Hiding a Recession

[ALawPoker]

I never said it "doesn't mean anything." I just meant it wouldn't necessarily be contradictory in any way to say "the quality of cheeseburgers must have gone down if the price is the same" and "it doesn't matter that the speed of computers has increased." (Because faster computers should be expected to cost less/the same in the future.)

I'm not interested in the 2nd part of your post. I was just raising what I thought was an obvious point, which I didn't really intend to be related to anything else.

[DcifrThs]

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but look at the above chart. according to this, 10 years ago (well, 1998), the infaltion was supposedly "really" only 3 percentage points less than it is today. how is it possible that with all of the turmoil you quoted as evidence of the inflation we have today that in 1998 there was virtually the same infaltion rate (According to your own source) yet not a single one of those turmoils were in effect?

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The problem is not high inflation over a small time period, but high inflation consistently over a long time period. We've had large inflation the last 10 to 15 years and it has debased the US currency. The inflation in 1998 helped get gold and crude oil so high.

(inflation percentage in 1998) * (inflation percentage in 1999) * (inflation percentage in 2000) * ... * (inflation percentage in 2007) is how much less our currency is worth today.

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your own analysis/evidence negates your conclusion.

think about it...with all those problems and the cumulative effect of all those years of infaltion, how is it possible that today's inflation only 3 percentage points bigger? there would have to be soem deflationary force there somewhere.

Barron

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You're misunderstanding the graphs presented to you. Integrate inflation over time and you have what worries us. If we had alternating years of 2% inflation and -2% inflation then money is staying at the same value. If we have 2% inflation every year, then our money is getting less valuable at that rate. If inflation is at 10% our money is worth half as much every seven years. Wages aren't rising nearly that quickly to outpace it.

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gotcha.

i guess i just havne't experienced the insane inflation quoted here.

one reason may be that i don't drink milk [img]/images/graemlins/tongue.gif[/img]

Barron

[Scary_Tiger]

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but look at the above chart. according to this, 10 years ago (well, 1998), the infaltion was supposedly "really" only 3 percentage points less than it is today. how is it possible that with all of the turmoil you quoted as evidence of the inflation we have today that in 1998 there was virtually the same infaltion rate (According to your own source) yet not a single one of those turmoils were in effect?

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The problem is not high inflation over a small time period, but high inflation consistently over a long time period. We've had large inflation the last 10 to 15 years and it has debased the US currency. The inflation in 1998 helped get gold and crude oil so high.

(inflation percentage in 1998) * (inflation percentage in 1999) * (inflation percentage in 2000) * ... * (inflation percentage in 2007) is how much less our currency is worth today.

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your own analysis/evidence negates your conclusion.

think about it...with all those problems and the cumulative effect of all those years of infaltion, how is it possible that today's inflation only 3 percentage points bigger? there would have to be soem deflationary force there somewhere.

Barron

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You're misunderstanding the graphs presented to you. Integrate inflation over time and you have what worries us. If we had alternating years of 2% inflation and -2% inflation then money is staying at the same value. If we have 2% inflation every year, then our money is getting less valuable at that rate. If inflation is at 10% our money is worth half as much every seven years. Wages aren't rising nearly that quickly to outpace it.

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gotcha.

i guess i just havne't experienced the insane inflation quoted here.

one reason may be that i don't drink milk [img]/images/graemlins/tongue.gif[/img]

Barron

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Hah, I never buy milk either but I bought some the other day to make some white russians and was like wow that's expensive. The places I've noticed inflation most in my lifetime is restaurants for food because it's like the only place I spend money. (And gas ldo.)

[adios]

Thanks, that focuses it more. The early eighties marked the start of the disinflation trend. You may be right. The fact that it is inflection point in Fed policy and inflation trends gives your argument more credibility IMO i.e. that inflation has been significantly understated. I'm going to think about this some more and do some investigating.

[DcifrThs]

here's another thought or two:

one thing that doesn't sit well with me is the availability of this info. now i'm not an efficient market type but i do believe that markets, though beatable, are a very good barometer of opinions/estimates. your ability to come up with ones that are better than the consensus and your ability to manage those bets determine your ability to add alpha imo.

so then, if this info is so readily available (i.e. boro had no trouble getting it) and the implications so clear (as again has been outlined despite my thickheadedness in some areas) why has virtually none of it been discounted (taken into acct) by the markets.

for instance. if inflation is so much higher than it is reported in CPI, the necessary yeild on TIPS would be much higher since CPI wouldn't near compensate you for the reduction in purchasing power you'd acheive as a result of said higher inflation.

further, treasury bonds should be trading at a huge spread to TIPS as break even inflation (though it hasn't proved to be an accurate predictor of future inflation and in some cases seems to adjust retroactively) moves up substantially .

additionally, since individual's purchasing power has fallen, and is thus predicted to fall so much, other market based economic indicators (equity futures & spot prices etc.) should at least in some part have reflected this over the past 2-6 years, right? specifically, if you loko at a chart of the 2yr and 10yr you see that since the last recession in 2001, short rates have risen dramatically while long rates have remained virtually unchanged (again prior to june 2007). this is indicitive of inflation expectations being anchored amazingly well.

instead, what have we seen? low interest rates and global liquidity feeding asset price increases. but in addition to those low interest rates (or perhaps b/c of them) we've seen consumer purchases and the like increase dramatically both domestically and globally. so where has this decreased purchasing power gone?

where are the effects of inflation? and why haven't they either 1) reduced consumer demand for the goods and services being inflated OR 2) been discounted by the markets by any stretch of the imagination over the past number of years?

for instance, the excess liquidity globally had to find a home, but the home it chose seems to counter the logic of the readily available info boro has provided.

so either the market is absolutely dead wrong, the information is correct yet the conclusions from it are incorrect, or some combination of the two.

historically though, threats to inflation have moved markets substantially (before the 1980s) and they seem to be good at sorting out what is and what isn't good information.

you can counter well it is manipulation so markets are fooled. but the evidence of the manipulation is public. look at banks/fin services etc. they kept their exposure fiarly secret (certainly not public or easily obtainable) but when lossese surfaced, markets reacted.

the OP by borodog imo amounts to the "surfacing" of this info yet there has been no reaction by markets (and talking pre june 2007 here).

thoughts?

Barron

[The once and future king]

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Hmm an alternative to the hiding hypothesis is that there has been massive inflation shown by reliable metrics.

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Oh, yes. I agree 100%. It's just that the inflation is showing up everywhere EXCEPT the CPI. I'm not saying that it is ONLY manipulation of economic data that is hiding monetary expansion.

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Look at the housing market for example. This has inflated alot in the USA (till recently). Not saying that CPI isnt fudged to a high degree, just that it isnt a case of omfg where is all the new money going why aint it showing up on the radar. It went into assets etc of which housing would be a prime example,that definitely showed up on the radar.

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Of course. This is what I've been saying all along. But that is, in fact, "hidden" from consumers, who are mainly interested in consumer prices. In fact, they think that a bubble in their stock portfolio or the value of their home is a good thing, at least until the bubble bursts.

Price inflation is also offset by productivity increases in certain sectors (see for example consumer electronics), and monetary inflation is also hidden offshore as foreign held dollar reserves, which also reduces pressure on the CPI, at least until that bubble bursts, which is now occuring.

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Im not sure but you seem to be having your cake and eating it. In that you are claiming that both Assets and the basket of stuff have both inflated massively.

I cant speak for the American consumer experience, but in Britain the housing bubble was/is even more insane than the USA with massive asset inflation, yet many of the items in the basket of stuff have become considerably cheaper.

Clothes, food and especially alcohol have become cheaper as have white goods plasma screen TVs and the like. Though much of this is changing as we speak with big spikes in the cost of food and alchohol predicted due to [censored] global harvests.

Much of this deflation has in fact been imported from China.

That said many everyday items have increased in cost, and the quoted CPI figure in Britain of 1.8% last month and 2.1% this month are laughable if one considers a realistic spectrum of stuff in the basket. Utilities are interesting with Gas and Electric both increasing well beyond 2% but the liberalization of land lines means phone calls have become a lot cheaper over the last few years. I wouldnt be surprised if my gas bill didnt go in the basket but my phone bill did.

That said I dont think we have 70s style inflation in the realistic basket of stuff, I am sure it is higher than the Gov stats but I would argue most of the inflation has gone into the rampant house bubble. Britain has about 1.4 trillion personal debt, most of that mortgage debt.

[Borodog]

toafk,

Not all prices increase, obviously. Technological progress and increasing productivity acts to offset the effects of monetary inflation on prices. That's what I'm saying; monetary inflation is "hidden" in lots of different places; some price inflation, but exported inflation to foreign reserves, increasing productivity, and temporal delay all act to mask the negative effects on consumers. Couple that with totally bogus CPI numbers . . .

[The once and future king]

Well in the 70s when basket of stuff inflation reached 27% in Britain the stock market lost 70% of its value over a two year period, and house prices didnt fare much better. Seems now that we have turned that situation on its head.

This would explain the phenomenon I have observed in the markets that taken to its pathologic extreme goes something like this:

"Scientists claimed to day that a galactic goat was 110% certain to eat 75% of the worlds population. In an effort to stave of financial instability and recession CBs cut interest rates by X%." "The markets reached record new highs today as they reacted positively to the news that CBs were to cut interest rates. Analysts claimed that the economies fundamentals were robust enough to see off any galactic goats"

In essence the markets have twigged that the system has be rigged to suppress basket inflation and then inflate assets. For Govs this creates/created a win win situation at least in the medium term. Consumers dont feel battered by inflation at the shops and all feel richer coz their house has quadrupled in value. Bankers can all collect gargantuan bonuses and the whole bull psychology feeds into the zietgiest of the whole country.

If things start to go wrong there is only one recourse, cut interest rates.

[Exsubmariner]

[DcifrThs]

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toafk,

Not all prices increase, obviously. Technological progress and increasing productivity acts to offset the effects of monetary inflation on prices. That's what I'm saying; monetary inflation is "hidden" in lots of different places; some price inflation, but exported inflation to foreign reserves, increasing productivity, and temporal delay all act to mask the negative effects on consumers. Couple that with totally bogus CPI numbers . . .

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what are your thoughts about my market discussion above?

Barron