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A new batch of self-described monetary policy theorists like Sarah Palin have insisted that the Fed’s quantitative easing program will cause runaway hyper-inflation and turn this country into Zimbabwe. Back on Planet Reality, core inflation has fallen to the lowest point in the history of the number being tracked, since 1957. Paul Krugman writes:
But I have a question here: why do economic forecasters keep predicting a near-time rise in core inflation, even though they are also predicting high unemployment? The Survey of Professional Forecasters now predicts average unemployment of 8.7 percent in 2012, which would seem to be a recipe for continuing disinflation and quite possibly deflation; but the same forecasters predict a noticeable rise in core inflation over the next two years.
I don’t really understand this, except as a fundamental unwillingness to face up to the Nipponization of the US economy.
The answer is that the forecasters are fools, and fools who have the same worldview as banks who don’t want to see higher inflation. So they forecast wrongly, and policymakers adjust to the forecast, and as a result we have the lowest inflation since at least 1957. And anyone who tells you otherwise is lying to you.
The current right-wing movement against the Fed plays against a backdrop of fake class resentment and goldbuggery. There are significant and proper reasons to criticize the Fed – for one, easing doesn’t seem to be working – but the inflation argument is seriously off the mark, and the broader push to eliminate the Fed’s maximum employment mandate is just a recipe for favoring the rich at all times, at all costs.
UPDATE: Essentially, we’re headed to the Dark Ages.
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How about a different type of inflation, one where food manufacurers downsize products but charge the same -or more- for the downsized products? Examples would be MinuteMaid OJ used to be in a 64 oz. carton; now it’s 57 ounces. Or cannded tuna which used to be sold in 6 1/4 cans but now is sold in 5 ounce cans for the same price.
and also the incredible shrinking coffee can, or what used to be a gallon of ice cream
Something that has never happened before, WILL occur. If you look at a bond chart you will discover that the Bush Administration ran the long bond up to 140; the highest price ever in history. That move put 75 billion dollars into the Chinese treasury. This occurred when Barack Obama was celebrating his victory around New Years eve, just before they left office. They sabotaged the dollar on their way out. Gas will not go up, the value of the dollar will go down = inflation in a depression.
Yesterday I heard Larry Kudlow going on about how he missed the gold standard and that the Fed should now be doing anything about unemployment.
He and the other two very serious people were very concerned about inflation.
It sounds like George Soros is giving up on Barack Obama now.
It should be interesting to see places like John Cole’s Church of Obama the Infallible turn on Soros now.
inflation is relative, since people have far less money, far fewer savings, far fewer jobs, obviously the relative inflation is astronomical
never the less, I have to admit I was wrong about this deflation thing that’s going on;
when bush was funding his little war by borrowing from saudi america and china, he was also printing more greenbacks then ever in the history of this country, so much so they had to stop reporting the m3 index
back then if the firedogs who were here remember, I predicted a global collapse of our monetary system but I predicted it would take the form of inflation the likes of viet nam
then the crash came and money simply disappeared
that seemed far too coincidental, right when we should have had inflation the economy would crash, assets would disappear and “voilà” now we didn’t have enough green backs instead of too many.
inflation hurts monetary assets but helps hard assets
anyway, with all this deflation going on you would think instead of obama printing money in some money dump he would “have some people did a hole and have others fill that hole”
as someone else said very nicely, I’m sure someone can provide the exact quote in context with credit
Funny, haven’t conservative economist been saying for over a year that Obama’s stimulus and the Fed’s QE would lead us to devastating inflation? Guess the truth really does have a Keynesian bias.
my bad, a Freudian slip, I said “borrowed from saudi america” and obviously I meant saudi arabia
however with the saudi bush contacts, it seems it was a fruedian slip
well, the reason the stimulous didn’t effect inflation is a double edged sword
the people he gave our money to kept it, they didn’t invest it, they didn’t build or buy, they simply kept it
it’s there, waiting to be spent, I suppose that time will come when a republican comes to office
It was Keynes himself when he was advocating for stimuls during the depression saying something along the lines (i don’t have the exact quote), that FDR could just bury money in the ground and let free enterprise dig it up and that would stimulate the economy.
oh perris, that one is a gem!
they really aren’t as concerned with real inflation, their biggest concern is what they call wage inflation
“wage inflation” cuts into profit since product far more then price inflation does
greenspan was particulary obsessed with it and you will be stunned with what I have to say about that;
whenever greenspans said “the economy is heating up, we have to raise interest rates” what he really meant was there was wage pressure to pay higher salary
whenever you heard that the economy “needed stimulous and we are lowering the prime” what he really meant was that wage pressure was stagnant so it was “safe” allowing business to take out cheap loans
I am not kidding, that is the metric they use to increase or decrease the prime, it’s sickening
ya, I might keep it for the future
well yeah, Keynesian economist’s predicted exactly that. Since we are at the zero-bound, too many people are paying down debt and not enough are spending. It’s the supply-siders that seem not able to understand this.
Yep, uncle milton friedmans long lost crazy son bento is turning Amerika into a Baltic State. I loved it today when I looked at the numbers but since none of these group shops for food or buys gas for the limo everything looks good through rose colored glasses. This has been along time coming and they have done a great job sticking to the citizens of this once great nation.
Everything is on schedule, please move along.
Wage inflation will not happen this time unemployement is to high and there is no demand, because so few have a job. The job thing will get worse in the next yr. Think Shock Doctrine.
since as I posted in my excellent diary that should have gone to the front page
wealth does not create jobs, jobs create wealth
there is no such thing as trickle down, wealth migrates up
I came up with an excellent analogy in that diary;
“rain does not create the ocean, the ocean creates the rain”
in simple terms;
labor has to come before product, this is obvious, product has to come before profit, this is also obvious and finally, profit has to come before wealth.
all obvious and whenever anyone tries to claim we need to stimulate the wealth class so they provide jobs give them the smack down, wealth doesn’t provide jobs, jobs provide wealth
that’s correct, there can’t be wage inflation for quite some time, far too many people willing to work for food on the table
I do believe I have to go to bed, though I have thoroughly enjoyed this entry
g’night all
Oh I totally agree, Reaganomics is a failed theory. I am not in favor of giving tax cuts or any other subsidies to the rich and calling that stimulus. I am in favor of the government paying people to do a job like building a bridge. FDR had it right. Obama could have followed in his footsteps, but he failed.
I think it will have to wait until people who actually know how to run an economy are in charge of it. That certainly is not these Republicans. What’s lacking right now in the economy is demand, particularly consumer demand. That has two causes:
- Many people are unemployed.
- Many people who aren’t unemployed don’t dare spend money right now.
Neither condition will be fixed by anything that either the current crop of Democrats (generally enough to matter) or the Republicans are talking seriously about.
Jesus David.
Read the chart, it’s less food and energy. It only applies to things you don’t need.
I am by no means an economic expert David, but my take on this entire financial scheme, isn’t that they are worried about or fighting inflation. They are fighting deflation. They’d rather have inflation. By printing monopoly money like they are it’s only a matter of time before it is worthless everywhere. Then what? Start over? The more they print, the more they deflate the value. Only thing keeping the perceived value as high as it is, is that other economies are no better right now. That’s the amazing part. Every government is doing the exact same thing.
The current crop of rejects, and the past, are the reason it’s like this. Nobody saw this coming? Let me see, take the globe’s richest economies, set them up with “trade” deals with third world nations, have the corporations move in, and then watch the profits soar as the products are made for pennies and sold for hundreds back home. Oh wait, back home has no jobs to buy the products. D’oh!!! Whoda thunkit?
Does that mean that nothing will change if everyone is printing too much money at the same rate?
And if that doesn’t help, let’s all jet around the globe to even crappier nations and set up more trade agreements. That’ll help!! Like India. Hey there’s an idea. Send all production jobs to MidEast, and then the service jobs to……….India!!! Soon you can go through McD’s drivethru window, and live from India will be your greeter taking your order!!
I think that’s their idea. Hoping nothing will change. I don’t know any other explanation myself.
The entire planet is stuck in the mud.
Food and energy will cost more. They’re currently trying to inflate, because it’s the only way the debt is not defaulted, and the banks go under. It seems to me they’re stair stepping back and forth, that way, Goldman and JPM get to capitalize on the price changes. Krugman’s a ridiculous ass anyway.
Just so long as I can watch sitcoms about outsourcing to India, I’ll be fine.
Sorry, 29 was a reply to mary @ 25, 30 was a reply to canadianbeaver @ 26.
We are in deflation. The standard CPI overstates inflation by between a half and one percent owing to product improvement that would otherwise show up as a rise in price. These figures are catastrophic. Short of a huge devaluation of the dollar, which is not going to happen for a lot of reasons, the Fed’s attempt to prop up demand by goosing up asset prices with cheap money is not going to work. The money is flowing out to goose up prices in India and China. We are in Great Depression territory. It is a different scenario, but the end result is the same. We will be seeing 10-odd percent unemployment (if we’re lucky) for a long time.
This is tragic, and a consequence of faith-based economics. We know how to resolve this particular problem.
Not at the grocery store.
Maybe we could experience a hyper-inflationary depression. That would be cool because then we could stop arguing between inflation and depression. Below is a link to John Williams “Hyper-inflation Special Report”. David Dayen will tell you that Williams is a liar. You decide.
http://www.shadowstats.com/article/hyperinflation-2010
Yes, the commodities markets are lying and Zimbabwe had had hyperinflation because there was such low unemployment – all the reports of Zimbabwe’s very high levels of unemployment during a period hyperinflation are lies.
The Feds policy may prove to be inadequate, but at least they are trying to stop the slide to deflation, which is more than can be said about congress and the white house.
Government spending right now can do a lot more than what the Fed can do, but they are unwilling to do it.
I agree that we are in perilous territory. If we reach true Japan-style deflation, things will be much much worse than they are now.
Consumer spending is low now, but if we are in deflation, we will be in a situation where consumers know that anything they want to buy, will be cheaper tomorrow. So spending will drop even more, causing more deflation, and a vicious cycle. So kudos for the Fed for at least trying to stop that.
Ha! Thanks for the levity.
Inflation-deflation. Stagflation. Hyper inflation-Depression. Markets Crater. Collapse is Imminent. Nippon-style limp-along. Soros gives up on Obama. Like what took you so long? I should be a f****** billionaire.
Short the dollar. Cash is king. Carry that trade. The Irish say keep yer fookin’ bailout. Brits insists they take the money. Who says things never change?
Market swoons. Just a correction. Market swoons again. A really big correction. TheBernank farts. Markets Stink.
OHGAWD! The end is near. Collapse is, once again, imminent. Even the GiantVampireSquid is getting nervous.
There’s only so much to the face of Humanity.
1957, I was 8 years old.
1981, I bought a Celica at 14% interest.
2010, I am driving a 10 year old Dodge Grand Caravan that is a piece of shit.
Although I am lucky to be a full time employed nurse I can not buy a new or used vehicle.
Fucked.
Peace
Welcome to Firedoglake!
John Williams is a decent statistician but horrible economist and lackluster historian. His backround is in stats and there he’s correct, government statistics have become lies compounding on lies ever since the 1980′s.
What’s wrong with his economics? In short, he’s a gold bug. His examples of hyperinflation miss many of the factors involved. Factors such as:
- The Brits cut off Zimbabwe’s trade.
- Wiemar had unpayable war reparations and the allies had an army ready willing and able to collect. They asset stripped the country. They didn’t just take the production, they also took the means of production.
That’s significantly different from what we have today. We’ve got bad problems but it’s not like there’s a foreign army out there ready willing and able to make us pay up. Our problems are fixable once we rid ourselves of tax cut fever and deficit cut fever. If trade breaks down before we manage to put some sane people in power and make a U turn… yeah, that’d be ugly. But given our military bases all over the place, other nations are going to give us as much leniency as they can manage.
A good writeup on hyperinflation here at home is in the Richmond Fed’s history of civil war monetary policy, North vs South:
( 4 page PDF )
indeed.
Good morning Captain. Thanks for the link.
I offered Williams for balance. I am in no way qualified to judge his analysis. But I can tell you that you dismiss the gold bugs at your peril. They have an important truth to tell but you have to suffer their reactionary bull shit to find it. Sometimes heresy (hard money) is true and gospel (debt money) is false.
The best of the gold bugs are not calling for a gold standard. They are calling for an end to debt money (the Fed) and a free market in gold (competing currencies). Their arguments are compelling but you must remember two things when reading them.
1. Government is not the problem. Bad government is the problem.
2. Fiat money is not the problem. Debt money is the problem.
QE only serves to debase the currency. Debased currency means less purchasing power. You don’t have to call it inflation but that’s what it is. And it is the government that is lying about the rate of inflation. Not Mr. Williams.
Yes, that is what is the goal of QE, because we are about to hit deflation, which would be terrible if we get there.
A weak dollar makes the cost of employing an american cheaper, and the cost of giving a job to someone in another country slightly more expensive. That is the goal of QE. It will not lead to massive inflation while unemployment is high because we are in a liquidity trap.
Wallstreet and the right are up in arms against QE2 because they are heavily invested in selling products made by cheap labor in China, and a weak dollar is bad for that.
Liberal economist are split on QE2 largely because they agree it is not going to accomplish very much, but I am with Krugman, it is better than nothing.
Not sure about that, especially if you view QE2′s main purpose as a 2nd bailout of the major banks in order to relieve them of bankruptcy due to Foreclosuregate and the toxic assets (which have yet to increase in value which was the original, flawed plan.) QE2 is not nearly as good as a World War on the crumbling American infrastructure.
Just as we tied ourselves in knots to preserve the rapacious health insurance Cartel, we are similarly bending over backwards (and forward) to resuscitate all the Zombie banks.
“You can get away with doing one or two stupid things. Maybe 3. But by the time you do 7 or 8, man you are in real trouble.” – A wise old surfer