Is inflation out of control?

[beepbeep]

Discussion of inflation isn't moot.

Just beacuse technology progressed and you can buy microwave owen for 40 bucks doesn't mean that there is no inflation.

It's better to check prices for a basket of products.

Inflation is also a way to quench raising pays. If your pay grows 3% a year but prices grow 6% a year you are effectivly getting less to buy with (unless you are buying computers and microwave owens).

Inflation is also increased with raising foreign debt and international trade deficit.

I believe it's trade deficit that's fueling US inflation right now. You want to buy chinese T-shirts cheap but chinese would like to buy something back for their dollars.

Technology usually lowers the cost for certain aspects of product-basket (notably: telecommunnications, computers, TV's etc.) but certain things remain unaffected or change little (food, hairdesser) and certain go up (housing, oil).

If you try to cover the fact that economy is not as good as it was buy priniting more money (it's more covert way of doing it than saying: we screwed up) you'll hgave inflation.

Unfortunately, there are hidden costs of inflation as it's unethical. Savers get punished (their savings get eaten by inflation) and spenders rewarded (their loans are worth less). There is also constant overhead of spending time adjusting the prices as inflation goes on instead of producing the goods.

I believe that war in ME and "foreign debt doesn't matter"-opinion is fueling inflation in US right now.

[turbo6bar]

Originally posted by RoninLB
Even the WSJ connects a slower GNP with lower inflation in many of their articles. So in a contrast faster growth stimulates inflation. If you want a booming economy you risk inflation so the idea says. [Inflation meaning the value of the dollar without noise.] From this point of view opinions are made on investment, etc. Differences in opinion made markets.

True, but what happens when inflation is being driven by worldwide forces and not those within our borders? In this case short term Fed rates lose punch.

Like you said, we have to acknowledge the possibility a slowing economy does not slow inflation enough. I won't argue that lower rates creates inflation, but rising rates may have a limited effect on inflation.

[hytem]

For some time now, I don't think inflation has had a lot to do with interest rates--more to do with the price of energy (oil) and "made in China." Almost everything except food these days in America is made in China or Asia, and this has helped greatly to keep inflation down and average Americans loaded with material goods. Food is also inexpensive here.The relatively low cost of oil (until recently) has also helped. If the price of oil stabilizes, I don't think inflation will be a problem, though higher transportation costs will increase prices. It's the cost of labor in China that will determine inflation here more than anything else. That will significantly effect prices of imports--which is why it's important for the Chinese to keep their currency cheap relative to the dollar.

As far as interest rates go, they have a much bigger effect on the economy. For example, when Greenspan raised rates in the summer of '00 , before the elections, the stock market collapsed(tech stocks were also badly effected by the Microsoft government investigation--which ended after the elections). Higher rates killed capital investment, and LC growth stocks still haven't recovered.

After the elections, in January, Greenspan lowered interest rates down to 1%, to get the economy going again. This cost the average CD/bank account owner thousands in dividends. Lower rates did, however, help the housing market greatly.

Through these extreme shifts in interest rates, inflation didn't change one iota--which was Greenspan's original cited reason for raising them. He didn't seem terribly concerned about inflation when he lowered them to 1%!

The current Fed chairman seems to be stuck in the same paradigm as Greenspan--juggling interest rates to control inflation. If he raises rates any more, he will damage the housing market, and that will hurt the economy. So, interest rates today have a much bigger effect on the economy, I think, than inflation.

[jyl]

Just to take your point further, the mechanism the Fed is using is higher rates -> slower economy -> lower inflation. It will be a big bummer if the second link doesn't work as well as it used to. Ultimately the Fed's #1 job is to control inflation - even at the cost of growth.

[turbo6bar]

Central banks across the world are raising rates. They claim it will control inflation and stabilize respective currency. If the US intends to protect the US dollar, raising rates may be necessary. Rate hikes aren't a phenomenon found only in the US. It is the overwhelming trend everywhere, so if the Fed chairman is an idiot, all central banks are managed by idiots.

Today, the St Louis Fed chairman said controlling inflation is their primary objective, so a pause next week is far from certain.

[turbo6bar]

Umm, yeah. That second link is definitely my biggest worry. Could the Fed generate stagflation? With the economy wound so tight (no slack), it is entirely possible. What's the probability? Beats me.

[hytem]

Originally posted by jyl
Just to take your point further, the mechanism the Fed is using is higher rates -> slower economy -> lower inflation. It will be a big bummer if the second link doesn't work as well as it used to. Ultimately the Fed's #1 job is to control inflation - even at the cost of growth.

I believe Greenspan increased rates in 2000 to deflate the stock market. He was concerned about "irrational exuberance." Remember that?

The market was booming at the time, especially tech stocks. But the Microsoft anti-trust suit killed the tech market. Was the market inflated? Yes--but part of it, I think, was due to the balanced budget achieved by Clinton and the Republican congress. There is far less confidence now with all the deficit spending going on--by the Republicans, who are supposed to be fiscally conservative.

I also think these Fed types have too much influence on the stock market with their inflation rhetoric. They should tone it down. I suspect they've got the message recently.

[turbo6bar]

I sense your net position is long equities, right?

[hytem]

Originally posted by jyl
We've benefited from years of falling goods prices as US manufacturers shifted production from high cost to to low cost regions. At some point this benefit should shrink as this shift becomes complete. Not a lot of shirts, shoes, PCs, TVs, etc made in the US any more. Meanwhile, wages are rising in China, production is shifting to even lower-cost regions like Vietnam, but I don't think that'll produce the same cost decline.

China has such a huge labor market that I doubt wages will go up much there in the near future. You walk into a department store there, and there are twice as many saleswomen as there are customers. There is salary compression to maximize employment.

The best wages in China are paid by foreign companies. They are responsible primarily for the rising middle class in the big cities.

[Porsche-O-Phile]

The fed's primary role IS to keep inflation in check. They still have a few rate hikes to go in order to meet this charge, IMO.

[sammyg2]

IMO, inflation is under control and will continue that way thru mid 2007 if not longer.

I can remember double digit inflation and mortgage interest rates at 17% in 1980, Thanks Jimmy.

[RoninLB]

The Fed Chair's policies is the wild card.

Budget deficits is a negative use of a population's capital. Trade deficits means we are winning the competition for investment capital worldwide. Eliminate earmarks and the beltway hacks will have no choice but to act responsibly.

If asset bubbles are due to an accommodative Fed then I have to assume that money supply growth is in check. The Fed Funds rate seems to be preventing dollar weakness. Current price pressures on commodities will hopefully self correct as they usually do.

Economic growth is the only true shock absorber. I still believe that our economy is dynamic currently. Talking heads have been predicting a slower upcoming economy for a few years. The real danger is protectionism, tax increases, and capital mkt + in house regulation. They tried to screw up the mutual fund's beautiful mkt efficiency by passing a reg for an outside Chair. I think that was repealed ???

The current down draft in the stock mkt is a common off Pres elect yr bear correction in an overall bull mkt imo. Either you believe that the US capital structure is the best in dealing with worldwide competition or you don't.

you are either pessimistic or optimistic. You can invest accordingly.

all above a prejudicial rant.

[john70t]

The federal discount rate, now ~6.5%(?), was as high as 14% in 1981, and as low as 1% at other times, and seems to fall after a crisis (1929, 2001) to improve US consumer confidence. This seems to have a huge impact on the overall cost of a home when a 30yr fixed fully paid mortgage is assumed.

There is a 100 year rate history at the link, and plenty of other websites with tracking graphs(google interest rates and compare them to their political/etc. circumstances) http://www.minneapolisfed.org/Research/data/us/disc.cfm

Are stocks and housing the only way to stay ahead of inflation? The current indicators seems to indicate Bernanke will be slowly rising the interest rates.

[edited for clairity thx]

[jyl]

[jyl]

Sorry, cyptic preceding post

Friend, who is best market technician I personally know, sent me the above

I tend not to believe that market follows simple patterns like making lows every 4 years

Feels too gimmicky

However, I've learned to genuflect to the facts

And fits w/ RoninLB's comment

[RoninLB]

Originally posted by jyl

Friend, who is best market technician I personally know, sent me the above

I'd love to have a bigger bit scan if available for printing.. wait, I'll try printing your post. I love it but didn't want to waste bits before.




I can't pick the player's horse but I love the game. What I use as a foundation is the bond mkts. Central Bankers own that turf so now you've one player for every economy/country. Bond mkts is noticeably larger than the stk mkts. The US Fed is in an economic war with the world. "Economic growth is the only true shock absorber." Hopefully, like in most US wars,
"We win, they lose"

And if someone can't be somewhat secure in having an opinion then I would say the Feds inflation protect securities are perfect for parking cash.

meanwhile I think the US economy is the meanest, baddest, and wildest player in the world. I do a big chunk into the stock mkt.

and there was someone who was active on another $ subject ppot thread and was posting mkt action etc. I kept saying "Yep"

[turbo6bar]

For those who believe inflation is not present, do you believe the CPI numbers are accurate, understated, or overstated?

[RoninLB]

Originally posted by turbo6bar
For those who believe inflation is not present,

CPI numbers are accurate, understated, or overstated?

hate to sound brass but inflation is always present. It better be. I think the attitude should reflect our position as in competition with other banks. How is the EC doing? [I think they suck] Also it looks like Japan's bank may be back as competition instead of bs politics being in control. Meanwhile some would argue that the Fed Chair throws around more power than any other person in the world.. routinely. I like him until I see things I don't like.

all surveys have noise. A package of more than one flavor helps.

[turbo6bar]

Oh, boy. Now we're getting somewhere, or maybe not.

NEW YORK (AFP) - Newly minted US Treasury Secretary Henry Paulson said in his first public comments since assuming office last month that a "strong dollar" is in the United States' best interests.

"I believe that a strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals," Paulson said, according to a transcript.

The dollar has weakened in recent weeks due to mounting concerns about US economic growth and because some traders believe the Federal Reserve's rate-hiking cycle is near its peak.

Paulson also echoed former treasury secretary John Snow and senior US lawmakers in criticizing the Chinese government's currency regime in an interview with the CNBC business channel shortly before his speech.

So whatsit gonna be, Benny B? This one is too close to call.

[RoninLB]

what happened to others?

I'm a ranting arrogant NY'er when it comes to this stuff.. understandable when the toughest capital movers in the whole world lives down the block. My bs fits my head and sugeist zazzonne.

also Treasury Sec is a very political position. His job is to make Bush look good[top secret info].. so every 50/50 bs word out of his mouth can't be taken too seriously imo.

"I believe that a strong dollar is in our nation's interest and that currency values should be determined in open and competitive markets in response to underlying economic fundamentals,"
Paulson said, according to a transcript."
---------- is an oxymoron imo

The strong dollar bs is real bs since Reagan sent the mkts some spirit and the European consolidation. Bs'ing about a strong dollar policy makes the whole word attracted to out debt and greases our long term debt mkts and lowers inflation expectations.

Bush's tax cuts was a big US jolt of Joy Juice liquidity. [US generates tons of good investment capital liquidity to grease mkts. No grease then danger prevails imo]. E's capital mkts do not have strong fundamentals imo and they have a strong currency. There are also other relatively strong currencies that have sh itty growth. Over time currency mkts gyrate and bop around a smooth tune if no severe prob's imo. If Japan gets in tune Australia will have real competition as the far east is A's stomping grounds.. and A's big business is very hard nosed competitive currently imo. I think favorable politics is a significant factor? It's business friendly.

sorry if I'm boring