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Thread: Inflation is eroding your standard of living

  1. #11
    Senior Member Bryn Mawr's Avatar
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    Re: Inflation is eroding your standard of living

    Quote Originally Posted by rkd24 View Post
    I did not say the Fed could control the economy. What I said is that the Fed can control the underlying core inflation rate and there is evidence that it has done so in the past.
    You said "Inflation is caused by the creation of excess money by the Federal Reserve Bank. Since the Federal Reserve receives its mandates from Congress, Congress can stop inflation" - full stop, end of sentence. Direct cause and effect with total control.

    I disagree - you have picked out a single factor in a complex equation and a factor that is not totally controlled by the Fed in any case.


    Quote Originally Posted by rkd24 View Post
    There is a URL from the U.S. Bureau of Labor Statistics that contains links to archived Consumer Price Index data going back to October 2000. This forum will not let me post it since I have not passed 15 posts, but you get to it by Googling "bls" and going to its link, clicking on "Inflation & Prices - Consumer Price Index", and then clicking on "Archived CPI Detailed Report Tables" located about 1/3 of the way down.

    I extracted all the core year-over-year CPI rates since then. The average rate is 2.1%. Despite the fact that the Fed often abandons its price stability actions to work on its other objective, promoting economic growth, this is remarkably close to 2%, which is what is considered to be the Fed's de facto target. I completely agree that the Fed has little direct control over the economy. This is one of the reasons I believe the Fed should have price stability as its sole mandate.
    Again, your treatment is simplistic. The economy is cyclic in nature and taking an average over a cycle shows very little. What is the variation and, more importantly, how does that variation relate to the "control" exercised by the Fed?

    The Fed's main tool for controlling inflation is varying the base interest rate but there is generally an eight month lead time before that materially affects the economy. Direct control over the money supply is an emergency action - rarely used because the lead time is far longer and the effect less predictable.


    Quote Originally Posted by rkd24 View Post
    The figure you quoted is not the core year-over-year rate and the graph you supplied displays the total CPI. You can find the core year-over-year rate about 1/3 of the way down the web page you submitted as a reference.
    Show me. The only other data on that page (as you say,m, about a third of the way down the page) is exactly the same data given in tabular format rather than graphically.


    Quote Originally Posted by rkd24 View Post
    There is a table of the Japanese unemployment rate since 1980. You can display it by Googling "Index Mundi" and going to its link, clicking on "Asia", clicking on "Japan", and clicking on "Unemployment Rate".
    The highest rate is 5.4% in 2009, which can be explained by the fact that their large export sector is getting hammered by the global recession. They have been having higher than normal unemployment rates since about 1995. Although the rates are high by Japanese standards, this is hardly a country in ruins. What is clear is that, even though they had some deflation due to the bursting of their 1980's bubble, a deflationary spiral did not materialize. This disputes the notion that deflation must be avoided at all costs because it is certain to produce a deflationary spiral. If an economy is in a deflationary spiral, it is not because of deflation per se, but because it has serious economic problems. It is true that Japan has had many years of stagnant growth but that is understandable considering they are suffering from a massive debt burden whose creation was facilitated by their easy money policies.
    Unemployment rate is not a good measure of economic activity as there are too many other factors involved - especially in the case of Japan where, for cultural reasons, corporations are far less likely to shed workers at the first sign of a downturn.


    Quote Originally Posted by rkd24 View Post
    As mentioned above, the average core year-over-year inflation rate for the last nine years was 2.1%. I could not find CPI data prior to October 2000 so I cannot completely refute your assertion that the inflation rate was not 2% during both of the big financial bubbles. However, if the Fed was targeting 2% during the late 90's bubble, then the inflation rate was probably close to 2%.
    I did not say that 2% inflation was the direct cause of the bubbles. I said that targeting a 2% inflation rate is not stabilizing and that the bubbles occurred
    when the Fed was targeting 2%. By targeting 2%, the Fed creates a highly stimulative monetary environment that makes it easier for bubbles to form and grow.
    Not hard to find, I've attached the graph from the start of the series to 2006.


    Quote Originally Posted by rkd24 View Post
    I did not just say that fiscal policy should be for the unemployed and I did not avocate using it to help fixed incomers. I also said that fiscal policies such as stimulus spending should be used on distressed areas. If the whole country is distressed, then stimulus spending or other fiscal tools should be used to help the whole country. I also disagree with the assertion that consideration is given to fixed incomers. Consideration is given to those who make big political contributions, to powerful lobbyists, and to large influential organizations with many members. The only way fixed incomers will get any consideration is if a large bloc of them complain about getting hurt by inflation.
    Your whole post is to criticize the Government for disadvantaging people on fixed incomes - see your opening sentence "Do you rely on fixed income for retirement and are hurt by rising prices? Tell your congressional representatives.".

    The Fed has the responsibility to keep the economy stable - look at the graph and see how the previous boom and bust cycle has been mitigated to a far more stable pattern as economic theory improves.

    The Government has a responsibility to run the country for the benefit of all - this is where stimulus packages for disadvantaged areas belongs.

    If you want to find the source of this "credit crunch" don't look at the Fed's handling of inflation - look into the insane overspending over the past decade when the Government was running at up to $70Bn per month in trade deficit followed by spending in the trillions on invading other countries and the reasons for the country's finances being in a mess are obvious.
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  2. #12
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    Re: Inflation is eroding your standard of living

    Bryn Mawr,

    I am going to yield to you.
    I'm afraid that I am cluttering up this thread by arguing with you.
    Your replies were interesting and you made some good points.
    And yes, I tend to be simplistic.

    Rkd24

  3. #13
    Senior Member Bryn Mawr's Avatar
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    Re: Inflation is eroding your standard of living

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    Quote Originally Posted by rkd24 View Post
    Bryn Mawr,

    I am going to yield to you.
    I'm afraid that I am cluttering up this thread by arguing with you.
    Your replies were interesting and you made some good points.
    And yes, I tend to be simplistic.

    Rkd24
    Fair enough - an interesting debate and I look forward to next time

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