borodog's mistaken understanding of M3...don't listen to his drivel

[ALawPoker]

(From the other thread.)

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PS- obviously this is not a fly off the handle thread so all insults and crazy comments about me or comments about me being crazy should, imo, be left in the other thread.

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I sort of like you, Barron. You're crazy, yet endearing. Your maniacal ranting comes with a unique level-headed flair, and it has found a way into my heart.

[vulturesrow]

I [img]/images/graemlins/heart.gif[/img] LOLcats, that is all.

[DcifrThs]

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arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.

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Cause all goods Americans consume are produced in the US, right?

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nope. but overall the effect is minimal on those who consume in dollars. corporate profit margins change by way more than consumers' lives are changed.

inflation in terms of price increases on the stuff we (in the US for example) buy on a regular basis is definitely a problem if it gets out of hand. despite the govt's 'manipulation' of CPI (mainly by choosing not to use the 'clinton era' version of it that takes about 3% points off), flows through to CPI are definiltey indicitive of price changes. but we haven't seen massive inflation in the past.

it may be that we are now at the turning point and the inflection will dislodge the current system or plunge us into a type of stagflation. another outcome is that we lumber along and continue distorting one asset price after another.

asset prices aren't in the CPI though (other than housing and some commodity prices) and this distortion is definitely noticeable...though from the fed's perspective, it is tough to be a pricker of bubbles though some are pushing it that way. unlikely it'll happen...

one interesting thing that may be happening that dampers the effect huge increases in M2 has on real economic price changes is that the excess money flows to investments rather than goods and services so the prices of them may not reflect the "true" inflation if asset prices are all taken into acct.

one thought is that money supply has been increasing at a very fast pace for a very long time and US prices haven't received the push they should given the expected flow through. we should definitelyb e seeing increases in CPI that we haven't had all that money poured into the economy and was searching for a home, right?

Barron

[DcifrThs]

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arguably, for those that consume in US dollars, a weaker currency does little to alter their standard of living.


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What if domestic prices rise significantly?

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i kind of touched on this in the post above but 'significant' price rises, if orderly, won't have a big impact b/c wages may also rise. a very fast rise in inflation (price changes) is very detrimental to wage earners though since wages are far stickier than the prices for goods and services, like stuff....and things.

this is a tough discussion to have in a vacuum though since the fed's decision to handle one aspect of the issue over another produces a feedback look that isn't touched on above.

Barron

[Zygote]

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i kind of touched on this in the post above but 'significant' price rises, if orderly, won't have a big impact b/c wages may also rise. a very fast rise in inflation (price changes) is very detrimental to wage earners though since wages are far stickier than the prices for goods and services, like stuff....and things.


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price rises are never orderly.

secondly, you forget about those in fixed wage contracts, those who gave out fixed rate loans, most forms of fixed income and cash savings etc.

Service quality also declines initially because that's easier to adjust than a price rise.

A whole array of negative problems also come when prices actually should fall since the economy is crunching and purging the over expansion. Unions try keep wages high which causes mass unemployment, as one example.

There are so many disastrous things to many people's standard of living when prices rise due to inflation.

[DcifrThs]

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i kind of touched on this in the post above but 'significant' price rises, if orderly, won't have a big impact b/c wages may also rise. a very fast rise in inflation (price changes) is very detrimental to wage earners though since wages are far stickier than the prices for goods and services, like stuff....and things.


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price rises are never orderly.

secondly, you forget about those in fixed wage contracts, those who gave out fixed rate loans, most forms of fixed income and cash savings etc.

Service quality also declines initially because that's easier to adjust than a price rise.

A whole array of negative problems also come when prices actually should fall since the economy is crunching and purging the over expansion. Unions try keep wages high which causes mass unemployment, as one example.

There are so many disastrous things to many people's standard of living when prices rise due to inflation.

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definitely true. and those can all happen.

like i said, we are at a very interesting turning point in the US and global economy. the inflection point may bring the runaway inflation that causes many of those problems.

the "orderly" price changes i've mentioned is what we've seen until now. unemployment is low (though more like 5.5% than 4.7% if you bring back in those who "gave up' looking for work) and those problems are non-existant for the most part despite a massive increase in M2 in the past.

again, the inflection point may change that but i don't see the signs in the economy of the runaway inflation of the 70s. but it may be too early for those signs to be visible. how the global imbalances unravel (and especially the speed with which they do) will be the determinants imo.

US consumers cannot support growth any longer. savings rates are artificially low, credit conditions are tightening etc. etc.

this next phase in the US economy (late 3rd quarter of the hypothetical 4 quarter business cycle transitioning to 4th quarter) will be the indicator of whether or not we see those huge problems you spoke of.

Barron

[Zygote]

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again, the inflection point may change that but i don't see the signs in the economy of the runaway inflation of the 70s. but it may be too early for those signs to be visible. how the global imbalances unravel (and especially the speed with which they do) will be the determinants imo.


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My portfolio is targetted around something similar happening to the 70's inflation. I believe the US will be faced with some variety of stagflaion. I want to make a big post about this and will get around to it soon. Assuming i dont get greedy and try save this for a news/commentary site im coming out with in the near future.

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US consumers cannot support growth any longer. savings rates are artificially low, credit conditions are tightening etc. etc.

this next phase in the US economy (late 3rd quarter of the hypothetical 4 quarter business cycle transitioning to 4th quarter) will be the indicator of whether or not we see those huge problems you spoke of.



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I agree the indiciations will be revealed relatively soon. Precisely is still hard to say, but we're just around the corner from a lot of vital signs popping out.

[Zygote]

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i worked for one of the top 3 funds in the world...killing any benchmark for decades.


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do you mind providing some more details about this?

[DcifrThs]

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i worked for one of the top 3 funds in the world...killing any benchmark for decades.


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do you mind providing some more details about this?

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i started a thread in BFI where i answered a ton of questions. i'd rather not have it pasted all over here though especially given the fact that i haven't made any friends. so i definitely don't want anybody to know exactly where i worked.

if you would like to PM me specific questions, or ask general questions here i'd be glad to answer.

Barron

[Ineedaride2]

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i worked for one of the top 3 funds in the world...killing any benchmark for decades.


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do you mind providing some more details about this?

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i started a thread in BFI where i answered a ton of questions. i'd rather not have it pasted all over here though especially given the fact that i haven't made any friends. so i definitely don't want anybody to know exactly where i worked.

if you would like to PM me specific questions, or ask general questions here i'd be glad to answer.

Barron

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I wouldn't worry about divulging private information.

The worst thing this crowd is capable of is wallpapering your cubicle with RONPAUL2008 stickers.