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Old 06-09-2011, 11:46 AM   #61
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Interest rates HAVE to go up. Only the Treasury's massive buying of US debt has kept the rates artificially low. Once that huge demand leaves the market, the ever-increasing supply will flood the market, and you know what happens when supply exceeds demand.
What's the chances you'll change your mind when interest rates don't spike in the next couple of months after the Fed purchases come to an abrupt halt (some have calculated that the program has already ended)? My guess is zero chance.
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Old 06-09-2011, 11:56 AM   #62
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The current discussion has predictably splintered into a political bully session in the schoolyard as the ad hominem attacks of "crazy" and "fringe" are applied to those who would have the gall to intellectually debate whether default by the US Trsy may actually be a more prudent and optimal path to take then the course which leads to hyper-inflation and the ultimate debasement of the legal tender currency issued by the US Trsy.

The argument that we must preemptively destroy the economy today to prevent a far-from-certain destruction some time in the unknowable future, which is entirely avoidable through other means, is not a defensible position, in my view. And not really worthy of debate.
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Old 06-09-2011, 12:00 PM   #63
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I agree things have changed, and the US is in a privileged position. That's what's allowed us to build this house of cards as high as we have. But it doesn't mean we can keep building it to the sky, forever.

I hadn't thought about the distinction of debt-in-own-currency vs. not, and how printing marks increased Weimar's debt. I agree that does make a significant difference. I don't agree that we could only fall into hyper-inflation by choice. I also wonder how long anyone will loan us money in USD if they know we're going to inflate it to toilet paper before we pay them back.

Yes, inflation shrinks the debt burden, which is of course a lot of why they're doing it. (Though I've never understood how that really helps any, if you continue piling on massive amounts of new debt at the newly-inflated rate.) But inflation definitely tends to destroy the value of savings, which is a major concern of the folks here.

I don't think we need to "manufacture" inflation. It's already here, in spite of the government's rosy figures. Look at this chart of actual price changes, compared to the claimed CPI-U number:



The CPI has been pulled down a lot by collapsing house prices. But of course not everybody buys a house every year. Whereas the things you DO buy all the time have been going up, a LOT. Ask anyone who buys food, or gas, or medical care. They've seen a whole lot more than 1-2%/yr inflation over the last few years. Gas took a dive in late 2008 but it's been rising at about a 40%/yr rate since then, and we're back near the 2008 peaks. Averaged over the last 6 years, gas has gone up over 10%/yr.
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Old 06-09-2011, 12:59 PM   #64
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I don't think we need to "manufacture" inflation. It's already here, in spite of the government's rosy figures. Look at this chart of actual price changes, compared to the claimed CPI-U number:
If you don't believe CPI, then how about the folks at MIT who created their own inflation index. Don't fall into the fallacy of defining inflation by looking only at prices that go up (MIT Billion Price Index in Red, CPI in Blue).
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Old 06-09-2011, 01:14 PM   #65
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That's an impressive list Nords! Would you suggest a book that I could obtain via inter library loan (ie isn't obscure) that explains what went on during the 1920's that lead to the crash in 1929? How about another book about what caused the depression? Is it possible to find 2 such books that aren't opinion but based upon actual facts? I'd like to understand what happened. I'm aware buying on margin was the cause of the collapse when people couldn't meet their margin calls. But what events lead to the depression and kept us there?
The depression I don't have a handy one for, but a fascinating book about the history of speculation would fit the bill for the 1920s: "Devil Take the Hindmost," by Edward Chancellor.
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Old 06-09-2011, 01:37 PM   #66
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If you don't believe CPI, then how about the folks at MIT who created their own inflation index.
Hey, no fair! Quit making such good arguments!!

That's a very good point. I was pretty confused when the BPP came out and it matched the CPI so closely. That makes no sense to me, unless the MIT folks tweaked their results to match CPI, which seems unlikely. I suspect it's because they're adjusting the "basket" of commodities they use the same way the govt does, which would tend to give you the same answers the govt gets.

Enter ShadowStats. According to the **government's own way of calculating CPI** as of 1980 -- before Greenspan started fudging the calculations to make them look better -- we're currently seeing an inflation rate of over 10%, instead of the ~2.5% claimed by the current CPI-U.



The CPI used to be a measure of the cost of maintaining a constant standard of living. So if the cost of steak went up, it was reflected in the CPI. That's how the govt USED to calculate CPI, and it's reflected in the blue line above. The govt changed the CPI calculation to assume that you'd start buying hamburger instead of steak, and hash if hamburger got too expensive. That assumption of reduced spending habits depressed the resulting CPI, as shown by the red line.

According to that explanation, the current CPI-U is accurate if you're willing to switch to an Alpo diet. If you want to maintain your same standard of living, the blue line -- the way the government USED to calculate it, assuming a steady standard of living -- is a more accurate indicator of inflation.

Gary
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Old 06-09-2011, 01:44 PM   #67
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That's an impressive list Nords! Would you suggest a book that I could obtain via inter library loan (ie isn't obscure) that explains what went on during the 1920's that lead to the crash in 1929? How about another book about what caused the depression? Is it possible to find 2 such books that aren't opinion but based upon actual facts?
"Lords of Finance" for all three questions.

Here's the short answer: Gold standard = bad.

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The depression I don't have a handy one for, but a fascinating book about the history of speculation would fit the bill for the 1920s: "Devil Take the Hindmost," by Edward Chancellor.
Also an excellent book. Once you figure out the 1920s it doesn't take much to see why everyone reflexively tightened up on fiscal policy in the 1930s. Oops.

In defense of 1920s-30s economists and policy makers, there was hardly any data to show the immediate effects. Instead of driving while watching the rear view mirror it was more like driving while blindfolded and hoping to feel the bumps in the road...
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Old 06-09-2011, 02:02 PM   #68
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"Lords of Finance" for all three questions.
Here's the short answer: Gold standard = bad.
I'll have to look that one up. Can you summarize it a bit less succinctly? I know the gold standard has problems -- e.g. you can't expand the money supply to finance growth in good economic times -- but obviously a non-gold standard has problems too. Like the USD losing about 93% of its purchasing power since WWII, thanks to inflationary fiat-money policies. (Of course, to be fair, the USD lost a lot of purchasing power between 1900 and 1920, too, when we were ostensibly still on a gold standard.)
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Old 06-09-2011, 02:09 PM   #69
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I'll have to look that one up. Can you summarize it a bit less succinctly? I know the gold standard has problems -- e.g. you can't expand the money supply to finance growth in good economic times --
Even worse: every time there was another gold strike in the 1800s the country had an economic boom shortly thereafter due to an exogenous increase in the money supply.

Thanks, I prefer dollars.
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Old 06-09-2011, 02:18 PM   #70
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Do me a favor. Go grab some actual prices from 1987 (here I'll help you out - Morris County, NJ historic prices published in their paper) inflate those prices to today using both the CPI index and ShadowStats. See which index gives you prices closer to what's available on store shelves.

Report what you find. I eagerly await your results.
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Old 06-09-2011, 02:36 PM   #71
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Do me a favor. Go grab some actual prices from 1987 (here I'll help you out - Morris County, NJ historic prices published in their paper) inflate those prices to today using both the CPI index and ShadowStats. See which index gives you prices closer to what's available on store shelves.

Report what you find. I eagerly await your results.
I'll bite! That shadowstat chart shows the blue line always above 5% since 1987, so I will use constant 5% inflation and get a lowball number
1.05^24 = 3.25x more expensive items according to the shadowstats in 2011 vs 1987.

Ok, from that link: Milk, 2% low fat, 1.79/gallon

Today: Milk, 2% low fat, 3.59/gallon

Hmmm...according to a lowball 5% inflation, milk should be $5.77/gallon

I think I will go with the CPI.
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Old 06-09-2011, 02:53 PM   #72
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I'll bite! That shadowstat chart shows the blue line always above 5% since 1987, so I will use constant 5% inflation and get a lowball number
1.05^24 = 3.25x more expensive items according to the shadowstats in 2011 vs 1987.

Ok, from that link: Milk, 2% low fat, 1.79/gallon

Today: Milk, 2% low fat, 3.59/gallon

Hmmm...according to a lowball 5% inflation, milk should be $5.77/gallon

I think I will go with the CPI.
5% is a really, really, lowball, too. The actual average looks more like 7%-8%, which calls for a 5x-6x adjustment. Therefore a gallon of milk should cost somewhere around $9-$11.

CPI meanwhile is up 1.9x since 1987, so that $1.79 gallon should cost somewhere around $3.42 today according to CPI.
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Old 06-09-2011, 03:14 PM   #73
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My point about "fringe voices" is that we don't realize that they're "on the fringe" until the debate is over and the history books have been written. When you're reading the newspaper headlines, and you don't know how the story ends, then it's very difficult to distinguish the fringe from the mainstream.

"Official history" is also full of "facts" that are not in the majority or even just plain wrong.

This is pulled from my list of library books that I've read over the last few years, so they should still be available. I don't have all the authors at hand but I think the titles are unique.

With that theme in mind there should be something here for everybody.

Start with my favorites:
Triumph of the Optimists by Elroy Dimson, Paul Marsh, and Mike Staunton
and
William Bernstein's "The Birth of Plenty" and "A Splendid Exchange".

Next would be:
"The Lords of Finance" by Liaquat Ahamed, about world fiscal policy during the 1920s... I won't spoil the story by telling you how it ends.

In no particular order there's:
"The Way We Never Were" by Stephanie Coontz, and her followup "The Way We Really Are"
AC/DC: The Savage Tale of the First Standards War. (Edison vs Tesla.)
Influence: The Psychology of Persuasion by Robert Cialdini
Founders at Work: Stories of Startups' Early Days [Hardcover] by Jessica Livingston
The Snowball: Warren Buffett And The Business Of Life by Alice Schroeder
"The Eleven Days of Christmas: America's Last Vietnam Battle" by Marshall Michel
Sudden Sea: The Great Hurricane of 1938, R.A. Scotti, the most destructive natural disaster in U.S. history that nobody remembers anymore
The "What They Didn't Teach You About" series-- particularly the Civil War, WWII, and the 1960s
Origins of the Crash: The Great Bubble and Its Undoing by Roger Lowenstein
Too Big to Fail by Andrew Ross Sorkin
The Big Short by Michael Lewis
BULL! A History of the Boom, 1982-1999. By Maggie Mahar.
1912: Wilson, Roosevelt, Taft, & Debs-- The Election That Changed a Country
Frank Lloyd Wright by Ada Louise Huxtable
"The Showman of the Pacific: 50 Years of Radio and Rock Stars", by Tom Moffatt with Jerry Hopkins
The Wal-Mart Effect, Charles Fishman
"Broken Trust: Greed, Mismanagement and Political Manipulation at America's Largest Charitable Trust", Samuel King & Randall Roth
Marc Freedman's "Encore" and "Prime Time", the parts about social programs of the 1960s and 1970s
iWoz by Steve Wozniak
"Complications" and "Better: A Surgeon's Notes on Performance" by Atul Gawande
The Illusions of Entrepreneurship, Scott A. Shane
Predictably Irrational: The Hidden Forces That Shape Our Decisions, by Dan Ariely
Panic: The Story of Modern Financial Insanity by Michael Lewis
50 Great Myths of Popular Psychology: Shattering Widespread Misconceptions about Human Behavior, by Scott O. Lilienfeld
Thanks for the list. I've only read a couple, so I'll take this list along to the library next time I go.
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Old 06-09-2011, 03:24 PM   #74
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Even worse: every time there was another gold strike in the 1800s the country had an economic boom shortly thereafter due to an exogenous increase in the money supply.
And now we get an economic boom/bubble any time the Fed thinks inflation isn't low enough. Is it really that different?

G4G, you persist in posting excellent counterarguments. Quit that.

Looking at the prices from 1980 and from 2010, it does indeed look like the shadowstats numbers are off. Which, if you accept their explanation, must mean that the current CPI-U calculation is more accurate than the previous 1980 method.

The price change in milk from 1987 - 2011 almost precisely matches the results from the BLS inflation calculator. Same with coffee. Laundry detergent should be $0.1081/oz in 2010, but it's actually $0.1759. Excedrin in 2010 is about 2x more expensive than expected from inflating Anacin in 1987. Other than that it's really hard to find things that are truly apples-to-apples comparisons. (Except Rome apples in 1987 are $1.29/3lb, should be $2.55 in 2010, and Macintosh in 2010 are $2.99. )

So some things match the CPI very well, some are much more expensive than the CPI would predict. You'd have to do a much broader comparison to get an accurate picture.

But it's clear the CPI is a lot closer than ShadowStats. Very interesting. Thanks for the excellent link!
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Old 06-09-2011, 04:02 PM   #75
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Do me a favor. Go grab some actual prices from 1987 (here I'll help you out - Morris County, NJ historic prices published in their paper) inflate those prices to today using both the CPI index and ShadowStats. See which index gives you prices closer to what's available on store shelves.

Report what you find. I eagerly await your results.
Oof. That's sort of hard. Looking back on older CPI data to price their component items in today's market, I can't find any current pricing on 5 vacuum tube desktop radios or 16" B&W televisions, for starters.

I wonder how ShadowStatistics does it? Oh, I don't wonder so much that I'll pay the gonif $175 for access to his shadow data, but it is a puzzle. Meanwhile, the BLS continues to publish all the details of how they do it.
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Old 06-09-2011, 04:49 PM   #76
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Old 06-09-2011, 05:49 PM   #77
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I'll have to look that one up. Can you summarize it a bit less succinctly? I know the gold standard has problems -- e.g. you can't expand the money supply to finance growth in good economic times -- but obviously a non-gold standard has problems too.
Lemme see if I have this right:
- I'm a voracious omnivorous reader
- I've spent a few years on this board building some credibility
- I've recommended a prize-winning book on economic history, along with a dozen or so other titles
- I've chosen books that I've read from the library so that you can easily access them
- I've intimated that it's one of the best books I've read in a long time
- You already know how the story ends

... and you want the Cliff's Notes version?!?

One more hint:
War reparations = bad.

You're welcome. Now go find your damn library card and do the work.
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Old 06-09-2011, 11:03 PM   #78
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... and you want the Cliff's Notes version?!?

One more hint:
War reparations = bad.

You're welcome. Now go find your damn library card and do the work.


Clif's Notes is that is a very good reading list, but I have to finish your book first.
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Old 06-10-2011, 06:42 AM   #79
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Lemme see if I have this right:
- I've recommended a prize-winning book on economic history, along with a dozen or so other titles
- I've intimated that it's one of the best books I've read in a long time

... and you want the Cliff's Notes version?!?

Now go find your damn library card and do the work.


I wanted the Cliff Notes too but I put a hold on an ebook version of Lords of Finance at the library. That is the one you intimated was a best read, right?
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Old 06-10-2011, 07:40 AM   #80
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So some things match the CPI very well, some are much more expensive than the CPI would predict.
And, don't forget, some things are much cheaper . . . like 19 inch color TVs that should sell for $400 today. That is exactly what you expect from any average, some higher, some lower and some right in the middle.
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