Quote from Turboman24:
Shoeshine, I see your point. I am not a conspiracy theorist, however, the CPI is truly a joke and sometimes I cannot believe that markets actually pay attention to it.
I'm not sure how familiar you are with hedonics, but the goverment has fudged the numbers with this method by figuring if a products quality has increased along with its price, it is not really a price increase because the quality also went up. Thats fine, but the CPI is not a quality index, it is a prcing index; hedonics is lying plain and simple. For example, a Ford Explorer is now 10K more than it was 10 years ago, but it also has much more quality, lets say a starndard CD and power locks/windows/seats and remote keyless entry. The goverment sees this (and I am obviously using ball park numbers) as a scratch, because price and quality increased.
Instead of looking at the CPI and listening to the financial press, take a look at Gold and the CRB, and keep a really close eye on prices and your everyday expenses and then tell me we have no inflation.
Pretend you were in the market for a house, or health insurance, or gold bullion, and then tell me we have no inflation.
Quote from waggie945:
The Money Supply for M2 and M3 has been dropping the past 3 months, pretty dramatically in fact.
Quote from Turboman24:
Shoeshine, regarding the question as to why we have not seen inflation yet with this rapid money supply growth. The best answer I have ever heard came from Marc Faber; he believes that we can see a period of simaltaneous inflation and deflation. China is putting such heavy downward pressure on the price of any labor intensive, manufactored goods (PCs, phones, toys, clothes etc) that we are actually seeing price declines. However, more domestic, service oriented products such as: Insurance of any kind, Foods, Entertainment and such..will inflate. At the margin these cross currents seem to be canceling each other out as seen through the CPI, although the hedonics are highly suspicious.
And remember, the Fed wants inflation, asset inflation that is, in Stocks and Real Estate, and they have done a great job at that lately.
Here are some observations I have made just recently which seem to support Faber's argument.
1. 26% increase in parking at my train station
2. McDonalds raises prices 20% for a #2 value meal
3. Video Games rentals at Blockbuster are now a mind boggling $8
4. Obviously Movie theater prices always go up
5. I know that my company is looking at 15% year over year increases from Aetna
6. Oil and Gas consistently high at $33 and $1.50
Conversely:
1. Laptops now are as cheap as $700 for 2 Ghz
2. Clothing seems to be staying basically the same, with a downward bias if anything.
3. LCD prices are falling quickly, with the sharpest cuts yet to come.
Quote from hanseng1:
Please don't take this as an arrogant post, but....
The only way you're going to understand this is if you get a good textbook get a refresher in economics. The question (like most economic questions) has many variables other than the simple money supply.
Take a look at the IS-LM model, which deals with the equalibrium between financial markets and goods markets. The interaction between the LM (money stock) and IS (government actions, among other things), as well as balance of payments creates the output and interest rate levels.
In addition, typically (nominal) interest rates track inflation. High rates equal high inflation and low rates mean low inflation.
I honestly don't know it well enough to really explain it adequately as it is a very confusing subject. But I recommend you take a look at a college-level macroeconomic theory book over the holidays.
I wish I could help more than simply telling you to go read about it, but it's the best way to keep from confusing you more. Also, try these websites:
http://research.stlouisfed.org/index.html
http://www.economicswebinstitute.org/essays/is-lm2.htm
Quote from Trader5287:
Repost:
Productivity is the reason
In 1787, String Quintet in G Minor by Mozart required five people to perform it. It still does. Also still takes just as long for college professor to grade papers, give lectures and educate your kid. Same amount of time to fix radiator hose. So you pay through nose for cost of labor. Or more for the same thing while in places in the economy where productivity rages, you pay less for more.
Called "Baumol's cost-disease" and is endemic to labor intensive business. Search google for more if interested.
I took everything above from the July 7 New Yorker in The Financial Page.
Geo.
Quote from ShoeshineBoy:
I appreciate you comment - don't take it as "arrogant". I mean that's why you can get a PhD in economics - the economy is very intricate and often subjective. And I will read more about it.
But, that said, I still find it hard to believe that there aren't straightforward and relatively short answers to my questions. For example, I find it hard to believe that the economy is any more complex than the markets or certain sciences and those you can generally answer questions so that a layman can understand it relatively painlessly. But maybe you're right...maybe I have to take a whole course...
Quote from rodden:
There's an old joke: If you're attending a class in Economics and you understand the professor, you're not listening.
Good luck trying to comprehend Economics as a science, but if you're going to make the attempt - start with chaos theory.