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An increase from last year of only 0.7% even with the economy supposedly doing gang busters and in full blown recovery. Hmmm. They blamed Hurricane Sandy and the Sandyhook Shooting but it looks like the urge to spend money wasn't there and neither was the money.
People looked for bargains and have gotten a little shrewder in their spending with more limited income. I think they'll hit the stores for steeply discounted after Christmas sales. That and the gun dealers.
Hurricane Sandy? No doubt...
Sandy Hook massacre? Sure...
GOP congress' phony "fiscal cliff" fiasco? Funny how you didn't consider that one.
But it certainly was a big contributor. The GOP has worked their butts off trying to take the steam out of the recovery. Next up: "debt ceiling crisis."
This coming from the guy who putting words into the mouth of the Philly Fed speaker (I didn't see ANYWHERE in the speech you posted where the guy said anything about 20% inflation). You "end of the world" types are a bunch of Drama Queens.
Again, you don't seem to understand how inflation and interest rates are tied together at all. Traditionally, if inflation rises then interest rates are allowed to rise - which tends to cool the inflation (with the downside being it also tends to slow down the economy). With interest rates near ZERO the FED has NEVER EVER been in a better position in regards to being able to rise interest rates a bit and yet still keeping them very low. The FED announced 2 weeks that they will keep interest rates low until the UE rate gets down to 6.5%. At the rate the UE is dropping that's about a year and a half from now - roughly the middle of 2014 - within the window the speaker in link was referring to - and even IF inflation begins to kick in before that, interest rates are currently sooooooo low the FED is in an excellent position to let them begin to rise a bit (in that regard the best position the FED has EVER been in) without much risk of having them be high. Heck, the FED could allow interest rates to double or even triple and they'd STILL be very very low (The FED Funds Rate is currently at .25% - with the resulting Wall Street Prime Rate 3 points above that).
So, there's been no significant inflation so far and the FED has the traditional tools in place to fight it when/if it DOES arrive. Hardly a situation where there is any serious reason for undue concern.
Ken
Before you go any further you should really be going to FOMC meetings website and not just making stuff up. You can see the last meeting here:
Christmas shopping in 2011 saw a 5% increase while this year has seen less than 1% increase (0.7%).
That's a pretty big drop off if you ask me.
And in spite of the rosy government numbers, reality says that people aren't spending their money on "stuff" these days. More than likely spend on necessities like food, gas, rent which has all increased greater than the CPI.
Beef up 9% over last year, potatoes up 12%, eggs up 10%, milk up 8% and peanut products skyrocketed.
Severe drought caused many price increases. One time happening ? Who knows but it had a direct effect on your wallet and will continue to do so going into 2013.
Sure the government can't look at individual items and don't include several to come up with their low CPI.
But we still need to live in reality when we go food shopping.
Not everyone drives, but everyone does have to eat. And yes, I already acknowledged that the CPI can't reflect reality.
But reality is the world we live in and if a food product goes up 10% then we have to cut back in other areas.
It all depends upon how much food is a p% of your budget. I don't look at food prices. The amount I pay for music lessons for the kids tops the amount we pay for food in our house. The same is true for my property tax. So, let's say I spend $300 a month on food. If it rises 10%, that's another $30 a month -- big deal. They may eventually fall again.
But my property taxes are $14,000 a year. If they rise 5%, that's $700 a year. That's more of a big deal since they'll never fall.
It all depends upon how much food is a p% of your budget. I don't look at food prices. The amount I pay for music lessons for the kids tops the amount we pay for food in our house. The same is true for my property tax. So, let's say I spend $300 a month on food. If it rises 10%, that's another $30 a month -- big deal. They may eventually fall again.
But my property taxes are $14,000 a year. If they rise 5%, that's $700 a year. That's more of a big deal since they'll never fall.
Not everyone is as wealthy as you. Many have budgets and try to stick to them.
They cannot just ignore price rises.
Go food shopping in a working class neighborhoods and see how they shop.
They do care about prices. They have lists and use coupons.
What's different in those charts from what I said?
Modest inflation & UE rate where I said it will likely be.
Ken
The mid-2014 date you threw out. Only under the very best case scenario would UE rate reach 6.5% by mid 2014. They're looking more realistically at mid-2015 and 13 of the 19 participants back that as the "Appropriate timing of policy firming."
That may not sound all that far off but missing "policy firming" by an entire year would be disastrous.
Anyways, the very fact that the FR is using UE rate as the trigger for "policy firming" shows just how much their thought process has changed since Volker. It goes back to the thinking of the 70's and that "a little bit of inflation is a good thing." But Volker ejected that on the basis that a if a little bit is good then you'll get used to the idea and, like an antibiotic, you'll need just a bit more and after that just a little more.
Quote:
Of course, what happens then [is] you get a little bit of inflation, and then you need a little more because it props up the economy. People get used to it, and it loses its effectiveness. Like an antibiotic, you need a new one; [then] you need a new one plus. That was a world... I was not part of. I was in the Federal Reserve, Treasury, a conservative guy who's always against inflation. The general tenor of the times was inflation was the least of evils, if it's an evil at all. What changed drastically in the 1980s and running through today is the presumption that inflation is bad [and that] the primary job of a central bank is to prevent inflation. That's taken for granted. The great ideology these days is that the central banks ought to be independent; they ought to have an inflation target, and an inflation target ought to be close to zero. That's a very different environment then the '50s and '60s and into the '70s.
But that's not really Keynesian because Keynes was on record writing this:
Quote:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.
Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
So, the bottom line: to narrow international imbalances, we need a lower relative price of US output. Because prices are sticky, by far the easiest way to get there is dollar depreciation.
That's Krugman and as soon as I can find it I'll post that he was actually calling for a 33 - 50% reduction in the value of the dollar.
So as you can see the "most famous Keynesian" isn't following Keynes at all. It's some sort of quasi Keynes-Lenin type of theory.
Anyways, you keep saying that I'm a doomer and that I specifically said we'd have 20% inflation. The "what's 20% inflation rates between friends" was a joke but maybe not such a good one. The point I was trying to make, especially with the chart from tradingeconomics.com, is just how wrong they've gotten it in the past when trying to guess at when to raise and lower interest rates and the FR has the largest balance sheets in the history of that institution today.
I'm not sure I understand your argument, which seems to imply that Keynesians have always been at the wheel, which isn't true. Most laughable is your graph starting at around 1914 (with 20% inflation in 1919), before Keynes wrote the General Theory (1936). Thus, Keynesian economics wasn't used for government policy before it was inventedl. It's also noteworthy to think about what was going on in 1919. Does WWI ring a bell? Perhaps scarcity of consumer products would make prices rise?
Quote:
Within a few years of his death, it was already taking a dominant place in economic policymaking both in Britain and in the United States. How far reaching its impact, or at least the perception of its impact, was demonstrated by a history of economic thought published in the mid-1960s: "In most Western economies Keynesian theory has laid the intellectual foundations for a managed and welfare-oriented
form of capitalism. Indeed, the widespread absorption of the Keynesian message has in large measure been responsible for the generally high levels of employment achieved by most Western industrial countries since the second world war and for a significant reorientation in attitudes toward the role of the state in economic life."
It was not until the 1970s that evidence began to accumulate in many countries that Keynes's theories, at least as implemented by Keynes's advocates after his death, might not perpetually
yield the favorable outcomes Keynes himself had predicted.
Here's a graph starting with 1936 and one starting in 1946 but I have to tell you it only makes it look worse:
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