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Couple things.RE: Inflation, it's going to be until at least post 2011 until inflation is a major concern, in fact deflation is a larger concern at the moment.This should probably go in the stimulus thread, but it can fit here too.

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President Obama ordered the cabinet to cut $100,000,000.00 ($100 million) from the $3,500,000,000,000.00 ($3.5 trillion) federal budget.   I'm so impressed by this sacrifice that I have decided to

It's too long to post the whole thing, but here's a good article on the inflation threat. Summary: unless Obama and the Fed change their course quickly, inflation is inevitable.http://www.nytimes.com/2009/05/04/opinion/04meltzer.html
Well the thing is, the Fed has more tools from this point forward to battle inflation, but they have almost nothing left to stop deflation.
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Well the thing is, the Fed has more tools from this point forward to battle inflation, but they have almost nothing left to stop deflation.
I don't understand.... it's easy to battle deflation. You just print tens of billions of dollars and drop it from airplanes on populated areas.Inflation is harder to stop because you can't withdraw money once it's out there; all you can do is hope that economic growth catches up to the money supply before it hits too hard. You can stop adding money to the money supply, but that harms economic growth, so it's sort of a self-defeating approach, and can drag recessions out for years. That's why I don't believe Obama has the heart to actually prevent the inflation the Fed has set into motion.It's all very difficult to come to concrete conclusions because the economy adapts as quickly as central banks makes moves, so it's not always a straight line. But over the long run (two years or more), if money supply and economic growth are not in sync, you get inflation (more money than goods) or deflation (less money than goods). Printing money is easy, convincing people you were just kidding about those dollars in their pocket is much more difficult.The other problem is, since the lag time is so long, the Fed needs accurate predictions of how the economy will respond to any move they make, and be correct 18 months down the road. It's an impossibly difficult game, and is the main reason why Austrian economics (probably correctly) predicts that central banking based on fiat currency can never be stable in the long run.Having said that, we've had some really long stretches of stability (mid-80s til now), so maybe it is *theoretically* possible over the long run.
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Couple things.RE: Inflation, it's going to be until at least post 2011 until inflation is a major concern, in fact deflation is a larger concern at the moment.This should probably go in the stimulus thread, but it can fit here too.
hilarious. This is not a current problem but an ongoing abuse.Guess ABC did not get the memo to only say nice things about Democrats. That airport reminds me of Atlantic City Airport. just why?
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I don't understand.... it's easy to battle deflation. You just print tens of billions of dollars and drop it from airplanes on populated areas.Inflation is harder to stop because you can't withdraw money once it's out there; all you can do is hope that economic growth catches up to the money supply before it hits too hard. You can stop adding money to the money supply, but that harms economic growth, so it's sort of a self-defeating approach, and can drag recessions out for years. That's why I don't believe Obama has the heart to actually prevent the inflation the Fed has set into motion.It's all very difficult to come to concrete conclusions because the economy adapts as quickly as central banks makes moves, so it's not always a straight line. But over the long run (two years or more), if money supply and economic growth are not in sync, you get inflation (more money than goods) or deflation (less money than goods). Printing money is easy, convincing people you were just kidding about those dollars in their pocket is much more difficult.The other problem is, since the lag time is so long, the Fed needs accurate predictions of how the economy will respond to any move they make, and be correct 18 months down the road. It's an impossibly difficult game, and is the main reason why Austrian economics (probably correctly) predicts that central banking based on fiat currency can never be stable in the long run.Having said that, we've had some really long stretches of stability (mid-80s til now), so maybe it is *theoretically* possible over the long run.
The FED has lowered interest rates as much as they can, they have printed money, it has curtailed deflation to a certain extent. I was talking with an economist the other day and he said the downward spiral of deflation is much harder to stop that inflation. Inflation can be curtailed with extremely high interest rates, the FED can sell more treasuries taking money out the money supply.These are just some of the tools at their disposal.
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I am certainly not an economist but I can tell you construction already is in deflation.

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I am certainly not an economist but I can tell you construction already is in deflation.
So are many other industries, including farming and large ticket items such as cars, tv's, other high end electronics.
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I am certainly not an economist but I can tell you construction already is in deflation.
in miami, construction is in a serious deflation spiral.....but a lot of it is of their own making. They overbuilt (particularly condo buildings) and misjudged the market. I got a good buddy who runs a construction company on miami beach.....he used to work 50 hours a week on lots of projects.....now he works about 20 hours per week.hang in there.
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The FED has lowered interest rates as much as they can, they have printed money, it has curtailed deflation to a certain extent. I was talking with an economist the other day and he said the downward spiral of deflation is much harder to stop that inflation. Inflation can be curtailed with extremely high interest rates, the FED can sell more treasuries taking money out the money supply.These are just some of the tools at their disposal.
This is such a complex subject, I find it interesting to discuss and learn about it.So obviously they *could* just print more money any time they want, so I'm assuming you are saying there is no *reasonable* way of doing that? If I'm not mistaken, the rate that the money is injected into the economy is controlled by interest rates, which controls demand for money, which controls investment and interest rates.... and here's where the feedback loop gets complicated.So are you saying that, because interest rates are so close to zero, even though they could print more green pieces of paper, there is no way to inject it into the economy faster? If so, I guess that makes sense. (And yes, I realize the green paper is not exactly literal any more, I use it figuratively).Also, from what I've read, I believe you are correct that deflationary pressure is worse for the economy than inflationary pressure. I think the difference is that there are natural limits on deflation, while inflation can be basically endless (history has many examples of the latter). Deflation is cured by the harm it causes. Inflation feeds itself.So if I'm understanding this correctly, we are falling helplessly toward a deflationary slowdown, which the Fed has little power to prevent, which will likely be followed by massive inflation in a couple years.Oh-bam-a! Oh-bam-a! Oh-bam-a!
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I don't understand.... it's easy to battle deflation. You just print tens of billions of dollars and drop it from airplanes on populated areas.Inflation is harder to stop because you can't withdraw money once it's out there; all you can do is hope that economic growth catches up to the money supply before it hits too hard. You can stop adding money to the money supply, but that harms economic growth, so it's sort of a self-defeating approach, and can drag recessions out for years. That's why I don't believe Obama has the heart to actually prevent the inflation the Fed has set into motion.It's all very difficult to come to concrete conclusions because the economy adapts as quickly as central banks makes moves, so it's not always a straight line. But over the long run (two years or more), if money supply and economic growth are not in sync, you get inflation (more money than goods) or deflation (less money than goods). Printing money is easy, convincing people you were just kidding about those dollars in their pocket is much more difficult.The other problem is, since the lag time is so long, the Fed needs accurate predictions of how the economy will respond to any move they make, and be correct 18 months down the road. It's an impossibly difficult game, and is the main reason why Austrian economics (probably correctly) predicts that central banking based on fiat currency can never be stable in the long run.Having said that, we've had some really long stretches of stability (mid-80s til now), so maybe it is *theoretically* possible over the long run.
Yes you can - http://en.wikipedia.org/wiki/Open_market_operationsNewly created money is used by the central bank to buy in the open market a financial asset, such as government bonds, foreign currency, or gold. If the central bank sells these assets in the open market, the amount of money that the purchasing bank holds decreases, effectively destroying money.
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So if I'm understanding this correctly, we are falling helplessly toward a deflationary slowdown, which the Fed has little power to prevent, which will likely be followed by massive inflation in a couple years.Oh-bam-a! Oh-bam-a! Oh-bam-a!
Kind of, I am saying we were headed in that direction. The FED has slowed it down by it's moves.Lets look at some of things the Gov has done over the past year some good some badTARP - Had to be done, no matter your thoughts, if it was not done we could have sent the globe into an almost irrecoverable downward economic sprial, because of the leveraging that has been going on for the past 15 years. I don't think it was done in the most effective manner, but it helped.STIMULUS - Some of it necessary, most of it wasteful government spending. I think some of the positive news being attributed to this right now is false, I don't think this money has done much at all to this point.TOXIC ASSET PURCHASE - Didn't have to be done, it's been somewhat effective in the short term, I'm still uncertain as to where this will end up.FED LOWERING RATES - This has worked as planned, it is a temporary solution and it is doing two major things, opening credit and making people look for alternative places to park their money other than .01% Money market 1% CD's and .27% Treasuries.TREASURY BUY BACK PLAN - This is getting more money into the economy by reducing the treasuries being held and new treasuries are being offered at lower interest rates than the ones being purchased back.Now a lot of this could result in Hyper inflation in 2-4 years, but if the FED can stay on top if it, reduce the money supply slowly and slowly bring interest rates back to a normal level, then we should see 2-3% inflation and slower GDP growth than we had seen the past 2 decades. Which is a good thing.Where they will go wrong possibly, is like Greenspan did and shoot interest rates up and down like a see saw in a short period of time. People and Companies need time to adjust to these interest rate hikes that are inevitable.
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This is such a complex subject, I find it interesting to discuss and learn about it.So obviously they *could* just print more money any time they want, so I'm assuming you are saying there is no *reasonable* way of doing that? If I'm not mistaken, the rate that the money is injected into the economy is controlled by interest rates, which controls demand for money, which controls investment and interest rates.... and here's where the feedback loop gets complicated.So are you saying that, because interest rates are so close to zero, even though they could print more green pieces of paper, there is no way to inject it into the economy faster? If so, I guess that makes sense. (And yes, I realize the green paper is not exactly literal any more, I use it figuratively).Also, from what I've read, I believe you are correct that deflationary pressure is worse for the economy than inflationary pressure. I think the difference is that there are natural limits on deflation, while inflation can be basically endless (history has many examples of the latter). Deflation is cured by the harm it causes. Inflation feeds itself.So if I'm understanding this correctly, we are falling helplessly toward a deflationary slowdown, which the Fed has little power to prevent, which will likely be followed by massive inflation in a couple years.Oh-bam-a! Oh-bam-a! Oh-bam-a!
The thing is, lowering interest rates doesn't automatically 'inject' money into the economy. There are transmission mechanisms by which the rate change at the federal reserve works into the rest of the economy.Lending cheaper to banks may 'increase' the money supply, but if no one lends out the money and it just stays in the bank, it doesn't inflect inflation. Even with the OMOC inflation/deflation isn't some dimmer light switch that policy makers can adjust to whatever degree they want
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The thing is, lowering interest rates doesn't automatically 'inject' money into the economy. There are transmission mechanisms by which the rate change at the federal reserve works into the rest of the economy.Lending cheaper to banks may 'increase' the money supply, but if no one lends out the money and it just stays in the bank, it doesn't inflect inflation. Even with the OMOC inflation/deflation isn't some dimmer light switch that policy makers can adjust to whatever degree they want
I agree with this, and this is why it's so complicated. Market participants are not robots designed to respond to the whim of the Federal Reserve, which is why it's basically impossible to keep inflation at exactly 0%. But there are a couple things that are strong general trends, and the main one is that an increase in money supply not backed by economic growth causes inflation. Also, deficit spending makes it harder to prevent inflation, because that's a promise to either raise taxes, which is politically unpopular, or to print more money to pay back the deficit. For the last six months we've been doing both.I believe EG that we may have a short term risk of deflation, but over the next couple years there is a huge threat of inflation. They couldn't be leading us faster in that direction if it was an intentional policy.
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I agree with this, and this is why it's so complicated. Market participants are not robots designed to respond to the whim of the Federal Reserve, which is why it's basically impossible to keep inflation at exactly 0%. But there are a couple things that are strong general trends, and the main one is that an increase in money supply not backed by economic growth causes inflation. Also, deficit spending makes it harder to prevent inflation, because that's a promise to either raise taxes, which is politically unpopular, or to print more money to pay back the deficit. For the last six months we've been doing both.I believe EG that we may have a short term risk of deflation, but over the next couple years there is a huge threat of inflation. They couldn't be leading us faster in that direction if it was an intentional policy.
Nobody wants 0% inflation, that means there is no growth. 2-4% inflation is good for the economy and the creation of wealth. Over 5% is too fast and below 2% is too slow. (I am talking for an extended period of time, at least a year, not 1 quarter)
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I agree with this, and this is why it's so complicated. Market participants are not robots designed to respond to the whim of the Federal Reserve, which is why it's basically impossible to keep inflation at exactly 0%. But there are a couple things that are strong general trends, and the main one is that an increase in money supply not backed by economic growth causes inflation. Also, deficit spending makes it harder to prevent inflation, because that's a promise to either raise taxes, which is politically unpopular, or to print more money to pay back the deficit. For the last six months we've been doing both.I believe EG that we may have a short term risk of deflation, but over the next couple years there is a huge threat of inflation. They couldn't be leading us faster in that direction if it was an intentional policy.
Kind of off topic, but I thought it'd be interesting to hear your guesses on this question -What is US government spending as a % of GDP in the US? What about the Eurozone? I guess it's something I didn't really think precisely about before, but it came up in a paper today as a source from NBER and I found the answers pretty interesting.
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Nobody wants 0% inflation, that means there is no growth. 2-4% inflation is good for the economy and the creation of wealth. Over 5% is too fast and below 2% is too slow. (I am talking for an extended period of time, at least a year, not 1 quarter)
Inflation causes growth? That doesn't make any sense. Inflation devalues growth. Growth is caused by competitors and entrepreneurs finding more efficient means to produce the things we want and need. This happens whether or not we have inflation. This is why "real GDP" is a separate statistic from "GDP". The growth continues either way, but we need to adjust it for mistakes in monetary policy.Under a gold standard, as many nations had for centuries, inflation was basically 0 (by definition), but growth continued just fine. For example, the annual inflation rate in the United States, from 1776 to 1900, was -0.03 percent, which is about as close to zero as you could possibly expect. Would you say we had economic growth during that time? And before you claim that is an exception, pick any country that is on a gold standard during any time period, and compare look at growth vs inflation. (For example, the UK, a "mature" country, had annual 0.24% inflation during that time, also very near zero. Did they have economic growth?To support your point, though, under fiat currency, since it is impossible to maintain an exactly 0% inflation rate, and deflation is harmful, we tend to err on the side of very low inflation. Friedman believed the correct goal should be 1-2%. That's low enough that no resources are misallocated based on monetary policy, but high enough to give a little leeway for the uncertainty of reaching that target.He also stressed that predictability and stability is probably more important than the actual rate, so that a predictably stable 5% is probably better than having it randomly bounce between 0% and 10% but with an overall average of 4%.
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Presumably this doesn't include the latest budget busting "stimulus" plans....challenges09-640.png

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A very long article on inflation and deflation threats, you have to be a bit of a financial/political geek to get through it, but it's good stuff:http://www.financialsense.com/fsu/editoria.../2009/0507.htmlSummary: bend over and grab your ankles.
Not quite sure what a person should do in the face of this scenario but to me, it means it's time to grab some hard assets while prices are still relatively low. Best asset might be land since there's no more of that being made and at this juncture, it's going to be pretty darn cheap to acquire. What do all you financial geeks think?
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Not quite sure what a person should do in the face of this scenario but to me, it means it's time to grab some hard assets while prices are still relatively low. Best asset might be land since there's no more of that being made and at this juncture, it's going to be pretty darn cheap to acquire. What do all you financial geeks think?
LOL, you've tried getting answers to this before, to no avail. The truth is nobody knows for sure.I did see a comment lately that inflation favors those with lots of debt, so maybe you should go that route?
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