http://www.foxbusiness.com/economy/2012/06/08/ready-or-not-stagflation-is-here/

The solution is Austrian - free markets, sound currency, (extremely) limited government - if we can avoid the Nation States killing us all as they fall over and collapse, and we can preserve our technology, this is the best news you will ever hate.

That seems fairly accurate.


Good luck to us all.

Naw, I'd call it a 10X.

Stagflation is defined as a combination of high inflation and a stagnant economy. No question we currently have a stagnant economy, but high inflation too?? I dunno, but the current under 3% inflation rate is generally not considered a high at least by historical standards. Consequently, I personally find the article a bit of a stretch.

Low inflation rates and low interest rates are the product of govt. meddling with the economy. Remember the late 70's? High cost of money along with high inflation. Right now I think the problem is the folks with the money don't want to spend it because they're very nervous & holding onto cash.

The real inflation rate is far above 3% - the article points out the manipulation of statistics by Government.

True inflation is easily measured by the loss of value of the currency compared to hard assets, like gold. And that has risen at much more than 3%.

Every penny of the $5 Trillion "stimulus" is inflationary pressure.

If that's the case, then the article makes even less sense, since gold prices have dropped over $300 per ounce since September 2011.

A three hundred dollars drop isn't what a $300.00 drop would have been when gold was five or six hundred dollars per ounce. In modern (post QE) pricing, it represents a mere sixteen percent dip, which is well within the norm for metals over the years.

The value of a currency is determined by the quantity of currency in circulation.

Every dollar put into circulation makes an existing dollar worth a bit less.

Essentially, inflation is an invisible tax. When the government needs money, the Federal Reserve just adds it to the government's books. It creates money out of thin air.

That makes the money that's already out there worth less.

So,...when the Federal Reserve prints up a few hundred billion dollars and gives it to the government, you still have that $20 bill in your wallet, but it will only buy what $19.50 would before an additional huge lump of money was printed up by the Federal Reserve and given to the government.

The Federal Reserve extracts the value from your money by simply printing up more of it.

That's inflation.

If only more people understood this.

Strange that this article mentions that Reagan lowered interest rates in the 80's to stimulate the economy and stop stagflation while the Newsmax's Aftershock survival Summit guy said that Reagan had raised interest rates to defeat stagflation.

Welcome to the European satellite branch of America. For years we wanted to be like Europe and we have finally accomplished it at least economically. Of course, we have the International Banking Cartel to thank for this progressive effect.

Reagan didn't raise interest rates, Paul Volcker did as Chairman of the Fed in 1980. Reagan had not been elected when Volcker started doing so. Here's a brief synopsis of what happened and who did what.

http://www.buyandhold.com/bh/en/education/history/2000/paul_volker2.html

BTW, we'll be lucky if stagflation is all that we get out of this.

If I were you, I'd take .gov (BLS) economic statistics with a large block of salt. They are gamed to show the most positive outlook FBO the Executive, and the CPI has been statistically manipulated to reduce payments to Social Security, and .gov/.mil retirement COLA's. Here's a site that is run by an economist who follows the CPI and employment stats the way they were calculated in 1980, before all the revisions were done to make the ongoing debasement of our currency look better.


http://www.shadowstats.com/alternate_data/inflation-charts

filed under


figures don't lie, but liars figure

our gov't is so fing corrupt there's no humor in the subject for me any longer

Good cover,Randy. I know you opened the thread because you thought "stagflation" had something to do with a sex party.

I agree. The guy on the Newsmax program advertised free onfo on what to do until it was over then wanted to sell the recs.

lmao


hate it when they can see through you like clean plate glass!

You're correct, that is one way inflation is created, but it is not the only way and it is not absolute. That type of inflation is called demand push inflation......when you have too many dollars chasing too few goods. But what happens if the government "prints" a bunch of money but nobody spends it?? What is the effect on inflation then?? This seems to be why the latest surge of stimulus money hasn't created surge in inflation. Is it permanant?

The other type inflation is cost push that occurs on the supply side. This is the type of inflation that is generally associated with stagflation. This happens when an economy gets an external shock on the supply side that drives up costs. An example of this was the arab oil embargo of the 70's that drove oil prices up and sent shock waves through the U.S. economy. This was a case where we had low growth rates, high interest rates, AND high inflation rates (as measured by the consumer price index of course). That's why I say that the article posted at the top of the thread doesn't make much sense to me because we don't have the same type of conditions that we did when the term "stagflation" was coined.

I do know that I haven't gotten a raise for a couple of years and the prices at the grocery store are dramaticly higher in this time.

good thread great info ,i'am learning

norm

Not quite.

Most of the stimulus that has been used has been thrown at the largest banks. There are tremendous deflationary pressures coming from the banks due to a large horde of MBS and derivatives of such that are worth much less than the banks book them at. The combination of tremendous stimulus (via pawning off about half of these toxic assets on the GSEs and the central bank) versus tremendous deflationary pressures (via the other half of the ilk that they still own) has been largely... nothing.

This is why there has yet to be the hyperinflation that the hardcore, and unwise, Austrian contingent predicted.

There is a large dose of inflation coming but not from this source, at least not yet. Some of this will come about and another bunch will come when foreign held dollars seep into the market. TPTB are trying for a long slow decline as opposed to the market clearing that we should have done 5 years ago.

As far as Keynes goes, don't blame him. Had we held to true Keynes principles we would have run a budget surplus when time were good not given large tax breaks into the teeth of a yawning trade deficit. MOF the trade deficit wouldn't have been allowed to occur under a Keynesian managed economy either. He correctly predicted that as economic poison that would eventually bankrupt a nation.

I take economic ideas where I find them. Almost all of them have at least a grain of wisdom in them. But for this situation I honestly believe that understanding Keynes (the real Keynes not the parody of him that is pandered by those who disagree with him) and Triffin is enough to understand what has happened and why most everyone on both sides of the aisles has been dead wrong about it for years on end.

Will

So you've had a pay cut, courtesy of our friends at the Fed. Every time they increase the supply of currency, they give everybody a pay cut in order to envalue (if you will) the new money they're bringing into existence. You see, the sum total of all the money in existence possesses X value (roughly equal to the value of every good, service, and product available for purchase at any given time). Each dollar's value is X divided by the number of dollars in existence (M). When you increase the number of the units of X, you thereby decrease the value of each unit accordingly (the number of units, or dollars (M), being the denominator, and X being the numerator). That decrease in the value of each unit (dollar) is where the value now residing in the new currency came from. In other words, you can't create new value by printing new units of X (i.e., by increasing M). All you can accomplish by increasing the currency supply (M) is to redistribute the total value of X that's already in existence.

This is why a nation cannot become wealthier overall by printing more currency. That only redistributes the wealth from those who currently hold it, to those who receive the newly printed money, i.e., the banks, their partners in government, and the "too big to fails."

Expanding the currency supply ("printing") is a very sophisticated form of theft. It's why counterfeiting is a crime. It leaves the actual currency in our pockets untouched, but sucks out a portion of the value of each dollar in our pockets and places it into the newly printed currency by simple operation of mathematics (X over M). It's a zero sum game.

The only reason that it hasn't occurred is that the velocity of the currency created has been nil. Should the velocity increase, as when all holders of FRN$'s realize that the sooner that they rid themselves of a rapidly debasing currency and trade it for real goods, then you'll have your hyperinflation. It's all a matter of confidence, as most con games are.

Just re-pub-low-craps serving there corporate masters for a higher stock price.


dave

Mike and Penguin. The Mike and the Anti-Mike.

I agree but the reason the velocity has been slow is because it has been used to fill the black hole left by the housing bubble. It has in effect been extinguished.

The banks use the spread to limp toward solvency and the rest of us put up with a crappy economy while the central bank takes care of them. They have proven to be far too politically powerful to be allowed to be subject to the forces of capitalism that the rest of us face.

Eventually I believe we will have a large dose of inflation. And I agree that it will come from foreign currency being released into the market. The dollar as global currency reserve is on borrowed time. It allowed cheap energy but it also allowed the US to be stripped of its manufacturing base. The end of its regime will mean a reversing of this process but as of now there is no viable alternative. Eventually I think there will be several global currencies and the dollar will be one of them. But it is an extremely complicated process and there will be enough pain to go around and then some.

Hell it is happening around us as we speak and 90% of Americans still don't see it. A good many think reducing regulations or doing away with government unions will make us globally competitive, lol. This thing is so big that trimming around the edges won't even touch it. This is a total shakeup of the status quo. It has been going on for decades and isn't halfway done yet, not even close.

Will

If QE didn't amount, by simple mathematical operation, to price inflation, then the newly created currency cannot have value. Since it does have value (otherwise they wouldn't bring it into existence), then, for a certainty, each unit of money in existence has accordingly suffered a loss in value. Were it otherwise, it would be possible to increase total wealth (X) by merely increasing the money supply, which is magical thinking pure and simple.

Naw, me and Mike agree far more than otherwise. We just disagree on specifics at times and overarching themes once in a while. That's a healthy way to be. I learn a lot from arguing with informed folks that disagree with me. Part of the learning process.

Will

Just kidding.

I disagree.

Money used to fill a black hole no longer exists. Some of it, to be sure, DOES still exist. And it can and probably will eventually find its way into the useful money pool and will cause inflation. But a lot of it won't.

It is very similar to the hyooge foreign currency reserves that people are now starting to talk about. It has tremendous inflation potential but as it is tucked away (after its use to devalue foreign currencies) the jolt has yet to occur.

This is where the dam is vulnerable. When other countries decide that devaluing to run a trade surplus is no longer the goal they start to exit. This has started but may take decades to come to fruition... or it may take a year.

Almost impossible to predict. At least I think it is but I ain't the last word or even close to it on this issue.

Will

This simply defies logic. If the new currency has no value, it wouldn't be created, since it would then serve no valuable purpose. If it has value, then that value didn't appear out of the blue (otherwise a nation could increase its total prosperity by merely increasing its currency supply). The value in the newly created currency was stolen from the value of preexisting currency units. Had it not been created, what would have been sucked into the black holes you describe? Preexisting currency is the answer. Zero sum game.

I never said it never had any value I said that it no longer exists.

It was used to cancel out an existing negative on the balance sheets of the major banks and those holding overpriced securities manufactured in the housing bubble. It was used to PREVENT a rise in currency values as deflation would have dictated.

What would have been sucked into the black hole in it's place? Every major bank and MBSs securities holder in America. One hell of a lot of personal balance sheets as housing prices taken off life support would have crashed and taken their owners into this hole.

Make no mistake there was a decision to be made. Someone had to be thrown under the bus. When Paulson walked into congress with the demands from the large banks the die was cast. Those of us not saved by the central bank and GSE housing price/MBS bailout were the ones thrown under the bus.

Will

i agree with aspects of "the black hole" that has helped to damp down inflation. that is debt disappears off the books during bankruptcies, and there's been quite a few of those.

when houseng and other real values decline, that's a form of deflation, or could be. when grocery prices rise, it could be bacause of increased demand, and the creation of markets for farmers by increasing the issuance of foodstamps to the poor and/or unemployed.

the flow of money, or it's velocity through the system is always important. if money doesn't flow, then those at the far edges of the economy go without.

more to be said is that the current low interest rates makes me recall relative deflation, and not relative inflation. one effect would be the cost of holding precious metals is reduced. when the i rate rises, the cost of holding assets increases.

in the uncharted waters of the post-modern era, the game appears to be on.

If it was used for a valuable purpose, that value was permanently extracted from preexisting currency. You say, to fill a vacuum, but that vacuum didn't come into existence from outside the system within which we're operating, i.e., it would otherwise have been filled by preexisting currency, which would have operated against price inflation. So the value of the new currency was in its capacity to nullify an operation against price inflation. Zero sum game.

There's no cheating in math, and monetary economics, once you cut through all the BS, is essentially just math. All that smoke and mirrors accomplishes is to manipulate the results in terms of who gets screwed by bad policies, i.e., it can alter who gets left holding the bag, which usually works out to you and me, leaving the banks and the "too big to fails" in the clear.

Yeah but the result of it is totally different. You speak as though all of the money created has the potential to create massive inflation at any moment. Fact is that a lot of it no longer has that ability as its potential has already been spent to prevent a deflationary event. Some of it can still cause inflation but a whole lot can't.

There is a whole other set of currency that is stowed away by those who hold treasuries. That inflation potential is real and still exists. But that is a different story.

It is kind of funny to me that everyone slept right through the biggest inflation event of my lifetime, the housing bubble. Rent replacement in lieu of housing prices lulled away the devastating effects of asset price inflation while ignorant know it all pundits and political hacks spoke of the great moderation and the Bush Miracle. Bwahahaha! :p

It is all part of the mutated economy. Getting this beast healthy and on its feet is going to be quite the shock to the system. It is too bad we can't make a list of all those coin operated economists and pundits who have been wrong almost all the way along the line and pass a law that they be silenced on matter economics. It would be nice to have some responsibility brought into that profession... and silence a lot of the self serving foolishness that hinders truth finding.

Will

Good grief Gus you can type something that we can all understand! : grin:

There's always a lag time, but whenever the currency supply is increased, there's no getting around the fact that it decreases the value of each unit of currency by simple operation of math. It doesn't matter if it was printed and then not placed into circulation. It was placed somewhere where it filled a hole that would have otherwise been filled by preexisting currency. Thus it had an inflationary effect perfectly in mathematical accord with the extent to which it increased the currency supply.

Maybe, but if you sit around waiting for the inflationary impact of a lot of that 'stimulus' you'll never see it. It has already had its impact... Preserving a previous inflationary event, the overpricing of housing.

A hell of a lot of money was used for this purpose, to prevent price discovery in housing. It was extinguished in cancelling deflation. It may still no be enough, we may still see downward pricing in housing if the central bank or the GSEs pull their support for the MBS market.

Will

Romney just needs to put these numbers front and center...

14.5% Unemployment
7% Inflation

Make it a mantra and make it a landslide election.

Smoke and mirrors. All that was accomplished by application of Keynesian pseudo-scientific monetary economics was an adjustment in who takes the hits and when, kicking the can down the road, but the can keeps getting bigger the further down the road it gets kicked. At some point the piper must be paid. Better sooner than later.

i love the games we play on the internet. just how sound can a currency be? 90 percent, 100 percent, 110 percent?

who benefits most at each level of "soundness?"

don't get me wrong, i'm as fiscally conservative as anyone here, no doubt.

but, if someone can beat the incumbent, then what will they espouse or say? we don't want who can knock out the incumbent without a viable alternative vision.

the vision, now we're talking.

Keynes didn't tell us to make the dollar into a global reserve currency, he specifically warned us against it. Keynes didn't tell us to run a massive fiscal deficit in times of plenty the Chicago school adherents did... and even had the nerve to tell us 'deficits don't matter'. Keynes didn't tell us to run a massive trade deficit, he told us decades ago it would bankrupt us. Keynes didn't use the central bank to underprice monetary costs and induce asset bubbles, a couple Ayn Rand disciples did.

Keynes was not the end all and be all, he made mistakes like everyone else. But blaming him for a lot of our troubles is not only wrong but wrongheaded.

Will

Keynes provided the tools and justifications for what's currently going on. He popularized the notion of pseudo-scientifically centrally planning the monetary supply in order to prosper today at the expense of the future by successive bubble creation, regarding which, as he proclaimed, we're all ultimately dead anyway. Well, the future is now, and while he's dead, we're not.

PS I'm aware that he didn't recommend constant expansion of government spending, but he failed to account for human nature in an environment where such a thing is possible.

Actually what Keynes provided was a framework by which a surplus accrued in times of plenty could be brought to bear to prevent an overcorrection to the demand side in times of recession. An overcorrection that would need to be corrected when the stress of the moment subsided.

He never once advocated preventing recessions or preventing market mechanisms from price discovery. Those are bogeymen that are thrown out for political cover. Running deficits in times of plenty, going head over heels into debt in times of stress, and doing so to prevent price discovery are most certainly NOT what he envisioned.

Keyne's biggest sin was that he didn't account for human nature. He didn't account for those who would sacrifice the future of the nation for short term political/economic gain. The trouble isn't Keynes it is the fact that we follow Friedman when times are good and Keynes when times are tough. You cannot have that level of irresponsibility and expect long term success.

Will

And there is our point of agreement.

One big mistake was allowing Friedman to have a voice and Phil Gramm, his boot licker, to have a senate seat.

I guess I'll ask a foolish question? Where is all this excess currency going to flow from? From what I can tell there are very few nations around with a currency "surplus". Are we going to lend them the money? Just askin'.

Don't know about you guys, but we keep all our receipts. One year ago, we were paying 25% less on groceries. When Obama took office gasoline was $1.70/gallon, today it is over $3.

If they used 1980 methods to account for inflation, we have about a 12% inflation rate and 10% unemployment.

Current methods include the price of a new home, but no the price of groceries or gasoline. They say they are "too volitile" and "subject to seasonal changes". I say it is BS, because everyone has to have food and fuel to function in this society.

Well I gues they could invest in real estate which might prop up real estate values and end for some folks "being under water." We're doing the same thing with our expenses. Being both retired and on a fixed income plus my wife and I working part-time we are keeping our heads above water-but just barely.

Currency today is X's and O's on a computer screen. Real currecny is king because there is so little of the real stuff out there.

I'd love to see Congress mint dollar and two dallar coins eventually working up to five, ten, and twenty dollar coins.

Of course it's BS. If they actually measured real price inflation, they'd have to pay out significantly more in benefits, which they will have to print up, thus triggering hyperinflation.