[veganburgh]

That's the first line of this article on CNBC. http://www.cnbc.com/id/27194392

Now, most of us here are not economists, or bankers, or politicians etc. etc. etc. BUT, is there one person here who did not know that inflation was going to take a "turn for the worse".

 

[rlm1966]

His head was stuck in the sand.... or he has drank the governments cool-aid

 

[FranchiseKid]

The PPI is not only volatile but not a good predictor of any ability to pass through those costs to consumer (hence true price inflation) during cyclical turning points in the economy. True inflation, an expansion of the monetary base, will be underway soon by the government and The Fed, but we will see little, if any of that filter down to Main Street. I would be very excited to see it filter down though as all Main Street will be seeing, as we have been, are deflationary forces at work (housing, equities, vehicles...). Companies do not have the ability to pass through costs to consumers who, and the accompanying PPI report this morning (retail sales) shows this, are hunkering down big time.

 

[Watcher]

Governments around the world are 'creating' Trillions of dollars out of thin air to give to the banks.

Money supply goes up, inflation goes up. The easiest equation in economics.

 

[ExecuteQuery]

I seriously doubt this is due to the bail out package. First, most of it hasn't even been created yet. Second, the effects of money creation on inflation generally take at least 6 months to show up, and can continue having an inflationary affect for as much as 3 years (mostly from the secondary money created as a result of the fractional banking system). Don't forget the "first users" haven't gotten their benefit from it, yet.

No, any current inflation has little to nothing to do with the more than trillion dollars created or to be created by the bailout and the candidates promises -or the about 9 trillion more that will be created as a result of fractional banking. That inflation will hit us over the next three years, probably starting sometime early in the next year, and it's going to hit us HARD.

 

[Watcher]

I seriously doubt this is due to the bail out package.

What we have at the moment is the result of the huge amount of money created to fuel the economic bubble which we have just seen burst. Then that is going to be compounded by the tidal wave of money created to undo the damage created by the first tidal wave of money.

People need to plan for inflation.

 

[FranchiseKid]

Governments around the world are 'creating' Trillions of dollars out of thin air to give to the banks.

Money supply goes up, inflation goes up. The easiest equation in economics.

That may be the easiest equation in economics to get wrong. An expansion of the monetary base does not always translate into higher consumer prices.

 

[Watcher]

That may be the easiest equation in economics to get wrong. An expansion of the monetary base does not always translate into higher consumer prices.

Putting a lit match on petrol doesn't always start a fire either.



Inflation is a monetary phenomenon. An increase in money supply always decreases the value of money. That decrease in value may be temporarily masked by other factors, but it is automatic and absolute.

 

[FranchiseKid]

Putting a lit match on petrol doesn't always start a fire either.



Inflation is a monetary phenomenon. An increase in money supply always decreases the value of money. That decrease in value may be temporarily masked by other factors, but it is automatic and absolute.

You are correct and perhaps I should have clarified what you meant when you typed, "money supply goes up, inflation goes up" because you essentially said the same thing twice. I agree but it needs to be noted that true inflation does not always translate into higher "consumer" inflation/prices.

 

[Watcher]

You are correct and perhaps I should have clarified what you meant when you typed, "money supply goes up, inflation goes up" because you essentially said the same thing twice. I agree but it needs to be noted that true inflation does not always translate into higher "consumer" inflation/prices.

'True inflation' may be initially restricted to capital goods and people can then fool themselves that this is somehow seperate from retail prices. Which is one of the reasons Greenspan was so happy to allow the bubble to develop initially. But in the end, 'True inflation' always does feed through to retail ''consumer'' inflation. The idea that there is a disconnect is a serious mistake.

To clarify, true inflation always does translate into higher 'consumer' inflation/prices. Always, everytime, without exception.

 

[FranchiseKid]

'True inflation' may be initially restricted to capital goods and people can then fool themselves that this is somehow seperate from retail prices. Which is one of the reasons Greenspan was so happy to allow the bubble to develop initially. But in the end, 'True inflation' always does feed through to retail ''consumer'' inflation. The idea that there is a disconnect is a serious mistake.

To clarify, true inflation always does translate into higher 'consumer' inflation/prices. Always, everytime, without exception.

Your point of view is appreciated, however I respectfully disagree. Greenspan allowed the bubble to develop and sustain b/c he has no data to the contrary to warrant any monetary policy actions. The productivity miracle was underway keeping a tight lid on any upward wage pressure and as a result, unit labor costs. Inflation expectations, a key component to the yeild curve, were very much under wraps and the entrance of millions of low cost workers in foreign markets aided quite a bit. There was no reason, in his hand, to adjust monetary policy at the time. It is always easy to be a Monday Morning quarterback however.

True inflation, an increase in the monetary base, will not feed through to consumer prices if the velocity of money is close to zero, as it is now. Just as I do not think anyone would argue that housing prices are going to shoot back up, regain all they have lost, when the end of October hits and massive amounts of liquidity enter the markets again, you need to look at how the banks are distributing that "inflation" and if they are at all. With the prices of most major assets in complete deflation free fall, it would be very hard to argue, or even forsee, how consumer price inflation is imminent from these actions. The Fed must expand its balance sheet to ward off any Japanese style deflation, which we have already begun to experience.

We had more than enough negative terms of trade shock from the painfully high oil/gas prices this year which have certainly acted to keep a lid on wage inflation as well as increase unemployment (which, by definition keeps the pricing power on wages firmly in the hands of the corporations). No wage inflation and hence no big upticks in unit labor costs. We have a systemic deleveraging process at work with our capital and asset markets which will probably work to drive prices even lower before the rate of change of declination even slows, forget any kind of price inflation there. Any kind of inflation after a period with a negative terms of trade shock coupled with a systemic deleveraging process of this magnitude, is a welcomed lubricant to this economy.

I understand that inflation is, and will always be a monetary phenomenon but to stick to those guns in this market is to either look out past probably 5 years or to hold ideology to close to the heart.