PeakTrader.com

[administrator]

PeakTrader said...

Some people blame the Fed, but that would be wrong, and the opposite of reality.

Of course, some people, through politics or ignorance, continue to blame the Fed.

The Fed has attempted to offset the negative effects of poor economic policies by Congress and Administrations.

I'm sure, in the future, if stagflation takes hold, some people will blame it on monetary policy instead of fiscal policy or policies by politicians.

******

The larger problem, or imbalance, was the U.S. private sector shifting dollars from up to $800 billion annual trade deficits to export-led economies, which bought U.S. Treasury bonds.

So, in effect, there was a shift of dollars from the U.S. private sector to the U.S. public sector (or government).

If those dollars were refunded to the private sector in the form of tax cuts, instead of spent or saved by government, the recession would've been mild at worst, and fewer Americans would've lost their jobs and houses.

******

Also, the "moral hazard" created in the housing market would've had to been reduced through a gradual tightening of lending standards, which was the responsibility of Congress.

******

VangelV and Morganovich, two wrongs don't make a right.

The Fed is about the only thing holding up this economy.

You can thank the Fed later.

******

Bubbles are good in depressions.

-------

PeakTrader said...

Most Americans live month-to-month. There's almost no inflation on monthly expenses, except for gasoline prices, although that's partially offset by natural gas prices.

The Fed has been facilitating growth in the macroeconomy, while attempting to fully offset the many negative forces. If it weren't for the Fed, income and employment would be even lower.

******

Morganovich says: "there is a great deal of inflation... you seem to have missed some key data ."

Unlike you, I look at all the data. From your link:

"Over the last 12 months,
the all items index increased 2.9 percent before seasonal adjustment."

Of course, when prices rise, people buy less or substitute, and when prices fall, people buy more, and stock-up.

That's one reason why my inflation rate has been roughly zero for years, while my standard of living is way up, including from higher income.

******

Morganovich, you continue to pound that square peg into round holes.

You need to ask yourself why investors and workers demanded higher rates and wages in the 1970s?

******

Juandos says "is your 'actual' purchasing power up also?"

Monthly expenses for housing, food, clothing, transportation, insurance (including medical-dental premiums and co-payments), etc. are roughly the same, except gasoline.

For example, when the cans of albacore tuna go on sale, e.g. from $2 to $1, I increase my purchases from zero cans to 10 or 20 cans (and do the same thing when they go on sale again in a few weeks or months).

I bought five nice shirts recently that were not only inexpensive, but also 30% off.

******

VangelV and Morganovich, you've been shown about a hundred different ways why you're wrong, including in the context of economic models.

You've responded by pounding those square pegs into round holes even harder.

Why repeat myself?

Juandos, do you really expect me to believe there are hardly any discounts or sales in the St Louis area?

******

Ron, if you're talking about food inflation, prices go up and down, not just up, although prices on some items went up and didn't go down.

A few recent food purchases are:

Milk $3.50 (same price as 2008)
Large Hass Avocados $1 each (on sale)
Four large green tip Del Monte bananas $0.81 (on sale)
Vitamin water $1 each (on sale)
Prime rib roast $6.50 lb (four pounds, not on sale)
10 lbs potatoes $3 (not on sale)

There were many items on sale I didn't buy.

Bread prices went up (instead of buying Oroweat bread, I buy top quality bread from the deli, because they're now about the same price).

******

Morganovich, let's take your most recent "very simple example" to prove whey you're wrong (again).

You say: "you earn $100k. you have $1 million in savings...prices rise 10%. you wages rise 15%. thus, you buying power is up on a wage/price ration...but you still lost big...the value of your savings dropped by 100k in real terms, almost more than you made nominally all year."

Perhaps, you can explain why anyone would buy bonds, and how anyone can sell bonds, when interest rates are below inflation?

Also, you say:

"i just bough a prime rib last week to make dinner for friends. feeding 4 cost me $96 just for the meat (3 bone in ribs, about 6.5 pounds)."

You paid about $15 a lb for your prime rib roast, while I paid $6.50 a lb in California (at Safeway)!

I'll sell you prime rib roasts for $14 a lb and pay for the shipping.

******

Moreover, you say:

"tips are pegged to CPI. few looking for inflation protection view them as useful as that tends to be the crowd who, like me, feel that CPI deeply understates inflation."

Annual returns for US Treasury Inflation Protected Securities as measured by Barclays Capital US Treasury Inflation Protected Index

2011 13.56%
2010 6.31%
2009 11.41%
2008 -2.35%
2007 11.63%
2006 0.41%
2005 2.84%
2004 8.46%
2003 2.60%
2002 16.57%
2001 7.89%

******

Ron says: "Why do I care what you buy at the store?...What did our grocery bills look like? I know mine was higher."

Well, mine wasn't higher.

******

Ron, the point Morganovich made was 10% inflation eroded the principal by $100,000.

However, in reality, inflation is low. When someone buys a bond with a 2% interest rate and inflation is 3%, then the investor has inflation expectations below 2%.

--------

http://www.blogger.com/comment.g?blogID=28997633&postID=7120882984567178232

-------

PeakTrader said...

"...a 10-15% appreciation of the dollar to pre-recession levels would lower gas prices by 42 cents per gallon."

It may fall more than 42 cents, because U.S. income will fall and unemployment will rise, as the U.S. falls deeper into depression, from about $200 billion in lost exports and about $1 trillion of lost wealth in the stock market.

Oil was $10 a barrel in the late '90s before peak oil.

******

Ron, it's not really about "money." It's about raising actual output towards potential output to get out of this depression.

Closing the output gap will create about $1 trillion a year in real wealth.

---------

http://www.blogger.com/comment.g?blogID=28997633&postID=8878242768049339268