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The inflation we are seeing is supply driven, not demand driven. And is driven by speculation that the economies of the world WILL go wild, when COVID is vanquished. BUT WILL THE COVID DEPRESSION be vanquished before the DEBT-OVERHEATED WORLD deflates finally and properly?
We are long overdue for a severe economic contraction. The entire global financial system is propped up with mountains and oceans of unsustainable, worthless debt. As we reach the limits to growth, this debt will no longer be able to be serviced, and will have to be repudiated in one way or another.
We are long overdue for a severe economic contraction. The entire global financial system is propped up with mountains and oceans of unsustainable, worthless debt. As we reach the limits to growth, this debt will no longer be able to be serviced, and will have to be repudiated in one way or another.
The Fed has been delaying Deflation for 20 years now, since 2001.
Is there inflation now because there is Supply SHORTAGE after everyone missing work for a year or because the global economy is recovering? The first means DEFLATION WILL HAVE THE LAST LAUGH; the second means bonds may be in trouble. My view is the first.
Because of the FED we sill have not had our DEFLATION which was supposed to run from 2001 BUT DID NOT. Since we still need our DEFLATION BEFORE OUR REFLATION my bet is that this INFLATION is FAKE INFLATION.
Americans spend 30% of their gross income on housing. There are 330 million people in the country and a finite number of desirable places to live. Millennials are starting to hit their peak earnings years and are fueling the housing price surge in the desirable places. Big inflation for the upper end of the middle class trying to buy into the desirable places. Totally different math for the lower income unwashed masses.
The CPI is notoriously a faulty measure of inflation... For the majority of the population it considerably underweights the impact of housing (mortgage/tax/rents) and over-indexes consumer goods (groceries/services).
The CPI is notoriously a faulty measure of inflation... For the majority of the population it considerably underweights the impact of housing (mortgage/tax/rents) and over-indexes consumer goods (groceries/services).
It's supposed to be overweight consumer goods after all it's called the CONSUMER PRICE IDEX...........
The CPI is notoriously a faulty measure of inflation... For the majority of the population it considerably underweights the impact of housing (mortgage/tax/rents) and over-indexes consumer goods (groceries/services).
Incorrect.
There is a bias in the CPI, but the bias makes the reported number a bit higher than it might be.
For example, the price of a cellular telephone, back in 1984, adjusted for inflation, was about $10,000. Over the following 15 years, the price declined rapidly as technology improved and manufacturing economies of scale took over.
At year end 1997, about 55 million cellular telephones were in use in the United States, when the price of a cellular telephone had declined to an inflation adjusted hundred dollars or less. That massive decline in prices was not captured in the CPI, however, because the Bureau of Labor Statistics (BLS) did not begin including cellular telephones in the CPI market basket until 1998.
That is the bias in the CPI - it makes inflation look higher than it would be if the CPI market basket were to include newer technologies sooner.
The statisticians and economists at BLS do a remarkable job - but the phenomenon I describe is a matter of policy, not statistics.
Last edited by RationalExpectations; 05-13-2021 at 12:01 PM..
I think the problem is treating consumer price inflation and asset price inflation as qualitatively different.
Allegedly a lot of the former is bad, while there a lot of the latter is benign or good.
It boils down to who the winners and losers are. Asset price inflation winners vote at higher rates than asset price inflation losers, so it's benign or good. Everyone loses when there's too much consumer price inflation, so it's bad. But that's mainly a political aspect not an economic aspect.
Too much asset price inflation is bad especially in housing, because it's a misallocation of capital. Houses are depreciating assets. The land holds its value unless more improved land comes on the market. There is a multiplier effect for new house construction, but that should also release pressure on nearby land values. It's not normal for house prices to rise much more than 1% above inflation historically. Asset prices that inflate too quickly is a symptom of an unbalanced economy.
If that doesn't convince you that too much asset price inflation can be bad, consider the state of social insurance schemes as rates of family formation dwindle. There are many reasons family formation is dwindling, but the biggest one we have control over is probably the cost of housing.
I think the problem is treating consumer price inflation and asset price inflation as qualitatively different.
Allegedly a lot of the former is bad, while there a lot of the latter is benign or good.
It boils down to who the winners and losers are. Asset price inflation winners vote at higher rates than asset price inflation losers, so it's benign or good. Everyone loses when there's too much consumer price inflation, so it's bad. But that's mainly a political aspect not an economic aspect.
Too much asset price inflation is bad especially in housing, because it's a misallocation of capital. Houses are depreciating assets. The land holds its value unless more improved land comes on the market. There is a multiplier effect for new house construction, but that should also release pressure on nearby land values. It's not normal for house prices to rise much more than 1% above inflation historically. Asset prices that inflate too quickly is a symptom of an unbalanced economy.
If that doesn't convince you that too much asset price inflation can be bad, consider the state of social insurance schemes as rates of family formation dwindle. There are many reasons family formation is dwindling, but the biggest one we have control over is probably the cost of housing.
It's called eating your seed corn.
How long before we start hearing that FED monetary policy is RACIST? We continue to see the housing market where for the people of color, seniors, immigrants, for single parents, it’s extremely hard to find affordable housing. No wonder Powell is becoming more and more uncomfortable in his chair.
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