Inflation at 53-year low as QE money printing rages unabated!
- Thread starter Ricter
- Start date
I have a suspicion that you know the answer to this, but I'll respond anyway.
The Fed aims for 2% inflation over the long term. However, there are various issues with this.
1. The 2% goal they refer to is with PCE, not CPI. CPI is provided by the BLS, and PCE by the BEA.
2. PCE is typically lower than CPI, but CPI is more relevant for consumers.
3. The 2% inflation target was established when wages were considered to be rising in balance/lock step with inflation (real vs. nominal, as it were). They aren't doing so anymore (and haven't been in some time), so inflation is more impactful and the 2% target needs to be adjusted accordingly.
4. The 2% target is subject to the same flaws that the CPI/PCE substitution issues are.
Regardless, this is just another post to dispel the "lowflation" silliness. Unless you consider that narrative no longer valid and dutifully redact your original thesis.
"3. The 2% inflation target was established when wages were considered to be rising in balance/lock step with inflation (real vs. nominal, as it were). They aren't doing so anymore, so inflation is more impactful and the 2% target needs to be adjusted accordingly."
I think a larger share of productivity increases, i.e. compensation, should be going to the rank and file. It's not as if profits are flat, or private sector cash reserves are dwindling. So I see this as a distribution problem, not a Fed problem. After all, wages did rise in lockstep with productivity and profits at one time. When the rank and file had some muscle to win those wages. Coincidentally, a time when union density was higher.
2% is reasonable. It's high enough to keep money moving, high enough to cushion most shocks that might tip us into deflation, and yet unremarkable by historical standards.
I think a larger share of productivity increases, i.e. compensation, should be going to the rank and file. It's not as if profits are flat, or private sector cash reserves are dwindling. So I see this as a distribution problem, not a Fed problem. After all, wages did rise in lockstep with productivity and profits at one time. When the rank and file had some muscle to win those wages. Coincidentally, a time when union density was higher.
2% is reasonable. It's high enough to keep money moving, high enough to cushion most shocks that might tip us into deflation, and yet unremarkable by historical standards.
2% is only reasonable if it were applied to something easily identifiable and not easily manipulated. Overall money in circulation, for example. That keeps money "moving' as you say, and everything else is, as you also note, a distribution question - not something the Fed is responsible for.
The Fed has been given all this power by a congress which is too lazy to solve the issues on it's own. So it's "Mr. Chairman, get to work" bullshit.
The Fed may care for the common person (even that is something I don't necessarily believe), but they have no ability to directly influence what happens to the common person. All they can do is dump money onto speculators, hedge funds, banks in the hope that the receivers of this new money will do something wise with it - for the betterment of the country. They never do, of course, because doing things for the good of the country isn't what brings the big returns. So they speculate and drive asset bubbles.
The Fed, thus, is a huge part of the problem.
"All they can do is dump money onto speculators, hedge funds, banks in the hope that the receivers of this new money will do something wise with it - for the betterment of the country. They never do, of course, because doing things for the good of the country isn't what brings the big returns."
I disagree with "they never do". Sometimes, when investment looks profitable, they do in fact invest. But at this point in the "recovery" most of us have already upgraded our machinery and such (I'm a little isolated, being in energy, but I'm assuming the large reserves other companies report point to the same general state of affairs). Further investment would require positive expectations for future sales. But, you "can't make sales if everyone is broke". There is more than enough currency around for a vibrant economy (maybe too much, as you say), but it is all on one side of the sales counter. And background forces are pushing it to stay that way, until we rewrite the rules for "access to resources". Demography is one force, and another...
Half of Europeâs Jobs Threatened by Machines in Echo of U.S. Risk
By Simon Kennedy Jul 22, 2014 4:04 AM MT
If you think the euro area has a hiring problem now with double-digit unemployment, wait until the future hits.
Fifty-four percent of jobs in the 28-member European Union are at risk of advances in computerization, according to a study by economist Jeremy Bowles published by Bruegel, a Brussels-based research organization.
Inspired by research from Carl Frey and Michael Osborne of Oxford University, Bowles sought to calculate how many jobs were prone to technological advances across Europe. His number-crunching came up with 40 percent to more than 60 percent, depending on the country.
That compares with the September 2013 finding of Frey and Osborne that 47 percent of Americans in 2010 ranked in the risky category, meaning their roles could possibly be automated over the next decade or two.
Northern countries such as the U.K., Germany and France have a computerization risk level similar to that in the U.S., found Bowles, who works at the International Growth Centre based at the London School of Economics.
Bowles said it was unsurprising that those in peripheral economies such as Italy will suffer the most given Frey and Osborneâs findings that developments in machine learning and mobile robotics will hurt low-wage, low-skill sectors previously immune from technological breakthroughs.
That said, the effect may be moderated by the fact such countries have historically adopted technology more slowly than their neighbors, he said.
âIf we believe that technology will be able to overcome traditional hurdles among non-routine cognitive tasks then we must equip the next generation of workers with skills that benefit technology rather than being threatened by it,â said Bowles.
http://www.bloomberg.com/news/2014-...-threatened-by-machines-in-u-s-risk-echo.html
I disagree with "they never do". Sometimes, when investment looks profitable, they do in fact invest. But at this point in the "recovery" most of us have already upgraded our machinery and such (I'm a little isolated, being in energy, but I'm assuming the large reserves other companies report point to the same general state of affairs). Further investment would require positive expectations for future sales. But, you "can't make sales if everyone is broke". There is more than enough currency around for a vibrant economy (maybe too much, as you say), but it is all on one side of the sales counter. And background forces are pushing it to stay that way, until we rewrite the rules for "access to resources". Demography is one force, and another...
Half of Europeâs Jobs Threatened by Machines in Echo of U.S. Risk
By Simon Kennedy Jul 22, 2014 4:04 AM MT
If you think the euro area has a hiring problem now with double-digit unemployment, wait until the future hits.
Fifty-four percent of jobs in the 28-member European Union are at risk of advances in computerization, according to a study by economist Jeremy Bowles published by Bruegel, a Brussels-based research organization.
Inspired by research from Carl Frey and Michael Osborne of Oxford University, Bowles sought to calculate how many jobs were prone to technological advances across Europe. His number-crunching came up with 40 percent to more than 60 percent, depending on the country.
That compares with the September 2013 finding of Frey and Osborne that 47 percent of Americans in 2010 ranked in the risky category, meaning their roles could possibly be automated over the next decade or two.
Northern countries such as the U.K., Germany and France have a computerization risk level similar to that in the U.S., found Bowles, who works at the International Growth Centre based at the London School of Economics.
Bowles said it was unsurprising that those in peripheral economies such as Italy will suffer the most given Frey and Osborneâs findings that developments in machine learning and mobile robotics will hurt low-wage, low-skill sectors previously immune from technological breakthroughs.
That said, the effect may be moderated by the fact such countries have historically adopted technology more slowly than their neighbors, he said.
âIf we believe that technology will be able to overcome traditional hurdles among non-routine cognitive tasks then we must equip the next generation of workers with skills that benefit technology rather than being threatened by it,â said Bowles.
http://www.bloomberg.com/news/2014-...-threatened-by-machines-in-u-s-risk-echo.html
I am having a hard time trying to understand your point in any of this. Especially with that article.
As for "never do" it probably should be "rarely do". No bank or financial institution is going to invest in a company that will give them back 3% when they can go to the market and get a much higher return. They might do a few investments either to show goodwill or as PR, but it's a literal drop in the ocean.
Hell, they can borrow from the Fed at next to nothing, and buy the 10 year and make two full points with no risk whatsoever.
My point is, the Fed is possibly opening portals on our ship when it could be closing them, but larger forces are tearing out our hull.
And my point is that the Fed shouldn't be doing anything for the ship except controlling the speed of it. The rest is not their job.
We go back to the same question I've posed to you many times. Why is it we are the only central bank that has a dual mandate? Why is the rest of the world only focused on price stability?
Our central bank is the only one with an explicit dual mandate (it has a third stated objective: interest rate stability), but many other central banks also mention those two or three objectives in their charters. So why is our CB's dual mandate explicit? Congress.
Precisely! Congress passed the buck and gave the Fed the power to do all it can to solve a problem it has no direct influence over. The Fed knows this, of course, and has no problem with it because this power allows it to serve the true interests the Fed has - the banking cartel. It gives it the ability to throw it's price stability mandate out the window in favor of employment objectives.