Inflation, disinfaltion or deflation?

[Sail Away]

OK, it’s not that I don’t believe government statistics but they have been known to tweek criteria. Most notably the durability/reliability multipliers in the CPI and PCE. Objectionable economists (even those within the CBO) believe that the durability/reliability multipliers understates inflation. I really find it hard to believe that we are experiencing 1% to 1.5% inflation when equities are up, soft commodities are way, way up and oil is approaching $100/barrel. The 1970s (oil) supply shocks, alone, were enough to spurn double digit inflation. I understand the concept that deleveraging and lower (retail) prices are supposed to negate the affects of increased money supply (which should generate inflation). I just don’t believe that it is happening that way. I really believe that we are experiencing some substantial inflation and being lied to. Has anyone read anything about this?

 

[LordBrownTrout]

Good luck on trying to decipher the deflation, inflation, bubbles. There is no way that oil should be at 100 dollars a barrel.

 

[Sail Away]

I hate to answer my own post but... Whenever I'm lied to, I ask myself; what motive would there be to justify the lie? Hence, what motive would the government/FED have to lie about low/no inflation? Well, if there is substantial inflation, what are the proven hedges? Answer; futures, gold and real estate. Considering the sub-prime bubble has all but destroyed real estate and there are few novice players in commodities markets, the most relevant choice would be gold. Now ask yourself, what is an ailing economy's worst enemy? Answer: not spending and taking dollars out of the economy. That answer basically defines the concept of using physical gold as a hedge. This "gold = economic enemy" logic could justify a motive for a low/no inflation lie formulated by government/FED.

Am I nuts here?

 

[boedicca]

The motive is twofold:

- Inflationary concerns increase interest rates. Considering the enormous level of federal debt, an increase in rates would spike the interest burden, and worsen the federal deficit.

- To justify no increases in SS benefits. Another budgetary gimmick. The elderly who live on SS are likely very much affected by higher food and energy costs. So, the Feds conveniently exclude both from the inflation rate in order to claim that there is no or low inflation. (SS increases have historically been tied to wage inflation, but most recipients don't care about that - they care about their cost of living).

 

[Sail Away]

So do you believe the Fed's story that inflation is 1 to 1.5 percent?

 

[boedicca]

I believe this:

Alternate Inflation Charts

 

[Sail Away]

So if this chart is accurate, we are experiencing around 10% inflation by 1980 CPI standards. This 10% has huge potential to escalate considering oil and soft commodity prices rising. Is the the government's way of curing potential stagflation? If they "massage" data enough, there will never be substantially high inflation again. Hence, there can never be stagflation. This is right-in-line the government's allegiance to Keynesian principals as JMK never visualized stagflation. Now stagflation cannot exist, so JMK was right again.

 

[william the wie]

While it is a bit more complicated with hot money, deleveraging and worldwide food shortages complicating the issue that's about it.

 

[Neubarth]

The motive is twofold:

- Inflationary concerns increase interest rates. Considering the enormous level of federal debt, an increase in rates would spike the interest burden, and worsen the federal deficit.

- To justify no increases in SS benefits. Another budgetary gimmick. The elderly who live on SS are likely very much affected by higher food and energy costs. So, the Feds conveniently exclude both from the inflation rate in order to claim that there is no or low inflation. (SS increases have historically been tied to wage inflation, but most recipients don't care about that - they care about their cost of living).

I think you might be wrong on this boedicca. CPI-W as best I remember includes food and energy in the index.

 

[Norman]

HYPER, inflation

Seriously: according to bernanke inflation is not high enough and he has good enough control of inflation...

So... I would say higher than average inflation and if things turn bad very, very high inflation.

 

[Neubarth]

HYPER, inflation

Seriously: according to bernanke inflation is not high enough and he has good enough control of inflation...

So... I would say higher than average inflation and if things turn bad very, very high inflation.

People have been saying "very high inflation" for well over a year now, but we have not seen it. I am beginning to wonder.

 

[Sail Away]

So you buy into the FED current 1% to 1.5% report, despite the screaming equities price and food/gas price hikes?

 

[Norman]

HYPER, inflation

Seriously: according to bernanke inflation is not high enough and he has good enough control of inflation...

So... I would say higher than average inflation and if things turn bad very, very high inflation.

People have been saying "very high inflation" for well over a year now, but we have not seen it. I am beginning to wonder.

There will be very high inflation if the chinese send their dollars back and if the US debt is no longer considered worthy. In other words if the reserve standard of dollar is forgotten.

Obviously that will only happen when they abandon the dollar, so of course there is nothing untill it happens

Other reason for highish inflation is QE 3 that might well be initiated if US can't get more debt. Anyway it is not like the inflation is low even now.

Of course that inflation and eventual interest rate hikes lead to even more defaults, and the fed has to then print even MORE money, soo... that might lead to hyper inflation if they bail everyone.

Year is nothing, I doubt many people have said it has to happen THIS YEAR, but rather if this continues it will happen in like 5 years.

 

[Neubarth]

So you buy into the FED current 1% to 1.5% report, despite the screaming equities price and food/gas price hikes?

I have NEVER once said that.

In fact, I have posted many articles to the contrary, as I sincerely doubt the government means of tabulation for prices. Most everybody on the board knows that I do not accept the government numbers because all of their calibrations are politically motivated.

I know for a fact that in the past few months that food prices have gone up between fifteen and twenty percent. The government says that has not happened. Where are THEY getting their numbers from???? Certainly not from the grocery stores.

 

[Neubarth]

HYPER, inflation

Seriously: according to bernanke inflation is not high enough and he has good enough control of inflation...

So... I would say higher than average inflation and if things turn bad very, very high inflation.

People have been saying "very high inflation" for well over a year now, but we have not seen it. I am beginning to wonder.

There will be very high inflation if the chinese send their dollars back and if the US debt is no longer considered worthy. In other words if the reserve standard of dollar is forgotten.

Obviously that will only happen when they abandon the dollar, so of course there is nothing untill it happens

Other reason for highish inflation is QE 3 that might well be initiated if US can't get more debt. Anyway it is not like the inflation is low even now.

Of course that inflation and eventual interest rate hikes lead to even more defaults, and the fed has to then print even MORE money, soo... that might lead to hyper inflation if they bail everyone.

Year is nothing, I doubt many people have said it has to happen THIS YEAR, but rather if this continues it will happen in like 5 years.

Norman, you are wrong. The Chinese can send all of their Dollars back to the United States if they want and it will not cause inflation in this country. The FED will just buy the dollars as necessary. Remember the US Government does NOT pay interest on the bonds the FED buys. I am totally in favor of the FED buying all US debt.

The FED is the greatest deal this country has ever had.

 

[Neubarth]

There is no way that oil should be at 100 dollars a barrel.

Actually if the Petroleum Exporting countries of the world would wise up, the price should be well over $500 a barrel

 

[Norman]

People have been saying "very high inflation" for well over a year now, but we have not seen it. I am beginning to wonder.

There will be very high inflation if the chinese send their dollars back and if the US debt is no longer considered worthy. In other words if the reserve standard of dollar is forgotten.

Obviously that will only happen when they abandon the dollar, so of course there is nothing untill it happens

Other reason for highish inflation is QE 3 that might well be initiated if US can't get more debt. Anyway it is not like the inflation is low even now.

Of course that inflation and eventual interest rate hikes lead to even more defaults, and the fed has to then print even MORE money, soo... that might lead to hyper inflation if they bail everyone.

Year is nothing, I doubt many people have said it has to happen THIS YEAR, but rather if this continues it will happen in like 5 years.

Norman, you are wrong. The Chinese can send all of their Dollars back to the United States if they want and it will not cause inflation in this country. The FED will just buy the dollars as necessary. Remember the US Government does NOT pay interest on the bonds the FED buys. I am totally in favor of the FED buying all US debt.

The FED is the greatest deal this country has ever had.

China will still buy stuff from US with those dollars, which will make prices sky rocket. Less supply = higher prices. Further at that point they won't also be subsidizing the dollar, which means the "free stuff" is also going to be gone meaning even less supply.

PLUS the fed has to sell treasuries to buy those dollars... and exactly who is going to buy all those 3?trillion worth of treasuries from the fed? The interest rates will soar so hugely that US will have to default on it's debt if this happens. In other words, even though technically the FED can prevent any inflation, it is very, very unlikely that it does so. This will also make the FED's balance sheet go to the red by huge margin, which will need to be taxed from citizens. So... there really is no way that there won't be inflation or massive default at least.

The fed is really the worst deal US ever had IMO.

 

[Sail Away]

Other reason for highish inflation is QE 3 that might well be initiated if US can't get more debt. Anyway it is not like the inflation is low even now.

Of course that inflation and eventual interest rate hikes lead to even more defaults, and the fed has to then print even MORE money, soo... that might lead to hyper inflation if they bail everyone.

I think there would be a devaluation before it would get to that level. Those aren't pretty either.

 

[Sail Away]

There is no way that oil should be at 100 dollars a barrel.

Dude, why would say this? Here are five biggies would say the opposite:

1. The sanctions against Iran, (the world's fourth largest oil exporter) will limit production/exports. Germany, the leading manufacturer of oil industry equipment, can't even sell Iran refinery and well equip.

2. China and India the world's two most populist countries have been described as "car crazy". Car (petrol driven) sales is booming in these countries.

3. Obama's drilling moratorium and the EPA's closure of several Gulf oil platforms will affect price.

4. I have read (several places) that the world's largest oil consuming entity, the Pentagon, is expecting oil shortages starting 2012/2013.

5. It's "commodities gone wild"! Soft commodities have gone way, way up. Hard commodities are almost as high. Silver and copper prices are through the roof (thank China for that). It's time for the speculators to start coming out of the woodwork (if they haven't already).

You should be buying futures.

 

[Norman]

Other reason for highish inflation is QE 3 that might well be initiated if US can't get more debt. Anyway it is not like the inflation is low even now.

Of course that inflation and eventual interest rate hikes lead to even more defaults, and the fed has to then print even MORE money, soo... that might lead to hyper inflation if they bail everyone.

I think there would be a devaluation before it would get to that level. Those aren't pretty either.

What do you mean by devaluation? The dollar floats.

Do you mean that they would fix the dollar to foreign currencies legally? Because that will just make matters worse.... also remember that the rest of the world already has dollars so they are not trying to buy american goods with their currency, but dollars. All the classic bad things of fixed currency would apply here.

Anyway it is amazing that the dollar is going as strong as it is. At least IMO, but I of course maybe completely wrong. If I would have to bet my money on some bubble after the housing bubble, the dollar / US debt bubble is definitely my answer.