What Inflation?
By Barry Ritholtz - December 12th, 2008, 9:30AM
via Jake
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Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
December 12th, 2008 at 10:02 am
Well, there’s obviously deflation going on right now. But my thought is it has much more to do with people freaking out than anything else. EVERYONE is selling EVERYTHING. People don’t feel safe holding a majority in anything but cash right now. From reading through the comments in the past, it sounds like that is the consensus even here.
But guess what, eventually all that money is going to go back into circulation. Once the economy starts to recover (and I’m on the “No, I don’t think this is the end of the world” team) people will start buying again. Only this time, there will be a WHOLE LOT more money floating around. THAT’s when we’ll see the inflation.
December 12th, 2008 at 10:26 am
@zebov: How long will that take? Free markets cannot function with “trust” and “confidence”. Do you think either are easily regained after this fiasco? I don’t.
December 12th, 2008 at 10:30 am
Wait a second. Barry rightly pointed out that the price increases in CPI over the months of $140/bbl oil were suspect. I don’t disagree that we are in a deflationary environment, but are there any caveats to the way CPI is now calculated? How would that affect the way we interpret the data in this graph? If there was a guiding agenda “smoothing out” the CPI on the way up, is there a guiding agenda affecting the way CPI is being reflected here? If so, what is it, and in which direction is this thumb tipping the scales?
December 12th, 2008 at 10:34 am
@Zebov,
Banks, the recipients of “all that money” aren’t lending it to shore up reserves. The assets against which those reserves are posted are long-tailed in a non-existent or very illiquid market. All that money isn’t going to go back into circulation any time soon and when it does bank’s lending will drip out. This economy’s recovery will look very different than it sounds like what you are envisioning.
December 12th, 2008 at 10:36 am
Broken record alert: I know I’ve said this before many times, but beware automatically chalking this up as a “normal” downturn. It’s not. The whole system is in crisis. We have a crisis of trust and confidence. Until that comes back, we’re nowhere. Beware relying on past downturns as a guide to strategizing in this one. The Capitalists (with an assist from their friends in government) have ruined Capitalism.
December 12th, 2008 at 11:44 am
So how many of you really believe all this government manufactured liquidity isn’t going to result in double digit inflation 3-4 years down the road?
The bailouts, the stimulus plan, massive infrastructure “investments” , etc. (I love how Obama has successfully destroyed the meaning of “investment”) are all a free lunch? Just crank up the printing presses…no consequences? Nice economic theory.
December 12th, 2008 at 11:48 am
Deflation is fun. The rich and lazy get creamed, and short sellers make money. Poor people pay less for goods and services. I don’t have a problem with deflation, except for the massive unemployment that usually ensues. Of course there will be tremendous government intervention to limit the social consequences, and therein lies the problem for our future. We cannot afford the stimulus packages that we are implementing.
Those who believe that there is no inflation in our future are in for a very rude awakening.
The problem here is a conceptual one – specifically, the concept of American exceptionalism. Americans cannot actually believe that excess debt will lead to a currency crisis, devaluation and commodity inflation. Well, I got news for you, dudes. This has happened in every other country that has gone down this road and the $ will not escape its fate. The US economy faces “stag-reflation”. Paper wealth is about to be devalued relative to hard assets. Get your Peter Schiff, Marc Faber and Jim Rogers videos out again and actually LISTEN this time.
December 12th, 2008 at 11:56 am
Source
December 12th, 2008 at 12:09 pm
@Mannwich
I think it’s important to also situate the crises in the context of class relations . People often disregard this because of the unpopularity of “Marxist ideology” but we can’t deny that there is a global coordinated effort to support asset prices, inject liquidity and prop-up the system – and where is all the money going? Surely not to the poor and middle class.
All of these policies in a rational & free market would mean higher interest rates on T-bills, a weaker dollar, a collapse of asset prices. Quite frankly there is simply too much at stake here to let the capitalist system go to waste. If a dollar isn’t worth the paper it ‘s printed on, who has more to loose? The rich who serve no productive purpose and exist only to lay claims on real-productive output through dollar denominated asset ownership, that’s who!
It ain’t happening, so you may as well profit off this cycle – accumulation by dispossession. Worst case, it all goes to zero and we’re all in the same boat. Buy Lead not Gold.
December 12th, 2008 at 12:17 pm
@CapitalistCanuck: Agreed. “Saving the sytem” (which isn’t worth saving, but I digress) = “Saving the elite and their friends”.
Don’t think the middle and lower classes aren’t catching onto their game though. There is seething resentment out there just about ready to boil over. This country’s a powder keg waiting to explode.
December 12th, 2008 at 12:56 pm
@ leftback. deflation is fun. hmm, well maybe so, but if there isn’t some orderly way out of a death of capitalism scenario and a shitstorm does come, fun-loving people better be ready for the mass of unemployed folk that are gonna go on a rampage looking for those few who are profiting.
‘Oversharpen the blad and the edge will soon blunt, Amass a store of Gold and Jade and no-one can protect it’
Lou Tsu
December 12th, 2008 at 1:11 pm
No one is arguing that we have “inflation” now. The principal controversy is over the question of how soon commodity prices (oil, wheat, soybeans, zinc, aluminum, etc.) will hit bottom.
If Bernanke has his way, it’ll be sooner rather than later.
December 12th, 2008 at 2:05 pm
@ kingtone: I think you missed my use of irony – I don’t seriously think that >10% unemployment is fun, although I do enjoy watching idiotic rich people losing their shirts. I do think that there is a risk of serious social unrest and that inflation will result from the desperate attempts to refate the economy and prevent social breakdown.
December 12th, 2008 at 3:07 pm
Mannwich:
I completely agree with you that it is different this time. I had so much of my butt eaten out on my UAW comments though, that I guess I will leave it at that. The chair seems lumpy now.
And I have come much closer to my wife’s idea that there may be a depression ahead….as I stated yesterday, I, (and fairly few still living) have not lived in a deflationary environment, so I am afraid of making investment misteps here…but we’ll just see how she goes…
December 12th, 2008 at 4:47 pm
@ Bruce: We are in deflation now but I don’t think that we will live in a deflationary environment for long. If the US was debt-free we could grind through this like Japan. But this is a much different situation. I am often misunderstood here, people think that I am saying we will inflate our way out of this back into growth. In fact, I think it will be much worse.
We will see the economy reflate to some degree but we will not experience significant growth, despite commodity inflation and significant $ devaluation. In many ways we are headed for the worst of all possible outcomes. Some asset stabilization, at least in equities and some areas of credit (but not housing, which cannot be supported – the correction will run its course), a prolonged recession with a protracted period of high unemployment marked by social strife, and a rebound inflation in anything that has to be imported. See the economic decline of Britain in the 1970s for further details. British Leyland = General Motors, the pound = $, etc..
December 13th, 2008 at 12:56 am
The way the CPI has been gamed to give new meaning to the term “reduction gear”, I am interested in seeing if it’s as sluggish going down as it has been going up.
As far as I’m concerned, it’s about fucking time that no debt, fixed income, 1,000 square foot house paid for savers like myself got a break! Now if only Blue Cross would be forced back to their 2001 rate structure, I’d be really happy.
January 27th, 2009 at 3:31 am
How is this published on Dec 16th, 2008?
I find it remarkable that in June 2008 (and for years before) inflation hawks constantly worried about impending inflation (oil, housing, food, metals, etc)… now, after 6 months of >30% deflation… AGAIN were supposed to all be worried about inflation?!?
I spent a few minutes looking for historical and current price information online. There is not a great source of this information, and we must remember that inflation is for the same good/experience.
Starbucks is NOT inflation, thats wealth.
Gasoline in 1984 was $1.27/gallon. Last week it averaged $1.68
Milk in 1984 was $2.00/gallon. Wholesale prices are moving under $1 today (prob = $2/gallon retail)
Thats 24 years!!!
I promise you computers, TVs, entertainment, technology and healthcare are all enormously negative on inflation (remember again, same quality good or service).
“Healthcare? What?” — you say. Yes, exactly. What does 1984-quality healthcare cost today? There are studies showing modern cholesterol lowering statins have more impact on longevity that all of previous heart surgery methods. In the convenience and with the low side effects of a pills. How does the price of that 1984 heart bypass look now? Howabout the age 67 heart attack?
Grow up. Other people get wealthier, but this is not always inflation.
January 27th, 2009 at 3:36 am
@ Leftback… “get your Jim Rogers videos out” — What?
I did get them out. He told me to be long commodities (esp Metals) and China and move everything out of the dollar. Last year! (In fact, he told me to MOVE to China).
See Jim Rogers “Hog Wild for China” CNN / Dec 2007.
Thankfully, I’m only down 75% on his recommendations but still a citizen of the free world.