Article says it is a V Shaped Recovery

[MichaelB]

Unemployment will contain our inflation - up to a point. Economic policy in China will have an upward impact as well. The large population developing countries will continue to industrialize and consume greater quantities of materials and manufactured goods. Lots of variables and very complex.

Inflation never solves problems – it just redefines them.

As for Banana Republic and Third World – I lived in the “Third World” for half my life, my wife and children were born and raised there, where we still have lots of family and friends, as well as many close and personal ties to “banana republic” inhabitants. The terms themselves are derogatory, and my experience is they are used most by people that understand them the least and rely on biased and stereotypical imagery to make points they are unable to make intellectually. ‘nuff said on this...

 

[ziggy29]

Maybe 0% inflation would be great for a retiree. But for economies - I don't think so! There is a reason even the super conservative Eurozone targets 2%. Sub 2% is usually associated with economic hardship.

The U.S. economy had very little overall inflation from 1790 until WW1, with a few inflationary and deflationary fluctuations in between. I don't think the entire 125 year period was a lousy economy.

Or has the Federal Reserve, "fiat money" and fractional reserve lending changed the rules?

 

[MichaelB]

Stable prices are ideal for an economy and greatly enable long term investing. Economists consider 2% as "reasonable" because monetary tools are blunt and cycle times too long to guarantee avoiding deflation if inflation drops below that number.

 

[audreyh1]

The U.S. economy had very little overall inflation from 1790 until WW1, with a few inflationary and deflationary fluctuations in between. I don't think the entire 125 year period was a lousy economy.

Or has the Federal Reserve, "fiat money" and fractional reserve lending changed the rules?

Ah - back when the US really was a third-world country!

I don't care to return there. To an agrarian economy and some really devestating global economic busts? No thank you! Maybe inflation averaged out to zero, but there were some horrible deflationary periods, so there must have been some bad inflation as well. Not sure the point then.

Audrey

 

[ziggy29]

Ah - back when the US really was a third-world country!

I don't care to return there. To an agrarian economy and some really devestating global economic busts? No thank you!

Correlation does not equal causation. Do you have any evidence to suggest that a lack of long-term inflation is a *cause* for a weak, unstable economy and excessive boom/bust cycles? For almost all of history until the rise of fiat money and fractional reserve lending, the long term inflation rate was a lot lower than it has been in the last century. As I said before, I don't think there was a constantly "bad" economy, though there were some busts and panics as there still are today (albeit more "managed" today).

I'm not suggesting that a 21st century economy return to a 19th century banking and economic system. But I do think that we've been conditioned to "accept" inflation as a fact of life and that it is "healthy." A little inflation is much better than deflation, I'd agree -- but personally I think that is really the only reason why targeting 2-3% inflation is reasonable; even a weak economy is less likely to fuel a devastating deflationary spiral.

Inflation -- in moderation -- is "healthier" than deflation, for sure, but I don't think it's desirable to have policy which intentionally causes a dollar to buy a lot less 10 years from now than it does today.

 

[Gone4Good]

The U.S. economy had very little overall inflation from 1790 until WW1, with a few inflationary and deflationary fluctuations in between. I don't think the entire 125 year period was a lousy economy.

Or has the Federal Reserve, "fiat money" and fractional reserve lending changed the rules?

Huh? I've heard Ron Paul say something similar, but he's . . . well let's just say he's not exactly correct. Unless of course you ignore . . .

The Panic of 1819
The Panic of 1837
The Panic of 1857
The Panic of 1873
The Panic of 1893
The Panic of 1907

Ah, the good old days. Before the Fed and all that pesky regulation. A time of purity when we were free to enjoy an economic depression every fifteen years or so. Those were the days.

 

[Steve O]

Strong sales and earnings are driven by the propped up stock market.

I know I've been doing my part spending

I've also been slowly increasing my position in Vanguards TIP's fund, buying the dips so far has worked well...

If oil, money printing and debt continues to rise how can we not see inflation?

Maybe oil is overpriced? But when a liberal administration want increased oil exploration I wonder what's going on there?

If it looks like they stay in control of congress in Nov and taxes go up I see a lot of people taking gains this year.

If congress changes and spending is cut I see a sell off there too.

Bottom line is all this intervention is just slowing down the inevitable...

Government is too big and there's too much debt...

 

[ziggy29]

Huh? I've heard Ron Paul say this, but he's . . . well let's just say he's not exactly correct. Unless of course you ignore . . .

The Panic of 1819
The Panic of 1837
The Panic of 1857
The Panic of 1873
The Panic of 1893
The Panic of 1907

Ah, the good old days. Before the Fed and all that pesky regulation. A time of purity when we were free to enjoy an economic depression every twenty years or so. Those were the days.

Why do you have to assume that calling out the deficiencies of fiat money and fractional reserve lending is a call for abolishing the Fed and returning to hard money? Why do you have to assume it means advocating an elimination of regulations in the banking industry?

This is like assuming someone who criticizes someone in one political party must be a "fan" of the other party, and frankly I'm a little tired of that false dichotomy as well.

The world isn't binary; zero and one aren't the only options. We have shades of gray in addition to black and white. We don't have to be "all in" to one extreme or the other. Monetary policy has its place and its positive uses. I just don't think we have to assume that long term 3% inflation *has* to be a part of it.

 

[Steve O]

Ohh yea there's those two pesky little wars going on too...

I truly do hope we will be out of Iraq by August as promised

 

[audreyh1]

Why do you have to assume that calling out the deficiencies of fiat money and fractional reserve lending is a call for abolishing the Fed and returning to hard money? Why do you have to assume it means advocating an elimination of regulations in the banking industry?

This is like assuming someone who criticizes someone in one political party must be a "fan" of the other party, and frankly I'm a little tired of that false dichotomy as well.

The world isn't binary; zero and one aren't the only options. We have shades of gray in addition to black and white. We don't have to be "all in" to one extreme or the other. Monetary policy has its place and its positive uses. I just don't think we have to assume that long term 3% inflation *has* to be a part of it.

Well, you were the one who mentioned the pre-WWI US economy as somehow being better or at least a reasonable alternative perhaps to today's more managed economy because inflation averaged to 0% (even though there must have been wild inflation/deflation swings).

So what are we supposed to think? Otherwise, I don't really understand your point.

You do agree that 2% inflation probably has to be the target to avoid deflation. So what are we arguing about? US Administrations do seek inflation - even if a tiny amount - and seek to avoid deflation. Seems like reasonable policy to me.

And we're talking 2%. Not long-term 3% or greater. There is a difference too.

Audrey

 

[MichaelB]

A little inflation is much better than deflation, I'd agree -- but personally I think that is really the only reason why targeting 2-3% inflation is reasonable; even a weak economy is less likely to fuel a devastating deflationary spiral.

Inflation -- in moderation -- is "healthier" than deflation, for sure, but I don't think it's desirable to have policy which intentionally causes a dollar to buy a lot less 10 years from now than it does today

We attribute too much to our policy makers. They target a little inflation not because it’s the better goal but because their aim is so poor.

 

[ziggy29]

Well, you were the one who mentioned the pre-WWI US economy as somehow being better or at least a reasonable alternative perhaps to today's more managed economy because inflation averaged to 0% (even though there must have been wild inflation/deflation swings).

No, I mentioned that long term it had basically no inflation and that inflation as an accepted (even desired) monetary outcome is a fairly new phenomenon in economics. I didn't say it was "better." Presumably that was your inference. I didn't introduce the false dichotomy which implies our only choices are a return to "hard money" or intentional inflation.

 

[audreyh1]

If oil, money printing and debt continues to rise how can we not see inflation?

Public debt and money printing don't necessarily result in inflation. Witness Japan for the past 20 years. If the private sector is drastically deleveraging (paying down debt) then public debt increasing to counteract the economic effects isn't necessarily inflationary. It depends on other factors.

The bad inflationary spiral in the 70s was driven by wage inflation. With the current global economy and high unemployment rates we really don't have any wage inflation pressure. So there has to be some other source.

We know it's not housing prices - those are exerting deflationary pressures.

Commodities? Maybe. But we have had periods of high oil prices and high food prices at least twice so far in the 2000s, and they didn't end up causing an inflationary spiral. Rather, the high oil prices acted as a damper on the economy - slowing things down like a Fed rate hike would. Ultimately resulting in a slightly lower inflationary outlook. Seems paradoxical, but unless people have the money to absorb higher oil prices without giving up other things higher prices on some components aren't going to cause inflation. Not to mention that some businesses couldn't pass on the higher component costs. Again - it comes back to the non-existent wage inflation.

I'm just pointing our why some things might not have the effect you expect - at least not over the next year. Maybe later - who knows? If the economy turns around sufficiently with major improved employment, we could very well could have a build in inflationary pressures.

If it looks like they stay in control of congress in Nov and taxes go up I see a lot of people taking gains this year.

Well, we know taxes are going up next year anyway, because the Bush Tax Cuts will expire. And I don't think anyone believes there is any chance at all that the Bush Tax Cuts will be extended. No one has expected that. I haven't witnessed the opposite party proposing that they be extended and promising to do so if they return to majority.

I have already taken a bunch of gains this year in anticipation of higher capital gains taxes starting next year. I suspect that the last bear market helped a lot of people "take their gains" early as well. Will there still be a sell-off late in the year due to this? Perhaps - but not because it is not already well anticipated.

FWIW - the astrological "Bradley Turn Dates" Model predicts a major market turn on August 10 of this year which I think we can assume will be negative. So you may still get a huge selloff this year for whatever reason.

Audrey

 

[audreyh1]

No, I mentioned that long term it had basically no inflation and that inflation as an accepted (even desired) monetary outcome is a fairly new phenomenon in economics. I didn't say it was "better." Presumably that was your inference. I didn't introduce the false dichotomy which implies our only choices are a return to "hard money" or intentional inflation.

Well - OK. I guess I didn't understand why you mentioned it if it was not a somewhat desirable alternative.

Audrey

 

[ziggy29]

Well - OK. I guess I didn't understand why you mentioned it if it was not a somewhat desirable alternative.

I merely threw it out as food for thought until G4G introduced the false dichotomy and made me out to be an advocate of an economic system that created a "panic" every 20 years -- just by virtue of seeing what I think are flaws in the current system. That was what I really took offense to.

 

[Gone4Good]

Maybe 0% inflation would be great for a retiree. But for economies - I don't think so! There is a reason even the super conservative Eurozone targets 2%. Sub 2% inflation is usually associated with economic hardship.

The U.S. economy had very little overall inflation from 1790 until WW1, with a few inflationary and deflationary fluctuations in between. I don't think the entire 125 year period was a lousy economy.

No, I mentioned that long term it had basically no inflation and that inflation as an accepted (even desired) monetary outcome is a fairly new phenomenon in economics.

This is the conversation in context. What you clearly implied was that the period from 1790-1914 (WWI) had an acceptable economic environment. It appears both Audrey and I read it exactly the same way. If you didn't mean that, that's fine.

 

[Gone4Good]

Well - OK. I guess I didn't understand why you mentioned it if it was not a somewhat desirable alternative.

Audrey

Yup.

 

[Steve O]

I think it's too early to call the tax situation.

There's a growing number of people that have had it with ever increasing government, spending and taxes.

There are several tax reform proposals out there and I believe there will be more...

You should thank me today the market's are on the way up again

 

[ziggy29]

This is the conversation in context. What you clearly implied was that the period from 1790-1914 (WWI) had an acceptable economic environment.

How on earth do you draw that conclusion from this?

I don't think the entire 125 year period was a lousy economy.

To take that and draw a conclusion that it was a better (or even acceptable) economic system is a logical leap in the extreme.

How is saying "the economy didn't suck for all that time" the same as advocating a return to those days or saying that the system was better then? I'm puzzled.

Here's another example to point out your false dichotomy: margin investing. Prior to the crash of '29, you could "buy" $20 in stock with $1 in equity -- in other words, hold a margin position with 5% equity. Saying that was dangerous (like fractional reserve lending in the extreme) doesn't have to mean eliminating margin investing *completely*. Maybe it just means saner margin requirements (yes, that "regulation" you seemed to imply I was saying is evil) such as 30% to 50% margin equity requirements. Maintaining the status quo and completely repealing it are not the only options.

There are shades of gray. There are fractions between zero and one. Because I say something shouldn't be white doesn't mean I'm saying it should be black.

 

[Gone4Good]

Monetary policy has its place and its positive uses. I just don't think we have to assume that long term 3% inflation *has* to be a part of it.

That's a fair argument. I just wouldn't point to an economic era replete with depressions and economic panics to support it.

I think positive inflation is targeted for practical reasons. In a deflation real interest rates can increase uncontrollably (i.e. monetary policy tightens) even with the nominal rates constrained by the zero lower bound.

 

[Gone4Good]

To take that and draw a conclusion that it was a better (or even acceptable) economic system is a logical leap in the extreme.

And yet both Audrey and I leaped it with the greatest of ease.

You can maybe accuse me of deliberately misreading your point . . . but Audrey too?

 

[ziggy29]

I think positive inflation is targeted for practical reasons

I agree. It's easier to avoid a deflationary death spiral with a 2% inflation target than with a 0% target. Doesn't mean that 2% inflation is the long term "ideal" but it's judged to be an acceptable level that reduces the chances of a devastating deflationary cycle.

Ideal, no. Practical, yeah, probably so.

 

[ziggy29]

And yet both Audrey and I leaped it with the greatest of ease.

You can maybe accuse me of deliberately misreading your point . . . but Audrey too?

Audrey wasn't the one suggesting I supported an economic model that resulted in panics every 15-20 years complete with a bunch of links to "panics." Or assuming that I was in lockstep with Ron Paul.

And you can have the last word if you want it. I'm done with this thread.

 

[rescueme]

Maybe 0% inflation would be great for a retiree.

Nope; then we start bitc*ing about our SS checks not going up every year ...

 

[Gone4Good]

Audrey wasn't the one suggesting I supported an economic model that resulted in panics every 15-20 years complete with a bunch of links to "panics." Or assuming that I was in lockstep with Ron Paul.

And you can have the last word if you want it. I'm done with this thread.

Yes, we both understood your point to be that the economic situation was at the very least acceptable, if not better, in the 125 years prior to the Fed. That may not be what you intended to say, but after reading and re-reading your post I'm absolutely convinced that is what you said.

Fin