No it does not. You are entitled to your own opinions but not your own facts. There is no evidence of rising equity indices leading to higher then normal spending. There is some weak causal relationship between housing prices and spending but that spending gets equally offset by the new debt that needs to get paid off. That's part of a credit cycle. You just need to hunker down and do some more reading and get caught up on this stuff. You are shooting blanks right now.
Who is believing in the current monetary policy is still the right course and why?
- Thread starter Sotnis
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No it does not. You are entitled to your own opinions but not your own facts. There is no evidence of rising equity indices leading to higher then normal spending. There is some weak causal relationship between housing prices and spending but that spending gets equally offset by the new debt that needs to get paid off. That's part of a credit cycle. You just need to hunker down and do some more reading and get caught up on this stuff. You are shooting blanks right now.
Depends on what we are talking about when we mention "spending"...I doubt that it's any sort of coincidence that high end retail essentially lives/dies via asset bubbles and busts...High end art market/wine collectors/luxury auto sales/yacht sales go thru the roof during peak equity highs, but one could argue that some of these items are simply another form of investment (out of currency and into potentially appreciating assets)...
like the TUT spread?
I will agree to that point that wealth creation via higher assets prices begets more wealth creation via higher asset prices. But luxury items like the ones you mentioned are not factored into inflation either. And yes, most of those items are bought specifically for their investment value.
I'm not trying to be difficult here but I'm trying to precisely define the variables in the dialogue. Too many people throw around the word inflation this and inflation that and sprinkle in a little bit of evil Fed and money supply and we are all doomed, etc. Inflation is a very important economic term because it has a large impact on people's lives and their ability to survive. We have to separate price inflation from asset bubbles. Asset bubbles are easy to deal with. High inflation is also easy to deal with. Deflation is almost impossible to deal with and that is why it is taken much more seriously. Look at how fast Volcker crushed the inflation from the 1970's vs the two and half decades Japan has been fighting deflation.
I watch the NOB more.
Plan for a multi polar world economic system for the next century and you'll do fine.
They may be "Easy to Deal With" in principle, and even in practice when practice is applied. But they are certainly not easy for the Fed to want to deal with. In other words, the method is there, but the will is never there. You quote Volcker crushing inflation. Half the people on this forum weren't alive when that happened.
Most of the people trading now can't even recall a Fed hike in their trading careers.
Regarding inflation, there's plenty of it in places that hurt people who rent, eat food, pay medical bills, etc. It may not show up in the CPI (core or otherwise) but it's there, and it impacts the poor in ways the overall CPI cannot communicate. Thus, when the Fed says "CPI is just fine" it ignores the plight of the poor. I can post rent, food and medical inflation over the past 10 years if you would like.
Oh, and one more thing. Remind me why periodical Deflation is so bad again?
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That's a pretty good analysis I would say, and I concur. Our U.S. society would not consider me to be wealthy; yet my income is in the top 10% of all reported incomes. I was shocked when I recently learned this. What this means is that there is either a huge disconnect between perception and reality, or we have a sick economy. I think it is the latter. A much less desparate distribution of income would make for a far more healthy economy.
The other thing I would add to your cogent assessment is that the Fed is blamed for far too much that is beyond their control . They are doing a good job of managing monetary policy against a discouraging backdrop of social ills that they can't fix.
Political solutions are necessary. We know what they are. With a few exceptions, so far, I'm not hearing these being proposed or discussed by the politicians running for office. Instead I'm hearing ideologically inspired talk , which includes the requisite homage to the glory of American small business. There is hardly a word of anything concrete or constructive. The best way to help American businesses is to correct the damaging 'trickle up' redistribution of income we have experienced since the 1980s and go back to leaving a few bucks of disposable income in the pockets of the lower half of the middle class. This is not rocket science. All that is required is to undo the I'll advised measures that got us to our present economic state. Thomas Piketty has written an entire book telling us where we are at and how we got here!
It's all about relative choices. Don't mistake the Fed's patience currently in raising rates to not wanting to raise rates during high real inflation. The reason the Fed is holding off now is because there still is enough data out there to suggest another possibly deflationary downturn partly due to the massive amount of debt out there. Remember debt is "deflationary" not inflationary. It has the same effect of offsetting future consumption. So as the debt grows, future consumption decreases. This is very concerning for the Fed.
High health care costs is a structural issue that needs to be dealt with by our government and not by the Fed. Same with food prices. Same with rent.
Look at the situation this way. The Fed has to face the issues that they actually have control over. The items you listed above are not going higher because of the supply of money in the economy. They have structural deficits that need to be addressed. All one has to do is look at the Velocity of both M1 and M2 which are nosediving to see that not only is the consumer and firm not spending but they are reducing their spending for the reasons I listed in previous posts.
If debt is deflationary (which I agree with), then why keep interest rates so low to encourage buying more on debt?
I agree that health care costs are structural (to a degree). Please explain how food and rent prices are structural and not related to an increase in the money supply.
I disagree. Rent is going higher in large part because housing prices have become unaffordable. This is in large part to interest rates kept down too low for too long, driving more people to buy houses. Just look at median house prices since 2000. Sure, it's come down significantly since the peak, but it's still at the high end of the historical range. This has created an enormous renter's market, and savvy investors have gone out to buy up houses and charge rent. A market where everyone has to rent is going to drive up rent prices.
Food prices have followed the commodity spike and have not come down much. This is because consumer goods manufacturers (I work for one, and part of my responsibility is pricing) are loathe to pass on savings from lower commodities because they don't believe the commodity softness is here to stay. So they pass on price increases really quickly (through price or "down ouncing") and are very slow to take down price - if they do it at all.