Fed advocates for inflation and higher prices

Posted by $ blarman 6 days, 16 hours ago to Economics
23 comments | Share | Flag

This would be a disaster - especially for the low-wage worker. What they aren't saying is that even if wages rise, the prices will rise a lot faster and buying power - the real metric of concern - will fall.

The proper rate of inflation in an economy should be ZERO. Inflation devalues debt and creditors have to charge higher interest rates in order to still profit from capital lending. Think of what will happen if inflation is at the 2.4% mark they list but interest rates are near 0%: capital lenders go out of business. This is nothing more than an attempt at a hostile takeover of the capital market by the Federal Reserve and should not only be shot down, but should renew calls to audit the Fed.
SOURCE URL: https://www.cbsnews.com/news/federal-reserve-inflation-wages-interest-policy-changes/

Add Comment


All Comments Hide marked as read Mark all as read

  • Posted by CaptainKirk 5 days, 14 hours ago
    Actually, the proper rate of a growing economy is ALWAYS DEFLATIONARY!

    Because over time, new techniques (Printing Press) are created, and information is disseminated, and productivity goes up, which tends to drive prices lower.

    Furthermore, when you run a PONZI scheme, you need more people, and increasing prices to keep it going. So they REQUIRE inflation to keep the plates spinning.
    Reply | Mark as read | Best of... | Permalink  
    • Posted by $ 5 days, 14 hours ago
      I get what you're saying, but inflation and deflation specifically refer to the value of money. Yes, technological improvements create efficiencies which lower the relative cost of goods and services, but this is separate and apart from the value of money itself. What inflation and deflation do is alter the relative buying power achieved with a specific quantity of money - the primary reason this proposed policy is so dangerous. The Fed is seeking to alter buying power by devaluing money while claiming that wages will increase to compensate. That's putting the cart before the horse and claiming that because the cart is full of hay the horse will follow...
      Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by CaptainKirk 4 days, 13 hours ago
        Progress, too, alters the value of money, is my point.

        If the value of money CAN BE EQUATED to the GOODS that can be bought. Than as the price of said goods go down... How is that NOT Deflationary?

        Progress is deflationary is the point I am making.
        Take energy, as an example. Lets say someone develops a ZPM.
        lets say that invention drops the cost of Electricity 100 FOLD.
        Since electricity IS the backbone of modern living, everyone experiences a 90% reduction in their electricity bill. But even better, the cost of Steel goes down, new techniques are created for travel.
        We can purchase those at far cheaper rates. Robots become cheaper to own/operate.

        We can buy a lot more of everything for less money. Ceteris paribus... It feels quite deflationary.
        [This is because the inputs cost less].

        Now using PURE inflation as an offset. Assume the government sees this, and WATERS DOWN the monetary system (First, this proves you are using CURRENCY and NOT MONEY), but the act of doing so is EXACTLY What you describe. It is inflation... (Through inflating the number of currency but not the BASE on which it is built).

        But this should mean that a stable number of dollars/currency cannot be deflationary as prices go down because of lowered input costs (Your argument, I believe).... Despite FEELING the same, and AFFECTING how much inflation would have to be done to achieve some inflationary goal.

        My EXACT Point is that: In always pushing towards inflation, they are UNDOING the positive effect of a growing economic system with lowered input costs... And many of these lowered costs would actually allow companies to pay their employees more... Something sorely missing in the last few decades! (IMO)
        Reply | Mark as read | Parent | Best of... | Permalink  
        • Posted by $ 4 days, 12 hours ago
          Let's examine innovation vs inflation. Innovation is the investment of the mind turned into better processes and/or equipment. It requires an investment of capital to change the status quo and the return on that investment is the resulting process improvements. But innovation is also incredibly specific; it affects a specific product or service by making it more efficient (less expensive) to produce, allowing for either higher margins or lower prices - for that item in the market.

          Let's look at computers for example. Initial computer prices for PC's were several thousand dollars per unit for a device which could handle basic spreadsheets. After taking real inflation and advances in computing power into account, computers of today are literally worth millions of times what they originally cost 50 years ago! But has the development of the computer caused prices to drop on every other product being offered? Not except through the further innovation! If your theory held true, computers would have cause MASSIVE deflation over the past 50 years.

          Inflation is the devaluation in the buying power of money (deflation is the opposite). Inflation is caused by an expansion in the money supply non-reflective a corresponding investment of capital. Inflation is caused by governments not by innovators - another key fact.

          "But this should mean that a stable number of dollars/currency cannot be deflationary as prices go down because of lowered input costs."

          That argument conflates two independent principles and attempts to present a causal relationship which does not exist. Product costs are dependent upon currency values - not the other way around. Here's an example which may explain the difference:

          Let's say that I produce gadgets and I use widgets to produce gadgets. I buy my widgets from two suppliers. Now let's suppose that on Monday, I can buy those widgets from each supplier for $1 per widget. On Wednesday I need more widgets but one of the two suppliers has introduced some technological improvements which allow him to offer me that same widget for $.95. There is no deflation here because I can still choose to pay $1 to the other supplier. Additionally, nothing has affected the price I charge on my gadgets being sold to customers. And yet I can see a relative marginal increase of $.05 per gadget sold simply as a result of the technological innovation of my supplier. That $.05 then hits my bottom line as profit. If this innovation created deflation/inflation, however, it would have ALSO affected my customer's ability to purchase that gadget at the standard $1.50 I charge.

          Now let's say that the government decides to alter the cost of money itself by giving everyone $200 to buy gadgets. Knowing this, I can raise the cost of my gadgets to take advantage of this and theoretically get higher profit margins. The problem is that the government also has to raise my taxes to provide that $200, so my costs of production - just due to the tax costs alone - have also gone up. THAT's inflation.

          Inflation has the primary effect of making everything more expensive - except debt. Debtors LOVE inflation because it cheapens that debt. And there is no one more in favor of this than governments who are in debt. Creditors - on the other hand - have to charge higher interest rates to account for (pun intended) interest rate hikes just to maintain a stable return on investment. This means that by creating inflation, governments are also raising the costs of lending money for everyone.
          Reply | Mark as read | Parent | Best of... | Permalink  
          • Posted by CaptainKirk 4 days, 10 hours ago
            A Great Explanation... And overall I agree.

            Let me ask you this. If there were no inflation due to the increase in monetary supply.

            Would you expect a brand new PC to cost the SAME as the Original IBM PC, or more or less today?

            Regardless of your answer, would that PC be far better than the original in terms of power consumption, speed, capability, etc?

            I agree that what I am speaking to is "not really monetary deflation", but technological advances of all kinds produce a lowering of the barrier to entry and a net lowering of costs for the same quality.

            I often think about what my father used to pay for Wrenches and Tools. If we factored out the incessant inflation... We pay far less for those tools today.

            Cars are a POTENTIAL exception, but that's because their biggest inputs are linked to wages and health care. And HEALTH CARE is literally the proof of corruption. While the medical treatments are "better", we pay through the nose. [I think the government involvement in the latter is at play, plus insurance companies (Which lever banking)].

            GREAT EXPLANATION on your part! Thank you!
            Reply | Mark as read | Parent | Best of... | Permalink  
            • Posted by $ 4 days, 9 hours ago
              "If there were no inflation due to the increase in monetary supply. Would you expect a brand new PC to cost the SAME as the Original IBM PC, or more or less today?"

              Innovations such as mass production and technological improvement have made microchips inexpensive enough to put in many household devices and toys, let alone personal computers. And increased demand and innovation have driven the prices for those products down even though the total market demand has skyrocketed. All that has occurred independent of the price of money.

              "Cars are a POTENTIAL exception..."

              That's because much of a car's initial price is sunk into the wages and benefits which must be paid union workers but which don't really translate into more value on the consumer end. It's the primary reason cars lose 10-15% of their resale value the moment you drive them off the lot. In a way, I can see that price increase being similar to inflation because it is a higher price without more value, but technically they aren't the same thing.
              Reply | Mark as read | Parent | Best of... | Permalink  
  • Posted by $ Abaco 6 days, 12 hours ago
    Yeah...they have to inflate and keep rates very low. It's the only politically expedient way to keep social security solvent until the current elected officials retire, etc. There's no other out now. It's too late to take our medicine on that. So glad I aced macro econ in school decades ago... There are steps people can take with their portfolios to prepare, but for a great majority of Americans those measures won't be taken. Of the 1/3 who have saved anything for retirement at this time, probably 3/4 of those will get mugged by these actions. So, that leaves less than 1/10th that will make it...
    Reply | Mark as read | Best of... | Permalink  
  • Posted by freedomforall 6 days, 14 hours ago
    The fed has been inflating prices for 107 years.
    I agree, blarman, that it is wrong. It has been a disaster for rational people and a boon for bankers who have a cost of money that is by definition lower than the interest rates they charge.
    Reply | Mark as read | Best of... | Permalink  
  • Posted by $ prof611 5 days, 14 hours ago
    Didn't I read somewhere that President Trump has taken over the Federal Reserve? And that he is purposely allowing it to go bankrupt, so that he can re-institute the Gold Standard?
    Reply | Mark as read | Best of... | Permalink  
    • Posted by $ 5 days, 13 hours ago
      I wish, but I sincerely doubt it. The Federal Reserve is a private entity with tremendous power - even over Presidents. I think the first step would be simply to force an audit of the books of the Fed. Do that and we can totally expose their operations. Sunlight is the best disinfectant!
      Reply | Mark as read | Parent | Best of... | Permalink  
      • Posted by $ prof611 5 days, 11 hours ago
        PT took over the Fed using the Emergency Powers Act. Naturally, the MSM didn't mention this.
        Reply | Mark as read | Parent | Best of... | Permalink  
        • Posted by $ 5 days, 10 hours ago
          This is the first I've heard of such. Do you have a link for more information? I wasn't aware he could do such a thing...
          Reply | Mark as read | Parent | Best of... | Permalink  
          • Posted by Idiocracy42 5 days, 9 hours ago
            Not sure if this is right track, but see the following?


            The following snippet is attributed to Bloomberg:
            To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.

            So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.

            In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.

            This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.
            Reply | Mark as read | Parent | Best of... | Permalink  
            • Posted by mccannon01 5 days, 5 hours ago
              I recall all this going on starting with Trump's victory in 2016. That is, I felt the Fed was taking an anti-Trump political stance and was going to purposefully tank the economy just in time for the 2018 midterm elections and beyond if they could. It seemed like every time Trump scored an economic victory the Fed was poised to screw it up. Trump needed to put a boot up the Fed's arse to straighten it out. Looks like this is how it was done.
              Reply | Mark as read | Parent | Best of... | Permalink  
  • Posted by CaptainKirk 4 days, 13 hours ago
    Imagine if our government ran the "Fed" properly.
    1) the "Fed Window Rate" would be used to encourage banks to either pay higher or lower interest on savings and set loan rates.
    2) They could (and should have a Lever Rate. Like 0.25 that they adjust, but EVERY time a bank uses debt to borrow, they step up the lever rate. Borrowing against a loan the first time = 0.25*1 tacked on to the base rate. The 4th time is 1.00 tacked on to the base rate. The 10th time is 2.5% etc. NOBODY would lever 30 times like Citibank did. Now, change the lever rate to 0.5 and banks would be incentivized to offer higher yielding CDs

    What would be AMAZING about this approach is that using this interest, we could pay off our debts and stay debt free, as a country.

    Right now, we PAY Interest to SELL Bonds (Fed gets a piece), and then the FED Levers the money and makes money on EVER LEVER, we get nothing. The Fed makes more money on LEVERING than we actually PAY in interest. If we got rid of the middle man, we could encourage savings, and make sure that people who SAVED for retirement could actually retire on their interest.

    This idea came from Bill Still a bit. I've made modifications to it, and it is said that Trump read Stills paper early on. But every President who threatened the Fed... Ended up Dead before the end of their term!
    Reply | Mark as read | Best of... | Permalink  
    • Posted by $ 4 days, 12 hours ago
      What you're talking about is to adjust the risk premium set on a loan according to the behavior of the prospective customer, and it absolutely should apply to bank-to-bank loans just as it applies to bank-to-consumer loans.
      Reply | Mark as read | Parent | Best of... | Permalink  


  • Comment hidden. Undo