I had a conversation with a person that has climbed the “ladder of succes” in the corporate world, this is what he stated with regards to the inflation threat. “When Obama was ‘printing’ all that money, people were yelling inflation! inflation! …and they were wrong, it didnt happen, they dont know what they are talking about”…"In fact the FED said a little inflation will be good..“All those people who want chinas currency to rise so that ‘jobs will come back to America’ are going to really be upset if it happens, the jobs wont come back and the jobs will go up in smoke.”
Is he right with regards to the inflation issue? Did we miss the inflation bullet?
lol no. Bernake is paying banks not to lend The majority of new money exists only on balance sheets… it will make its way into the system via open market operations or something.
How is he paying them? How will the general public know when these banks start lending this money out and inflation rises? What tool is used to measure it?
How will the new money make it to market? A lot already has, since it all went in to prop up housing prices. I’ve heard some people speculate that a commodity bump might cause investors to drop their T-bills, and then in an effort to keep the price of T-bills high (keeping US debt profitable), the fed might buy them all up with the new money…
How are you defining ‘smarter’? General knowledge? Acumen in a particular subject? IQ? Ability to construct a logically sound argument? The presence of a degree? That can go a lot of ways.
If you mean the general-use ‘smarter’, then I’d say there are a good number of people here who are more intelligent than a large number of the MBAs I’ve met. I’ve known idiots with business degrees and I’ve known geniuses working as locksmiths.
In what ways can this be measured? Im think the bailouts will cause inflation, but so far nothing has happened. Am I wrong that it will cause inflation? …Right now, he is right, there isnt any crazy inflation like people were saying was going to happen.
I will echo what Peter Schiff says about inflation. It IS here it’s just not being recognized as such. Without the Fed pumping money into the system to prop up banks, housing, and other stimulus projects there would have been deflation as the market flushed out all the bad investments and we hit a natural bottom. Housing prices are still high…too high in most parts of the country.
We can’t just look at what prices are doing here in the US either. What the dollar does here in the States and what it does internationally as the reserve currency of the world can tell two different stories. Commodities are up in case you haven’t noticed. Oil, gold, silver, corn, sugar, etc… are all up and are not being driven up by demand. The dollar index is also down in the mid to high seventies last I checked.
If inflation becomes a problem it may not hit every area of the economy at once. It will likely hit food and energy first as it already has. But other consumer goods may lag behind in the inflation effect for a number of reasons. One is simply lack of demand, and some heavy export economies like China are keeping their currency pegged to ours and not letting the yuan appreciate. Also realize that companies can do things to hedge against inflation and pass down those savings to consumers. For example, during the run up in oil prices Southwest Airlines took up hedge positions in oil futures when they correctly forcasted rising oil prices in the early 2000’s. As oil prices went up so did there positions which offset their fuel costs. Companies that make consumer goods can do this which can offset and delay the effects of inflation.
I’m surprised an eMBA doesn’t follow markets or else he’d have realized you can put UUP/SPY on a chart and SPY looks like an inverse fund for UUP. Hell, throw in RJI there, too. No inflation - what a clown. Anybody who follows markets can see inflation across all commodity prices with the DXY falling through the floor. As a matter of fact, the price of everything is going up - except the USD/flat screen televisions. How much longer until the higher commodity prices squeeze the margins of the manufacturers/processors to the point they need to try to pass along costs? It’s not a coincidence that for the past 150 years or so stocks/commodities trade off in performance for periods on average of 18 years; it doesn’t take a genius to figure out why. By the way, can you tell me where this guy is employed so I never put money there? Thanks.
Technically speaking “Obama” didn’t print all that that money. QEI took place while Bush II was still president and it was the Federal Reserve’s doing, not the US Treasury’s.
From a corporate point of view, mild price inflation is usually seen as a good thing. The reason is appalingly simple: “extreme” cost cutting measures can be implemented while prices increased to keep up with “general price increases”, “higher commodity prices” or whatever they fancy. That means record profits, in turn meaning high dividends and high bonuses. Just look at the automotive industry. Sales are in the gutter with no sign of picking up anytime soon but profits are skyrocketing. How did they achieve this? Simple. They employed every dirty trick in the book to pass on losses to the society at large (for example benefits for their temporarily laid off workers), brutally cut quality and increased prices. That’s how the Japanese are ruining the image of superb value for money it took them fifty years to build.
To get a little insight of how shortsighted people running multi billion empires are I suggest yet again studying the history of the demise of the British car industry. Jeremy Clarkson put it quite well “the owners believed that, no matter how many stupid decisions they made, Her Majesty’s Government would always bail them out”. And so it was, until money run out.
Inflation is measures using CPI (Consumer Price Index), RPI (Retail Price Index) and PPI (Producer Price Index).
Keep in mind that the most common form and the official one used for reporting on inflation, the CPI, commonly doesn’t include house prices or rent costs (a great portion of anyone’s expenditure). It also counts stuff like falling electronic prices as deflation and uses that to lower the index. Still, it is true that much of the QE hasn’t really gone into circulation and whatever inflation there has been has not really been huge or disastrous yet. Now Belarus and Russia, they are good examples of high inflation on a yearly basis, for many years now.
maybe a little context for the convo? i’m not sure what point your friend was driving at.
in any casel, i would say he is right that people worrying about inflation back in 2008 from the balooning of the base money supply have been wrong thus far, but I would also note that this possible due to the fact that the monetary base exactly the best indicator of the direction of monetary policy right now. as seiben already noted, the fed is paying interest on reserves which is keeping a lot of newly printed money just sitting around doing nothing and that doesn’t show up up the monetary base graphic that inflation hawks like to post.
so, they have been wrong thus far. but should we expect there to be significant inflation in the foreseeable future? its hard to say. but i would note that investors clearly don’t see significant inflation on the way. Just check out the TIPS spread.
really the only evidence i’ve seen some hawkish economists offer that inflation expectations are rising is that gold prices have risen in recent years. of course, what they neglect to mention is that gold prices have been rising for almost a decade now. if hawks were serious about using these prices to measure inflation expectations, they would run some statistical anlyses to try and control for other factors that may influence the price besides those expectations. but that’s only if they were serious…
saying that gold can serve as a hedge against long-term inflation is miles away from saying that the rise of gold prices this decade are primarily a sign of rising inflation expectations.
