I don’t think you understand what the CPI is. CPI is found by taking a basket of goods, finding the individual cost of each item and then taking the average cost and that is your figure. CPI is an indicator for the average price level.
No, it will affect the prices of the goods the money is chasing. That is why, today, while some goods are decreasing in price, there is still price inflation in commodities…
if some other good is moved via increasing price petroleum..its price will not be affected?
t__he CPI estimates allows the feds to conceal the true harm of inflation.__
Surely, the hurt and harm inflicted by inflation…
Austrian economists would agree that inflation is a problem…
newest price data raise serious concerns that we are being robbed (that is what inflation is)
Everything the Fed does is based on a foundation of lies. (federal reserve??)
the immense threat of inflation…
inflation is a pernicious form of taxation
im confused…all of the above excerpts are from lrc and mises.org…none seem to indicate that monetary inflation is a good thing.
but you say that most prices have decreased…peter huber says of chased petroleum…“when the price of crude doubles–rising from, say, $28 a barrel to $56–the price of the average mile rises only 10% to 15%. That just isn’t enough to impel most of us to change our behavior very much…” if true that is.
http://www.manhattan-institute.org/html/miarticle.htm?id=4462
a little bit of petroleum increase and yet most prices decrease?? isnt that good for consumers? rather than “harm inflicted by inflation” ??
and the malinvestment has reduced the price of most goods?
woulndt 100 reserves and gold money generally lead to the same thing…lower prices for most goods over time?
just like or similar to
“Americans today spend '40% less on clothes, 20% less on food, more than 50% less on appliances, about 25% less on owning and maintaining a car’than they did during the early 1970s.”
What? What does this have to do with what I said?
You keep ignoring what I’ve been saying. Monetary inflation effects the relative price of capital-goods. By doing so, it creates malinvesments.
I’m not sure how this follows from the discussion we’re having. The Federal Reserve inflated the money supply during the Great Contraction, yet there was general deflation. But, there were still malinvestments created. I’m not sure what you’re trying to say.
…err, how does this follow?
Yes, but this has nothing to do with what we’re discussing. You are not connecting the dots.
Might be quite off-topic, but can you explain how this happens with an example, if you wish that is?
Imagine that Investment Bank A has its reserves inflated by the Central Bank. The interest rate it charges for lending thus decreases, and findint it lucrative to borrow Investor X decides to take a loan for $100,000. Investor X decides to invest the money in a project to expand his firm’s, Firm M, productive ability by introducing new machinery to triple the amount of production. So, Investor X invests in a number of capital-goods, elongating the structure of production. It’s clear that as those $100,000 begin to circulate, not all prices are affected simultaneously and proportionally. No, the prices of the capital-goods being purchased will increase first.
In a macroscale, and within the context of the Austrian Business Cycle Theory, the problem arises when the prices of first-order goods increases relative to primary inputs (of factors of production), making it seem as if there is a business opportunity. The truth is that this distortion was caused by monetary inflation.
No, it will affect the prices of the goods the money is chasing. That is why, today, while some goods are decreasing in price, there is still price inflation in commodities…
i posted earlier that a doubling in crude translates into a rather small increase permile fo rthings transported vie petroleum.
i guess you are saying the incresed price in petroleum is malinvesting?? yes when so many other prices are decreasing with only a small amount of petroleum increase that this is somehow bad?
i like when prices decrease. dont prices fluctuate (even realtive to each other) somewhat without malinvestment per se?
That may be true, but this is not a simultaneous and proportional increase in the price level of every good. This is why the CPI, which is a rating of the average price level, is an average level (it is the average of several prices added together). Furthermore, the prices of some goods will rise more or less than others, whilst others may even go down in price. I don’t understand what you’re missing.
It can be, I don’t know. I am not an entrepreneur with perfect information. It’s clear that there is currently a formulating bubble in the commodities and securities market; what commodities, I don’t know. The price of oil has increased substantially (again, relatively).
Yes, but this has nothing to do with what we’re talking about. We are not talking about price fluctuations due to market factors in general, with a constant money supply, we are talking about price fluctuations with an expansion of the money supply.
heres is what you said…“No, it will affect the prices of the goods the money is chasing. That is why, today, while some goods are decreasing in price, there is still price inflation in commodities and in the stock market …”
now if the goods the money is chasing as you say, are bid up via malinvested credit inflation, petroleum for example, well everythign pretty much moves via petroluem.
all prices might be affected…will they all go up, that i dont know. i wont to know why you call it malinvestment if petroleum goes up but many other prices, most as you say, go down?
“A consumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households. A consumer price index measures a price change for a constant market basket of goods…”
nothing here says anything about relative prices…a constant basket of goods is mentioned?
i dont see any point from you.
The CPI is an average price rating. Some goods have decreased in price, others have increased. If the price of one good rises faster than the price of another decreases, then the average CPI between the two has increased.
i thought price inflation or deflation was looked at from a basket of goods point of view…when price inflation was discussed it was based on the cpi basket not some realtive clap trap you keep taling about…if the basket went down in price meaning more lower prices than high…how do you call something malinvested?
I made no connection between the price increases and malinvestment. Malinvestments occur out of credit expansion, but not all investments are bad. For some people, investments during the boom era do come out as worthy investments. In any case, I still don’t understand the argument you’re making or where you disagree with me. Even if a price increase in petroleum causes a price increase elsewhere, it doesn’t mean that these price increases will occur simultaneously and proportionally. This is what you’re missing.
I didn’t call that malinvestment. I said that change in relative price levels causes malinvestment.
I don’t want to sound mean, but do you actually read what I write? I had previously written:
That may be true, but this is not a simultaneous and proportional increase in the price level of every good. This is why the CPI, which is a rating of the average price level, is an average level (it is the average of several prices added together). Furthermore, the prices of some goods will rise more or less than others, whilst others may even go down in price. I don’t understand what you’re missing.
Are you trolling me?
Okay? I never said otherwise.
My goodness. You need to actually read what I write. You are ignoring everything I’ve been saying, and whatever you do read you misinterpret. I never said anything otherwise about CPI. Price inflation does not occur proportionally through all goods. There will be some prices which rise higher than others, and even some prices which decrease. CPI is just an average rating between all these prices. The change in price of first-order capital-goods relative to the price of consumer goods (or final-order goods) will cause malinvestment.
The only “clap trap” is what you are misinterpreting.
I would suggest reading Jesús Huerta de Soto’s Money, Bank Credit and Economic Cycles.
Okay. If I am not wrong, it’s something like forced saving? The society is made to save, that is invest in round-about methods of production, just by counterfeiting money and providing increased purchasing power in the hands of businessmen ready to undertake these round about projects although society is more inclined towards consumption?
And when people reassert their consumption-savings ratio for the new amount of money supply in the economy, the malinvestments start getting revealed by the interest rate hike?
What causes malinvestment to be revealed, I think, is a phenomenon not explored to greatest depths by Austrian scholastics, and when it is it seems that many Austrians do not agree. I think all “Rothbardians” agree that what really causes a bubble to cease in a slow down or cessation in money expansion (see: Jesús Huerta de Soto). For example, some believe that uncertainty caused by the Smoot-Hawley Tarriff (as it was passing through Congress in 1929) may have caused a decrease in investment (and, therefore a slow down in credit expansion), while it is possible that uncertainty caused by the Supreme Court’s decision to uphold the Wagner Act catalyzed the drop in investment which led to the 1937 recession. So, while it is specifically an end to credit expansion which is the underlying reason behind the end of credit booms, there may be specific events which trigger this end to credit expansion (as opposed to the end of credit expansion simply coinciding with these events, or the end of credit expansion triggering these events).
The reason Japan has not faced true inflationary pressure is because their economy has been in several periods of a liquidity trap. Hence it is a demand issue of which monetary policy is unable to shift demand. Given the high rate of savings and an aging population, monetary inflaiton does not look to be in their short/medium run horizion.
I agree.
What I’m thinking is that although Japan kept interest rates low the credit supply may have not have increased. My guess is that when you artificially lower rates you get an initial rise in the credit supply but then it stabilizes or falls as debt increases.
So back to my original post. I think the reason that Japan had no price inflation was that they didn’t increase the money supply by much and although they had low interest rates that didn’t increase the credit supply.
The market rate of interest (the rate you see) is not what’s truly important; 15% may be too low, and 4% may be too high. The market rate relative to the natural rate is what determines price fluctuations. The Japanese had, on average, a 40% savings rate (of GNI), meaning a very low natural rate of interest. Thus, reducing the market rate to 0% may not have been (probably wasn’t) too drastic of a change. Furthermore, their inflation is nothing compared to what we’ve done. There is an international dimension here as well, the fact that they ran a huge current account surplus, and therefore a large capital account deficit, has other implications. But I’m not an expert on international monetary economics. But the key point here is that any comparison between the U.S. now, and Japan in the nineties, is absolutely absurd. The economic conditions are dramatically different.