FED and Inflation

[piezoe]

Quote from heypa:

piezoe
I happen to have a 1964 2\nd edition of Funk and Wagnalls in my book case. It defines inflation as 1. The act of inflating or the state of being inflated. 2 An unstable rise in price levels due to an increase in currency and a mounting demand for goods.
Great definition! My observation. I'm an old guy (87) so i am a bit old fashioned and do not like the changing language.In my school days the term due to always referred to a debt. Also a question. Is inflation always an unstable condition? If so the Fed has been doing a great job of contradicting this definition since 1913!

Congratulations, heypa, 87 is pretty impressive! I'm not quite there yet but approaching. If I am as lucid as you are at 87, I'll be very pleased, indeed! I'm not sure why they included the word "unstable" in that definition, because it is redundant,i.e., if prices are rising, they are not stable.

The definition I quoted, by the way, was word for word from Samuelson, 1985 ed. That book came out in 1948.

Samuelson's definition does not include the reason for inflation, because once you have defined it as a general rise in price and cost (or as I prefer: a rise in the general cost of goods and services), the reason can be anything.

Interestingly, while we generally think of price increases as being caused either by increased demand or a devalued currency, Soros, in his beautiful little book: "The Soros lectures at the Central European University" -- have you read it? -- points out that demand not only doesn't have to be rational, but often isn't. Naturally irrational demand leads to irrational pricing . One of several, important Soros contributions to our understanding of markets is to recognize that the converse is also true. Irrational pricing can lead to irrational demand, via a positive feedback loop that pushes prices to absurd highs, or lows. (The Dutch Tulip Bulb frenzy of the 17th Century is an perfect example, as is the Tech bubble in the stock market.)

I would say that Soros's single most important contribution to economics, however, is his recognition that "Market Equilibrium Theory" is wrong. This should have a major impact on how central banks operate, once the importance of this is fully recognized and widely accepted. I am very confident that Soros is correct on this matter, as proven by real events.

 

[piezoe]

Quote from oldtime:

best definition of printing was

you need some money

I go back in my bedroom and print it up and give it to you

when you pay it back, we throw it in the fireplace and sit and have a brandy together

Beautiful. And the central banks goal should be to have their QE version of "printing" work out just as you've described!

Well done, my friend.

 

[brokerboy]

you kind get my point about not understanding what inflation means now. the added currency is in a limited amount of hands so i don't understand if that makes it not inflation.

japan is going to teach everybody a hard lesson soon with the JGB and printing money.

Quote from heypa:

piezoe
I happen to have a 1964 2\nd edition of Funk and Wagnalls in my book case. It defines inflation as 1. The act of inflating or the state of being inflated. 2 An unstable rise in price levels due to an increase in currency and a mounting demand for goods.
Great definition! My observation. I'm an old guy (87) so i am a bit old fashioned and do not like the changing language.In my school days the term due to always referred to a debt. Also a question. Is inflation always an unstable condition? If so the Fed has been doing a great job of contradicting this definition since 1913!

 

[piezoe]

Quote from brokerboy:

you kind get my point about not understanding what inflation means now. the added currency is in a limited amount of hands so i don't understand if that makes it not inflation.

japan is going to teach everybody a hard lesson soon with the JGB and printing money.

brokerboy, it seems your post was really directed at heypa, who may decide to also respond, but please let me state a couple things that might bear on your very good, but difficult to answer, question.

First lets clear this up. Inflation is just a general rise in the cost of goods and services, and the cause does not matter. It is still inflation regardless of the cause. Your difficult question was, i believe, if there is an increase in the money supply but it remains concentrated in a few hands, does it cause inflation?

I am going to guess that if the new money does not get spent and just sits under a rock in a backyard -- equivalent to, I suppose, remaining "...in a limited amount of hands" -- that it does not cause inflation any more than the treasury printing a trillion dollars and then locking them up in a safe would cause inflation.

However please don't accept my answer blindly. It could be very wrong. And I suspect that whether or not it was generally known that the treasury, or your "limited amount of hands" was sitting on an extra trillion dollars would make a difference. If, for example, the Congress knew that the Treasury had "under their butts," as vicirek would say, a trillion dollars, how long do you think the extra trillion would stay locked up, or in a "limited amount of hands."?

Your question, as you posed it, can't be answered wisely. So I went ahead and answered it unwisely, to my regret, i'm sure. But perhaps heypa will have a more satisfactory response for you.

By the way, are you really a boy? How old are you?

 

[brokerboy]

no far from a boy just a screen name. your answer might be totally right i only ask because most are worse off from last crash and a few are 30% wealthier. there is always a debate about the real inflation so i was curious about that theory.

Quote from piezoe:



Your question, as you posed it, can't be answered wisely. So I went ahead and answered it unwisely, to my regret, i'm sure. But perhaps heypa will have a more satisfactory response for you.

By the way, are you really a boy? How old are you?

 

[HeSaidSheSaid]

Quote from bluematrix:

I don't think it's a inflation question. there always will be inflation. it's a equality of wealth issue. whether we have inflation or deflation it will effect all in a non-linear way - depending what balance assets/cash you hold, right? if a poor person has income of $100 a week he might spend 80% of that on food maybe 100%. a rich person who earns $4,000 a week will only spend about 2% of his income on food (the same $100). so when u have price of food going up it hurts the poor more as it's most of their consumption. the rich guy has rest of money in stocks or other assets. but how did all this happen in the first place, where u have a poor kid and rich kid? don't most people just born rich or poor? the ones that make the transition are extraordinary in their crowds.

and it's also tricky channeling wealth to the poor. you can change income tax but still tricky. some of them don't even have a job or on low pay so it doesn't have an impact. unless the fed takes a helicopter out and throws out dollars, there remains only a few legals ways. Pushing up asset values is one way, but won't work if they don't own any. in the UK they're literally given cash to people from cancelling insurance policies.

the underlying problems to much this is social structure. yes at the top I'm sure there are some seriously wealthy people who mgiht be greedy too etc. but at the bottom, you have lot of truly dumb people who are very high in the numbers. they don't really want a job, or maybe not smart enough or simply happy as they are with benefits. not everyone is striving to be rich. and not everyone gives a shit about the inequality - if they really did they'll be on the streets. the ones that do are few in the middle class - who are making transitions in wealth status. they have a lot to talk about because they see both sides of the coin, but most likely they just want better jobs or a pay rise.

I think Bernanke is lazy. He opts for a top-down, easy way to solve the hard problem by puming more money into the system since 2007 while goods and services in the system are not expanding, inevitably, that has caused inflation in the system. Evedently, costs of everyday stuff have spiked up in the recent years; I think the FED should approach the economy from bottom up like they did in the New Deal era (organically). this approach would generate more wealth, goods and services in the system... get that money moving through or around the system. otherwise, more money competes for shrinking resources, then inflation inevitably occurs, and it has!

 

[HeSaidSheSaid]

attached is the crappy job report for the Month of April... job quality sucks, a lot of jobs are in service sector. They're not going to last long.... there's one curious category. it's called "private-service providing", does it sound like "prostitution" ?

 

[heypa]

I have only one thing to say about inflation and that is" The government never reports it consistently, only in a way that tries to make their reports look as favorably for them as possible.". It is a difficult task because inflation affects different socioeconomic groups differently.

 

[piezoe]

Quote from HeSaidSheSaid:

I think Bernanke is lazy. He opts for a top-down, easy way to solve the hard problem by puming more money into the system since 2007 while goods and services in the system are not expanding, inevitably, that has caused inflation in the system. Evedently, costs of everyday stuff have spiked up in the recent years; I think the FED should approach the economy from bottom up like they did in the New Deal era (organically). this approach would generate more wealth, goods and services in the system... get that money moving through or around the system. otherwise, more money competes for shrinking resources, then inflation inevitably occurs, and it has!

Well, let us remember that the Fed mandate does not include the bottom up approach you are referring to. And the Fed certainly does not have the tools in its toolkit to pull that off. That would be a job for Congress and the Executive branch, just as it was in the 1930's..

I think the Executive Branch would very much favor the full-on, bottom-up, "organic" approach you speak of, but the Republicans would raise their shrill voices against the "commie, socialist, baby murderer, gun hating, Kenyan, muslim President, Hussein Obama," and dig their heels in even deeper then they have already. If that didn't stop it, the Court would, five to four. It's not doable in the current political environment.

 

[piezoe]

Quote from brokerboy:

no far from a boy just a screen name. your answer might be totally right i only ask because most are worse off from last crash and a few are 30% wealthier. there is always a debate about the real inflation so i was curious about that theory.

Most likely what you are observing is just a consequence of Capital being able to take advantage of the type of asset appreciation we've experienced since the crash, whereas Labor has seen relatively little benefit. In terms of numbers, far fewer are Capital than are Labor.

The presence of inflation well above the official figures in a few sectors tells me that money is being spent. If it wasn't, I assure you, there would be no inflation.