Comments on: Hooray for inflation Wed, 26 Nov 2014 19:47:54 +0000 hourly 1 By: GarryRMoore Tue, 19 Nov 2013 23:04:30 +0000 As 2013 comes to an end, assuming no sharp market correction, it has been a great year to hold stocks and mutual funds – my funds have increased in value nicely compared to 2012

Are stock prices overvalued? I would prefer not to find out the hard way !

It would be a sound strategy for the US Fed to start tapering in early 2014 by $10 billion per month and HOLD to this game plan until the QE is phased out

The stock market would price tapering into prices to give investors a softer landing or modest correction

Without a shift in policy the $85 billion QE could now do more damage than good

It is time that stock prices reflected S&D fundamentals and sound management of companies

Moore, Garry R – Solutions Inc

By: Ted180 Tue, 19 Nov 2013 15:50:23 +0000 The reason the creation of new money has been neither inflationary nor very stimulative is that it has gone to the wrong people. Wealthy individuals and corporations have a low marginal propensity to consume (MPC). The lower incomes MUST spend each additional dollar of income while the others have the option of saving it. Wages are stagnant and unemployment remains fairly high. The solution is to tax the rich and give the proceeds to the poor. THEY will spend every cent of it – and produce a BOOM.

By: matthewslyman Mon, 18 Nov 2013 11:24:59 +0000 …And Finally… A central truth that “sound money” advocates would never want to admit: 0% inflation, non-inflationary “sound money” is a lie. It’s DISHONEST! Why? Because in the real world, where money is not continually reinvested, the value of goods and services DECAYS! If you produce 1000 tonnes of wheat, there’s a good chance that some percentage of that will be destroyed by weavils (you don’t get more wheat unless you do work and plant/harvest it). If you produce 1000 tonnes of iron ingots and leave that in a warehouse for 100 years, you shouldn’t be surprised to find them a little rusty at the end of that, unless you spend a lot of money on a specially conditioned atmosphere to preserve them in their original condition. And so on.
So if we want our monetary system to be a reflection of reality (which it must be, if it is to be relevant, useful and productive); then there must be inflation.
The question is, what is the recommended RDA? What is the ideal amount of inflation? I reckon 1–3% PA depending on demographics and employment market conditions (I think 0–1% or 3–5% are just about acceptable, and anywhere outside 0–5% for more than 2 years would be quite disastrous)…

By: matthewslyman Mon, 18 Nov 2013 10:24:46 +0000 p.s. “Nobody bothers to trade” — stop for a minute and think what that means: think “massive unemployment”.

2% inflation is just low enough that by the time uneducated workers are old enough to understand inflation by personal experience (and not just by sneering at quaint tales of “old money” from their grandfathers); they are too old to riot in the streets about it.

2% inflation is just high enough that the economy won’t stagnate due to decreasing competitiveness in a globalized, competitive market. It’s just high enough to stave off the very real risk of a vicious deflationary cycle (which is made all the more likely by advancing technology and automation).

Any higher or lower, and youth unemployment and disillusionment will be even higher than it already is!

So let inflation continue at 2% (subject to careful study by our central banks, about the true optimum level). Let the central banks do everything possible to keep the system in kilter. More goods being produced? Old technology going obsolete? More money in the system…

But let the working classes at least have a fighting chance of getting sound financial advice… Let us have a decent chance of retraining… Let everyone, rich and poor, work hard to improve themselves. Let everyone get training in how to negotiate a fair wage, and operate within a fair framework of fair trade where everyone has access to the strategic data, and where everyone has a stake in the success of their business.

By: matthewslyman Mon, 18 Nov 2013 10:11:21 +0000 Wapshott is right : deflation is a real danger. Look at Japan.

I’m as skeptical as everyone else that falling wages are supposedly a good thing, but here’s the real advantage to inflation: many industries are gradually made obsolete by the progress of technology etc. With 2% inflation, workers are forced to return to their employer every year to explain why they ought to continue receiving the same wages originally agreed: why are they still worth the same wages they were paid last year? It stops people from getting ahead of themselves so easily, imagining (like the coal miners did in Margaret Thatcher’s time) that the whole world will stop spinning if they stop going to work.

Plus, inflation makes the economically uneducated (i.e. most of the working classes) feel good about their “pay rise”. IT makes employers look kind-hearted when they offer 2% wage “increases” per year, and especially generous when they are willing to negotiate a 4% wage “increase” after a three-year pay freeze in return for “productivity improvements” and concessions in working conditions. It helps stop the working classes from rioting on the streets and smashing everything up.

Falling wages are not a good thing, but neither is a stagnant work-force that trained 40 years ago to work with the technology of that time, and thinks their skills should be worth just as much in wage remuneration in today’s economy as they were during the previous century — without any retraining or continual improvement on their part.

Deflation would offer us an extreme version of the “worker’s paradise” where, without any hard work, intelligence or action on the part of the worker, the value of money earned previously magically increases exponentially over time. Nobody bothers to trade because everybody just stuffs money under their mattress, waiting for it to appreciate in value. We don’t want to go down that road!

The pathological conditions for monetary systems are in many ways both self-sustaining (for a time, up to decades), and self-reinforcing (via feedback loops through people’s attitudes and habits). It seems, on a fair evaluation of history, that vigorous action is sometimes required to avoid these pathological conditions.

Wapshott mentions Friedman’s observation that wages are not the prime determinant of inflation rates; but rather, the amount of money in the system is the controlling factor. Perhaps this is true. It’s worth noting that inflation/deflation doesn’t necessarily entail wage reductions/increases. Rather, perhaps obviously, inflation/deflation is defined e.g. in terms of the rate of change in the amount of goods/services you can get for a fixed quantity of money, in some location, between two points in time. This might be considered a function of:
* Worker productivity,
* Worker wages,
* Demographics and market conditions (buyers/sellers market? Have all the workers been conscripted and sent off to war? etc.)
— The monetary solution (where there is one) is inextricably linked to these more basic factors.

By: BioStudies Sun, 17 Nov 2013 05:47:16 +0000 ” It automatically reduces wages over time, meaning workers have to return to employers each year simply to keep pace with the dropping value of their incomes.”

Sounds like economic slavery to me.

We are being led down the road to serfdom.

By: Leftcoastrocky Sun, 17 Nov 2013 00:57:24 +0000 worldwide inflation is very very low

By: rikfre Fri, 15 Nov 2013 18:07:00 +0000 This article is a reminder how out of touch the think tanks are with reality. they should try buying fuel and groceries on paychecks that have remained stagnant for years and then talk about how inflation does not exist.

By: OneOfTheSheep Fri, 15 Nov 2013 05:34:45 +0000 @ptiffany,

WRONG again. Most of the trillions of cyber-dollars have been siphoned off the top of the global financial system and funneled into government vaults and the fiat currency closest to holding value. That only works as long as that belief continues.

The day will come when other governments will not take our ink and paper for their tangible goods at full face value. The day will come when this ponzi scheme ends in a sudden run on the banks. Americans may yet have to have a wheelbarrow of our currency to buy a loaf of bread, and spend each day’s earnings before it’s worth halves again.

The tree that has stood strong for hundreds of years can weaken quickly and die from challenges it was never meant to endure. You are in no position to know anything about the strength of the dollar other than what you are told by people who are invested in this Ponzi scheme. Please.

By: ptiffany Thu, 14 Nov 2013 22:23:44 +0000 So, now we know that Milton Friedman was flat wrong as the Federal Reserve has been pumping trillions of cyber-dollars into the global financial system without creating inflation over the past six years.

How about acknowledging what a Nobel Laureate in Economics, Paul Krugman, has been saying for years – we’re in a prolonged Depression? Only the Tenth of One Percenters are doing well and that’s all that counts now that the Plutocracy completely controls the federal government through corruption and deceipt.

Citizens United? How about, Citizens Crushed?