At 22:01 27/10/2013, Mike wrote:
Ed wrote:
> Sounds like: "On the one hand it might not be a bad thing, on the
> other it might not be a good thing, but whatever it is, we need it."
> Hmmmmmm.......!
>
>http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-no
w-think-inflation-helps.html?hp&_r=0
MS) The roughly 2-decades-wide boom generation is now moving into
retirement, typically on fixed incomes and assets. Inflation will
gradually (or not so gradually) chisel away at their living standards.
This is particularly true for the lower-income 50% (or 80%?) as food
and and energy are not included in the core CPI. A rough calculation
suggests that our heating fuel costs have increased about 6% annually
over the last decade, far outpacing the the nominal inflation.
Calculated equally roughly, our grocery expenses have run about 4%
annual increase over the same decade.
(KH) Exactly. This is the game that America started playing from 1944 and
onwards when US Treasury official, Harold Dexter White (and also a secret
Communist at the time who supplied the Soviet Union with a couple of US$100
Treasury printing plates) outmaneuvered John Maynard Keynes at Bretton
Woods and made sure that the US$ became the only gold-backed currency (with
a notional fractional reserve of 25%). The US started printing extra
dollars whenever it had to re-arm to fight in Korea or Vietnam. But this
was relatively restrained when compared with dollar inflation from 1972
onwards when even the US dollar-gold tie was severed. So long as the
inflation was modest (when most consumers didn't notice much) and was 1% or
2% or 3% higher than the interest rate set by the Fed, then the government
could just about pay interest on its debts.
(MS) From the article:
Inflation also helps workers find jobs, according. to an
influential 1996 paper by the economist George Akerlof and two
co-authors. Rising prices allows companies to increase profit
margins quietly, by not raising wages, which in turn makes it
profitable for companies to hire additional workers.
(KS) George Akerlof et al are no doubt correct if we are talking of an
inflation increase large enough for consumers to notice but compensated for
by cheap imports and also the false sense of security when home-owners saw
their house prices going up in perceptible leaps and bounds (mistaking it
for real value gains in the real world).
(MS) That (and other bits of the article) suggest that no account is taken
(at least at the level of this journalistic analysis) of hysteresis.
If prices go up and employers benefit, it's because it takes a while
for employees to notice that they're losing buying power and then do
something about it. When they do, the employers' advantage declines
but that effect lags the cause by months or years.
(KH) Yes! An oscillation takes place. By the time that wages start catching
up in earnest for the inflation of the previous few years, then the profit
margins start plunging, and the price of commodities start dropping. Money
is sucked into big-time speculation and away from investment all the way up
the supply chain.
(MS) Others aspects of
the economy have similar hysteresis which feeds back to change the
original causes at a yet later time.
(KH) Yes, and that's just about where we are now (joining Japan). The only
thing that the Japanese, and the new Fed chairman can think of is yet more
money printing. They have no idea (because it would be too uncomfortable to
admit to it) what to do now.
Keith
In the meantime, the financial market is responding to stimuli (and
frivolous rumors) in hours, minutes or even milliseconds.
Huh.
- Mike
--
Michael Spencer Nova Scotia, Canada .~.
/V\
mspen...@tallships.ca /( )\
http://home.tallships.ca/mspencer/ ^^-^^
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