequence of the money supply.

Now, would we say that Harry Potter had caused inflation? No, not if we use the term precisely. Inflation is a continuing increase in the level of prices, whereas the money-doubling spell would cause only a one-time doubling of prices. If Harry uses the spell only once, and nothing else increases the money supply, then we should expect prices to stabilize after their one-time jump. (Or, rather, in a healthy and innovative economy in which entrepreneurs continually figure out ways to cut costs and produce ever-greater abundance of goods and services, we should expect prices overall to decrease gradually. After all, with ever-increasing amounts of stuff to buy, and a fixed quantity of money to buy it with, everything should sell for less and less as time passes.)

If Harry Potter wanted to cause inflation—a continuing increase in the level of prices—he would have to cast a money-increase spell and leave it on so that more money would be created every night. Without a continuing increase in the quantity of money, there can be no inflation. This is what Milton Friedman meant by his memorable aphorism.

A consequence of this insight exposes the mistake made by Robert Samuelson and many others. Anything that does not continually increase the money supply can not cause inflation.

So what does cause inflation? Well, what or who increases the money supply? Central banks do. In the United States, the Federal Reserve System (the Fed) controls the money supply and thereby causes any inflation that occurs.

Let us look at some of Samuelson’s specific points. He implies that high oil prices are driving inflation when he writes, “We all know about oil. Prices are about $60 a barrel,” and he asserts that government spending drives inflation when he writes, “[T]he government’s subsidies for corn-based ethanol are worsening inflation.” Samuelson is surely correct that government should not subsidize ethanol and thereby push up the prices of corn and all things made with corn. But high oil prices and government spending on ethanol do not change the money supply, so they cannot change the level of prices.

Surely higher prices for oil and corn drive up the prices of goods and services produced using oil and corn, such as transportation and many foods, so we should expect to see higher price levels in those sectors of the economy. But inflation is an increase in the prices overall, not in just some sectors. If the prices of transportation and food rise, then the prices of other goods and services must fall unless more money flows into the system. If we have no more to spend in toto, then when we must spend more money on gasoline, we have less money to spend on, say, clothing. This means that clothing makers would have to lower their prices in order to sell their wares; they in turn would have less to spend on cloth, labor, and other inputs, so we should expect to see lower price levels in those sectors of the economy. The higher prices in one sector would be offset by lower prices in other sectors, as long as there is only so much money to go around.


Anti-inflationary Recessions?

Samuelson also says that “downturns check inflation.” But that ain’t so either, at least not when we consider what happens after the recession. He says, plausibly, that “it’s harder to increase wages and prices” in a downturn. While this may be true during the downturn, if the money supply is increasing unabated—so that eventually prices and wages will have to adjust to the larger money supply—people’s hesitancy to raise wages and prices during the downturn simply creates a lag. Prices and wages will have to catch up later.

In practice, causation will more frequently run the other way, with inflation today causing a downturn later. As Steven Horwitz and others have explained, inflation not only increases the level of prices, it also distorts relative prices, the economy’s essential means of communicating the relative scarcity of various goods, and thereby interferes with economic coordination. (See Horwitz’s Microfoundations and Macroeconomics: An Austrian Perspective.) That interference can itself cause or prolong recessions. The longest period of poor economic performance in my lifetime was the 1970s, a period of inflationary recession. Not only did the long, deep downturns of that decade not “check inflation,” on the contrary the inflation likely deepened the downturns.

Friedman’s maxim bears frequent repeating. Who controls the money supply controls inflation. As for any claim to the contrary, it just ain’t so.

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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#4
My Navy pension is indexed annually to protect against inflation; however, since the government pegged pensions to inflation it changed its method of calculating inflation to limited increases.
The true purpose of democracy is not to select the best leaders — a clearly debatable obligation — but to facilitate the prompt and peaceful removal of obviously bad ones. 
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#5
Silver and Gold.

Stock up on bling, my bitches.

(Do you gentlemen mind if I refer to you as "my bitches?" I mean it lovingly. Except for Q.)
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#6
I didn't read the article yet but my first thought was:
The Fed is printing money because there is huge demand for dollars worldwide.
All the poeple and governements who bought US treasuries wanted to keep and own dollars so the Fed, finaly, decided to deliver.
If they didn't want dollars as sometimes insinuated by rumors of Iran selling oil in other currencies or the yuan becoming the next international currency, they wouldn't be buying T-bonds with a yield of only 2.7%.

If there was a real worry on the value of the dollar, the T-bond price would fall and its interrest yield would explode as it happened for Greece and Ireland.

So QE2 is going to print for $600B of new banknotes and distribute them to whoever wants some, and has treasuries to barter.
What is $600B in the global economy, seriousely?

Poeple want gold only to the extent that with gold you can buy dollars. And as more gold is being excavated, more dollars have to be printed to give a constant value to this gold.

Same with other currencies: Emerging economies have also emerging currencies which must be valued against the $. If there are too few dollars these currencies will lose their value and the dollar will be too expensive.
The € is still different from the $ because it barely suffice for the internal EU trades. But the BEC may take the same actions as the Fed if other countries are increasing the euro dominated reserves.
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#7
Pixiest Wrote:Silver and Gold.

Stock up on bling, my bitches.

(Do you gentlemen mind if I refer to you as "my bitches?" I mean it lovingly. Except for Q.)

I chuckled when I read this.

You guys stock up on gold and silver. I have guns and tons of ammo which are quite the commodities at the moment (at least with ammo).
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#8
guns and ammo are good. but if things have degraded that far, it bares the same disadvantage of silver and gold in that you can't eat it.

Of course, you can take someone else's food, but I think good planing shouldn't rely on someone else's half assed planning.

I have canned food and olive oil. I was thinking of buying MORE olive oil and a couple of crates of salt. And maybe some crisco. Basically, I want to be able to barter for anything I haven't thought of. And being able to make crappy post collapse food taste better is a big step.

I'm holding off on the guns and ammo till my hubby learns to shoot. He wasn't raised by rednecks like I was. He doesn't know the rules.
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#9
Pfft, I will become a warlord at the most, or quietly get by at the least. Think of guns and ammo as barter items. Gold and Silver really have no use to the common fella - what are they going to really do with it, besides *own some*? Guns are a different story.

Plus, I have months of MRE's saved up. I am not worried about emergencies.

Take someone else's food, sure, but it's all about shooting food in the woods, amongst other things.

I dunno, I have bought and sold guns and made a good profit from it, moving up to bigger, better things and such. I would never hold off on a gun, it's always too late or too spendy till then. Then again, you do live in California....
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#10
Gunnen4u Wrote:I dunno, I have bought and sold guns and made a good profit from it, moving up to bigger, better things and such.

Portable nukes Wink1 ?

Might be a good investment too, uranium degrades, but slowly Wink1
Sanders 2020

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#11
Oh, I would certainly invest in a nuke or something like that too if I could. I am all about moving onto bigger and better things, even if stuff or the economy, falls apart.
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#12
Getting Back on topic:


Fredledingue Wrote:I didn't read the article yet but my first thought was:

Then please back up and read it, ok? The point is that inflation is only the result of purposeful manipulation of the money supply.

Fred, not understanding the subject Wrote:The Fed is printing money because there is huge demand for dollars worldwide.

Fred, worldwide demand is only indirectly related to inflation/deflation. It is the availability of dollars which determines value. The more dollars available, in relation to the size of the economy, the less their value. The less dollars available, in relation to the size of the economy, the more their value.

Inflation is the direct result of money supply, i.e., available money/credit made available by the government. If the US Dollar was pegged directly to gold, it would not manipulate the money supply, and this is why Keynesians, and Statists, don't like that. They think they are smarter than anyone else, and should 'intercourse' with monetary policy as they dictate. And for no other reason, that is why the ability to do such Must be taken out of their hands, because they only manage to screw it up, and the average Joe winds up paying the price.
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#13
WarBicycle Wrote:My Navy pension is indexed annually to protect against inflation; however, since the government pegged pensions to inflation it changed its method of calculating inflation to limited increases.

Yes ... same in this country ... in fact they've calculated that it's pretty much zero. Strikes me as the crux of this thread.

http://money.usnews.com/money/blogs/the-...-2011.html

Huge pressure was brought to bear last week. Gold, silver and oil tumbled big time ... pretty much every major commodity dropped 2-5% (except Wool for some reason) ... official line is that China was trying to put the breaks on. So magically the green back is now worth more than last week ... even though Bernacke has signaled that dollars are destined to propagate like mice. Hard not to see it as a bit of shuck and jive.

Here's what the price of a typical bucket of stuff looks like these days.

[Image: comm_futures_10.gif]
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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#14
I wish I understood any of this...I can't seem to get my head around any of it for some reason. Anyone have a Morons Guide to Quantative Easing?
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#15
ghoullio Wrote:I wish I understood any of this...I can't seem to get my head around any of it for some reason. Anyone have a Morons Guide to Quantative Easing?

Ok, try this one. And note the Other culprit in all this. And again, note where practically All of presidential economic advisors come from, be it the Republican wing of the Big Government Party, or the Democrat Wing.

And again, do you believe that there is even one Classic economist amongst them all?

So,........do you now believe in the phrase "Ruling Class"? And are they interested in your well-being?
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#16
JOhnL,
If you peg $ to gold, the value of the $ will fall slowly bet indefinetly and with certainty as more and more gold is extracted from the ground.
Do you realy want your currency to depend from a metal exported by South Africa and which has no link to the US economy whatsoever?
Gold mining companies have been printing gold restlessly in the past and present. What's so wrong with the Fed printing $ too form times to time?

(I haven't read the article yet because I was reading the dialog about guns by G4U and Pixiest and others.)
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#17
Fredledingue Wrote:JOhnL,
If you peg $ to gold, the value of the $ will fall slowly bet indefinetly and with certainty as more and more gold is extracted from the ground.
Do you realy want your currency to depend from a metal exported by South Africa and which has no link to the US economy whatsoever?
Gold mining companies have been printing gold restlessly in the past and present. What's so wrong with the Fed printing $ too form times to time?

Fred,

One, with an expanding world economy, the value will not decrease, but increase because......Two, gold is so precious, and scarce that we will not have to worry about the market being flooded. People are constantly scouring the outer crust of the planet, and until we discover huge deposits your point is not worth worrying about.
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"Falsehood flies, and truth comes limping after it" - Jonathan Swift, 1710
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#18
Forget a gold standard,how hard was it for the US to leave it when politics said it was OK?

We've had little inflation now for 1/4 of a century,the people will react against the governing party in 2012 as it did in 1980 if inflation arrives again obviously.
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#19
Anna Schwartz Wrote:Inflation is always and everywhere a monetary phenomenon.”
She rivals Sarah Palin on economy! :lol:

article Wrote:Unfortunately, many educated commentators have not learned this important truth.
LOL

Ok seriousely... The article is correct but incomplete.
Baetier ignores and fail to include in the equation that the US (or any same-currency area) is not a closed system.

The value of the $, the US economy and the value of goods is determined to a great extent by international conditions.

The most obvious example is the price of oil. Oil prices increase for reason external to the US (most of the time) and the US can't do anything to counter that. Oil is so widely used in so many sectors that a rise in oil prices will inevitable create a rise in the mean inflation benchmark. It's not a slight fall, always limited to production costs, in clothes or the raryfied goods not affected by gas prices, which will make a difference.
Evene if the Fed doesn't print money, well, oil prices remains high and everythng connected too. Poeple have less money to spend but many things keep costing more and more as oil prices increase. Until eventualy the auto-regulation phenomenon acts on a global basis and oil prices start to decline in and outside the US.

The other variable is the trade imbalance. Imported goods are cheaper, $ are going out of the country and don't come back, you have deflation. But you also lose jobs in the US, and you have more non-US residents and foreign nation buying Treasury notes.
Two effects which the Fed can't do anything against.

My point here and elswhere, is that the Fed is not printing money only for the US domestic usage, that would be too simple.
It's printing money for the whole world, and Bernanke has to think globaly before thinking US.
If money is regularly evading the country to never come back, then they have to increase the money supply.
They can cause inflation with that of course, but that also will rebalance the number of $ in circulation, relative to the number of poeple using it or keeping it globaly.
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#20
The role of the F'ED is to maintain monetary stability. Not to 'create' jobs, not to prime economic pumps ... not to provide an eternal teet for our government to suck off.

Pegging the monetary base to something that does not change much ... like the total amount of a precious metal in the world ... (gold exists at about 4 ppb in the earth ... and that ain't gonna change) provides stability. We are unlikely to return to a gold or silver standard ... at least not 'officially', but the fact that the conversation is even taking place speaks volumes to the level of (in)stability and (un)certainty in our monetary system. That and the fact that it's beginning to look more and more like the system is rigged in favor of folks like the ones running around at Goldman Sachs, the F'ED and the Treasury Dept.. Name a top official in any of these organizations that hasn't worked at at least one of the other two ... I dare ya! :twisted:

J.K Rowling was really on to something when she presented bankers as Goblins. If you doubt that, just take a close look at Tim Geithner.

... BTW ... here's what the Goblins themselves are predicting for the dollar ... go figure huh? Not to worry, fred is absolutely right. The rapid proliferation of dollars (and subsequent devaluation) will NOT necessarily lead to inflation ... just so long as nobody actually spends those dollars on anything. Wink1
"Democracy is the theory that the common people know what they want and deserve to get it good and hard."
-- Henry Mencken
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