The only problem is there is already rampant inflation in things people need to buy and Bernanke is talking like there is serious deflation. So by the time the US government figures out there is inflation, there is no way you put the cat back in the bag unless you get a Volker-like Fed. Even then, Volker had to raise rates for a very long time to ridiculous rates in order to break the back of inflation. And I don't see that happening under the current regime. Basically, anybody who thinks there is no inflation right now must use hirelings to do their grocery shopping and not pay attention to monthly bills.
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Bernanke is right
- Thread starter intradaybill
- Start date
The only problem is there is already rampant inflation in things people need to buy and Bernanke is talking like there is serious deflation. So by the time the US government figures out there is inflation, there is no way you put the cat back in the bag unless you get a Volker-like Fed. Even then, Volker had to raise rates for a very long time to ridiculous rates in order to break the back of inflation. And I don't see that happening under the current regime. Basically, anybody who thinks there is no inflation right now must use hirelings to do their grocery shopping and not pay attention to monthly bills.
Quote from sprstpd:
The only problem is there is already rampant inflation in things people need to buy and Bernanke is talking like there is serious deflation. So by the time the US government figures out there is inflation, there is no way you put the cat back in the bag unless you get a Volker-like Fed. Even then, Volker had to raise rates for a very long time to ridiculous rates in order to break the back of inflation. And I don't see that happening under the current regime. Basically, anybody who thinks there is no inflation right now must use hirelings to do their grocery shopping and not pay attention to monthly bills.
rampant inflation is not here yet. it is a subject that deserves a thread of own.
on this thread the debate centered on the effects of deflation primarily mild deflation. there is a lot of screaming about the effects of deflation but with very little factual support to prove the deleterious effects of mild deflation in japan.
e.g. suicide rates etc. prove nothing. no proof has been offered of causality between suicide and deflation. furthermore the number of suicides has stayed at about the same number for years. they have been just north of 30,000 /year. the yen unlike the $US is not being dumped by foreigners or the japanese themselves.
bernanke is not only fighting the wrong battle but he is destroying the dollar with his actions. take a look at the chart of the dollar vs. yen or the Norwegian krone or the canadian dollar. the euro is a sick currency and it has not collapsed again the dollar. the price of gold is telling you that bernanke is not acting in the best interest of the US . he may think he does but that doesn't make it that way.
Quote from Nine_Ender:
In reality, we have very little inflation right now, and the recession in the US has already ended. Looking at world history, it seems that a gradual rise in inflation is the best option, far better then a deflationary environment.
If inflation and/or GDP starts to spike, the US government will put the brakes on it fairly quickly. Canada provides a good example. We were growing faster then the US, and started to raise interest rates. This trend ended when we had a one month flat GDP, suggesting they may have overdone their changes. This kind of give and take will go on for several years. Now the US is starting to grow should be interesting to see how it all plays out in 2011.
Investing in this environment is easy. Corporations are doing exceedingly well, and their outlook is even better in 2011. If you can afford it, buy a piece of them. The bonus is if the US economy truly kicks in and jobs appear, this could be something really big.
Otherwise, the bad side can't possibly appear until summer 2012, unless we get some massive geopolitical event like a Korean War.
I'm starting to understand the US panic on these investment sites. Your country had it too good for too long, and the idea of working hard for less with higher taxes must be disappointing.
The main thing you should be focussing on is why the top 1% of your population is still fleecing the remaining 99% to such a degree despite the downturn in 2008.
I'd like to address this post first, although intradaybill wrote an intelligent reply as well.
Your post is way off the mark I'm afraid as it has based most of its analysis on faulty economic statistics. "The recession has ended", at this point in 2010, we've gone so far off the deep end of tinkering with GDP, CPI, unemployment stats that absolutely nobody has the authority to make such grandiose statements with absolute certainty. There is a very strong case to be made that we never exited the recession as the true unemployment picture combined with the massive drops in consumer credit stats, food stamp applications and housing starts, amongst a myriad of other cut in stone stats paint the real picture.
Corporations, by and large, are doing better, but I'd argue that it has little to do with "organic" demand, rather it's been a combination of layoffs, cheap borrowing costs, reduced wage pressure and, most importantly, the 'trickle down" effect of massive government monetary stimulus. That should never be overlooked, as not only the traditional direct to corporate type of stimulus policies have aided corporations, but the secondary bailouts in the form of generous unemployment benefits, a backlog of foreclosure proceedings and increased public sector hiring and wage growth have kept consumer spending from falling off a cliff.
"If inflation or GDP spike, the government will put the brakes on it quickly". Since the government does everything in its power to NOT measure inflation OR to tinker with GDP if the numbers do not fit the thesis, I've got zero confidence that they will put on the brakes. In case you haven't been paying attention, the last time Bernanke "put on the brakes" 3 years ago or so, commodities collapsed and soon thereafter the entire mortgage market collapsed. Instead of dealing with the inherent structural problems, they decided to paper over it with increased monetary hijinks. If you honestly believe that the economy has a stronger fundamental base here in 2010 than in 2007, then we'll simply have to disagree. The dependence upon continued and perpetual stop gap measures is largely the reason at this point for marginally increasing confidence..(I'd still argue that it's simply the lemming effect of rising asset prices boosting confidence, as even Ben admitted was a policy tool).
Lastly, I'm not sure where you think that jobs will appear this time around. As I wrote the other day, the 2008 panic was simply a response to the artificial and targeted housing bubble that the Fed engineered in response to the 2002 tech collapse. The fundamentals for that sector of the economy producing jobs was short-lived, short-sighted and ultimately disastrous for the economy. TPTB have been targeting sectors of the economy for the past 15 years in response to diminished pressure on wages due to the globalized economy, as such, there biggest policy tool is to try and manufacture asset inflation in sectors of the economy where they believe a potential spillover effect into the real economy could produce, temporarily, some job growth.
This time around, it's mainly a public sector type of stimulus, where the government has experienced the most job growth and wage growth. Unfortunately, that comes at the expense of the taxpayers and the private sector, so it's a net drain.
Game on, zdreg.
Time will tell who has the right outlook. I promise to be the first to say on this forum that you were right and I was wrong if the U.S. doesn't fall into another deflationary leg in 2011 as I anticipate. I hope I'm the one eating humble pie for all of our sakes.
You don't like my argument regarding Japan. You certainly don't agree with my U.S. outlook. Not sure what else to do for you there without writing a book, and frankly I've grown tired of trying, so I'll let time speak for itself.
Good luck, buddy!
Time will tell who has the right outlook. I promise to be the first to say on this forum that you were right and I was wrong if the U.S. doesn't fall into another deflationary leg in 2011 as I anticipate. I hope I'm the one eating humble pie for all of our sakes.
You don't like my argument regarding Japan. You certainly don't agree with my U.S. outlook. Not sure what else to do for you there without writing a book, and frankly I've grown tired of trying, so I'll let time speak for itself.
Good luck, buddy!
Sorry, I went on vacation before responding, but I see that Fetus has been discussing the same issue...
Quote from intradaybill:
To start with, happy holidays to all.
I see nothing wrong with the above. trefoil is - as always - spot on because he knows and understands economics in depth.
Why protecting savers? This cannot be an axiom. Savers demand a cut from the wealth generated by the production of borrowers. Where does the interest come from otherwise? Thus, it is not the only truth that savers get hit during inflation at the expense of borrowers. Borrowers get hit by savers for extended periods of time, when lenders demand higher interest; this high rate is passed to the lenders by the banks. It is the borrowers that produce wealth, keep this in mind. This is one reason that (a) the banking institution is necessary for the production of future wealth and (b) that a nominal inflation rate is always good to avoid morbid capital accumulation.
What is happening in Europe for example, is the fact that the elite there, a group of oligarchs, is refusing to accept a little inflation. These oligarchs have instituted the mandate of ECB which is solely "zero inflation". In Europe they do not think creation of any more wealth is necessary because they can leave this mundane task to Americans and then impose fines to them like they did to MSFT and INTC. Thus, the oligarchs, instead of printing some money to finance the debt of those countries that bought their products, they want to use their surplus to lend again those countries and consumers. This is a different situation than what is happening in the US where the problem is an uncontrollable transfer of wealth to China in the past decade.
So we have the situation that American savers must give up some in the form of inflation and European borrowers must borrow more. The resolution of this conflict cannot be other than the collapse of one of the two economies. I believe Europe will collapse. The force will not be economic but social. The unrest will leave no room for functioning governments and they will have to either establish martial law or dissolve the union and go to local currencies with a simultaneous erase of all debt.
Aha! So this is where denner got the idea of me being an expert.
Thanks for the compliment, but I'm just another piker like everyone else around here. If I really understood things that well, I'd be writing this from my yacht on the Mediterranean, as I was being served martinis by a sweet young thing in a bikini.
More's the pity...
BTW, I think the euro will go down, at least to the extent that some countries will be forced out. But I don't think a general collapse of Europe is in the cards. Just the usual underperformance vs the US, which has been going on forever. Case in point is how Apple cratered Nokia's business when it came out with the iPhone. Europe seems incapable of keeping up with US innovation.