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Here's the dirty fact: Inflation subsidizes and encourages irresponsible borrowers and non-productive people; and punishes financially responsible people who save, do not over-consume, and are productive members of the economy. That is why high inflation inevitably will destroy a productive economy. Unfortunately, inflation is most likely what we are going to get, because it is the only way that government can effectively expropriate the wealth of the middle and upper classes without raising taxes outright. A nasty deflationary depression is actually what the US desperately needs--sufficient to correct the real estate market to affordable levels and wring the speculative excesses out of the economy. Make no mistake, whether by inflation or deflation, the material standard of living for most Americans is going to be lowered significantly, and permanently. That's already baked into the cake--the only question is who will be slapped around more--the speculators and financially irresponsible or the prudent and financially conservative. Deflation will benefit the latter, inflation the former.
If you intentionally have inflation one thing that you can do is to give vouchers for savings to reward those that saved before the inflation. If we have an intentional 200% inflation then print some money and use it to compensate savers up front.
the only reason you have investment now is because 401(k) plans are mandated. What percent of employees in a 401(k) plan would bow out if allowed?
Not to quibble with an otherwise good post, but since when are 401ks mandated? Mandated? I wish! From what I've read, something like half of all private employers don't even offer them at all .
I think if you look at history, its not hard to figure out that stocks can go lower.
-The market peaked in '29, and it took at least 15-20 to break even. Whether you count dividend re-investing or which index you use.
-Same thing in the 60's. The dow got up to a 1,000 in 1966 or 68, and then was at 800-1,000 in 1982! And that was after double digit inflation in the 70's.
I think a big mistake this generation (80's to now) financial types made....assuming the past equals the future. I.e., stocks will average 7-10% a year. Look at housing. Remember people who thought housing could never go down nationally?
-The market peaked in 99 or 2000. I wouldn't be suprised if we're flat for 15 years. We're already flat for 11. Add in political grid lock, global imbalances (trade), rapid fire hedge fund trading, etc The dow or s&p could easily be flat until 2017 or 2020, or later. Japan has been flat for 25 years!!
The problem with looking backwards, you look at all this keynsian theory. This era, 2000-2015/20 is going to test keynsian theory, fiat money, and the whole global financial order since WWII. If stocks can overshoot on the upside for years (i.e. 25 or 30 p/e), I don't see any reason why they can't overshoot on the downside (8 or 10).
Not to quibble with an otherwise good post, but since when are 401ks mandated?
Fair enough, it does needs to be clarified. Employers are required to offer it (if they have a certain number of employees). Recent changes allow employees to become vested much faster.
An IRS rule change in 1998 provides for negative election. Employees are automatically enrolled in a 401(k) plan unless they take action to opt out.
The latest data I could find quickly is:
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2003—As of year-end 2003, estimated number of plans with a 401(k) feature: 438,000, with total assets estimated to be $1.9 trillion and 42.4 million active participants.
I do not understand the meaning of "active participant." I going to assume those are employees who actively contribute to their 401(k) plan through payroll deduction or (regular) lump sum payments.
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Originally Posted by John23
I think if you look at history, its not hard to figure out that stocks can go lower.
-The market peaked in '29, and it took at least 15-20 to break even. Whether you count dividend re-investing or which index you use.
-Same thing in the 60's. The dow got up to a 1,000 in 1966 or 68, and then was at 800-1,000 in 1982! And that was after double digit inflation in the 70's.
I think a big mistake this generation (80's to now) financial types made....assuming the past equals the future. I.e., stocks will average 7-10% a year. Look at housing. Remember people who thought housing could never go down nationally?
-The market peaked in 99 or 2000. I wouldn't be suprised if we're flat for 15 years. We're already flat for 11. Add in political grid lock, global imbalances (trade), rapid fire hedge fund trading, etc The dow or s&p could easily be flat until 2017 or 2020, or later. Japan has been flat for 25 years!!
The problem with looking backwards, you look at all this keynsian theory. This era, 2000-2015/20 is going to test keynsian theory, fiat money, and the whole global financial order since WWII. If stocks can overshoot on the upside for years (i.e. 25 or 30 p/e), I don't see any reason why they can't overshoot on the downside (8 or 10).
Honestly, I don't give a damn about stocks. They are not an economic indicator of success. If they were, then the stock market should have broken record after record as the US economy grew at 12.5% for 40+ straight Quarters.
The US did fine for more than 100 years without a stock market.
A lot of ignorant people keep pointing their fingers at Germany and France, saying they aren't off-shoring jobs. That's true, they aren't, but then the majority of those businesses in Germany and France aren't publicly traded corporations either. Those are private corporations and partnerships, and a large number of them are family owned businesses.
Private = near total control.
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Originally Posted by newonecoming2
If we have an intentional 200% inflation then print some money and use it to compensate savers up front.
You don't have 200% Real Inflation. Your Real Inflation rate is a modest 2.5%-3% per year. Only two countries on Earth do better than the US (one is Switzerland). The UK is worse, averaging 6% (or more) per year.
Yes I do think that even with the higher rents than what you have now you would be better off because it would be cheaper to own than to rent and that would get the prices of houses going up sustainable.
You are no doubt the least competent economist.
If someone cannot buy a $150,000 home on minimum wage of $7.50/hour then they are not going to be able to buy a $600,000 home at $30/hour and they certainly aren't going to be able to afford the $4,222/month mortgage when their monthly gross is $5,200.
And that's exactly how it would be.
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Originally Posted by newonecoming2
Because going from $400 a month to $ 2000 a month in rent will get you money spent now. And that will bring with it full employment.
No, it will not.
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Originally Posted by newonecoming2
Wage inflation is what I want.
Wage Inflation is not what you want. Wage Inflation drives up the prices of everything, as in every thing.
What part of "prices rise" do you not understand?
Your "value meal" at Taco Hell that was $0.99 is now $6.99.
Is there some part you don't understand? Anyone with an IQ greater than 85 should be able to grasp the concept. You gain absolutely nothing by raising minimum wage 4x except a massive headache.
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Originally Posted by newonecoming2
Take a good hard look at the alternatives. Deflation for the next two decades or so as Japan has done?
Yeah, so? You're going to have massive deflation anyway. It is the natural result of an inflationary period, and you will have an inflationary period starting 12 years from now. I guarantee it, and I will be here to gloat when it happens.
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Originally Posted by newonecoming2
Default on our national debt?
You can't default on your National Debt. Obviously you are so undereducated and ill-informed that you can't even tell the difference between a bank loan and a security.
The USSR did not default on securities, they defaulted on bank loans, which Russia inherited as a successor to the USSR and which Russia paid off in full (ahead of schedule according to the Paris Club of Creditors).
Argentina did not default on securities, it defaulted on bank loans.
Greece did not default on securities, it defaulted on bank loans.
Iceland and Ireland did not default on securities, they defaulted on bank loans.
Italy, Portugal, Spain, Romania, Bulgaria, Cheha, Hungaria, Latvia, Lithuania and Estonia will not default on their securities, rather they will default on bank loans.
Get it?
The US does not borrow money from banks, it sells securities. Learn and understand the difference so you don't look like the raving lunatic that you are.
The US cannot even default on all of its securities, because not all of its securities are owed at any one time. They don't call it a 30-year bond for nothing (and it is called a 30-year bond because it is payable in full at the end of 30 years for those who don't know).
The US can default on interest payments, which are a measly $29 Billion per month at present, but that can be easily dealt with.
And should it come to pass that the US does default on its securities, bankers won't be crying, but you will be crying, because that means some 42 States will default on their pension plans (and more than 1,000 cities and counties and more than 1,000 public/private corporations and partnerships will default on their pension plans as well).
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Originally Posted by newonecoming2
That is hyper inflation.
That is not hyper-inflation. You won't see hyper-inflation of any sort for another 12 years. And it won't even be that bad.
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Originally Posted by newonecoming2
Have the banking system collapse and with it the flow of oil shutting down. That is the flow of food into cities as well.
Wrong. All of your diesel is domestic.
Only one State uses oil for electricity, and that State is Hawaii and if Hawaii turns into a big pile of molten magma goo and sinks into the sea that would be fine with me.
The oil that Hawaii uses is California Heavy and North Slope Heavy.
All of the diesel in the US comes from California Heavy, North Slope Heavy, Illinois Intermediate, East Texas Sour or West Texas Intermediate.
You have so much heavy oil you can't even refine it, so you export it.
It would take 6-8 months, but you could convert a lot of cracking stills over to refine heavy oil, and then you'd have more diesel than you can shake a stick at.
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Originally Posted by newonecoming2
That gets you a 90% population die off.
That is absurd. I'm sure the government will commandeer all diesel vehicles to transport people to work. There are hundreds of private companies that provide school bus transportation for school children. You'll just have to adjust the school hours so those [diesel] buses can transport people to their jobs.
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Originally Posted by newonecoming2
You are idiotic if you think that there is a better alternative than causing real inflation now.
Real Inflation now is a modest 2.5%-3%.
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Originally Posted by newonecoming2
I understand what wage inflation will do to the economy do you understand what not having it will do to the economy?
Wage Inflation will produce the same effect as Real Inflation. I guess you forgot the government will have to increase the M1 by at least 4x to match the increase in minimum wage.
You're completely oblivious to the fact that FDR and Nixon enacted Wage& Price Freezes to stop rising wages from driving up prices.
If you intentionally have inflation one thing that you can do is to give vouchers for savings to reward those that saved before the inflation. If we have an intentional 200% inflation then print some money and use it to compensate savers up front.
You don't have 200% Real Inflation. Your Real Inflation rate is a modest 2.5%-3% per year. Only two countries on Earth do better than the US (one is Switzerland). The UK is worse, averaging 6% (or more) per year.
Where did I say we did?
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Originally Posted by Mircea
That isn't even math.
I didn't say, if you have an intentional 200% inflation of GDP without letting the total debt grow then you cut the ratio of total debt to GDP in half. With that we are all better off.
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Originally Posted by Mircea
You are no doubt the least competent economist.
If someone cannot buy a $150,000 home on minimum wage of $7.50/hour then they are not going to be able to buy a $600,000 home at $30/hour
After you up the minimum wage to $30 how long will it take to have the prices of houses go up to match the new wage structure? Reggie Middleton Boom Bust Blog This blog has an estimate of taking 5 years to clear out the backlog of foreclosed on houses. With 1 in 9 houses vacant rentals are going up. With 1 in 9 houses vacant there is a big over supply in houses. Until this backlog is cleared out prices wont be going up much. Also the size of the bump in the minimum wage was picked to support the price of houses at the peak of the last bubble. It is simply the amount of wage price inflation needed to turn the last bubble into sustainable house pricing.
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Originally Posted by Mircea
and they certainly aren't going to be able to afford the $4,222/month mortgage when their monthly gross is $5,200.
Tell that to the banks that were underwriting the bad loans back in the peak of the last housing bubble.
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Originally Posted by Mircea
And that's exactly how it would be.
Not without another housing bubble.
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Originally Posted by Mircea
No, it will not.
Pick one. The price of houses going up like we were having another bubble. (with full employment) Or no full employment because the prices of houses haven't moved that much. Arguing that both will happen at the same time is really bad form.
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Originally Posted by Mircea
Wage Inflation is not what you want. Wage Inflation drives up the prices of everything, as in every thing.
And that is exactly what I want. The value of cash dropping. Spend cash now so you have something of value so as the dollars become worth less you don't get hurt as bad.
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Originally Posted by Mircea
What part of "prices rise" do you not understand?
If you drive prices higher with wages then wages are by definition keeping up with inflation. (They are leading it) What you have now is the cost of the things that you need to live, fuel, food etc. going up with falling wages.
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Originally Posted by Mircea
Your "value meal" at Taco Hell that was $0.99 is now $6.99.
Is there some part you don't understand?
The fed targeted 5% unemployment for a very long time. With this level of unemployment you had wage price stability and economic growth. The average wage for men was unchanged adjusted for inflation with the wages for women going up and the top wages going up.
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Originally Posted by Mircea
Anyone with an IQ greater than 85 should be able to grasp the concept.
You don't get the implication of wages and prices going up without the principle on debt being indexed for inflation.
You cut the value of the debt in half.
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Originally Posted by Mircea
You gain absolutely nothing by raising minimum wage 4x except a massive headache.
You lose a bunch with a 4X on the minimum wage. The top end will lose about ½ of their net worth adjusted for inflation. I don't lose squat. With a 4X on the minimum wage and assuming that the top end doesn't move you get an across the board 200% inflation in the wage structure. The bottom end would get about a 2X on purchasing power.
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Originally Posted by Mircea
Yeah, so? You're going to have massive deflation anyway. It is the natural result of an inflationary period, and you will have an inflationary period starting 12 years from now. I guarantee it, and I will be here to gloat when it happens.
OK an asset bubble is what happens when prices of things go up and wages don't. Inflation is what happens when both go up in lock step. Deflation follows an asset bubble. Deflation doesn't follow true inflation.
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Originally Posted by Mircea
You can't default on your National Debt. Obviously you are so undereducated and ill-informed that you can't even tell the difference between a bank loan and a security.
Our national debt is our money so you can monetize it and get hyper inflation. Or you can say we aren't going to pay you back in full. Or you can say we are going to take longer to pay you back. As Greece is doing now.
Quote:
Originally Posted by Mircea
The USSR did not default on securities, they defaulted on bank loans, which Russia inherited as a successor to the USSR and which Russia paid off in full (ahead of schedule according to the Paris Club of Creditors).
Argentina did not default on securities, it defaulted on bank loans.
Greece did not default on securities, it defaulted on bank loans.
Iceland and Ireland did not default on securities, they defaulted on bank loans.
Give then time.
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Originally Posted by Mircea
Italy, Portugal, Spain, Romania, Bulgaria, Cheha, Hungaria, Latvia, Lithuania and Estonia will not default on their securities, rather they will default on bank loans.
Get it?
Do you? Banks have bought securities on leverage. The securities are being devalued. Get it? Banking system collapse. Lehman Brothers 2.0
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Originally Posted by Mircea
The US does not borrow money from banks, it sells securities. Learn and understand the difference so you don't look like the raving lunatic that you are.
Ya and if we don't have the revenue to cover our obligations we can just hand them a check for the amount of the obligation. Do you get it. Soveriegn debt is worth the paper it is printed on no more no less.
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Originally Posted by Mircea
The US cannot even default on all of its securities, because not all of its securities are owed at any one time. They don't call it a 30-year bond for nothing (and it is called a 30-year bond because it is payable in full at the end of 30 years for those who don't know).
They can say oops we don't have the revenue to cover them and we can't borrow the money to cover them. So here is a check for the amount we owe you.
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Originally Posted by Mircea
The US can default on interest payments, which are a measly $29 Billion per month at present, but that can be easily dealt with.
And what would that do the the banks that borrowed money to buy the securities with?
Quote:
Originally Posted by Mircea
And should it come to pass that the US does default on its securities, bankers won't be crying, but you will be crying, because that means some 42 States will default on their pension plans (and more than 1,000 cities and counties and more than 1,000 public/private corporations and partnerships will default on their pension plans as well).
Oh you don't really get it at all. The banks have bought securities on 40 to 1 leverage. Lehman Brothers all over again.
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Originally Posted by Mircea
That is not hyper-inflation. You won't see hyper-inflation of any sort for another 12 years. And it won't even be that bad.
Printing money and handing it to those holding our securities instead of using tax revenue to cover our obligations is what hyper inflation is made of.
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Originally Posted by Mircea
Wrong. All of your diesel is domestic.
But if electronic transfer of funds brakes down how do you pay for food t the store? Or diesel at the pump? If you can't pay for diesel then you can't drive to the market with food.
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Originally Posted by Mircea
Only one State uses oil for electricity, and that State is Hawaii and if Hawaii turns into a big pile of molten magma goo and sinks into the sea that would be fine with me.
The oil that Hawaii uses is California Heavy and North Slope Heavy.
All of the diesel in the US comes from California Heavy, North Slope Heavy, Illinois Intermediate, East Texas Sour or West Texas Intermediate.
You have so much heavy oil you can't even refine it, so you export it.
It doesn't matter if you can't buy it at the pump. Stick your credit card in and see what happens. Nothing. Then what do you do? The % of our money that exists as cash is very small indead.
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Originally Posted by Mircea
It would take 6-8 months, but you could convert a lot of cracking stills over to refine heavy oil, and then you'd have more diesel than you can shake a stick at.
That is absurd. I'm sure the government will commandeer all diesel vehicles to transport people to work. There are hundreds of private companies that provide school bus transportation for school children. You'll just have to adjust the school hours so those [diesel] buses can transport people to their jobs.
The problem is that if you don't get a pay check then how are you going to pay for food? Is the government going to commander the food production and distribution net work? They need to have plans in place to do this as there is only about 3 days worth of food in most cities. A currency collapse is a killer if you don't have a way to deal with it.
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Originally Posted by Mircea
Real Inflation now is a modest 2.5%-3%.
Stagflation. Houses were monetized in the last bubble and they are dropping in price so you have deflation in one form of money. With higher input costs from higher oil prices you are having prices going up. The worst of both worlds.
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Originally Posted by Mircea
Wage Inflation will produce the same effect as Real Inflation. I guess you forgot the government will have to increase the M1 by at least 4x to match the increase in minimum wage.
The world's monetary base went from $3 trillion to $ 10 trillion over the last ten years so we are well on the way to that now. Also the fed has loaned out $16 trillion from 2008 until now. More money is not the problem.
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Originally Posted by Mircea
You're completely oblivious to the fact that FDR and Nixon enacted Wage& Price Freezes to stop rising wages from driving up prices.
I'm not as familiar with FDR as I am with Nixon.
Nixon was looking at what we are looking at. Kind of sort of. He had a higher savings rate than we do. He had far less debt than we do now. You can't keep prices from going up, everyone but me doesn't like prices going up. You needed the prices to go way up in order to get to where you could get a point of economic growth. He had a collapsing asset bubble. We have two collapsing asset bubbles. Stocks and houses. Houses take a long time to drop.
I want higher prices and wages. I would like it if you didn't tell me what I do and do not want.
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Originally Posted by Mircea
Wage Inflation is not what you want.
I want it because of what it will do to the economy. Older working people today remember the 1970's and the inflation. They don't remember the 1930's and The Great Depression. The end of the inflation in the 1970's was painful. It took 17% interest rates. The end of the deflation in the 1930's was no comparison to the pain of the 1970's. It took WWII to end The Great Depression in all countries except Germany and Japan. Inflation takes 17% interest rates to end. Deflation takes a world war to end it. I'll take inflation.
I want higher prices and wages. I would like it if you didn't tell me what I do and do not want. I want it because of what it will do to the economy. Older working people today remember the 1970's and the inflation. They don't remember the 1930's and The Great Depression. The end of the inflation in the 1970's was painful. It took 17% interest rates. The end of the deflation in the 1930's was no comparison to the pain of the 1970's. It took WWII to end The Great Depression in all countries except Germany and Japan. Inflation takes 17% interest rates to end. Deflation takes a world war to end it. I'll take inflation.
False. One of the biggest factors in the start of World War II was the hyperinflation in Germany that totally destabilized the country politically and allowed Adolph Hitler to rise to power. The US has endured numerous deflationary depressions that did not result in war. Get your facts and history straight--not just selected half-truth sound bites that support your (incorrect and inaccurate) opinions.
One of the biggest factors in the start of World War II was the hyperinflation in Germany that totally destabilized the country politically and allowed Adolph Hitler to rise to power.
Speaking of getting your history straight. Not only are you mistaking a indirect cause for a direct cause, after all, the inflation in Germany was a direct result of the resolution of WW I. But hyperinflation in Germany ended well before Hitler came to power, indeed, it ended with the introduction of the Rentenmark in 1923. Hitler didn't gain office for another 11 years....
Speaking of Hitler, the conservative establishment in America seems to be making the same mistake they did in Germany. Namely, they are utilizing the extreme right to their advantage with the belief that they can control it....
False. One of the biggest factors in the start of World War II was the hyperinflation in Germany that totally destabilized the country politically and allowed Adolph Hitler to rise to power. The US has endured numerous deflationary depressions that did not result in war. Get your facts and history straight--not just selected half-truth sound bites that support your (incorrect and inaccurate) opinions.
http://blogs.reuters.com/rolfe-winkl...ow-vs-gold.jpg If you look at the graph the last time we had a macro picture like this one was the 1970’s we had inflation then, the time before it was the 1930’s. In the 1930’s we had deflation. Regardless of what caused WWII one side effect was the ending of The Great Depression. There were two ways to end the great depression one was to get a totalitarian government the other was to have WWII. Inflation takes 17% interest rates to end it. I’ll take inflation over deflation.
Speaking of getting your history straight. Not only are you mistaking a indirect cause for a direct cause, after all, the inflation in Germany was a direct result of the resolution of WW I. But hyperinflation in Germany ended well before Hitler came to power, indeed, it ended with the introduction of the Rentenmark in 1923. Hitler didn't gain office for another 11 years....
Speaking of Hitler, the conservative establishment in America seems to be making the same mistake they did in Germany. Namely, they are utilizing the extreme right to their advantage with the belief that they can control it....
While the inflation may have ended in 1923 the suffering and damaged caused by it went on much longer.
The suffering caused by the inflation, which was a result of the resolution of the war, was instrumental in the support of Hitler and the resulting wars.
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