Pretty Soon We Need To Have A Talk About Inflation JOE WEISENTHAL Link For the past several years, there’s been a chorus of folks warning non-stop about how inflation or hyperinflation was on the verge of coming roaring back.
These inflation doomsayers were armed with a misunderstanding of monetary policy, an economic worldview that was overly influenced by politics, and also generally a large does of misanthropy. And if you’ve read Business Insider for any length of time, then you know that we’ve been consistently on the other side of this debate.
And our viewpoint has been correct, as inflation has been historically low by virtually any measure you want to pick.
Here’s a long look back at the year-over-year change in the CPI. You can see low achingly low inflation has been in recent years.
The world has become accustomed to the lack of inflation, which has been a major driver of asset prices. If profits are roaring, and there’s absolutely zero pressure on the Fed to tighten, then it’s a great time to be an investor.
But just as the pre-crisis “Great Moderation” proved to be a sham, so too will (eventually) the current “New Normal” with its perpetual lack of upward pressure on prices.
Indeed, there are signs that the story is changing.
Owner’s equivalent rate — which is how housing costs are imputed into the CPI — is showing signs of lifting off.
The US has kept price inflation in the US low by exporting it to China. The Chinese hourly rate has tripled over the decade. If something disrupts this relationship then much heavier price inflation will appear in the West and China will face a credit crunch.
If China slows its rate of cash creating down to Basel floating currency standards and the Yuan was to gain a significant place in world reserves then higher price inflation will appear world wide. Presently in international terms China uses USD, one might say the Chinese money appears in the international markets via the proxy of the USD. Prior to the Euro the German Mark was the popular counter balance to the USD at 15% world reserves, and in its Euro incarnation it has risen to 27% of world reserves displacing the GBP and Yen.
Last 12 months China is creating cash at 8% pa, compared to the 11% average rate typical of the past. If yuan creation falls to 7%, 6%, 5%.....then it is in a position to make an impact on world reserves. But can they survive the credit crunch?
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
I agree Peter, I think inflation will be a concern for the US much sooner then they think. However theFed might want a period of higher inflation to eat away at debt levels while running surpluses which could reduce debt quickly. As long as they contain inflation which may prove difficult as I think the US economy is doing better then the current data shows us.
I agree Peter, I think inflation will be a concern for the US much sooner then they think. However theFed might want a period of higher inflation to eat away at debt levels while running surpluses which could reduce debt quickly. As long as they contain inflation which may prove difficult as I think the US economy is doing better then the current data shows us.
Do you think so - I would have thought the reversal of all the QE they have used would have kept inflation in check for years. I would have thought deflation was the worry for many years to come.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
Do you think so - I would have thought the reversal of all the QE they have used would have kept inflation in check for years. I would have thought deflation was the worry for many years to come.
+1
It is inconceivable that the world is going to lever up at this point in time. I cant see any chances for normalised interest rates for years and years to come.
Do you think so - I would have thought the reversal of all the QE they have used would have kept inflation in check for years. I would have thought deflation was the worry for many years to come.
There's not a nice safe separation between inflation and deflation as you imagine it. It's like walking a tight rope and one can fall either way. In central bank speak, inflation and deflation refers to what is happening in the credit markets.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
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