Inflation: Its Getting Crazy

coach d wrote:

Look at the Goldman Sachs Commodity Index. We DO have APPARENT commodity-priced inflation, some of which is threatening catastrophe in poor nations around the world because the people cannot afford to buy the food (corn, grain, etc) to keep themselves alive, and this was part of the cause for the revolution in Egypt and elsewhere.

You completely missed the point of my post. LOOK, there is commodity-priced inflation, I will not deny that in the slightest. BUT, here, in the United States of America, higher prices for commodities are more than counteracted by lower prices for housing. The CPI is a basket of goods that weighs housing stronger (and today not strong enough) more than it weighs anything else.

If we were talking about China, India, or Egypt, where people's incomes are between 1/4 to 1/10 of American's, then the story would be completely different. Yes, they do need to take step, drastic in some cases, to curb inflation. The US does not because it is a completely different animal. After the economy grows between 3.5% and 4%, the Fed will rightfully raise rates.

Read more carefully next time and don't jump to conclusions after reading the first sentence. I know what I'm talking about.

Just One Fact wrote:

kaitainen is by far the smartest poster on LetsRun regarding anything related to finance or economics.

If that isn't obvious to you then you are either ignorant, stupid, or both.

there are many people who post on this board who know more than i do on finance and economics. in fact, there is probably not a single, minor subject on which my level of knowledge is superior to every other individual person who posts here.

it remains easy, nevertheless, for me to point out the obvious flaws in "arguments" presented in threads like this one. you responded to a post, for example, in which i pointed out that someone claiming that "defend" = "not criticizing" is a reasonable thing to say. i don't need any knowledge of economics or finance to know that this is a terribly inaccurate analogy. i merely need to understand the meaning of the word defend (and i can find that in an online dictionary).

honestly the reason i post on threads like this one has nothing to do with trying to change the mind of the person i'm responding to. i know that's a lost cause. i post so that people who read these threads without knowing much about the subject are less likely to be persuaded by poor and unsupported arguments.

Rational Economics wrote:

You're forgetting that the US dollar is the world's reserve currency. Debasing the dollar causes inflation throughout the entire world, especially in countries whose currency is pegged to the dollar.

wait, now it's the fed's job to be concerned about inflation in countries who have arguably irrational, and definitely non-market-based currency policies?

combined with the OP, the fed must (a) control weather, (b) prevent disruptive revolutions and crazy dictators, and (c) eliminate any inflationary consequences of rapidly developing countries choosing to peg their naturally appreciating currency to the US dollar.

no wonder alan greenspan developed such a high opinion of himself. turns out he was god.

kaitainen wrote:

wait, now it's the fed's job to be concerned about inflation in countries who have arguably irrational, and definitely non-market-based currency policies?

combined with the OP, the fed must (a) control weather, (b) prevent disruptive revolutions and crazy dictators, and (c) eliminate any inflationary consequences of rapidly developing countries choosing to peg their naturally appreciating currency to the US dollar.

no wonder alan greenspan developed such a high opinion of himself. turns out he was god.

Before the OP has a seizure, I will say that you are making his point for him. He says that the Fed cannot possibly do those things and thus should do nothing, leaving markets to themselves to allocate finance as it sees fit. The arguments against leaving markets to themselves are for another thread, so please refrain.

Guys, I think the situation is that there are multiple factors causing the increase in prices (food, in this case).

Factor 1: supply & DEMAND. Jim Rogers talks about the commodity bull market all the time. He points out that developing countries are getting wealthier, and want to eat more/better. More meat, for example. Well, producing meat takes a tremendous amount of grains (something like 7x?)... much more than was required when the poor guy in China was only consuming rice. This is happening throughout the world in developing countries... from food, to energy (more cars, construction, etc..), to basic commodities (steel for building). Demand -> tremendous growth.

Factor 2: SUPPLY & demand. The supply, in many cases has been shrinking the past 30 years. Jim Rogers also points out that many commodity stores/production are at 20, or 30-year lows. He talks about wheat stores being at 25'ish year lows. That certain types of mines have not been opened in 30 years, and that it takes nearly 10 years to get a new mine online. This low supply, in many cases, is a direct result of the 30-year bear market in commodities. As prices increase, market dynamics will lead to increased supply, but IT TAKES TIME, and cannot happen overnight. It takes a decade in some cases, which is why commodity bull markets usually last 15-22 years.

Factor 3: The U.S. Dollar. The U.S. Governement is spending beyond its means. The Fed is debasing the dollar, and always has. To do this they are creating money. The only reason US Bond yields are so low (asked by someone earlier) is because the Fed is directly buying them now in order to keep rates low. If the market was allowed to work, rates would be much higher. There is no doubt that inflation is occurring, and has been much higher over the last 20 years than the government stats claim. John Williams at Shadowstats.com has good data showing this. Only someone unfamiliar with the details of the calculations (or in denial) would deny this fact.

So, we are looking at a Double (or triple) whammy. Supply & Demand are going to force higher prices, and the debasing of the US Dollar will continue to result in higher prices (actually low purchasing power of the dollar).

The two are NOT mutually exclusive. It's ridiculous that you guys are arguing that it has to be one or the other...

IT'S BOTH

Did you read the comments on the linked blog from the Mises Institute? Jeez, that was a freak show.

Fair enough. Point is - because of your 1st two factors - trying to measure inflation using food prices as an indicator is a pretty silly approach.

USDA estimates a 4% increase in food prices for 2011.

http://www.latimes.com/business/la-fi-food-prices-20110224,0,4984077.story

How "silly" it is depends a lot on your situation in life. For the old lady living off of social security, anyone on a fixed income, or a lower-income household who spends a significant amount of their income on food & energy, it is very real and critical.... not silly at all.

I think it's kind of silly to exclude it. It's not the only or best indicator, but it should certainly part of the equation.

check your premise wrote:

How "silly" it is depends a lot on your situation in life. For the old lady living off of social security, anyone on a fixed income, or a lower-income household who spends a significant amount of their income on food & energy, it is very real and critical.... not silly at all.

I think it's kind of silly to exclude it. It's not the only or best indicator, but it should certainly part of the equation.

from the OP: "The Fed created an unprecedented amount of reserves out of thin air and with recovery in the air, the banks are using them, causing the money creation. All of this is explained in detail in books such as The Inflation Crisis and How to Resolve It – which might be the best journalistic reduction of Austrian monetary theory around."

the point is, if the argument is about the impact of fed policy, and more specifically how current fed policies are causing, or are likely to cause, high inflation or hyperinflation, then food (or energy) is a poor example.

the funny thing is that several of us pointing out the frailties of the arguments would probably agree that inflation is something to be concerned about (though we would probably say that it is too early in the economic recovery to be worrying about it yet). we are merely pointing out the weakness of the arguments being made. in the OP in particular.

I didn't mean to dismiss the importance of commodity price changes and certainly wouldn't "exclude" them. That doesn't make them a meaningful measure of the impact of federal monetary policy on purchasing power, which I believe was the OP's point. With so many confounding factors in food price, it is a truly poor indicator. That's the "silliness" I was trying to point out, sorry for the confusion.

only problem is that about .05% of the American Public even knows what inflation is.

It is not prices going up!