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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

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Re: In Fed and Out, Many Now Think Inflation Helps

#51

Post by tokenizer »

oakwhiz wrote: post #24
jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

I never thought of inflation in that way. That's rather interesting. I guess a simple way of describing this would be to say that if you are the sole printer of money, and existing money becomes worth less over time, then you can simply continue to print more money every year in order to cement yourself as the person with the most money.

> existing money becomes worth less over time, then you can simply continue to print more money

Only, the act of printing more money. deepens the problem of your currency losing value. The US thinks it's impervious to inflation, but many including myself see it simply postponing the inflationary event, which will most likely coincide with a currency crisis.

Re: In Fed and Out, Many Now Think Inflation Helps

#52

Post by dreid3 »

jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

I found this video to be quite helpful in explaining what I believe you are describing: https://www.youtube.com/watch?feature=player_embedded&v=iFDe...

Re: In Fed and Out, Many Now Think Inflation Helps

#53

Post by enoch_r »

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels[1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up in arms about. But I find this unlikely. I find it far easier to believe that most economists actually believe that moderate inflation is good for the economy.

Why do economists believe this? Prices are sticky, and some prices are stickier than others. Prices for labor are especially sticky, which means that when growth expectations fall, it's very difficult to decrease wages, which in turn makes it difficult for supply and demand of labor to balance. In the Cliff Note version, inflation helps because people are willing to take real pay cuts when they're disguised as a nominal pay increase. There's a vicious cycle during a recession, where falling output causes the price level to fall, which in turn causes more imbalance in the labor market.

It's important to recognize that the standard argument for inflation has literally nothing to do with "the government printing money to pay for things." Does the US government make money from seignorage? Yes, it does. Is it a significant source of income? No, not in the context of US government spending or revenue--it's roughly $30 billion dollars a year. Are these crazy inflationary economists suggesting policies that would increase seignorage to a significant level? No, they're not.

Finally, most of these arguments are disputed by the so-called "Austrian school" of economics. It's important to recognize that this school is much, much, much more popular with laymen than with professional economists. This doesn't mean that the school's arguments are wrong, but it does raise questions about why the school's arguments which seem so utterly convincing to so many people, don't manage to gain many converts among people who research the subject professionally. Once again, I don't find "conspiracy" a particularly good argument.

[1] http://www.clevelandfed.org/research/data/inflation_expectat...

Re: In Fed and Out, Many Now Think Inflation Helps

#54

Post by Mikeb85 »

emperorhadrian wrote: post #46
Mikeb85 wrote: post #43

Earlier quoted context omitted.

Really? Is this a joke or one of those terrible 'end-of-the-world' advertisements you hear on Bloomberg radio? Precious metals and real estate haven't done very well compared to equities in the last year or two... Yes, inflation reduces purchasing power if you assume that wages don't track inflation, but historically they do.

> Yes, inflation reduces purchasing power if you assume that wages don't track inflation, but historically they do. This is not only factually false, but if it were true it would invalidate the argument being made by the economists quoted in the NYTimes article. I strongly recommend that you read The Creature from Jekyll Island or other materials on the history of the Fed and its role in US monetary policy.

Come on, you only need to have been alive for the last 10 years to see wages go up.

Minimum wage where I live is 80% higher today than 10 years ago. Average wages are much higher too, though by a lesser percentage.

Here's an inflation adjusted chart of American wages, you'll see that wage increases have actually outpaced inflation slightly...

http://en.wikipedia.org/wiki/File:Median_US_household_income...

Edit - some more charts for you: http://www.advisorperspectives.com/dshort/updates/Household-...

Sorry, numbers don't lie.

Re: In Fed and Out, Many Now Think Inflation Helps

#55

Post by jayfuerstenberg »

Mikeb85 wrote: post #43
jayfuerstenberg wrote: post #33

Earlier quoted context omitted.

You have a lot of learning to do my friend. Inflation steals purchasing power away from people who contributed their labor to the market in exchange for the money they received. The cash hoarding that inflation is supposed to solve continues because people want to hold on to their money in risky times. Smart people are moving away from cash assets and into precious metals and real estate. These are tangible things, u…

Really? Is this a joke or one of those terrible 'end-of-the-world' advertisements you hear on Bloomberg radio? Precious metals and real estate haven't done very well compared to equities in the last year or two... Yes, inflation reduces purchasing power if you assume that wages don't track inflation, but historically they do.

Every fiat currency in history has failed.

http://www.caseyresearch.com/editorial.php?page=articles/tho...

What makes the US$ so special?

And each time, people go back to something tangible to call money. That's usually gold or silver. Not that they're as easy to use as money or anything. That's why gold backed currencies tend to make sense (even though they too are not perfect).

People working at minimum wage would laugh at your "wages historically track inflation" argument.

Re: In Fed and Out, Many Now Think Inflation Helps

#56

Post by retrogradeorbit »

nazgulnarsil wrote: post #37
jswinghammer wrote: post #16

Earlier quoted context omitted.

It is a tax. It actually occurs the moment anyone takes out a loan in a fractional reserve system. The money is created from nothing at that moment. Government just tends to borrow huge sums of money through this mechanism.

Thinking that loans are evil is where misean ideology really breaks down. If you give me a piece of paper that says you will pay me X dollars a month for Y months, that piece of paper has value depending on how likely you are to honor the obligation.

In exchange for that piece of paper (promising money later), you have given me money now. The difference in what you have given me and what will be repaid is interest. It is the price of money and its purchasing power transferred through time, and it is the reward for lending.

Now imagine your scenario where you go with your saved money looking for borrowers (people willing to write you that promissory note). But no one is willing to write you that promissory note, because the banking system is willing to lend to them whatever they want with a value of X so low that you find it not worth the risk. In fact the value of X is presently less that the pace of inflation (negative real interest rates).

So now all the baby-boomers with their life savings can't earn a penny on it while bankers with printed fiat front run them in the money market.

Inflation may be good for those excessively leveraged in debt, but it is equally bad for all those who have saved and are investing their earnings. It perversely rewards the over indebted and punishes the prudent saver.

Interest rates ideally should be set by the market. In times of excess capital to invest, rates would be low. In times of capital tightness, rates would rise. In this way rates are a measure of the health and state of the capital and investment markets. Interest rate mechanisms are now so completely corrupted that there is not market mechanism left. Rates are not a measure of the economy any more, they are miss-set centrally and then the entire market distorts around them.

Re: In Fed and Out, Many Now Think Inflation Helps

#57

Post by Mikeb85 »

By the way, for those who believe wages don't track inflation, they do.

http://en.wikipedia.org/wiki/Household_income_in_the_United_... http://www.advisorperspectives.com/dshort/updates/Household-... http://en.wikipedia.org/wiki/File:Median_US_household_income...

Argue about the merits of inflation all you want, but I see a ton of 'facts' being thrown around which simply aren't supported by historical numbers...

Re: In Fed and Out, Many Now Think Inflation Helps

#58

Post by Mikeb85 »

jayfuerstenberg wrote: post #55
Mikeb85 wrote: post #43

Earlier quoted context omitted.

Really? Is this a joke or one of those terrible 'end-of-the-world' advertisements you hear on Bloomberg radio? Precious metals and real estate haven't done very well compared to equities in the last year or two... Yes, inflation reduces purchasing power if you assume that wages don't track inflation, but historically they do.

Every fiat currency in history has failed. http://www.caseyresearch.com/editorial.php?page=articles/tho... What makes the US$ so special? And each time, people go back to something tangible to call money. That's usually gold or silver. Not that they're as easy to use as money or anything. That's why gold backed currencies tend to make sense (even though they too are not perfect). People working at minimum wage would…

http://www.advisorperspectives.com/dshort/updates/Household-...

Numbers don't lie.

Fiat currencies have failed because empires and nations have failed. A fiat currency always depends on a guarantor - someone who guarantees its value, usually through projection of military and economic power.

So of course currencies will rise and fall with nations. But the idea of currency has always persisted, from ancient times.

Re: In Fed and Out, Many Now Think Inflation Helps

#59

Post by ra »

enoch_r wrote: post #53

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels [1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up i…

My (layman's) understanding of it is that central banks seek to keep inflation within a target range; in Australia this is between 2 and 3 percent [1].

The primary tool to manage inflation is interest rates, however interest rate movements also have other effects, positive and negative, so it's not as simple as turning on a tap.

It's important not to let inflation get too high because that makes new investment unattractive, the cost of living go up, and retirement savings worth less.

[1] http://www.rba.gov.au/inflation/

Re: In Fed and Out, Many Now Think Inflation Helps

#60

Post by cotsuka »

enoch_r wrote: post #53

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels [1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up i…

Austrian school not holding much weight with academics is like wondering why creationism doesn't hold much weight with academics. Lots of things can be explained with creationism, but it doesn't mean it's right. Many Austrian economists rail against the use of quantitative models and such. But without them, how can you measure the efficacy of your policies? Faith that the policy works... But most academics like to be able to test things.

I'm also not saying creationism isn't right. I can't prove anything.

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