Low inflation myth

M

Mecro

So whats the real story with this? Government, academics and media are constantly preaching that we have the lowest inflation in decades, but ask any average American and they will tell you prices are going up.

I see a lot of prices rising and fast. For me, it's mainly food and clothing that I see increases in. Other have mentioned rent, healthcare.

Sounds very shady to me.

Comments? Thoughts?
 
Utilities up. Insurance way up. Gas up. Price of beef had been going up until mad cow. Housing has gone higher for most. (I own.) My personal inflation level is way above their levels. Maybe they are using too many widgets in their figures...
 
It seems that the distrust is general in other countries also :D
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26243&highlight=statistics


http://www.archive.official-documen...stat/chap-1.htm

Statistics: A Matter of Trust Chapter 1


--------------------------------------------------------------------------------



Introduction

1.1. Reliable official statistics are a cornerstone of democracy and are essential to good public management and accountability. The public, government and Parliament all have a legitimate interest in statistics which provide an objective account of the economy and society, both over time and geographically. Such statistics offer a window on the work and performance of government itself. They also help government in the formulation and evaluation of policies and in the management of services for which they are responsible. It is the responsibility of government to provide reliable official statistics and to ensure the public has confidence in them.

1.2. The current range of UK official statistics is wide, covering all key areas of national life. However, public confidence in the integrity of official statistics has been called into question. Reports by a number of organisations and bodies, including Parliament and the Royal Statistical Society have raised concerns about the quality of statistics and their degree of freedom from political interference. Surveys indicate that the public shares this concern.
 
In Ancient Egypt it was not the level of Inflation ... but the level of the Nile that allows to fix the Tax :D

http://www.gmat.unsw.edu.au/final_year_thesis/salmon/salmon.htm

"Nilometers were tool used by the Egyptians in their calculations of the change of the land. Nilometers were generally steps cut into stone that descended to the Nile. A scale was carved along the side of the steps. On this, the height of the river inundation could be measured and then recorded, so that the proportion of tax to be paid on the land could be adjusted."

On the relation between Tax, Money, Inflation:

http://www1.worldbank.org/publicsector/tax/inflationtax.html

"By varying the rate at which currency is issued, the government can alter the revenue from this source, known as seigniorage or the inflation tax.

Is this really taxation, or is it financing? Taxation involves an involuntary transfer of resources, borrowing is a voluntary transaction. Money creation has some of the characteristics of each. Although it is by a set of voluntary transactions that the government issues new currency, these transactions ultimately tend to result in an involuntary losses of purchasing power for existing holders. Since the yield on currency - zero - falls far short of the market yield on other liquid assets, especially in inflationary times, the government is implicitly imposing a tax on existing holders."




Quote from harrytrader:

It seems that the distrust is general in other countries also :D
http://www.elitetrader.com/vb/showthread.php?s=&threadid=26243&highlight=statistics


http://www.archive.official-documen...stat/chap-1.htm

Statistics: A Matter of Trust Chapter 1


--------------------------------------------------------------------------------



Introduction

1.1. Reliable official statistics are a cornerstone of democracy and are essential to good public management and accountability. The public, government and Parliament all have a legitimate interest in statistics which provide an objective account of the economy and society, both over time and geographically. Such statistics offer a window on the work and performance of government itself. They also help government in the formulation and evaluation of policies and in the management of services for which they are responsible. It is the responsibility of government to provide reliable official statistics and to ensure the public has confidence in them.

1.2. The current range of UK official statistics is wide, covering all key areas of national life. However, public confidence in the integrity of official statistics has been called into question. Reports by a number of organisations and bodies, including Parliament and the Royal Statistical Society have raised concerns about the quality of statistics and their degree of freedom from political interference. Surveys indicate that the public shares this concern.
More...
 
Prices for physical goods have been deflationary for some time, and remain so. This is in large part due to increasing price & cost pressure brought to bear by increasing use of low-cost production in emerging markets ( China!)

Prices for SERVICES have been inflationary. Think healthcare. Think education.


In a nutshell: Stuff is cheap, service is priceless.


Where are we going from here? Services price inflation is likely to remain with us until the economy experiences a severe recession. The price trend for physical goods is affected by declining labor costs, and rising commodity prices. As these two price inputs go, so go the prices of physical goods.

BTW: The outline above was recently expounded by Jimmy Rogers. I think he nailed it on the head, and give him credit here.
 
I read a short analysis of this recently from a big bank. Apparently the 2 key elements of core CPI which are keeping it low are:

- rents
- used cars

This is interesting because the deflation in these items is probably directly caused by low interest rates (low rates cause people to be able to BUY homes or NEW cars instead).

So US has "low inflation" partly because it has low rates...so if these items just stop falling then core CPI ought to rebound a little...

Q1
 
Government : borrow money cheap at input and give it back with eroded inflation tax. This is well known and much regarded by economists and people so how do they make think that it has "disappeared" by magic ? ... no they pretend that thanks to Central Banks inflation is kept under scrutiny.

But Bankers have same interests than Governement: they also take the money from people at lowest interest as possible to lend it at high interest to the same gov above. Since Central Banks are controlled by the same bankers guess that these claims are just oxymorons.


Quote from harrytrader:

In Ancient Egypt it was not the level of Inflation ... but the level of the Nile that allows to fix the Tax :D

http://www.gmat.unsw.edu.au/final_year_thesis/salmon/salmon.htm

"Nilometers were tool used by the Egyptians in their calculations of the change of the land. Nilometers were generally steps cut into stone that descended to the Nile. A scale was carved along the side of the steps. On this, the height of the river inundation could be measured and then recorded, so that the proportion of tax to be paid on the land could be adjusted."

On the relation between Tax, Money, Inflation:

http://www1.worldbank.org/publicsector/tax/inflationtax.html

"By varying the rate at which currency is issued, the government can alter the revenue from this source, known as seigniorage or the inflation tax.

Is this really taxation, or is it financing? Taxation involves an involuntary transfer of resources, borrowing is a voluntary transaction. Money creation has some of the characteristics of each. Although it is by a set of voluntary transactions that the government issues new currency, these transactions ultimately tend to result in an involuntary losses of purchasing power for existing holders. Since the yield on currency - zero - falls far short of the market yield on other liquid assets, especially in inflationary times, the government is implicitly imposing a tax on existing holders."
More...
 
Quote from harrytrader:

Government : borrow money cheap at input and give it back with eroded inflation tax. This is well known and much regarded by economists and people so how do they make think that it has "disappeared" by magic ? ... no they pretend that thanks to Central Banks inflation is kept under scrutiny.

But Bankers have same interests than Governement: they also take the money from people at lowest interest as possible to lend it at high interest to the same gov above. Since Central Banks are controlled by the same bankers guess that these claims are just oxymorons.
More...

To show why it is oxymorons, that is to say just just claims that are contradictions, this is an explanation from Geoffrey P. Miller (Professor of Law and Director,
Center for the Study of Central Banks
New York University Law School)

The Role of a Central Bank in a Bubble Economy
http://www.gold-eagle.com/editorials/cscb004.html

"the standard inflation measures, the consumer and wholesale price indexes, failed to pick up the bubbles. This appears to be an artifact of national accounting. Neither the wholesale nor the consumer price index takes account of the prices of equity securities; and land values are factored into the consumer price index only with a lagging measure of residential rents. The huge jump in capital values, especially in commercial real estate, was simply not measured in the indices, and accordingly it was technically off the radar screen for the Bank."

We believe that, besides the equity bubble and real estate bubble are off the radar screen for the central bank, there is another reason for inflation to remain low. Every time newly created money and newly created credit appear, we simply have to observe where they are going to go. If they flow into the retail market, we will get a CPI inflation; if they flow into equity market or real estate market, we will get an asset inflation. There is nothing mysterious about this. If the newly created money and newly created credit mainly flow into NASDAQ, well, then it is not really a puzzle that CPI inflation rate is still relatively calm despite the rapid growth in M3. "

added comment here:
http://skybluemonthly.freeservers.com/sbm/sbm00f.htm

"besides the equity bubble and real estate bubble are off the radar screen for the central bank, there is another reason for inflation to remain low. Every time newly created money and newly created credit appear, we simply have to observe where they are going to go. If they flow into the retail market, we will get a CPI inflation; if they flow into equity market or real estate market, we will get an asset inflation. There is nothing mysterious about this. If the newly created money and newly created credit mainly flow into NASDAQ, well, then it is not really a puzzle that CPI inflation rate is still relatively calm despite the rapid growth in M3.

In comparison, asset inflation sounds much better than CPI inflation. If CPI inflation rate is high, then it means that your money is losing value fast because it will soon be able to purchase less and less goods and services. That doesn't sound appealing. If asset inflation rate is high, your stocks (XYZ.com) are soaring upward into the stratosphere and your house value is rising fast. This is very appealing! You feel rich because of all the gains from the stock market and real estate market. You go out and spend. This spending by those who are just like you stimulates the economy. As a result, this "wealth effect" guarantees a strong economy. It sounds like the best thing in the world. As we have seen in the case of Japan, the opposite is true. (Sadly) "
 
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