If we believe the official inflation figures, supposedly living standards in the US are rising: Yet the proportion of people with cars is falling, the proportion of households with a car is falling faster, and the amount of meat people are eating is falling – consistent with a cpi rising at about the rate that shadowstats claims, about six to ten percent (more…)
Posts Tagged ‘inflation’
Inflation
Saturday, June 16th, 2012Inflation
Friday, February 3rd, 2012Total sales are rising ten percent a year in nominal terms. Surprise surprise, shadowstats estimates ten percent inflation per year if we use the measure of inflation that was used in the the 1980s. Hawaiian Libertarian reports that that is pretty much what he is seeing when he puts his money down.
So what is the true rate of inflation?
There is no one true rate of inflation, since to estimate inflation, one has to compare apples and oranges, and there is no one valid way of doing this.
But if inflation is substantially less than ten percent a year, we are consuming substantially more goods this year than last year. Do you think we are consuming substantially more goods this year than last year?
But whatever the true rate of inflation might be, it is increasing. It is not increasing fast as I expected, not increasing very fast at all. It is increasing at about two percent a year, so if this year inflation was not ten percent, but eight percent, next year it will be ten percent a year, and the year after that, twelve percent a year. The rate at which prices increase, is itself increasing.
This does not sound all that terrifying, but recall that hyperinflation begins as the collapse of a paper bubble. Everyone wakes up one morning realizing that inflation is a lot higher than they thought and will only get worse, so they all try to unload their paper at the same time for tangibles: Land in productive use, gold, ammo, guns, non perishable food items, alcohol, and suchlike, also overseas non tangible assets, paper assets regulated by solvent governments.
Only to discover that they cannot all unload their paper money at the same time.
If the rate of inflation is high and increasing, sooner or later, it suddenly starts to increase a lot faster. Suppose inflation this year was seven percent, then next year it will nine percent, which is not imminent doom. If people are not panicking today, they are unlikely to panic tomorrow. The end is not nigh. But the end, nonetheless, is in sight.
Hyperinflation
Monday, November 8th, 2010Officially, America has near zero inflation and a mere ten percent official unemployment. Odd that it has a mere ten percent unemployment when the proportion of young adult males with jobs has dropped a lot more than ten percent.
As with third world and Marxist countries, the government’s reaction to bad news is to declare a new era of prosperity. The recession is officially over. With an unprecedented proportion of the workforce on the government payroll, productivity has officially risen to amazing heights and somehow, despite the big increase in the proportion of people on the government payroll, public spending has officially not risen much.
Unofficial inflation, however, is starting to look quite frightening:
I just got back from the grocery store. Eggs, which were $1.60 two weeks ago, are now $1.99/dz. Butter? Two boxes for $6 – on sale. The same two boxes were $4.50 a couple months ago. Land-O-Lakes Brand? $4.89 – each.
Cheese? 8oz bricks were commonly 3/$5 as recently as September. Now? $3.50 – for one.
But there’s no inflation, you see.
Oh, and on the way home I passed the gas station. It was $2.59 for regular a couple of weeks ago. Now? $2.89. 30 cents in about 2 weeks, a 12% increase.
This is consistent with inflation rates of thirty to fifty percent per year, early hyperinflation rates.
Sarah Palin is, as usual, on the ball, while ruling class is floating away in La La Land, sincerely puzzled that the peasants are failing to eat cake.
This is the decisive test of Keynesianism. Of course, we already had a decisive test of Keynesianism: The Japanese crisis. Keynesianism failed dismally, to which the Keynesians replied that Japan’s troubles were the result of not applying Keynesianism vigorously enough. This time, however, it has been applied vigorously enough. The results should be apparent by around 2012-2016. The fat lady has not yet sung, but so far, things are not looking good for Keynesianism.
Money is a matter of functions four,
a medium, a measure, a standard, a store.
There is a conflict between the use of money as a store and the use of money as a standard, since if everyone wants to store value at the same time, the value of money is apt to rise, and if everyone wants to use their store at the same time, the value is apt to fall. Keynesianism therefore addresses a real problem, but its proposed solution tells the ruling class what they want to hear – that they can buy votes with money they do not have, that they can eat their cake and have it to, which is of course not true, and not a solution to the problem. Keynesianism addresses a real problem, but is not a real solution.
It seems to me that a sounder solution would be to target the long run value of money. If people had confidence that in the long run, the value of money would be constant, that inflation would run for a few years to be followed by deflation, and deflation would run for a few years to followed by inflation, that what goes up must come down, then I doubt that natural fluctuations would be large or damaging. Fluctuations are large and damaging because there is no telling what the future value of money is likely to be, because Keynesianism makes money dangerously ineffectual as either a standard or as a store. This large uncertainty destabilizes the economy. The objective of monetary policy should be to give people confidence that the value of money will be the same in twenty or thirty years, even if it fluctuates a bit from year to year.
Of course, I am prescribing what an honest issuer of fiat money should do, if he cares about the long term, and wants everyone to continue using the fiat money he issues. Since issuers of fiat money sooner or later find themselves in a situation where the major question is whether the political leadership will survive another week, such advice is unlikely to be heeded. Keynesianism will continue to be believed, not because it is true, but because issuers of fiat money are compelled to act as if it was true.
American debt
Sunday, September 6th, 2009Total federal debt twelve trillion
That is not too alarming in itself. It is a bit less than GDP, and for most countries, trouble ensue when debt is around twice GDP. The liberty papers are not too worried.
Total American indebtedness (public and “private”) is sixty trillion, which is much larger than federal debt, and has been rising very rapidly. The primary cause of this rise has been implicit and explicit governmental and quasi governmental guarantees – FHA guarantees, debt of too-big-to-fail corporations, guarantees by too-big-to-fail corporations, state debt, for example California, and so on and so forth.
Some substantial part of this sixty trillion is secured by real assets such as houses and the income stream of hard working people, and some substantial part is not.
Thus the excess “private” debt is not private. The normal level of public and “private” debt is about twice GDP, say twenty six trillion, so we are about thirty trillion or so in the hole and getting deeper fast – well past the danger level of twice GDP.
Inflation looms
Friday, June 19th, 2009Bryan Caplan, favorably citing Sumner, tells us “stop worrying about inflation”
Supposedly we should stop worrying about inflation, because the bond markets predict only moderate levels of inflation. Supposedly we can determine future inflation by looking at the difference between Treasury Securities, and Treasury Inflation Protected Securities. Supposedly, this tells us what the people investing in securities think that inflation will be, and they are pretty good at predicting inflation.
However, this tells us only what people who are confident that inflation will be moderate think inflation will be, because if you are worried about immoderate levels of inflation, you do not diversify into long term Treasury Inflation Protected Securities, you diversify into gold, silver, guns, ammunition, rice and beans, which is roughly what the Chinese are doing, except that they are also diversifying into copper and iron, and private Chinese are not allowed to diversify into guns and ammo.
The bond market does not tell us what the smart money people think inflation will be. It tells us what those among the smart money people who do not expect very high levels of inflation think inflation will be.
What are the Chinese worried about?
They are not worried about the possibility four percent inflation in 2011. They are worried about the possibility of four hundred percent inflation in 2020. And so they are not buying Treasury Inflation Protected Securities. And so the difference between Treasury Securities and Treasury Inflation Protected Securities fails to reflect their concerns. And so, if we look at the bond market, what it tells us is that the Chinese think inflation may well hit four percent in 2011, but does not tell us what they think inflation will be in 2020. But if you listen to what they are saying, what they are saying is that they think there is a substantial risk of very high levels of inflation in eight years or so.
Governments tend to go down the tubes when total public debt is around two hundred percent of GDP or so. Thus a deficit of ten percent of GDP or so is sustainable for ten or twenty years or so. Trouble is that in addition to an on budget deficit of ten percent or so, there is also a much larger off budget deficit, in the form of an ever growing pile of government guarantees, which there is no will to restrain. Put the two deficits together, crisis looms.
Trees do not grow to the sky. That which cannot continue, must stop.
Galt strike or inadequate aggregate demand?
Friday, May 1st, 2009The Randian concept of a Galt Strike is that if the elite slack off, the masses will be impoverished – that countries are rich or poor according to whether the elite is productive, while the masses and resources do not matter much, except in extreme cases such as oil rich sheikdoms.
There has been a large fall in GDP over the past six months:
The Keynesian explanation of this fall is inadequate aggregate demand – the economy could easily produce more, but no one is spending due to depression of animal spirits, in which case a big spending government will make everything rosy.
The Austrian and Chicago explanation is complicated, and perhaps confused.
The Randian explanation is that it is a Galt Strike – the elite are slacking off, and focusing on hiding their wealth and economic activities from the government, rather than creating value, in which case big government spending will merely result in inflation or massive borrowing from abroad.
Core CPI will in time tell us which account is correct. We will know by about November 2010.
- If late in 2010 core CPI is substantially higher, nominal GDP substantially higher, but real GDP still woeful, then Randians will have been proven correct.
- If late in 2010 core CPI is lower or unchanged, then both sides can argue they were right, and the Austrians will probably have some explanation that I will be disinclined to follow.
- If late in 2010 core CPI only rises moderately, but real GDP rises substantially, then Keynesians will have been proven correct.
I am betting on disturbing levels of core inflation with a distinctly unimpressive recovery in real GDP.
Smashing capitalism
Wednesday, April 1st, 2009President Barack Hussein Obama tells us:
Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.
This reads like something out of “Atlas Shrugged”.
I predict fifty percent inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it. If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.
This crisis did not start with Obama, it did not even start with Bush.
During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers
More than $1 Trillion Invested through CRA
Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.
A more accurate report of the same facts would be
Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on the hook
Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street). Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.
We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit. Unacknowledged off budget government expenditures far exceed government’s ability to tax. They will not necessarily exceed government’s ability to borrow – yet.
Geithner’s plan explained
Wednesday, April 1st, 2009President Barack Hussein Obama tells us:
Your warranty will be safe. In fact, it will be safer than it has ever been. Because starting today, the United States will stand behind your warranty.
This reads like something out of “Atlas Shrugged”.
I predict disturbing inflation or so over the next three or four years – and that is if we eventually turn back from this course, or at least stop walking along it. If, on the other hand, this goes on, with the government taking responsibility for one thing after another, as each intervention creates a crisis bigger than the last crisis, leading to more interventions, then I predict hyperinflation and widespread inability or unwillingness of government to provide order and protect property. Obama is not going to get under your car and fix it, and as the government takes on an ever growing multitude of tasks it is incapable of performing, its performance in its area of core competence (hurting people and breaking things) will deteriorate.
This crisis did not start with Obama, it did not even start with Bush.
During the final years of the Clinton presidency, Clinton greatly strengthened the CRA, which was glowingly reported by the newspapers
More than $1 Trillion Invested through CRA
Lenders and community organizations have negotiated $1.09 trillion in CRA dollars from 1992 to 2000.
A more accurate report of the same facts would be
Politicians shovel one trillion dollars of off budget money to irresponsible and improvident members of narrowly targeted voting blocks, for which taxpayers are going to wind up on on the hook
Government regulation winds up as off budget handouts to voting blocks (in this case mostly Hispanics) and well connected insiders (in this case some elements in Wall Street). Crisis ensues as the bill comes due. To maintain the superficial appearance of normality, there is a drastic increase in intervention, but the synthetic normality is a mere facade, like putting makeup on a corpse.
We now have trillions of dollars of capital flowing away from well managed businesses, to businesses with implicit or explicit government guarantees – businesses that will rapidly lose that money – a huge increase in the already huge off budget expenses of government, in addition to the huge and rapidly growing on budget deficit. Unacknowledged off budget government expenditures far exceed government’s ability to tax. They will not necessarily exceed government’s ability to borrow – yet.
The Stimulus bill
Tuesday, March 3rd, 2009Bryan Caplan wonders why Brad Delong cannot comprehend those who doubt the effectiveness of the stimulus bill.
Assume that creating value is easy, any brainless fool can do it, even the brainless fools at Washington Mutual. It is then immediately obvious that the government can make everything lovely by printing money and giving it to the morally worthy. Are car production lines shut down while unemployed workers idle? Just print money and give it to bureaucrats in government schools, or other similarly wise and worthy people, and lo and behold, those car production lines will start up again, and all will be well.
If, on the other hand, producing value is hard, then falling nominal GDP may well reflect the discovery that we were producing less value than we thought – that we were providing houses to people who were not in fact willing to pay for them, and building cars that were not in fact the cars that people wanted, in which case issuing enough money to stimulate the economy may well stimulate inflation, rather than the production of real wealth.
This brings us to Japan: Did Japan lose a decade because it refused to allow the free market to remove the power over assets held by incompetent people, or because it failed to borrow enough and spend enough?
Those who believe Japan failed to run a big enough deficit may well now get the chance to put their theory to the test in the US. If spending enough borrowed money to keep the incompetent running businesses stimulates the economy, then they will have proven themselves right.
Yes, the Fed can just keep on printing money.
Saturday, March 15th, 2008The business times quotes an anonymous “senior London Banker”
Someone will go under in this crisis, that’s for sure. The question is whether they stay under or get rescued. Let’s see whether this latest round of stabilisation helps, but if it doesn’t, it’s difficult to see what Plan B is. The Fed can’t just keep on printing money.
Yes, the Fed can just keep on printing money.
The banks have real assets and nominal liabilities. If the Fed debases money enough, the banks will be fine – it is just that everyone else will be broke.
