Real inflation at 10%

[Palantir]

OMG. This guy doesn't grasp the fact that consumption bundles today are very different from those in Jimmy Carter's time. This really makes my head hurt. Then he doesn't seem to grasp that some types of price rises, especially those linked to specific commodity input costs, can be very ephemeral, which is very different from long term core inflation.

 

 

On top of that we need to read through the typical WSJ attack on Obama and the Fed. So tiring.

[Ham Hockers]

All true.  But ask yourself, has the fed been acting more like BRK (almost never issuing stock, only on a rare occasion to make a large accreditive acquisition) or more like some penny stock company run by a scam artist?

 

Can't I have a third option?  :)

[rkbabang]

All true.  But ask yourself, has the fed been acting more like BRK (almost never issuing stock, only on a rare occasion to make a large accreditive acquisition) or more like some penny stock company run by a scam artist?

 

Can't I have a third option?  :)

 

Sure. Of course the truth is always somewhere in the middle, but I believe it is much closer to one extreme than the other.

[blainehodder]

It is easy to know that it does have some effect and that all else being equal (even if they never are) prices would be lower in its absence.  Consider what happens in general to the price of a stock when a company issues a lot of shares vs. when it buys them back.

 

Yes but the fact that things are never equal is really really important! In addition, context matters a lot!

 

I doubt that you ever use such a generalized approach when you look at stocks

 

 

 

All true.  But ask yourself, has the fed been acting more like BRK (almost never issuing stock, only on a rare occasion to make a large accreditive acquisition) or more like some penny stock company run by a scam artist?

 

I'd argue that they've acted as expected. BRK's job is to increase economic earnings power on a per share basis.  The fed's job is the dual mandate, and they use CPI (targeted around 2%) and unemployment (targeted at 5%).  It is your job to trade accordingly.  If you wish to buy gold and ammo, or stocks and housing, or long or short the USD, that is a personal choice... but the fed has been pretty crystal clear about what they will do.  It hardly seems like a scam to me.

[wisdom]

Input costs such as commodities and wages have been dropping or stagnant over the last 3 years.

 

Globalization should lead to deflation as production moves to the lowest cost producer.

[rkbabang]

It is easy to know that it does have some effect and that all else being equal (even if they never are) prices would be lower in its absence.  Consider what happens in general to the price of a stock when a company issues a lot of shares vs. when it buys them back.

 

Yes but the fact that things are never equal is really really important! In addition, context matters a lot!

 

I doubt that you ever use such a generalized approach when you look at stocks

 

 

 

All true.  But ask yourself, has the fed been acting more like BRK (almost never issuing stock, only on a rare occasion to make a large accreditive acquisition) or more like some penny stock company run by a scam artist?

 

I'd argue that they've acted as expected. BRK's job is to increase economic earnings power on a per share basis.  The fed's job is the dual mandate, and they use CPI (targeted around 2%) and unemployment (targeted at 5%).  It is your job to trade accordingly.  If you wish to buy gold and ammo, or stocks and housing, or long or short the USD, that is a personal choice... but the fed has been pretty crystal clear about what they will do.  It hardly seems like a scam to me.

 

An older person on a fixed income doesn't have a lot of those choices.  I think its main (only?) job, if it has a job at all, should be to protect the value of the dollar.  A dollar today is worth less than what five cents was worth the day the fed was created.  Inflation, the way it is used by the government is just a tax on savings. Since they are never up front about this, your average person has no idea what they are doing or why, compared with other forms of tax increases.  In this sense it is a scam.

 

[Palantir]

The Fed's job is really a lot more expansive than the dual mandate. Technically, it is there to preserve prices and jobs, but really, the deeper reason for its existence lies in its ability to act as a lender of last resort.

[Palantir]

An older person on a fixed income doesn't have a lot of those choices.  I think its main (only?) job, if it has a job at all, should be to protect the value of the dollar.  A dollar today is worth less than what five cents was worth the day the fed was created.  Inflation, the way it is used by the government is just a tax on savings. Since they are never up front about this, your average person has no idea what they are doing or why, compared with other forms of tax increases.  In this sense it is a scam.

 

So what? The goal of the Fed is not to protect the "saver", or is it a prime policy goal. It is concerned with macroeconomic stability, and savers are collateral damage.

[ERICOPOLY]

The government could offer the inflation-protection feature of TIPS on all Treasury bonds issued, but they don't.  Hmm... why?

 

The government calculates CPI, but they don't give you a deduction for inflation losses when you report interest income.  Why?

 

Why does the government tax you for the inflation adjustment offered by TIPs?

 

These would be simple things that the government could do with a stroke of the pen without resorting to going back on the gold standard.  It would mitigate, but not entirely solve the losses from inflation.  But I've never heard any of these proposals.

 

It seems like... inflation is one of the main policy tools to redistribute wealth.

 

You know, we hear things like Mitt Romney only paid 17% tax on his income.  But what if his income were fixed and he earned a 2% yield in a 2% inflation environment.  Didn't he (under that scenario) really give up 100% of his income in a wealth redistribution?

[blainehodder]

The Fed's job is really a lot more expansive than the dual mandate. Technically, it is there to preserve prices and jobs, but really, the deeper reason for its existence lies in its ability to act as a lender of last resort.

 

Yes I agree.  This does relate back to the dual mandate though ---> Acting as lender of last resort avoids disastrous employment ad monetary stability effects.

[rkbabang]

So what? The goal of the Fed is not to protect the "saver", or is it a prime policy goal. It is concerned with macroeconomic stability, and savers are collateral damage.

 

A good book to read is Nassim Taleb's Antifragile, he goes into a lot of detail on why most attempts to stabilize complex mega-variable systems end in disaster.

[hyten1]

i don't see much inflation

 

but i do see wage stagnation, which can cause many of the issue that people face

 

the large increase in the worlds labor supply in the last decade or 2, plus the advent of the internet has cause certain group of folks income to stagnate or even decline.

 

 

jmho

 

hy

 

A thread bump:

 

Keeping cursory tabs on the 'expectations' of inflation and that this item on Europe from Bloomberg interesting.

http://www.bloomberg.com/news/2013-11-14/euro-area-recovery-fizzles-as-germany-slows-france-contracts.html

 

Many talk about inflation, but I just do not see it (at least in my small circle).  As a quick example, nearly 20 years ago I bought an airline ticket from Atlanta to Orlando for $140.  I remember this because I could hardly afford the $140 at the time.  Today, I see that you can buy a ticket from Charlotte to Orlando for $87 round trip, no joke and not a special.  Maybe this is self selection bias, but I see similar stuff all the time.  One place I don't see it though is at Whole Foods!

 

Cheers

JEast

 

James,

 

I know amongst my circle of friends who are all early 30s professionals we're all experiencing inflation and wage stagnation.  I've had countless conversations with friends, who are all conservative pay cash don't have debt types who have said they are shocked at how living costs have shot up on them.  Groceries, insurance, everything has gone up, and raises have been in the 1% range.

 

A big cost increase has been healthcare.  My company is very generous, well, at least they were in the past with healthcare.  Four or five years ago we had an all expenses paid PPO for about $250/mo, that plan now costs $700+ a month, or they offer a plan for $275/mo that requires employees to foot the bill on the first $3500 out of pocket.

 

I agree that some things have stayed flat.  I recently purchased a Macbook Air, the price was slightly less than what I paid five years ago for a Macbook.  The new computer is much more powerful and better all around, and in real terms much cheaper.

 

Airfare is highly city depenant.  Back in 2006/2007 we used to fly from Pittsburgh to Florida for $150 round trip, we'd go often because it was cheap.  Now a flight is in the $400 range.  It's almost impossible to find a flight out of Pittsburgh for less than $200 round trip unless you're flying to a city within a 2-3 hour drive.  Sure I can fly to Baltimore for $67, but by the time I drive to the airport and get there an hour before my flight I'd be 2/3 of the way to Baltimore by car, a deal if time is free.

 

I know I've been told there is no inflation, or it's really low, yet somehow for us and our friends our money stretches less and less.  And we make a sizable living.  My brother has chosen to live a more modest life, for them and their friends the economic situation is dire.  It's very hard to find a job, and expenses have risen considerably, they felt the pinch so much they decided to move to a city in the south with a lower cost of living.

 

I can point to two items that I know have gone up for us, health care, and local taxes to make up for a shortfall in city revenue.  Outside of that it's a number of small things that have all increased much faster than my wages have increased.

 

Clearly this post is completely anecdotal, and it doesn't show up in any economic stats, but if I asked everyone I knew they would all emphatically say that wages haven't kept up with inflation.

[JEast]

oddballstocks -- Good point on the age difference of inflationary perceptions.  If you are a new mother then your affinity for non-gluten, non-hormonal, organically fed, massaged and towel wiped cow milk for $9.00 a/gallon at Whole Foods far exceeds my inflation perceptions for my Costco milk at $2.54 a/gallon.

 

Also, one should not confuse increasing healthcare costs or increasing taxes as inflationary as any increase in either are actually very deflationary.  Think austerity.

 

[JEast]

Around the World, Inflation Is Falling to Levels Not Seen for Years

 

Britain reported that its annual inflation rate fell to a four-year low of 2.2 percent. France reported that its annual inflation rate was just 0.6 percent, also a four-year low. The latest rates in Germany (1.2 percent), Spain (1.3 percent) and Italy (0.8 percent) are three-year lows.

http://www.nytimes.com/2013/11/16/business/economy/around-the-world-inflation-is-hitting-lows-not-seen-for-years.html?_r=1&

 

 

Cheers

JEast