patrick.net

spydah_hh says

I posted this a year ago. But here's the link.

http://patrick.net/?p=1240139&c=1067352#comment-1067352

It's as I suspected--not a good basket of goods. Gold is not a consumable and should never be included. If you're going to include energy, why not natural gas? It is the primary heating fuel in the US at this point. And while I understand the use of commodities--really you should use the price of goods at the point of sale. Nobody buys corn or meat for dinner on the commodity market.

Do the analysis again with a proper basket and see how you do.

tatupu70 says

Yes, demand changes--often based on income. Higher prices do tend to reduce demand, all else equal. Of course, all else in never equal. Think of it this way- In order for prices to rise, there must be higher demand.

This is false, you do not need higher demand for prices to rise. The money supply can increase prices as well or decrease it. So if interest rate are low, people are borrowing money and spending more money then prices will rise because the low interest rates causes people to borrow more which in turns cause spending to increase. So in this sense demand has increased because of interest rates.

Now for the other end, if the money is printed such as QE. First you have to understand what happens in QE. QE is when the fed lends money to the government, not just to the banks. The fed lent money to the government (indirectly) because other government stopped buy US treasuries (or at least there's a shortage or treasury purchases needed to keep the government going) this is why the FED balance sheet is up almost 5 trillion dollars. So when the government receives all this created money they spend it on various government programs such as healthcare, military, welfare, housing, plus their employees. So it's not like this money was printed and not sent out into the economy it is. A lot of it is also purchased on imported goods, therefore a lot of the money also leaves the economy too. So a lot of the inflation is exported but doesn't mean all of the inflation is exported or halted in bank vaults. Therefore prices still rise, but just imagine if the dollar wasn't in global demand and we printed all this money, inflation would have been through the roof. But the world is slowly moving away from the dollar so I expect inflation to rise even more in the future.

tatupu70 says

It's as I suspected--not a good basket of goods. Gold is not a consumable and should never be included. If you're going to include energy, why not natural gas? It is the primary heating fuel in the US at this point. And while I understand the use of commodities--really you should use the price of goods at the point of sale. Nobody buys corn or meat for dinner on the commodity market.

Do the analysis again with a proper basket and see how you do.

I am sure if i used natural gas it would of been the same but i used coal since a lot of energy is use from coal anyway. Gold isn't a consumable? Really, didn't think people did not buy jewelry. But nonetheless gold is use as a hedge against inflation so Included it. Everything except for milk has vastly outstripped the rate of income. The items I listed are items that many people use, corn is used in just about every food product there is simply because of it being so cheap mainly through government subsidy. Soybeans, common item, coal common item, cattle common item, oil common item. I can go on with more items and the result will still be the same. I don't need some lame government basket of goods to tell me that the price of food or living are rising. Simple math can easily tell me truth.

tatupu70 says

Not if velocity drops.

Based on the formula, that's stating the obvious. But the given scenario was not about multiple events; it was about the single event of directing R into M. In actual practice, this typically fuels velocity as opposed to causing a decrease. Thus, a decrease would most likely need to result from a separate event.

Yes.

Certainly the Fed fended off continued malaise and 1930s-style price discovery.

http://research.stlouisfed.org/fred2/graph/?g=1c88

shows there were 3 pumps, the big one in 2009, the follow-on in 2010-2011 (including Twist, not shown on that graph), and the post-election pump of 2013-14.

Job growth since 2010 has been eerily consistent, but:

http://research.stlouisfed.org/fred2/graph/?g=1cgY

shows we're still 10M jobs away from 2000-level 'full employment', and all those jobs are full-time jobs.

P/T employees have little bargaining power, given the shortage of f/t jobs and demographics of Gen Y flooding into the workforce now.

Wages rose ~8% pa for most of the 70s, that's inconceivable now.

http://research.stlouisfed.org/fred2/graph/?g=1aJQ

No wage inflation, no inflation!

Good question. The stated purpose of QE was to counter "the deflationary pressure"; in other words, if QE did not create inflationary pressure, it would have been deemed as unmitigated failure.

The problem with the "1930s-style price discovery" was that the price crash was prevented from taking place earlier and quicker like it did during the 1920-21 market correction. Instead, the government under both Hoover and FDR tried to force up the nominal prices, and therefore the resource reallocation in the economy had to take longer to implement, benefiting the existing holders of obsolete capital at the expense of the society in general, especially those whose livelihood depends on new opportunities such as the youth.

The crashes, then and now, took place because of previous misallocation of capital. The least painful way of removing of such misallocation was/is a rapid correction shaking out the incompetent companies and making the surviving companies more profitable, which then in turn would hire more people to facilitate their better ways of doing business. The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution. Dreaming about a market economy without crashes eliminating badly run companies is like talking about evolution without extinctions. If there had been the supposed busy-bodies all along the evolutionary past, the dodo birds would not have gone extinct nor would have the giant dinosaurs, leaving no niche to fill by mammals and therefore no human at all. In the case of corporate evolutions, if the corporations do not pay for the price of extinction due to their own malfeasance, it is the flesh and blood human beings who have to pay the price of corporate rescue and economic retardation. Anthropomorphizing corporations in this way is fundamentally anti-human.

The paycheck economy is suffering because of FED and government policies turning a market place of capitalists competing for labor into a bunch of rent-seeking fat cats waiting for manana falling from the Cargo-Cult FED and government. Read up on Cargo-Cult. The bastardized Keynesianism is essentially a modern form of Cargo-Cult.

moldhaven says

But the given scenario was not about multiple events; it was about the single event of directing R into M.

The given scenario was the correlation between M and P. Given V is non-constant (and also non-linear) MV = PQ only proves my point. (and is what I said: Money supply * money velocity = GDP.)

In other words, the statements do not conflict.

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution.

And this is why the tophat n' monocle crowd is so pissed off at Obama. (and FDR before him)

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution mechanism of transferring capital from weaker to stronger hands.

The world was Uncle Warren's Oyster in 2008-2009, and he did pretty good on the firesales, LOL.

His purchase of BNSF is one for the ages.

control point says

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution.

And this is why the tophat n' monocle crowd is so pissed off at Obama. (and FDR before him)

They are not pissed off at all, they are pleased with him, the wealthy and the 47% because Obama increased the at that time decreasing wealth disparity at the expense of the middle-class. The only reason why you hear more dissident voices against Obummer from the wealthy is because they have enough fuck-you money to be independent and thus can turn on their yesterday's favorite on a dime. The 47% can't oppose him since they are worried about stopping government "support" (dependence). Letting the 2008 market clear out itself and the TBTFs (and a bunch of wealthy investors) fail would have been the best option for the economy (and also followed the most important rule-of-law). That and prosecuting a bunch.

Bellingham Bill says

The world was Uncle Warren's Oyster in 2008-2009, and he did pretty good on the firesales, LOL.

His purchase of BNSF is one for the ages.

He would not have bought any of this crap if he hadn't gotten government buy-in for backstops, relieving him of any tail-risk whatsoever.

sbh says

The Fed influences the primary market for its debt during QE, but once QE is over it's the secondary market that tells the tale. There is no evidence of a change in falling yields.

I agree but must clarify that falling yields were interrupted when we hit the zero bound. Volcker ran the rates up high enough, that the FED got away with 30-years of subsequent rate lowering stimulus. But now that all of Volcker's candy has been eaten, the FED needs a new cannon to blast us out of the liquidity trap. We most likely agree the amount of QE put forth hasn't the power to trigger a sustained rate trend reversal, given the current economic conditions.

That said, the fact that we are still stuck at the zero bound is not evidence that the pumping had zero affect on inflation. We're still seeing the effect of having printed, but it is relative to where we would be had we never printed in the first place.

sbh says

But, ask yourself, why would we have interest rates that high?

This is what these assclowns cant figure out. Yes, yes, please give me a higher return on my treasuries. Yeah, 5-6% sounds good.

Well, how about 10-12%?

No, no, no, not that fucking high.

control point says

The given scenario was the correlation between M and P. Given V is non-constant (and also non-linear) MV = PQ only proves my point. (and is what I said: Money supply * money velocity = GDP.)

In other words, the statements do not conflict.

If I'm not mistaken, you also said, "Money supply and price increases are not correlated." Perhaps I'm misunderstanding your intention with the statement, but on the surface it appears to say that M and P have no correlation what-so-ever, despite being on opposite sides of the equation.

moldhaven says

If I'm not mistaken, you also said, "Money supply and price increases are not correlated."

Yes, hence "The given scenario was the correlation between M and P."

moldhaven says

Perhaps I'm misunderstanding your intention with the statement, but on the surface it appears to say that M and P have no correlation what-so-ever, despite being on opposite sides of the equation.

There are other non-constant independent variables in the equation.

The Federal Reserve System creates debt that cannot be repaid. It creates a debt supply rather than a money supply, and if the former is paid off, liquidity disappears entirely. The interest on the debt however cannot be escaped. Eventually it will destroy stability. It is useful to them at the moment, however. It is the primary tool by which government keeps the majority as perpetual slaves to debt. Eventually, it will create, at best, the death of cash (a state which cannot be controlled or sustained)

It also pushes employment away from the private sector and toward the government itself, which should always be the last resort.

At some point, by definition, the private sector is meant to step up and reverse the debt trend. 17.5 Trillion and counting. It appears to me that the private sector is, instead, dependent on the stimulus.

Look for bubbles where none are required, and don't try to blame the 'free market' when you hear the popping sound.

deepcgi says

The Federal Reserve System creates debt that cannot be repaid. It creates a debt supply rather than a money supply, and if the former is paid off, liquidity disappears entirely. The interest on the debt however cannot be escaped. Eventually it will destroy stability. It is useful to them at the moment, however. It is the primary tool by which government keeps the majority as perpetual slaves to debt. Eventually, it will create, at best, the death of cash (a state which cannot be controlled or sustained)

It also pushes employment away from the private sector and toward the government itself, which should always be the last resort.

At some point, by definition, the private sector is meant to step up and reverse the debt trend. 17.5 Trillion and counting. It appears to me that the private sector is, instead, dependent on the stimulus.

Look for bubbles where none are required, and don't try to blame the 'free market' when you hear the popping sound.

The Federal Reserve system does not create US National Debt. Look to your Congressmen and Presidents. Nor does it create private debt. I'm not quite sure what you are trying to say.

The reason debt is growing and interest rates are low is because of wealth disparity. All the money is with the 1% and they are all too happy to loan it back to the rest of us and rake in the unearned income. Eventually the system will blow up, however, like you said. Not because of the Fed--but because the 99% won't have the ability to pay back the loans any longer. At that point the SWHTF.

control point says

There are other non-constant independent variables in the equation

No matter how you wish to spin it, a change in M can influence a change in P. Proof: If V remains constant, and M increases, then PQ increases. If the economy isn't at full employment, both P and Q can increase. Otherwise, only P will increase (highly inflationary). A correlation exists between M and P. QED

The FED pumped M in order to offset the fall in V, which helped stop a debt liquidation spiral. This resulted in a relative increase in P and Q. So far, the banks have not lent their excess reserves (R). If/when they choose to lend, it will result in an increase in V, at which point, the FED will work to decrease M in order to stabilize PQ. This is easier said than done (especially if they respond late).

The actual fate of R remains unknown. In the current climate, lending is risky compared to potential ROI.

marcus says

It was a strong green light to the one percenters (and their money managers) in the know.

yup, 1933 was off the table in 2H08/1Q09

https://research.stlouisfed.org/fred2/series/FDHBFRBN

moldhaven says

the banks have not lent their excess reserves

http://research.stlouisfed.org/fred2/series/EXCSRESNS

I'll say!

There is inflation, read the thread I posted earlier.

Of course there is, and it's raging. Stagflation is brutal.

moldhaven says

QED

HEHEHE.

If V remains constant, what is its value? I missed that one. I know pi, and c, and e. Dont seem to remember the value of V.

I can do it too. If P remains constant, then it never increases. Any change in MV only results in a change in Q. Therefore M and P are not correlated. QED.

control point says

I can do it too. If P remains constant, then it never increases. Any change in MV only results in a change in Q. Therefore M and P are not correlated. QED.

Your proof is incomplete and unworthy of QED. My proof by counter-example disproves your assertion that M cannot affect P. :)

We are saying the same thing in different ways. This is why I used the term Federal Reserve 'System'. That system is the enabler and the root cause. The Federal Reserve Banks hold about 12.5 percent of the U.S. Debt on paper, but they can't be audited, so we don't know for certain the true numbers.

My local congressman or senator couldn't get the Fed's books unlocked for a peek even if George Washington himself tagged along for the house-call with his trusty hatchet.

Raise your hand if you believe the Fed has been operating within the bounds of US Federal Law - let alone within the bounds of international law. Anyone...anyone?

moldhaven says

Your proof is incomplete and unworthy of QED. My proof by counter-example disproves your assertion that M cannot affect P. :)

We've made the same faulty logical mistake. This is not a single variable expression. Further, my assertion was not that M CANNOT affect P. It was merely that it DOES not.

BY the way, BS Actuarial Science, though Abstract Math was my lowest math grade ever.

deepcgi says

bounds of US Federal Law - let alone within the bounds of international law

The Fed was the System's idea -- loose Congressional and White House oversight, but not control.

as for international law, LOL, Kuroda would be a Class A War Criminal if such a thing existed, and the PBC should be sent to Nuremberg.

All we have to do is keep claiming that there is no inflation, even though our favorite asset class in constantly inflating. We fight over the definitions of the terms inflation and deflation, but we certainly know that when those assets get hurt, that they are most definitely DEflating (having never INflated in the first place). BB. you are right. There being no rule of law with the Central Banks. That is why there can be no oversight, but also why we are headed for Bastille Day and mass defaults. Multimillion dollar real estate holders hiding their powdered wigs, carrying pitchforks and shouting that they need their deflating asses covered by the man. Take from 'the rich', give to 'the banks', make the poor subservient to the banks, let entire asset classes inflate while screaming 'there is no inflation'. That mantra stops working when the poor realize they ARE 'the man'...The man of last resort.

It's better for everyone if we keep the secret that the Picasso hanging in the corner is a fraud, right? If word got out...think of all the horrible "deflation".

The interest on all of the debt must be dealt with. That is the 17 trillion pound gorilla which can't be ignored. The fatter he gets, the more difficult it is to hide him. (don't tell anyone that the gorilla painted the Picasso. sshh)

There has been a ton of oil money flowing through Canada over the past 6 years. That must sting a bit right now, yes? Maybe a little 'deflation' pressure? Yep, time to short those Canadian financials.

deepcgi says

The interest on all of the debt must be dealt with

The endgame is MMT.

So yeah, buy land.

You mutts need to get your story straight.