Has America entered into a dreaded stagflation?

[saveliberty]

Its precisely due to the policies in place that I felt stagflation was the only likely outcome.

 

[EdwardBaiamonte]

Stagflation makes deflation look like a great economy.

deflation is the worst of all possible worlds since tomorrow everything will be cheaper; therefore there is no reason to buy anything at all today.

Ok...so you just showed your lack of knowledge about economic principles and conditions.
Good to know.
I suggest you read some more before you come back.

if true why are you so afraid to identify the lack of knowledge to which you refer? What does your fear tell you, liberal.

 

[itfitzme]

No inflation? The money supply has increased over 9 trillion dollars in 11 years. Name a time in our history that matches up.

Inflation means price inflation. It has for a hundred years. It is what everyone means by inflation. Monetary inflation, and increase in the money supply, is called what? Oh yeah, monetary inflation. The word inflation in the definition of stagflation means price inflation. It always has.

Try using the same definitions of terms that everyone else does, instead of making up your own language. It will help you understand what other people are talking about and help you communicate.

This may explain why you are so confused about economics.

 

[EdwardBaiamonte]

No inflation? The money supply has increased over 9 trillion dollars in 11 years. Name a time in our history that matches up.

Inflation means price inflation. It has for a hundred years. It is what everyone means by inflation. Monetary inflation, and increase in the money supply, is called what? Oh yeah, monetary inflation. The word inflation in the definition of stagflation means price inflation. It always has.

Try using the same definitions of terms that everyone else does, instead of making up your own language. It will help you understand what other people are talking about and help you communicate.

This may explain why you are so confused about economics.

what a minute, you're the liberal so you are the one confused. Its easy to prove too. Please say somethng intelligent in support of liberalism. Thanks

 

[itfitzme]

Price increase is a result of inflation, which is really increases in the money supply. Welcome to econ 95

An increase in the money supply is required in order to keep up with a) increasing population b) increasing standard of living and c) modest increase in price inflation (aka inflation).

Increasing money supply, by the fundamental nature of MV = PQ, can go into two effects, a) increasing output and b) increasing prices.

Which increases depends on the state of the economy, whether it is at full output and full labor utilization.

The natural unemployment rate is considered to be about 5%. The Phillips curve notes that there is an inverse relationship between unemployment and inflation. Attempting to push unemployment down below the natural rate drives inflation up. When the terms stagflation was coined, the gov't had attempted to push unemployment down to 5%. The result was little movement in unemployment with considerable increase in inflation. It was decided the natural rate was about 7% at that time, thus explaining the problem.

You should start by reading Hume, "On Money". I have provided the link below.

Welcome to basic economics.

 

[EdwardBaiamonte]

Are you really this ignorant of the basics? Really?

I fail to see what he said that showed ignorance. Can you point it out please.

 

[Trajan]

No inflation? The money supply has increased over 9 trillion dollars in 11 years. Name a time in our history that matches up.

As a percentage? Umm, the 60's, 70's 80's and 90's were all higher.

File:Changes in US Money supply.svg - Wikipedia, the free encyclopedia

The total money supply has increased but the rate of increase has remained nearly the same for 20 years.
http://upload.wikimedia.org/wikipedia/commons/c/c4/Components_of_US_Money_supply.svg

that won't last, wait until the borrowing costs which they surely will, rise to the historic norm of 5%....then we are fucked and guess what?

 

[itfitzme]

Price increase is a result of inflation, which is really increases in the money supply. Welcome to econ 95

The Money Supply, M1,M2,&M3 has been falling in 2012. M1 is only slightly higher than in Jan 2009; M2 and M3 are both lower.

Money Supply Charts

It is even more meaningful adjusted for inflation and per capita. It would be nice to be able to adjust for standard of living, increased consumption per capita, but I have no clue how to determine that.

The fact that M1, in real dollar, per capita terms has remained relatively flat is a bit disconcerting. It suggests that standard of living, in terms of increasing consumption, has not increased much, if at all.

 

[saveliberty]

Most of the new money supply has been issued to pay government debt.

 

[Polk]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

That's not necessarily true. It would be nice if it was true (assuming the Fed just let that take its course instead of trying to suck the money out of the system rapidly), but it's not.

 

[itfitzme]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

That's not necessarily true. It would be nice if it was true (assuming the Fed just let that take its course instead of trying to suck the money out of the system rapidly), but it's not.

That is the the while point, isn't it, will they manage to pull all that back, how fast can they do it, and will they accomplish it with the right timing.

 

[itfitzme]

So this whole thread really comes down to whether one believes John Williams unpublished, unverifiable measure of inflation where he takes the BLS CPI, estimates an "error" and adds it into the CPI, or you believe all of the other verifiable, published, and independently consistent measures of inflation, including the BLS CPI, MIT's whatever that it, , and Federal Reserves PCE.

 

[Polk]

So, maybe it's not stagflation but just stagnation. Still not good, and eventually all that extra money will result in inflation.

That's not necessarily true. It would be nice if it was true (assuming the Fed just let that take its course instead of trying to suck the money out of the system rapidly), but it's not.

That is the the while point, isn't it, will they manage to pull all that back, how fast can they do it, and will they accomplish it with the right timing.

It would be desirable if they didn't pull it back too quickly, but I have my doubts about that. Bernanke has already said high unemployment doesn't bother him.

 

[Polk]

So this whole thread really comes down to whether one believes John Williams unpublished, unverifiable measure of inflation where he takes the BLS CPI, estimates an "error" and adds it into the CPI, or you believe all of the other verifiable, published, and independently consistent measures of inflation, including the BLS CPI, MIT's whatever that it, , and Federal Reserves PCE.

Don't know know MIT is cooking the books too?

 

[KissMy]

The Fed could decide to raise interest rates & write down or wipe out all the 13week, 2, 5 & 10 year T-Bonds it has been buying with QE1, QE2 & Operation Twist. That way the Government would not miss a debt payment due to high interest on it's debt like Greece. This would prevent inflation.

 

[itfitzme]

That's not necessarily true. It would be nice if it was true (assuming the Fed just let that take its course instead of trying to suck the money out of the system rapidly), but it's not.

That is the the while point, isn't it, will they manage to pull all that back, how fast can they do it, and will they accomplish it with the right timing.

It would be desirable if they didn't pull it back too quickly, but I have my doubts about that. Bernanke has already said high unemployment doesn't bother him.

What we have to realize is that the unemployment rate can only drop so fast. Right now, the economy is stable at 8.5% (or whatever) unemployment. In the 70's, ~7% was the natural rate. The money is there, for companies to borrow, if they see expansion as a real possibility, and they don't. There is no measure of what the current natural rate is. There is not real distinction between structural and frictional unemployment, they are overlapping and relative concepts. The only thing we might say indicates that it is structural is that we don't have inflation, in spite of easy money. Sure, there is demand out there, but is it enough, localized enough, to support a business? There are a lot of independent contractors still struggling to find enough local business to keep paying the bills.

There is labor demand, in trucking and medical, but people are not trained. That takes time, it takes individuals willing to take the risk on loans, if their credit isn't trashed, and pell grants if they can get them. Even before that can happen, they have to discover the idea.

Short of investment in start-ups and new technology, betting on future demand, growth is incremental, a job here, a bit of demand, another job there. Beyond jobs work programs, investment in infrastructure, increasing defense spending, and the Fed increasing the monetary base, there isn't much that the gov't can do.

I am not sure what Bernanke meant by "high unemployment doesn't bother him". It would be interesting to know the context.

But the thing is, the Fed can only give the economy more rope, it can't make the economy ramp up. That is up to the markets.

I'd really like to know what all these whiner's expect the gov't to do. Tax cuts were extended. The banks and auto industry were bailed out. The money supply was increased. Inflation is stable. Programs have been created to help stabilize the housing market. Food stamps are, at least, keeping people from going hungry.

I hear a lot of whining about the unemployment rate and the sluggish economy, but not much in the say of actual details of what they expect should happen. What else do they propose, increase the size of the military?

 

[Polk]

The idea that high unemployment is the "new normal" becomes fashionable during every recession, and it turns out to never be true. People were making the same arguments you are during the late 1930s, then the war came an unemployment dropped to almost zero. It wasn't purely a war effect either, as unemployment didn't skyrocket at war's end.

 

[KissMy]

The idea that high unemployment is the "new normal" becomes fashionable during every recession, and it turns out to never be true. People were making the same arguments you are during the late 1930s, then the war came an unemployment dropped to almost zero. It wasn't purely a war effect either, as unemployment didn't skyrocket at war's end.

When the Boomers retire allowing the unemployed to take their place it may help the jobs situation. There should also be more jobs taking care of these retired people.

 

[itfitzme]

The idea that high unemployment is the "new normal" becomes fashionable during every recession, and it turns out to never be true. People were making the same arguments you are during the late 1930s, then the war came an unemployment dropped to almost zero. It wasn't purely a war effect either, as unemployment didn't skyrocket at war's end.

I'm not saying it's a "new normal". I'm just saying that, right now, it is what it is because of the current state of the economy. To say that it should be 5%, right now, is an artificial concept. It is really a question of how quickly it will get from what it is, right now, to what it can be later. In the long run, output goes to "maximum".

But I am not sure that we have even seen a "long run" since the 50's, or ever. Maybe in the '70s? What we have seen are a series of expansions based on product "bubbles" (more like sprints) punctuated by recessions as the economy attempts to find some equilibrium but under shoots.

New consumer products are invented. A dozen companies get in on the program. Unemployment falls. Consumption rises. The market gets build out. Companies fall by the wayside. Unemployment rises. Consumption for the very product that was created falls below it's steady state level. Slowly unemployment returns to a more natural rate. Consumption increases. The new product sales rise to the level that it just replaces purchase that have worn out and keeps up with increasing demand on population growth. The system settles into a steady state.

Except, all the while, another new service or product is coming into existence, one "bubble" overlapping another. If all goes well, the decline from one previous bubble is overlapped by the increase in another. This time around, everything was built out with no new service or product picking up the slack. The final end game, individual property ownership, became the final bubble. The economy fell back hard and undershot it's long term natural rate. And right now, the short term rate is a bit higher than we would like to see it. Ouch, that hurts, but then we aren't all dead yet so it can't be all that bad.

It helps to understand how feedback systems function, seeking an equilibrium. They always overshoot the steady state condition. And when the underlying structure keeps changing, it's kind of hard for the feedback system to reach a constantly changing set point. It's just laughable, in a morbid sort of way, at the idea of the economy desperately seeking an ever changing set point. It's like moving the goal post after the kicker has kicked the football.

It must be pretty apparent for companies that supply basic products, like grocery stores. People don't change how hungry they get. The population doesn't suddenly decrease. And yet they are well aware of demand cycling. It's gotta look a bit odd from their perspective when suddenly people just aren't eating as much. And then they have to lay off a couple of employees, employees that are also customers (that's how grocery stores work), and think, damn, there goes another customer. But then, she was returning only 15% of what we were paying her anyways, so it isn't worth it.

Se trade off a certain level of stability for the sake of growth. Implementing new efficiency tools increases output and standard of living. For that, some people have to find something new to do. If efficiency increases faster then people can find new products to supply, then it is a bit of an issue. If we had absolute stability, we'd have far less of an issue, if any at all. But then we'd have that standard of living of the former USSR. That was a feedback system that was over damped, always chasing it's steady state condition, never reaching it because it kept moving upward. As long as you never taste caviar, you don't know better. But you better have enough bread.

The problem with accepting better growth is accepting the variability. It's a bitch to have to start eating hamburger again, once we've gotten use to fillet minion.

But, you know, that's just a general impression, based on decades of observation and anecdotes.

 

[Polk]

But saying it's the current state of the economy (which I agree with, by the way) doesn't really line up with your argument that lack of skills is a major factor.

And before someone asks, Bernanke has never directly stated he doesn't care about high unemployment. However, that's the clear implication when he says he could take further steps to help the economy, but doesn't because of inflationary fears. I would recommend Bernanke take a look at what Switzerland has done during the current crisis to prevent the value of the franc from rising.