FED and Inflation

Discussion in 'Economics' started by HeSaidSheSaid, May 18, 2013.

  1. Attached is the price charts of every stuff such as corn, soybeans, wheat, poultry since 1993,.... as the charts show, price of these commodities has increased since then, but it really accelerates since the FED run those quantitative easing operations. and the FED keeps saying inflation is at zero level. Probably, they look at inflation in monthly myopic view [they report inflation on monthly basis]. In the longer time frame view, inflation has accummulated big number!!!

    $1.2 trillion QE1 from November 25, 2008 through June 2010

    $600 billion QE2 November 2010 through June 2011.

    QE3 = "QE Infinity" since September 13, 2012....
  2. "Financial market inefficiency with deflation
    The second effect noted by Tsaing is that when savers have substituted money holding for lending on financial markets, the role of those markets in channeling savings into investment is undermined. With nominal interest rates driven to zero, or near zero, from the competition with a high return money asset, there would be no price mechanism in whatever is left of those markets. With financial markets effectively euthanized, the remaining goods and physical asset prices would move in perverse directions. For example, an increased desire to save could not push interest rates further down (and thereby stimulate investment) but would instead cause additional money hoarding, driving consumer prices further down and making investment in consumer goods production thereby less attractive. Moderate inflation, once its expectation is incorporated into nominal interest rates, would give those interest rates room to go both up and down in response to shifting investment opportunities, or savers' preferences, and thus allow financial markets to function in a more normal fashion."
  3. for some reason, once the Fed started easing, it quit raining
  4. one thing I've noticed - is the number of people here that discuss rising prices as inflation - i.e. definition of inflation = "average increase in prices" - basically what they've been fed in recent econ 101.

    if you look into a old economics book - inflation is nothing but the supply of money. i.e. prices don't cause inflation - supply of money does. but ofcourse they changed that definition in econ books so no one really questions money printing. so it's now a mysterious increase in prices. yes - there is merit to demand side inflation - higher demand or higher wages demanded by the same monkeys providing the same function year on year, but money supply clearly dominates recent history.

    having said that money printing isn't that bad. you have to realise much of the world isn't productive, and there is a huge population. there really isn't an efficient production process anywhere - u must keep most of these people employed somehow! hence, there is a gap where productivity is operates at lower efficiency but keeps people employed and society in order. Most of this is taken care of by fiscal policy - the free tax given to starbucks et al employing 8 monkeys on every high st. the rest is taking care of by monetary policy. don't hate the fed, they're keeping the world go round.

    yes rising prices hurts the poor - but would you have that or higher unemployment?

    would the poor have no job and high prices - or no job at all?

    how many entrepreneurs do you personally know capable of being productive economically on their own feet?

    much of the western economics world today is based on a feather. it's a fake world, it's an illusion. but it works. look at the banks, the silly policies around them needing regulating jobs, the risk jobs, settlements etc etc that have no function at all. they create nothing and do nothing. but they create jobs.

    the quicker an economic transforms to a service based economy the quicker it can grow - because it will be based on illusion. the supply of real goods like apple and banans won't keep up - but their price will.

    there is no efficient stock price or value in the markets - it's mostly an illusion. it makes absolutely no different if spx is at 100 or 1600, or if JPM CDS spread is 30 or 200. the fact is about almost everyone you know is gambling on it one way or another. actually, internet has done great with given poker access, how many poker players did u know 10 years ago? now about every college kid considers it a career path! at this rate GDP will be 10% sometime soon. and that's why most people are surprised when some house (a fixed land) suddenly is sold for $200million. or some painting is sold $150million. because they have lost order of value.
  5. piezoe


    Not only did it quit raining, but the sun came out.
  6. now piezoe, don't give me a hard time

    people confuse what happens at the grocery store with inflation
  7. vicirek


    This is an excellent post.

    One comment about money printing not being bad. In general modern economies can benefit from money printing if the money is responsibly channeled.

    However it is not without side effects. At certain point it is a drag on economy because it keeps unproductive people unproductive.

    Banks do not need to search for profits in real economy or strive for savings because money is handed to them by the government. Banks legitimize government debt, store it and redistribute it. Banks are rewarded for that. It is risk free as compared to lending to business.

    This careless money printing created situation where new money circulates within its own circle (government-dealer banks-fed-government) leaving what remained form the economy out of the loop. This is why there is "no inflation". Real economy becomes detached from the rest of financial system because of the growing grey economy, black markets and tax avoidance. The money is trapped there and does not return in the form of taxes. What we observe now is that excessive money printing created situation where economy starts to break down.
  8. piezoe


    I love your posts, oldtime. I was trying to decide if the Fed- rain connection was sarcasm or metaphor. I decided to go with metaphor.
    You're keeping me on my toes, young man. (Metaphorically speaking, of course. :D)
  9. piezoe


    It is actually a very crappy post. The word "inflation" can mean a lot of things, the air pressure in your bike tires, for example, but when it is used in an unqualified way in discussions of the economy it means the general level of prices and costs is rising, not money printing. And no, they did not intentionally give a false definition of inflation in economic text books "...so no one really questions money printing."
  10. vicirek


    Then all is good!
    #10     May 20, 2013