Governor (and soon to be Vice Chairman) Kohn said today that the Fed is all worried about inflation expectations. Actual inflation results since Bernanke suggested a pause have not been that shocking, but measures of inflation expectation did deteriorate for a while. That is about when Fed guys started sounding really, really mean. So yeah, they think they can do some good by sounding tough. The trouble is that you have to hike at least once to let people know you aren't just pretending to be a tough guy. The idea all along was that, at 25 bps a pop, you can afford to overshoot, so maybe one more won't be so bad. Fed funds, however, are pricing in a good bit more than 50/50 odds of an August hike.
It's not just inflation, it's the US dollar. We want it to fall gracefully or at least not collapse. Higher interest rates encourage foreign buying and will supposedly slow our purchases.
I think there are no inflation risk and that the FED should already have the helicopters in the sky pouring cash in people's pocket while at the same time putting an end to the derivative craze.
Every second lost in the fight on the oncoming debt deflation crisis means some more damage ahead. And heavy one.
The central banks do not have the best track record since going to unbacked currency.
At the peak of the business cycle every 15yrs or so there is a powerful burst of inflation. I'm worried that the Fed will not have the will to face the intense political pressure he'll have to face in the next few years.
People are already trying to rationalize letting certain aspects of inflation slip though (rents)
While housing may by a threat, I don't see why this is, by itself, of concern to the Fed. The Fed should NOT be concerned with asset prices (housing prices shouldn't matter on the way up, and they shouldn't matter on the way down) but rather the Fed should concentrate on inflation.
Sure, a slowdown in housing may drag down the real economy and the financial sector. But what should the Fed do? Lower interest rates to prop up unsustainable housing prices? NO. Should the Fed encourage more loose mortgage lending standards? No. In fact, this housing bubble was caused by exotic mortgages and easy credit, which may threaten financial institutions. The Fed will want to clean up this mess, not help reinflate a housing bubble.
Another interesting element of the inflation/Fed tightening regimen is the impact that tightening has on the OER component of CPI. As the Fed pushes up interest rates and slows the housing mkt, more people are priced out of the housing market and are forced to rent. The added demand for rental housing pushes up OER, which makes up something like 30% of CPI. So, the more they tighten, the higher CPI goes. You wanna talk about a conundrum?
Peterbob, you are exactly correct. The FED really doesn't care about housing or any other asset bubble. If housing crashes and burns, tough turkey. Paul Volkker(sp?) didn't give one rats behind and so I don't believe Bernanke will either. The housing run up has been based on sheer greed and stupidity. As Alan Greenspan said, in a rare moment of candor, something about things not being kind when risk premiums are low. I don't remember the exact statement.
Still waiting for inflation to show up at the retail level. Haven't seen energy prices passed on, as the doomsayers have been predicting. Bernanke said as much yesteday. But then these other Fed governors are out there yapping and yapping and yapping. I can't recall a time where they've been out like this day after day.
With the sentiment of a secular bull in commodities based on expected demand from China and India, the fear of fear of inflation will have to yield to a fear of inflation (but this is possibly a story to be continued after a deflationary interlude).
There has been retail inflation, at a stealth level-but it exists. Prices for anything that uses petro products like plastic have risen. Products that use paper based packaging have gone up as well. Clothing has risen some. Although food does not count in the inflation story, on average many goods have risen at least 10-20% at my local supermarket.
There is an undercurrent of inflation, that is growing. The FED and its members realize this and hopefully take the appropriate steps so we do not have another 1970's episode to deal with.
Of course the FED should be concerned with asset prices. Their primary mandate is "price stability." Last I checked, whether they're part of the CPI or not, houses have prices. In this they have failed quite impressively.
However, the propping up current inflated prices is like the idea that withdrawel symptoms are an adicts main problem. Their problem is that they have an adiction. Our problem is that our economy is addicted to easy money in the form of low interest rates. It would have been easier to not get addicted than to kick, but that's not a choice that we have anymore. Cold turkey, gradual withdrawel, methadone etc. should be the debate. Addiction as far as the eyes can see should not be considered an option.
The fed needs to control the growth of the money supply better... peg the increase in money supply to growth of the economy and not worry so much about individual prices.
If they do that then there will be price stability more or less. If housing or some other asset price inflates then there will be a corresponding 'deflation' in some other class. Net zero pretty much.
However I have been told that its almost as hard to know the real money supply as it is to know the real inflation rate. The measures are pretty inaccurate. Plus 'economic growth' measures like GDP have their own issues & inaccuracies. So while in theory it might be better to peg money supply to economic growth, in practice it might not work any better.
The degree to which people are willing to hold dollars has been going down now for a couple of years. Or to say it differently money demand has been falling.
This shouldn't be too surprising. Negative real interest rates have a way of making people shun your currency. Hoarding of commodities is a natural and logical way for people to protect themselves. This I have no doubt will continue until the Dollar has become cheap enough to reduce our current debt bubble to a manageable level.
Its too late to fight inflation. Accelerating inflation is going to be a part of our lives for many years to come.
Its too late to fight inflation. Accelerating inflation is going to be a part of our lives for many years to come.
Its never to late to 'fight' inflation... its just too late to easily 'beat' inflation.
If they didn't continue to fight - even though it appears to be a 'losing battle' - then we'd end up like Argentina.
But otherwise I fully agree -some 'inflation' will be with us until the dollar finds its 'new' level. If this process is not painless, lets at least hope its orderly. BB does that then he's a success.
dryfly: "peg the increase in money supply to growth of the economy"
But that's precisely the problem, is it not? The crux of the matter is defining what "the economy", and "growth" thereof, mean. In other words, what are really the "fundamentals"? With current hedonic and other shenanigans, and the general financialization and focus on "value-add" services, the economy (or rather its indicators) pretty much is the expression of the money supply.
The relationship between money supply and velocity is another fine point.
To actually fight inflation the Fed would need to increase rates so that real rates are significantly higher than zero.
Do you truly believe that the US economy as leveraged as it is could withstand such high real rates?
So the Fed won't be fighting inflation. They will remain firmly behind the inflation curve - as they must - until debt to nominal GDP levels get significantly smaller.
CR, I am floored by your statement that "a housing slowdown is a greater threat to the economy".
There is no greater threat to the economy than this insane speculative housing bubble which has sent prices far beyond the range of affordability, and transferred obscene amounts of wealth from the hands of young people into the hands of people who have done nothing to deserve it -- who either just happened to have bought long enough in the past to have a low cost basis, or who jumped in early in the speculative cycle.
Continuation of the current ludicrous overvaluation implies continued obscene transfer of wealth from the young to the old.
Because the unnatural suppression of interest rates has led to the construction of an awesome glut of housing, only an even more unnatural suppression of rates -- sufficient to create an even more extraordinary glut -- could possibly delay a housing slowdown, and the end result would only be an even more horrendous collapse in the not too distant future.
Over the last ten years, the home ownership rate rose at a rate of about half a percentage point a year, absolute evidence that the construction rate was consistently at that much above the rate of household formation, and moveover above it by an amount sufficient also to support second-home and speculative buying, plus teardown-replacement.
How long are we to continue building homes at pace of more than 400,000 units a year above the rate of household formation?
jm: The problem goes beyond the housing bubble, and beyond the US. Many "economic" activities are undertaken not on behalf of satisfying "real" and "fundamental" demand/needs (whatever this means, and it is certainly fraught with value judgement), but on behalf of (financial) speculation, i.e. securing shares of an expanding money supply. And there is a "speculation multiplier" creating demand for "real" activities (e.g. business services, infrastructure extension, manufacturing/distribution of industrial/office supplies, resource extraction (oil!!)) to carry out the speculative activities and operate the respective business endeavors.
In the special case of the housing bubble, while there is an undeniable fundamental demand for owned housing (backed by sufficient funds or not), a lot of construction and trading activity is not on behalf of prospective owners but arbitrageurs who are in it for a profit.
OTOH it is difficult to draw the line between a "healthy" amount of speculation creating enough liquidity to enable the very existence of financial and "real" markets, and unhealthy excess and misallocation.
All: I would like some discussion of what I proposed in my responses to dryfly and jm. Unfortunately I'm as much a layman as they come, and cannot offer up crisp frameworks and terminologies.
BB says "inflation expectations become a self fulfilling prophecy", and in the same speech says sees signs of inflation that worry him. It'd be irony if it was unintentional. He wants a wage inflation spiral to start...it's just about the best thing that could happen to the economy right now (mucho preferrable to the alternatives - a nominal price decline of pretty much everything if consumption stalls on stalled real wages and no more home appreciation, or having to pump another asset class with another round of low rates to put off deflation for a few more years while waiting for more capital to wear out.
He's hoping inflation will become self fufilling so that he can pretend to be unable to get ahead of inflation just until nominal wages catch up with the price of everything else, after which he'll do a Volcker, wipe his brow, and say something about how hard it was to beat the inflation monster again...
meanwhile, we'll have passed through a real value decline in most assets in dollar terms.
I never see anyone say how to profit from all this, but I assume there will
be a bond yield spike which would be a long term buy, much like the end of the 70s. However, if real wage inflation doesn't show up, 5% 30 year treasuries might be the spike.
There is no greater threat to the economy than this insane speculative housing bubble which has sent prices far beyond the range of affordability, and transferred obscene amounts of wealth from the hands of young people into the hands of people who have done nothing to deserve it -- who either just happened to have bought long enough in the past to have a low cost basis, or who jumped in early in the speculative cycle.
Continuation of the current ludicrous overvaluation implies continued obscene transfer of wealth from the young to the old.
Thats it exactly. The bloated boomers that have reaped the rewards of this bubble have done so at the expense of us younger generations, who are in fact the smartest human beings to ever walk the planet and deserve and are entitled to far more than our lazy, idiotic parents. The boomers did nothing but buy a house. Maybe they risked everything they had but it wasnt much. Maybe they fought in Vietnam but that was a gay war. We are the ones with the knowledge, skilz, tude, and CS/IT degrees that our parents dont have and never will have and, as such, we deserve more. We are the ones who know about stochastics, strangles, straddles, buy-writes, bandwidth, mean reversion, swimming naked, falling knives, dead cat bounces, drip feeds, married puts, and lots of other stuff that make us way smarter then them. Our parents. They may have put us through school but by the time we got out the dot.com was over, nobody was getting the 80k to start and 200k after 2 years, and brown people in Bangalore were doing our jobs for 56 cents an hour, and housing was going ape shit. Ending up as code monkeys in a cube farm was not in our plans. All of that can be laid at our parents feet and we are owed compensation from them for them ruining everything that we as the smartest people on earth are entitled to. We will not buy starter homes like our parents did. We deserve more and are entitled to more.
I think the risks are on the inflationary side. Yeah, a housing bust would be deflationary, but a dollar crash would be very inflationary. The fed printed a lot of money when interest rates were like 1% and countries like China bought up that increase in money supply, but eventually they will stop.
The dollar foreign exchange reserves of countries like China are like bottled up inflation waiting to get loose.
Benjones, you are a beaut.
Seriously, the idea that wealth is distributed not according to merit but to those lucky, but singularly undistinguished, Boomers is a wonderful observation.
Was it lucky or are you some kind of Guru? [Ok, maybe that was too boomerish. Are you a brainiac full time or just a part time whizbang?] We (some of us, not part-timing me) are looking for answers like this ('empowerments' my Buddhist friends tell me --with the straightest of faces), answers that don't generate all that controversy that Muck and Johnson love to stick their toes into.
So what other empowerments do you have?
"We will not buy starter homes like our parents did. We deserve more and are entitled to more."
Benjones, I don't know about deserving more, but you will certainly get much more. McMansions will be a dime a dozen soon. Of course you'll still have to have the income to maintain them and pay the tax man.
"Blaming" the boomers for creating this once in a lifetime buying opportunity is pretty strange, don't you think?
I would like some discussion of what I proposed in my responses to dryfly and jm. Unfortunately I'm as much a layman as they come, and cannot offer up crisp frameworks and terminologies.
Hey cm - I think you are right in that measuring the growth of the economy is very hard... so that trying to control money supply is doubly difficult (first an imprecise measure of money supply and then an imprecise measure of the growth of the economy - even RMS errors explode).
But measuring & controlling money supply is still better that trying to measure 'inflation' because with inflation you have product mix issues, product feature improvements over time, substitution effects and then of course 'assets' vs everything else.
I mean looking at all the exclusions of whats NOT counted as inflation in the current measures (core vs actual, assets vs commodities)... they are playing with the numbers as much as if they made it all up.
But if they metered out the new money at a rate proportional to what they feel the growth was and let it go where it will, some stuff inflating, others deflating, most unchanged - it would be far from perfect but better than we have now - IMHO.
dryfly: Sure, but you are not one iota closer to what actually constitutes growth. FWIW the housing bubble could be economic growth. It certainly generates a lot of "economic" activity.
You cannot get around defining (a) goal function(s). CPI and various other cost indices, or rather the respective baskets of goods/services, are essentially a shot at that, not necessarily the best one can take. When I was introduced to the concept of inflation monitoring a long time ago, the idea was supposedly to not grow the money supply beyond economic output.
According to the folks at ECRI, the current inflation numbers are a lagging indicator and do not tell us where we are headed. According to their future inflation gauge, inflation has already peaked and their long leading index of global economies indicates a slowdown in the second half which will reduce inflationary pressures.
Lord: Well, in my frame of reference it is not funny, but perhaps we can agree it is comical in its self-referentiality.
Typically this type of thing (entitlement and generational supremacy) is heard from individuals who have yet to put something on the table that matches what prior generations have achieved.
The reply of the real Ben Jones of the superb thehousingbubbleblog.com to my email asking whether the comment above from "Benjones | 06.18.06 - 12:07 am" was from him:
"I have never posted on that blog and have only posted on other blogs two or three times in my life. I don't have time."
Governor (and soon to be Vice Chairman) Kohn said today that the Fed is all worried about inflation expectations. Actual inflation results since Bernanke suggested a pause have not been that shocking, but measures of inflation expectation did deteriorate for a while. That is about when Fed guys started sounding really, really mean. So yeah, they think they can do some good by sounding tough. The trouble is that you have to hike at least once to let people know you aren't just pretending to be a tough guy. The idea all along was that, at 25 bps a pop, you can afford to overshoot, so maybe one more won't be so bad. Fed funds, however, are pricing in a good bit more than 50/50 odds of an August hike.
It's not just inflation, it's the US dollar. We want it to fall gracefully or at least not collapse. Higher interest rates encourage foreign buying and will supposedly slow our purchases.
I think there are no inflation risk and that the FED should already have the helicopters in the sky pouring cash in people's pocket while at the same time putting an end to the derivative craze.
Every second lost in the fight on the oncoming debt deflation crisis means some more damage ahead. And heavy one.
The central banks do not have the best track record since going to unbacked currency.
At the peak of the business cycle every 15yrs or so there is a powerful burst of inflation. I'm worried that the Fed will not have the will to face the intense political pressure he'll have to face in the next few years.
People are already trying to rationalize letting certain aspects of inflation slip though (rents)
While housing may by a threat, I don't see why this is, by itself, of concern to the Fed. The Fed should NOT be concerned with asset prices (housing prices shouldn't matter on the way up, and they shouldn't matter on the way down) but rather the Fed should concentrate on inflation.
Sure, a slowdown in housing may drag down the real economy and the financial sector. But what should the Fed do? Lower interest rates to prop up unsustainable housing prices? NO. Should the Fed encourage more loose mortgage lending standards? No. In fact, this housing bubble was caused by exotic mortgages and easy credit, which may threaten financial institutions. The Fed will want to clean up this mess, not help reinflate a housing bubble.
go peterbob go!!!
In Tampa, 3 builders have gone bankrupt, 2 months ago, there was only 1..............
Another interesting element of the inflation/Fed tightening regimen is the impact that tightening has on the OER component of CPI. As the Fed pushes up interest rates and slows the housing mkt, more people are priced out of the housing market and are forced to rent. The added demand for rental housing pushes up OER, which makes up something like 30% of CPI. So, the more they tighten, the higher CPI goes. You wanna talk about a conundrum?
Peterbob, you are exactly correct. The FED really doesn't care about housing or any other asset bubble. If housing crashes and burns, tough turkey. Paul Volkker(sp?) didn't give one rats behind and so I don't believe Bernanke will either. The housing run up has been based on sheer greed and stupidity. As Alan Greenspan said, in a rare moment of candor, something about things not being kind when risk premiums are low. I don't remember the exact statement.
Still waiting for inflation to show up at the retail level. Haven't seen energy prices passed on, as the doomsayers have been predicting. Bernanke said as much yesteday. But then these other Fed governors are out there yapping and yapping and yapping. I can't recall a time where they've been out like this day after day.
With the sentiment of a secular bull in commodities based on expected demand from China and India, the fear of fear of inflation will have to yield to a fear of inflation (but this is possibly a story to be continued after a deflationary interlude).
Remember the inflation of the 70's and 1980? Do cycles repeat?
You haven't seen inflation on the retail level? What world you living in Muck, I mean, time to leave la la land.
There has been retail inflation, at a stealth level-but it exists. Prices for anything that uses petro products like plastic have risen. Products that use paper based packaging have gone up as well. Clothing has risen some. Although food does not count in the inflation story, on average many goods have risen at least 10-20% at my local supermarket.
There is an undercurrent of inflation, that is growing. The FED and its members realize this and hopefully take the appropriate steps so we do not have another 1970's episode to deal with.
Of course the FED should be concerned with asset prices. Their primary mandate is "price stability." Last I checked, whether they're part of the CPI or not, houses have prices. In this they have failed quite impressively.
However, the propping up current inflated prices is like the idea that withdrawel symptoms are an adicts main problem. Their problem is that they have an adiction. Our problem is that our economy is addicted to easy money in the form of low interest rates. It would have been easier to not get addicted than to kick, but that's not a choice that we have anymore. Cold turkey, gradual withdrawel, methadone etc. should be the debate. Addiction as far as the eyes can see should not be considered an option.
The fed needs to control the growth of the money supply better... peg the increase in money supply to growth of the economy and not worry so much about individual prices.
If they do that then there will be price stability more or less. If housing or some other asset price inflates then there will be a corresponding 'deflation' in some other class. Net zero pretty much.
However I have been told that its almost as hard to know the real money supply as it is to know the real inflation rate. The measures are pretty inaccurate. Plus 'economic growth' measures like GDP have their own issues & inaccuracies. So while in theory it might be better to peg money supply to economic growth, in practice it might not work any better.
The degree to which people are willing to hold dollars has been going down now for a couple of years. Or to say it differently money demand has been falling.
This shouldn't be too surprising. Negative real interest rates have a way of making people shun your currency. Hoarding of commodities is a natural and logical way for people to protect themselves. This I have no doubt will continue until the Dollar has become cheap enough to reduce our current debt bubble to a manageable level.
Its too late to fight inflation. Accelerating inflation is going to be a part of our lives for many years to come.
Its too late to fight inflation. Accelerating inflation is going to be a part of our lives for many years to come.
Its never to late to 'fight' inflation... its just too late to easily 'beat' inflation.
If they didn't continue to fight - even though it appears to be a 'losing battle' - then we'd end up like Argentina.
But otherwise I fully agree -some 'inflation' will be with us until the dollar finds its 'new' level. If this process is not painless, lets at least hope its orderly. BB does that then he's a success.
Dryfly: nicely said.
dryfly: "peg the increase in money supply to growth of the economy"
But that's precisely the problem, is it not? The crux of the matter is defining what "the economy", and "growth" thereof, mean. In other words, what are really the "fundamentals"? With current hedonic and other shenanigans, and the general financialization and focus on "value-add" services, the economy (or rather its indicators) pretty much is the expression of the money supply.
The relationship between money supply and velocity is another fine point.
dryfly
To actually fight inflation the Fed would need to increase rates so that real rates are significantly higher than zero.
Do you truly believe that the US economy as leveraged as it is could withstand such high real rates?
So the Fed won't be fighting inflation. They will remain firmly behind the inflation curve - as they must - until debt to nominal GDP levels get significantly smaller.
On this they truly have no choice.
Current inflation? Moderate and completely managable.
CR, I am floored by your statement that "a housing slowdown is a greater threat to the economy".
There is no greater threat to the economy than this insane speculative housing bubble which has sent prices far beyond the range of affordability, and transferred obscene amounts of wealth from the hands of young people into the hands of people who have done nothing to deserve it -- who either just happened to have bought long enough in the past to have a low cost basis, or who jumped in early in the speculative cycle.
Continuation of the current ludicrous overvaluation implies continued obscene transfer of wealth from the young to the old.
Because the unnatural suppression of interest rates has led to the construction of an awesome glut of housing, only an even more unnatural suppression of rates -- sufficient to create an even more extraordinary glut -- could possibly delay a housing slowdown, and the end result would only be an even more horrendous collapse in the not too distant future.
Over the last ten years, the home ownership rate rose at a rate of about half a percentage point a year, absolute evidence that the construction rate was consistently at that much above the rate of household formation, and moveover above it by an amount sufficient also to support second-home and speculative buying, plus teardown-replacement.
How long are we to continue building homes at pace of more than 400,000 units a year above the rate of household formation?
jm: The problem goes beyond the housing bubble, and beyond the US. Many "economic" activities are undertaken not on behalf of satisfying "real" and "fundamental" demand/needs (whatever this means, and it is certainly fraught with value judgement), but on behalf of (financial) speculation, i.e. securing shares of an expanding money supply. And there is a "speculation multiplier" creating demand for "real" activities (e.g. business services, infrastructure extension, manufacturing/distribution of industrial/office supplies, resource extraction (oil!!)) to carry out the speculative activities and operate the respective business endeavors.
In the special case of the housing bubble, while there is an undeniable fundamental demand for owned housing (backed by sufficient funds or not), a lot of construction and trading activity is not on behalf of prospective owners but arbitrageurs who are in it for a profit.
OTOH it is difficult to draw the line between a "healthy" amount of speculation creating enough liquidity to enable the very existence of financial and "real" markets, and unhealthy excess and misallocation.
All: I would like some discussion of what I proposed in my responses to dryfly and jm. Unfortunately I'm as much a layman as they come, and cannot offer up crisp frameworks and terminologies.
I think some of those FOMC dudes are just pretending that there is inflation. It certainly isn't showing up in the numbers.
It certainly is showing up in the numbers. Muck, stop bothering.
BB says "inflation expectations become a self fulfilling prophecy", and in the same speech says sees signs of inflation that worry him. It'd be irony if it was unintentional. He wants a wage inflation spiral to start...it's just about the best thing that could happen to the economy right now (mucho preferrable to the alternatives - a nominal price decline of pretty much everything if consumption stalls on stalled real wages and no more home appreciation, or having to pump another asset class with another round of low rates to put off deflation for a few more years while waiting for more capital to wear out.
He's hoping inflation will become self fufilling so that he can pretend to be unable to get ahead of inflation just until nominal wages catch up with the price of everything else, after which he'll do a Volcker, wipe his brow, and say something about how hard it was to beat the inflation monster again...
meanwhile, we'll have passed through a real value decline in most assets in dollar terms.
I never see anyone say how to profit from all this, but I assume there will
be a bond yield spike which would be a long term buy, much like the end of the 70s. However, if real wage inflation doesn't show up, 5% 30 year treasuries might be the spike.
Interesting times indeed.
There is no greater threat to the economy than this insane speculative housing bubble which has sent prices far beyond the range of affordability, and transferred obscene amounts of wealth from the hands of young people into the hands of people who have done nothing to deserve it -- who either just happened to have bought long enough in the past to have a low cost basis, or who jumped in early in the speculative cycle.
Continuation of the current ludicrous overvaluation implies continued obscene transfer of wealth from the young to the old.
Thats it exactly. The bloated boomers that have reaped the rewards of this bubble have done so at the expense of us younger generations, who are in fact the smartest human beings to ever walk the planet and deserve and are entitled to far more than our lazy, idiotic parents. The boomers did nothing but buy a house. Maybe they risked everything they had but it wasnt much. Maybe they fought in Vietnam but that was a gay war. We are the ones with the knowledge, skilz, tude, and CS/IT degrees that our parents dont have and never will have and, as such, we deserve more. We are the ones who know about stochastics, strangles, straddles, buy-writes, bandwidth, mean reversion, swimming naked, falling knives, dead cat bounces, drip feeds, married puts, and lots of other stuff that make us way smarter then them. Our parents. They may have put us through school but by the time we got out the dot.com was over, nobody was getting the 80k to start and 200k after 2 years, and brown people in Bangalore were doing our jobs for 56 cents an hour, and housing was going ape shit. Ending up as code monkeys in a cube farm was not in our plans. All of that can be laid at our parents feet and we are owed compensation from them for them ruining everything that we as the smartest people on earth are entitled to. We will not buy starter homes like our parents did. We deserve more and are entitled to more.
I think the risks are on the inflationary side. Yeah, a housing bust would be deflationary, but a dollar crash would be very inflationary. The fed printed a lot of money when interest rates were like 1% and countries like China bought up that increase in money supply, but eventually they will stop.
The dollar foreign exchange reserves of countries like China are like bottled up inflation waiting to get loose.
Benjones: I was hoping for a while that your display of sullen entitlement thinking was sarcasm, but then I decided it's not.
Just telling it like it is cm. Visit my blog for a dose of reality.
Benjones, you are a beaut.
Seriously, the idea that wealth is distributed not according to merit but to those lucky, but singularly undistinguished, Boomers is a wonderful observation.
Was it lucky or are you some kind of Guru? [Ok, maybe that was too boomerish. Are you a brainiac full time or just a part time whizbang?] We (some of us, not part-timing me) are looking for answers like this ('empowerments' my Buddhist friends tell me --with the straightest of faces), answers that don't generate all that controversy that Muck and Johnson love to stick their toes into.
So what other empowerments do you have?
"We will not buy starter homes like our parents did. We deserve more and are entitled to more."
Benjones, I don't know about deserving more, but you will certainly get much more. McMansions will be a dime a dozen soon. Of course you'll still have to have the income to maintain them and pay the tax man.
"Blaming" the boomers for creating this once in a lifetime buying opportunity is pretty strange, don't you think?
BenJones is not the Ben Jones of The Housing Bubble Blog
.
The poster above shows no similarity to the many postings of the blog site owner.
Nice Try.
I would like some discussion of what I proposed in my responses to dryfly and jm. Unfortunately I'm as much a layman as they come, and cannot offer up crisp frameworks and terminologies.
Hey cm - I think you are right in that measuring the growth of the economy is very hard... so that trying to control money supply is doubly difficult (first an imprecise measure of money supply and then an imprecise measure of the growth of the economy - even RMS errors explode).
But measuring & controlling money supply is still better that trying to measure 'inflation' because with inflation you have product mix issues, product feature improvements over time, substitution effects and then of course 'assets' vs everything else.
I mean looking at all the exclusions of whats NOT counted as inflation in the current measures (core vs actual, assets vs commodities)... they are playing with the numbers as much as if they made it all up.
But if they metered out the new money at a rate proportional to what they feel the growth was and let it go where it will, some stuff inflating, others deflating, most unchanged - it would be far from perfect but better than we have now - IMHO.
dryfly: Sure, but you are not one iota closer to what actually constitutes growth. FWIW the housing bubble could be economic growth. It certainly generates a lot of "economic" activity.
You cannot get around defining (a) goal function(s). CPI and various other cost indices, or rather the respective baskets of goods/services, are essentially a shot at that, not necessarily the best one can take. When I was introduced to the concept of inflation monitoring a long time ago, the idea was supposedly to not grow the money supply beyond economic output.
Or at least not way beyond output, but only enough to accomodate a measure of liquidity to allow things to move forward.
According to the folks at ECRI, the current inflation numbers are a lagging indicator and do not tell us where we are headed. According to their future inflation gauge, inflation has already peaked and their long leading index of global economies indicates a slowdown in the second half which will reduce inflationary pressures.
Benjones: I was hoping for a while that your display of sullen entitlement thinking was sarcasm, but then I decided it's not.
But it is even funnier if it is not!
Lord: Well, in my frame of reference it is not funny, but perhaps we can agree it is comical in its self-referentiality.
Typically this type of thing (entitlement and generational supremacy) is heard from individuals who have yet to put something on the table that matches what prior generations have achieved.
The reply of the real Ben Jones of the superb thehousingbubbleblog.com
to my email asking whether the comment above from "Benjones | 06.18.06 - 12:07 am" was from him:
"I have never posted on that blog and have only posted on other blogs two or three times in my life. I don't have time."