We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Inflation on the up Snapped by me earlier this evening:
One of the key arguments in Detlev Schlichter’s Paper Money Collapse concerns the oft-repeated claim that the world’s central bankers won’t allow inflation to get out of control, because they are fully aware of what a very bad thing it is. But what if they also fear something else that they regard as even worse? Like the monster economic correction that a decades-long policy of easy money is now demanding, from the entire world?
The huge pile of paper next to this Evening Standard billboard seems rather appropriate, I think.
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Looked at that picture and thought:
“Ahh, those aren’t papers, that’s the first delivery of the new £20 trillion note !!
Me too, Hmm!
Comments – yes, me also.
Of course we must be careful not to confuse price rises (still less price rises of a index) with inflation – inflation is a rise in the money supply and may occur even if the “price level” (of some index or other) is not rising (or is even falling).
All that being said……
At least the price rises of the present time can not be blamed on wage increases (the standard get-out-of-jail-free excuse of the establishment) as wage increases are (by the same sort of indexes) are going up by about 2% and prices are going up by 5.2 (CPI) or 5.6 (RPI).
Anyone who still denies that the price rises (which have been above the Bank of England “target” for years now) are caused by the increase in the money supply, and demands yet more “monetary stimulus of demand”, is a scumbag, and must be treated as a scumbag.
Is the free newspaper phenomenon somehow related, I wonder, or more to do with the internet…
The free newspaper thing is more Russian zillionaires with money to throw about.
See also the “Independent” and “I” newspaper.
And Waterstones book chain.
Inflation isn’t ‘happening’, it happened when house prices far exceeded the value of houses and the ensuing creation of mortgage-based financial instruments (whose face prices far exceeded their actual value) generalised it. All that inflated money is still out there and the attempt to kid people that it has full value is slowly failing.
Is there any way out of this?
With fiat money, governments cannot resist debauching the currency for their own short-term ends. It has happened repeatedly, even when there is an independent central bank, supposedly there to stop such things, and it looks like it’s going to happen again.
One solution, being touted by an increasing number of people, is a return to the gold standard, the argument being that governments cannot print gold. But is it really a solution? The countries of southern Europe, plus Ireland, are in terrible financial difficulties because they locked into, if not a gold standard, then a euro standard; at current exchange rates their economies are completely uncompetitive against Germany. Traditionally their answer was inflation, which devalued their respective currencies and restored competitiveness. Obviously this was not a good solution, for all the usual reasons, but was it any worse than their current predicaments? All are suffering from high, and rising unemployment, while, in Greece at least, there is a real possibility of civil unrest.
A gold standard would stop governments from debauching the currency, but it is by no means a painless solution to our current economic problems.
The inflation is still occurring, in part because the U.S. government is just printing dollars to cover its limitless appetite for spending. At the same time, the rapidly expanding regulatory state is hurting productivity. The combination of those two things produces stagflation, which is what is happening: prices are rising while wages remain flat.
No.
“A gold standard would stop governments from debauching the currency, but it is by no means a painless solution to our current economic problems.”
No one ever said that it would be “painless”, merely that it is necessary (and, IMHO, inevitable). The pain will be severe, but it will happen anyway.
PFP, I don’t disagree with you that inflation has already “happened” (i.e., it’s implicit in the massive increase in the quantity of dollars outstanding, even if its effects are being disguised), but you used the word “value” three times in your short post. Please define that term in this context.
Is there any way out of this?
No.
Well, stop printing money, and balance the budget. If you have a large state, growth will still be anemic, but your economy will not collapse and you will not lose what you have.
On the other hand, there is no political way whatsoever to achieve this, so were are stuffed, yes.
Exactly so. This is why I am so uninterested in politics these days… it is all utterly irrelevant, in effect rather like rearranging the deck chairs on the Titanic.
Well, the Titanic could have been saved had appropriate measures been taken. And in any event, whether or not we’re rearranging the deck chairs I want to be sure that I’m near a lifeboat when the iceberg hits!
The expression refers to doing something pointless after the iceberg was hit.
All those complaining about the current “austerity” causing the pain are like alcoholics blaming their hangover on the fact the alcohol supply has stopped.
Not quite Wolfie.
For the New Statesman crowd (and other such) who are saying that “austerity has failed” are missing out the little detail that the drunk is still drinking.
The Bank of England is pushing out “monetary stimulus” as if there is going to be no tomorrow (at this rate there most likely will not be).
And the government is running a fiscal deficit of at least 9% of G.D.P.
In short in spite of such things as a top rate of income tax of 50% (and Governor Perry’s critics think his idea of a top rate of 17% in the United States is too high) and a national sales tax of some 20% (unlike Herman Cane’s 9%) the British government is still spending so much money that it “has to” borrow about a tenth of the economy every year to finance its wild spending.
So much for “austerity” – the drunk is laying in his own vomit (and other stuff) with yet more booze going down his throat, and complaining that the supply of booze has been cut off.
The only defence for the population is that most people do not have a clue what is going on.
They are not really drunks (not by choice) – they are having booze poured down their throats by the men of power.
“European Union leaders agree on yet another bailout for the banks – this time a 100 billion bailout”.
They have not agreed on the method for the latest bailout – but curse them anyway.
I do not curse them to blindness (they are already blind) – but I curse them to enternal darkness, which is what they will have. Although they may well drag us all with them.
What they have done is make vile people (such as Putin’s boy Max Kaiser) look like truth tellers.
Because, within the mix of lies (even such as absurd lies as the American Civil War was a banker plot to get over the crash of 1857 – that bullshit was in the last show), people like Kaiser are actually telling a few bits of truth about the “banksters”.
So the various “Occupation Collectives” (around the world) can tell themselves (and everyone else) that they are the only ones to stand against the “banksters” – which they declare is “capitalism”.
I don’t really have an exact definition of ‘value’, except that it’s the thing that from time to time jumps up and bites ‘price’ in the arse. It certainly isn’t ‘the current price a thing brings on the open market.’
In the specific case of houses, the people who live in them ultimately have to pay for them, so when the median house price in a particular market exceeds the median amount householders in that market can afford to pay, the market’s overvalued and prices must come down. I realised this sometime around 2002 (he said, blushing modestly).
Oh, and I didn’t mean to imply that inflation isn’t continuing to happen as governments run their printing presses to the point of combustion, only that it was also implicit in the false prosperity of the real estate bubble.
There is no inflation in the US.
Our Political Masters have removed fuel and food prices from their index for comparison.
Housing is down and shows no sign of returnin to the go-go years.
Our Political Masters -LOVE- inflation. It makes everything look better. Prices on tangible goods rise. Resale values rise. debt is paid with dimished money. Tax Bracket Creep hits those who have higher wages…. and nobody sees it to complain.
The famous “Are you better off now?” question is felt to be “Yes-!” because we have more par-dollars in our pocket.
It is a lie that all wish to believe. Like radium was used as a tonic cure because it made people feel better for a brief period before killing them with radiation sickness.
Show me a political master who claims to oppose inflation and I’ll show you a liar…but then that is stating the obvious…
Who doesn’t seek a market validation of our wisdom and investment skills when we buy at one price, use it for years and sell at a rice higher than we paid originally.
PFP, the reason for my question is that when you use phrases such as “house prices far exceeded the value of houses” and “face prices [of financial instruments] far exceeded their actual value” you seem to be verging on the idea that there is some sort of “intrinsic value” to these (or any) goods. Which, of course, is a false if widespread notion. All values are relative, and whether they’re expressed in dollars or any other term isn’t particularly relevant.* There’s no better measure of “value” than current market prices. If those prices seem wildly inflated now it’s only because at the time many people had unrealistic expectations of future prices. Today those general expectations are more rational, hence prices have declined substantially. But that’s why I try to avoid using the term “value” except in very limited settings. It creates more issues than it solves.
* It’s reminiscent of the story of the little boy who was trying to sell a puppy for $10,000. He had no success, so he traded it for two $5,000 kittens.
Laird, if you confuse value with price, here’s what happens: a higher price establishes a higher value: two higher prices in a row establishes a trend of increasing values, which justifies higher prices in anticipation of higher value leading to higher prices yet and so on. This is the basic mechanism of bubbles, and so long as people can sell forward, it works.
But at some point additional buyers say “this is ridiculous” and baulk and the whole thing comes tumbling down. And the prices do tumble; they don’t just stop rising. That’s what I refer to as ‘value biting price in the arse’ and I’m blowed if I knows what the biter is. But it’s not price.
Well, not quite. A higher price establishes a perception of higher value: two higher prices in a row establishes a trend of perceived increasing values. But, as I said, all values are relative and are fundamentally matters of individual perception and judgment. “Value” in the abstract is a meaningless concept.
In capatalist Amerika, Bank Robs you.
http://narwhaler.com/in-capitalist-america-bank-robs-you-bIe3lI
I don’t disagree, but I’m not saying the value of any thing is fixed: I’m saying that the quality ‘value’ is real and that while I can’t define it, it drives price in the long term rather than being driven by it.
And on that note, PFP, we reach agreement.
Laird, ‘relative’ is not the right word: value is subjective. Also, value is not meaningless in the abstract (in fact, it is quite abstract), it is meaningless as an objective concept.
Alisa, it is both relative and subjective. I agree with your other sentence.
Laird: I think you are right.