Recently, a lot of guys at my office started talking about inflation and how CPI calculations have been changed over time to no longer reflect realities for Americans. Apparently, alternative measures of inflation to reflect real cost of living is astronomical to the tune of 5-10% annually for the past 5 years.
Are the CPI measures bullshit or legitimate? Thoughts?
lots of guys at your office talking about 5-10%? Are you employed by Zerohedge?
Agreed with the above. Moreover, if you question the index, you can always look at the individual inputs which are aggregated into the index to get a better picture if you want (a good thing to do in any case).
What would be the drivers for 5-10% inflation by the way? Overweight on housing and tuition fees? Because I don't really see anything else going up in price that much.
Pls tell me this isn't in reference to ShadowStats and all that bullsh1t... There are some genuine alternative measures of CPI (e.g. PriceStats, formerly known as the MIT Billion Prices Project) and, curiously, they actually don't deviate too far from the official numbers.
Inflation? (Originally Posted: 03/30/2010)
Just wanted to see what people on this site think about inflation and our current economy. Any opinions/links/videos/books that you think is useful are greatly appreciated. Thnx
in my mind inflation isnt a threat over the next couple years. unemployment will remain way too high as a lot of the jobs we lost were credit bubble jobs. thats a structural shift and that 4% of jobs we need back will take a long time (think in the 7 year +/- range). another way of thinking of it is that with all of the jobs lost, worker productivity is now the highest it's been in a generation. worker productivity dampens inflation.
the money the fed printed and gave to the banks is just sitting there, both because banks are still uncertain about asset quality and because the lending environment at the margin, due to high unemployment, is pretty weak. with interest on reserves, as well, the fed is going to try to take that money out of the system before the banks lend it out. the danger that they risked when supplying all that money was that without any legal oversight of the money they'd lost control of the monetary base and would have to resort to reactionary instead of proactive policy. i think the risk of the banks all rushing at once to lend out that money and spurring massive inflation are low.
that said, the main thing that could lead to huge inflation/devaluation is our national debt. it's projected to be 120% of our gdp by 2020. Such a level of debt during peacetime is unheard-of. our national debt was 109% after ww2! such a level of debt is unsustainable and is a gigantic millstone around the neck of our economy, leading to lower permanent potential growth rates and a destabilized dollar (if you think the idea of dollar instability during this crisis was big, just wait!). to save our country for the long-term, there are only two possible solutions to confront our debt over the next 10 years: confiscatory taxes or debauching our currency through monetizing our debt. confiscatory taxes are not politically feasible, so in my opinion within the next generation you will see the monetization of 30-50% of the u.s. national debt from 2020 levels (hopefully as a one-off measure and not a newly-institutionalized policy of the fed). dollars in circulation = fed assets, so if they were to gradually monetize $6 trillion of our debt it would be a 4x expansion of ms, which assuming constant demand would cause a 75% devaluation of the dollar in real terms. at that point, interest on reserves would have to become the new fed policy tool to control the money supply and re-establish the value of the dollar, which theoretically they could make work quite well. an additional benefit would be renewed competitiveness of u.s. goods due to low prices, which could spur industrial job growth and reinvigorate our manufacturing sector in the long term.
there's a little bit of hyperbole in there, but debt in the developed world is gonna become so restrictive on growth that some kind of drastic policy will have to be taken to hit the reset button.
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