Current Inflation Index Reports and Fed Policy/Actions

[Flieger]

^^^ Good answer. The economy would seize up.

But then, people would need stuff. They would start to spend. Producers would start to produce again, and they would compete. Prices could be formed based on market demand and market supply.

It’s not nirvana, because excesses build up and we get harsh, fast panics, booms and busts, as happened in the late 1800s. But those shocks would wipe out debts, so we’d be less prone to government and private debt reliance. And we wouldn’t have a system in which everyone’s purchasing power is reduced 2-4% or more in order to paper over every shock, allowing market cleansing of excesses to happen.

Our society since the GFC has traded fast, cleansing recessions for constant, grinding monetary inflation.

But during the "in-between time, I think, due to the "slow down" in buying and price drop, jobs would be lost and wages would decrease.

Flieger

 

[Koolau]

^^^ Good answer. The economy would seize up.

But then, people would need stuff. They would start to spend. Producers would start to produce again, and they would compete. Prices could be formed based on market demand and market supply.

It’s not nirvana, because excesses build up and we get harsh, fast panics, booms and busts, as happened in the late 1800s. But those shocks would wipe out debts, so we’d be less prone to government and private debt reliance. And we wouldn’t have a system in which everyone’s purchasing power is reduced 2-4% or more in order to paper over every shock, allowing market cleansing of excesses to happen.

Our society since the GFC has traded fast, cleansing recessions for constant, grinding monetary inflation.

Sorry. Not familiar with GFC. I'm sure when you tell me I'll be like

 

[Markola]

Great Financial Crisis

 

[Koolau]

But during the "in-between time, I think, due to the "slow down" in buying and price drop, jobs would be lost and wages would decrease.

Flieger

Yup. That was the biggest problem with the GD. Lack of j*bs. My dad rode-the-rails to find w*rk. Imagine a Kentucky boy (coal miner) rounding up stray cattle in TX and you get the idea of what it was like in those days. Guys would do anything for any amount of money so they could send it home to their families.

 

[Koolau]

Great Financial Crisis

 

[Markola]

Injected liquidity kinda helped. So we did it again in Covid lockdowns. Debt and inflation have grown accordingly. 100 year old Keynesianism will work, until it doesn’t anymore. The UK might have reached that point.

 

[Chuckanut]

Technology is deflationary. Productivity gains are deflationary. Competition is deflationary. These are good things. We should be enjoying falling prices. Yet, we are experiencing inflation.

Perhaps it has something to do with two Trillion dollar deficits with nobody in charge giving a hoot about it.

When more dollars chase goods and services, the price goes up. Trillion dollar government deficits do very little to increase productivity and thus our supply of goods/services. They do increase demand. Price is a function of Supply and Demand. Econ 101.

 

[Montecfo]

Injected liquidity kinda helped. So we did it again in Covid lockdowns. Debt and inflation have grown accordingly. 100 year old Keynesianism will work, until it doesn’t anymore. The UK might have reached that point.

Well I think there was too much stimulus after COVID peaked. And using it as an excuse for profligate spending.

That AND the rebound effect post COVID, which was inevitable.

THOSE two things drove the 20+% price hike which is the real inflation issue.

Just my opinion.

 

[Chuckanut]

Does anyone know why the Fed desires a 2% inflation rate?

So, we can all feel bad when inflation approaches 4% as it’s doing now?

 

[ShokWaveRider]

I can honestly say we have not noticed the inflation creeping up. It does not seem to affect us anymore.

 

[Fermion]

It is striking how 2% seems pretty low but over a very long period, say 2000 years, $100 of something would grow to $15,861,470,965,791,000,000

 

[Chuckanut]

It is striking how 2% seems pretty low but over a very long period, say 2000 years, $100 of something would grow to $15,861,470,965,791,000,000

When I get my Time Machine working I’ll let you know what $15,861,470,965,791,000,000 will buy in 4026.

 

[Fermion]

When I get my Time Machine working I’ll let you know what $15,861,470,965,791,000,000 will buy in 4026.

I mean it just goes to show there were massively long periods of deflation in history.

 

[Qs Laptop]

Respectfully, this is a Keynesian economics talking point. One of the best decades in all of US history had declining prices, i.e. "deflation". In the 1870's real GNP growth averaged 4.9-5.1% (depending on how one measured the decade) due to adding tons of additional farm land, new iron and steel (e.g. Carnegie) and the use of oil products, (Rockefeller, the original "trillionaire" (in terms of todays $)).

That was a unique period in US history, unlike any other one. You can't cherry pick one particular decade and try to claim it would work in any era. The post civil-war period was a time of rapid expansion, the explosion of railroads (and the jobs they provided), the settlement of the West, industrial expansion through the steel industry and factories, plus the post war population boom. In addition, there was severe deflation and a four year long depression.

A better example would be the post WWII boom we experienced. Another era of population growth, expansion of housing into the suburbs, and factories humming outputting American products. GDP was about 4% annually. No depression, no deflation, minimal inflation.

Which would you rather hold up as an example of the American economy at its best?

If we have increasing productivity it should result in lowering of prices.

Yes, it would. It would also result in layoffs and unemployment.

Anyway, back to the topic, which is the Fed's policy actions...

 

[Ian S]

Apparently there were long periods with virtually no inflation whatsoever. The Dark Ages are a good example.

 

[Montecfo]

Apparently there were long periods with virtually no inflation whatsoever. The Dark Ages are a good example.

Well those records would not be worth the parchment and wax tablets they were written on.

 

[Markola]

I can honestly say we have not noticed the inflation creeping up. It does not seem to affect us anymore.

Because you own stocks, which puts you on the upper line of the K.

 

[Montecfo]

Because you own stocks, which puts you on the upper line of the K.

have to be careful of this "K-shaped" economy thing. The economy is always that shape to some extent.

And never have more prospered than right now.

But certainly not all. Again, nothing new.
And approximately 60%+ of workers and retired folks have exposure to the equity markets. That's most of us.

 

[Markola]

Perhaps it has something to do with two Trillion dollar deficits with nobody in charge giving a hoot about it.

When more dollars chase goods and services, the price goes up. Trillion dollar government deficits do very little to increase productivity and thus our supply of goods/services. They do increase demand. Price is a function of Supply and Demand. Econ 101.

It’s an old play book. I think it happens in stages, so we don’t see it. It’s like the creep of the income tax. “We’ll just tax the top earners.” Government grows…”Eh, yeah, we’re going to need to expand the income tax to just a few more of you.”

Eventually, citizens won’t tolerate more taxes, and they like the services, so you can’t cut them and win reelection. It’s bipartisan. DOGE flopped and proved it. Elon gave up and left, and sporting a mysterious black eye in payment for his government service.

We’re spending $7 trillion and raising $5 trillion. The balance is financed on a mushrooming $40 trillion debt that can’t be paid.

Can’t cut government. Can’t raise taxes. Can’t wage war without managing the nervous stock and bond markets.

What can be done? Put the $2 trillion excess on the debt, rail for interest rate cuts, let inflation run a little higher, say 4%, than the interest rate, say 3%. Print the money (debasement), make the past denominated debt payments in newly conjured dollars. Nominal debt comes down over time, but everyone pays for it through higher inflation. Those dollars go in circulation, diluting everyone’s spending power.

It’s how governments pay for excess spending above revenues, with no hard votes required. An invisible tax.

“We wouldn’t do that,” said every government In history with its own currency. To wit, when our grandparents were kids, the British Pound Stirling bought a pound of silver.

 

[pjigar]

Does anyone know why the Fed desires a 2% inflation rate?

The 2%, as I recall, was an arbitrary number picked at some point. I remember reading an article about it a while back. They knew it needs to be a low positive number. The key is that the inflation expectations needs to be aligned among all players which becomes a self-fulfilling prophecy. My simple understanding of the matter.

PS: I don't quite remember which article I read but here is what I found that sounds about what I read:

The Origins of the 2 Percent Inflation Target

The FOMC established its explicit inflation target in January 2012 after a decades-long deliberation. It came in part from the Richmond Fed.

www.richmondfed.org

 

[ShokWaveRider]

Because you own stocks, which puts you on the upper line of the K.

Wrong! No stocks, just fixed income.

 

[Qs Laptop]

It’s an old play book. I think it happens in stages, so we don’t see it.

It’s like the creep of the income tax.

“We’ll just tax the top earners.” Government grows…”Eh, yeah, we’re going to need to expand the income tax to just a few more of you.”

Elon gave up and left, and sporting a mysterious black eye in payment for his government service.

Can’t wage war without managing the nervous stock and bond markets.

What can be done? Put the $2 trillion excess on the debt, rail for interest rate cuts, let inflation run a little higher, say 4%, than the interest rate, say 3%.

Print the money (debasement), make the past denominated debt payments in newly conjured dollars.

It’s how governments pay for excess spending above revenues, with no hard votes required. An invisible tax.

“We wouldn’t do that,” said every government In history with its own currency.

How many conspiracy theories can you pack into one post?

 

[Koolau]

Perhaps it has something to do with two Trillion dollar deficits with nobody in charge giving a hoot about it.

When more dollars chase goods and services, the price goes up. Trillion dollar government deficits do very little to increase productivity and thus our supply of goods/services. They do increase demand. Price is a function of Supply and Demand. Econ 101.

I'm guessing the FED members care though their tools are fairly limited. We often hear Administrations criticizing the FED but I don't recall the FED being too critical of the Administrations. I'm thinking that might be a lonely j*b being responsible for both inflation AND unemployment. (A dirty j*b but someone has to do it).

 

[GenXguy]

What can be done? Put the $2 trillion excess on the debt, rail for interest rate cuts, let inflation run a little higher, say 4%, than the interest rate, say 3%. Print the money (debasement), make the past denominated debt payments in newly conjured dollars. Nominal debt comes down over time, but everyone pays for it through higher inflation. Those dollars go in circulation, diluting everyone’s spending power.

It’s how governments pay for excess spending above revenues, with no hard votes required. An invisible tax.

Sadly, this seems to be happening a lot lately. And if income increases to partially compensate for high inflation, you're paying higher income tax as well, in addition to the high inflation you mentioned. A double whammy.

 

[Markola]

How many conspiracy theories can you pack into one post?

Sorry you think my post is conspiratorial. I’d say quotes 2-5 from your list above are facts. 1, 6 and 7 are more a standard critique of central banking practices from a classical economics perspective. Many gold investors would find it familiar, for example.