Here is a site published by Coin News, which has better inflation information. http://www.usinflationcalculator.com/inflation/current-inflation-rates/ Coin News: http://www.coinnews.net/ Shadowstats is a web site created by a guy with a BA in economics and has been widely discredited by mainstream economists and investors. The site caters to conspiracy theorists and gold bugs. There is no there there with this site. It just does not hold up to the light of scrutiny. But it has a niche catering to the conspiract theorists and gold bugs. If you are on the other hand interested in making money, I would suggest you leave this site alone. Use it at your own risk. http://www.usinflationcalculator.com/inflation/current-inflation-rates/
And because those factors ultimately show up in the cost of everything else, with the volatility all nicely smoothed-out by the effect of their having percolated through the rest of the economy.
And economics isn't math (much to the chagrin of economists) - or even hard science. It's a social science. Without denying that the process of determining how the statistics are computed is somewhat politicized, the fact remains that such politicization doesn't automatically imply that whatever alternative statistic is actually better. The statistics that your link uses are themselves just outdated government methodologies (which were likewise politicized to begin with). You'll need some actual analysis (both in economic terms, comparing different measure, and in political terms, pursuing some analysis of what exactly the politicization consists of and how big of a difference it makes) to establish that one or the other measure is more meaningful or whatever.
A weaker dollar does make imports more expensive. But it also makes US produced goods and services cheaper and more sellable thereby strengthening US economic performance. The price of oil is determined by supply and demand issues and not by US monetary policy. Anticipation of higher demand for a commodity like oil due to increased economic activity resulting from a quantative easing activity can cause the price of oil and other commodities to rise. Prices rise because speculators expect economic stimulus to result from quantative easing, thus more demand for basic commodities like oil and the price rises. Prices are always in a state of flux in a free market. It is the job of the Fed ot maintain price stability. Just as the Fed can increase the money supply to grow the economy, it can also restrict the money supply as well. When the economy starts to grow above its target, the Fed will change its monetary policy moving from an accommodative postiton (current policy) to a restrictive position in which it will reign in monetary supply and slow down growth and restrain prices.
Please Register or Log in to view the hidden image! I did not vote, but this curve will still be near vertical in June. Are you speaking of the circulating money supply? If so I can believe 3%, especially as you gave no "start time" you were comparing to, but the new money existing is growing very rapidly now. People who fear inflation, as I do, can foresee a time when US selling bonds (at an acceptable interest rate to government budgets for interest payment debts and the general economy's borrowing needs) is impossible, Say when China stops buying any but prefers real assets under long term contracts or even gold and silver so that only the FED is helping the Treasury pay the maturing debt and creating more debt, as it has been in the nearly vertical part of the graph above, but even more rapidly as it needs to both cover the deficits, as now, without aid from China buying bonds AND pay the maturing bonds that don't "roll." When foreign holders of US debt and the huge store of dollars not in the US, conclude that they are losing value too rapidly, those dollars will be spent or invested in real assets. Not only will the now, not circulating, recently created funds circulate, but those held by drug cartels, or under mattress in Brazil, etc. etc. will circulate as well. = An explosive and uncontrollable growth in the circulating money supply. As fear that the dollar is rapidly losing purchasing power will feed upon it self, in less than a month, the dollar will become a "hot potato" no one wants to hold and owners of goods will demand many more of them before selling their goods /accepting dollars as payment. Any dollars you get in payment you will rapidly spend before they lose too much value. = A rapid surge upward in the "velocity of money" from the current very low level. (Exceptionally low now as Joe American is saving, de-leveraging, not spending 103% of his salary anymore.) SUMMARY: Much more money in circulation with much higher velocity of circulation = very rapid inflation if not about a ~90% collapse in the dollar's value in a month or two.
The 3 percent came from the Federal Reserve (M2) comparing December of 2009 with December 2010. It was 3.4 percent. There is a lot of fear the dollar has been loosing value. It has lost value when compared to the Euro over the years. But for the last few years it has been relatively stable against the Euro. In fact over the course of the last year it has appreciated against the Euro. The bottom line here is that the Fed is not being willy nilly with the money supply. Almost all of QE1 has been repaid. QE2 has been modest but successful. And let's remember why QE2 was necessary - failure of congress to effect a responsible fiscal policy. I am not seeing hyper inflation as an inevitable outcome providing congress is able to get it's act together and generate sound fiscal policy something they have not yet done. But I am still holding on to hope. The best thing we can do to fix our debt problem is to grow the economy. And for the immediate future that means continued government spending and more debt. But for the longer term we DO need to get the nations debt and spending under control. And to do that we need responsible fiscal policy. I hope that this Democratic adminsitration will be able to force a more responsible fiscal policy in Washington. But I admit they may very well fail. The jury is out in my view. I think we will get a glimpse of the future with the outcome of the current budget fight in Washington. If Washington continues to fail and is unable to be fiscally responsible in the near future and longer term - that means raising taxes on the wealthiest among us and reducing healthcare costs - the fed will have to step in and clean up the mess in order to prevent a very nasty depression. The very nasty depression you have forecast. I don't think the Fed is going to let the nation fall into a depression if it can be avoided. So that means inflation - even hyper inflation -and that would be very bad for fixed income recipients and investors as you well know. Given the political situation in Washington with Republicans/Tea Partiers more intent on scoring politcal points at the expense of the nation and their apparent ignornance of finance, this is a very likely senario in my opinion. So I see a senario where your forecasts could come true. But I still think there is time for redemption. I don't think we have yet crossed the event horizon where there is no going back. But we are damn close in my view.
If inflation is only 3.4 percent then people who are saving at say 6% (in cash) are as safe "as houses" (couldn't resist Please Register or Log in to view the hidden image! What I mean is, while this is somewhat academic here, in the real world people are opting to save in cash and I think do so out of habit and history (and family upbringing). These people, many are just hard working average people, are going to be wiped out IF we do see hyperinflation - but but even if we just see high inflation, they'll lose a lot of their savings/labor. Which makes me wonder: Are you willing to save in cash? Would you advice family member to do so? Are you that sure in the staying power of the USD? Wouldn't it be better to be in stocks? Or something that is going to move up with inflation (ie gold and silver)?
Yes the FED can make hyperinflation, but deep depression (very low economic activity, few jobs, etc.) is often part of hyperinflation. IMHO, "falling into deep depression" cannot be "avoided" by FED's printing money. It can only be made worse and delayed until Obama and Bernnake are out of office. IMHO that is what is happening now. My quote above from end of post here: http://www.sciforums.com/showpost.php?p=2574941&postcount=10 and From my OP of this thread: US’s poor mass education is the fundamental problem, not the Congress that responds to their wishes. That cannot be changed on the time scale required.
If this senario happens, I think the likely outcome will be stagflation equal to or greater than the stagflation of the late 70's and early 80's. I don't see a depression becuase the Fed will fight back with monetary easing. I pray we don't go down this road. But it very well may happen. I agree on the fundamental problem. The misinformation in this country and the lack of intellectual curiosity is down right scary.
If everything goes up during inflation, then it seems that owning ANYTHING other than money - - you should be OK? No? For example: If you own stock, well, what you bought at $10 is now valued at $100 but is still only really worth $10 as it costs you $5 to buy a single can of coke. A stock market at 110,000 instead of 10,000 it'd be the same value but a different number? Right? Likewise if you actually owned your home, well, what was worth 300K is now 3 million? Hmmmm just trying to picture what life would look like with THAT much inflation...
Inflation is not 3.4 percent. The money supply expanded by 3.4 percent. There is a difference. An expansion of the money supply does not translate into a corresponding increase in inflation. If we are going into a period of hyperinflation you want to be invested in fixed assets like real estate, gold, silver, oil, etc. It is logical to think that stocks would be a good investment in periods of inflation. But that is not the case. Stocks will suffer in a hyperinflation period too because their profits will be squeezed as a result of higher production costs - notice the contraction on Wall Street these last few days because of speculation related to higher oil costs.
That only works if the economic problem is an extreme of the normal business cycle. I.e. When times were good, manufactures over produce, unsold inventory grows, workers are fired, they tighten belts, less is sold so more are workers are fired etc. -I.e. the natural instability that makes business cycles. Then the FED can by "monetary easing" turn the economy around to growth again. In fact the FED collects so much economic data now days, that it can act before the business cycle can get too destructive. As is said: the FED's job is to "lean against the wind" and they do it quite well to moderate the extremes of the business cycle. Unfortunately the coming depression is not caused by a business cycle gone mad. It will start with a run on the dollar when masses of dollar holders (mainly central bank reserves) realize they too* must get out of dollars quickly or watch their reserves (or saving for little guys, like Brazilians with dollars under their mattress, or drug cartels with large dollar holdings) "evaporate." I.e. this depression will come because there are too many dollars already! Printing more (monetary easing) will just make the depression last longer and be more destructive. ------------------- * Some of the more foresighted individuals and firms are already spending dollars for real assets, typically stocks or buying firms, in countries with sound fiscal policy and higher growth rates. The historic low US interest rates are forcing them to do this. There are short periods of global tension when the flow of dollars reverse, but look at the multi-year trends. (Actually oil, gold, copper and silver etc. seem to have replaced the dollar as a "safe haven" in the current Mid East tension period.) The US's main export now is dollars being converted to other currencies for investments. For example GM makes much more from car sales to Chinese than to Americans. etc.
Modest inflation discourages / reduces investment, which by definition is taking currently available funds that could be spent but using them instead to create new production facilities (new software organizations, new mines, etc. also included in “production facilities.”) I.e. if inflation is expected, then people’s savings are expected to shrink in purchasing power. So the contemplated enterprise one might invest in is less attractive as fewer can buy what it will make. Etc. Rapid inflation kills investment, for the same reason. In fact some existing productive assets may be sold (Perhaps to a Chinese buyer to disassemble and re-build in China as happen with the IBM computer division and the Brake division of GM a few years ago.) I.e. if new facilities are not attractive for investment, then existing facilities are less profitable too – perhaps unprofitable so they are closed. Growth basically comes from investment so with zero or negative investment GDP will shrink. I.e. there is no sharp boundary between StagFlation and DepressionHyperinflation. If the inflation becomes worse, then the stagnation becomes worse. Many are confused and think that depression is impossible if there is great inflation. In fact great inflation will cause depression. Depression being defined by zero (or even negative) investment and many without jobs. Depression does not mean the dollar is more valuable although back in 1930 when many had no job and when fiat money was not being created, money was horded so back then that was the case. – If you had money, you could buy a lot with it. The eight story office building (Medical Arts Center) in Charleston, W.Va, where my father had an office was sold for $500 in 1930. Most offices were either empty or way behind on their rent – not even the utility costs were being covered and the depression was growing worse. No one wanted to be the owner of such a losing money business, with little near term prospect of ever becoming profitable again. The coming depression, fundamentally caused by an excess of money existing that will rapidly switch from near zero “velocity of money” to “hypervelocity of money” (“hot potato dollars” no one wants to hold) is fundamentally different than the depression of 1929 which was caused by an extreme oscillation of the business cycle, made worse by the “sound money” policy of the government of Hover. It seems like the US government has a knack for doing exactly the wrong thing, so yes, I agree the FED will fight the coming depression with monetary easing, and once again make the depression worse, as it will not be the result of an extreme of the business cycle, but of the current extreme of growth in the money supply. Instead of QE3 the US should already be following England’s lead with a real “austerity program” but one can be almost sure US will again do the wrong thing. I.e. QE3 is probably coming. One must understand that objective No 1 of Obama and Bernanke is to delay the depression until they are out of office.
The only thing the Fed can do to accomodate a failed fiscal policy is to use quantative easing as it has done. And you are right the big problem with inflation is that it destroys productive investment. Investors buy things like gold and silver versus productive assets like equities and businesses. I still think we have time. I don't think Obama's objective is to just delay adverse economic consequences. I think he wants to fix them. But give the situation in congress with Tea Partiers/Republicans unwilling to face budget and economic realities, one has to question if he can do what needs to be done. I agree with Bernanke's assesment. We have some time here. And we need some responsible fiscal management sooner rather than later - that means growing the economy, raising taxes, triming entitlements and the military. Aside from triming entitlements, Republicans/Tea Partiers are unwilling to engage.
No, that would be proof there is no Real Inflation. It doesn't work that way. There are different types of inflation, each with its own root cause, and precisely because each has its own root cause, the solutions are different. For example: Wage Inflation Cause: rapidly rising wages Solution: Wage & Price Freeze/Wage & Price Controls. Well, I should say the two times there has been Wage Inflation in the US, FDR and Nixon used wage and price controls. A more elegant solution would have been to simply implement price freezes/controls. Interest Inflation Cause: low interest rates Solution: raise interest rates Cost Inflation Cause: commodities shortages caused by declining production, weather or war while Demand remains constant or increases Solution: stop consuming like a locust, or increase the Supply of commodities affected by shortages Real Inflation Cause: change in industrial output without corresponding change in money supply, or an increase in the money supply in excess of industrial output Solution: adjust money supply accordingly. Well, it's macro-economics, not a video game. It can take 8-15 years before you see the effects and the effects can be negated in the interim by changing circumstances. Not in Russia you don't. The Russians, like many other countries, dumped their US Dollars and now hold gold and Rubles and/or Euros. Quite a few countries, especially a number of European countries significantly reduced their US Dollars reserves and are now holding 30% or less. It doesn't work that way. No, it is not rational. It is highly irrational Which countries would that be? Zimbabwe? The US Dollar has been 0.64 Euro to 0.74 Euro for years now. You will never see $1 = 1 Euro or greater in your life-time. As more and more countries switch to the Euro, Ruble, Yuan and basket currencies to trade, demand for the US Dollar will steadily decline, and so will its value. It is not odd, especially since people like you get the wrong idea and panic. Certain commodities are volatile and their price fluctuates. There's 26 Million acres of farmland lying fallow in Ohio thanks to Con-Agra, Monstanto, Tyson, Purdue, et al. You're welcome to come here and start farming if you want. It's still early. You can get in some corn and cotton. Your contribution of cotton to the world market will negligibly increase the Supply of cotton and lower clothing prices accordingly. Bill Clinton didn't think it was odd. And he was a Democrat, and therefore god-like. And if Clinton is god-like, then god doesn't think it is odd, so it is perfectly okay. Once upon a time in an America far, far away: Military members were counted as unemployed The Prison Population (all those incarcerated in state or federal prisons) was counted as unemployed Part-time workers were counted as unemployed Discouraged workers were counted as unemployed Carter stopped the incredibly idiotic counting of the Prison Population as unemployed. Reagan got members of the military counted as employed. Clinton change the method in 1994 to count part-time workers as employed and totally ignore discouraged workers. Some people have an aversion to the truth. There's nothing wrong with his data. His unemployment numbers are accurate as calculated using the pre-1994 formula and the Gallup polls which asks questions based on the pre-1994 formula confirms that. Gallup does exactly what BLS does: it conducts a telephone survey of 60,000 households. The only thing Gallup does not do is play the "seasonally adjusted" numbers game. It's a roll of the die to see which year BLS will pull out of a hat to use for their "seasonally adjusted" game. In what way? It's one thing to say the site doesn't hold up to scrutiny, but it's another thing to actually prove it. And for the record, I have twice proven on this forum that Pukipedia contains information which is factually erroneous, false, misleading or out-dated. I don't believe food and fuel should be included in the CPI, but I do like to compare the two different CPIs, and the CPI calculated both ways is of value. If my annual review were upcoming and I wanted to know how much money to seek for a raise in pay, which CPI would benefit me, the one from BLS or the one from ShadowStats? Don't worry, because it will never happen. About 12 years from now you'll see some serious Real Inflation, worse than the 1970s but not as bad as the Civil War (where it approached 50%). If you start getting pay raises every 3-4 months (that's what happens when you have Real Inflation) hopefully it won't trigger Wage Inflation, and if it does, hopefully the president will enact a Price Freeze only, instead of a Wage & Price Freeze.
"... June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank should maintain record monetary stimulus to boost an “uneven” and “frustratingly slow” economic recovery. ..." From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=atbwQPcIAMj8&pos=1 QE3 looking more like a sure thing as economy slows and unemployment rate climbs. At least it is almost certain now that the maturing bonds in FED portfolio will be rolled, not paid off, taking money out of the economy. And certainly FED will not be selling any assets on the books (even if deep discounted to get some buyers for that ex Fanny May toxic trash).
