Dallas Fed president Robert Kaplan says the Low 10-Year Yield is an ‘Ominous’ Sign.
The Fed has raised rates twice this year, and is widely expected to do so again in December. But even as the short-term interest rate targeted by the Fed has climbed, the yield on the benchmark 10-year Treasury has fallen, a reversal of what usually happens and a development that Kaplan said he sees as “a little ominous.”“I view that as a comment on future economic growth,” Kaplan said at the Stanford Institute for Economic Policy Research. “And what I don’t want to see us do is raise rates so fast that we get an inverted yield curve because history has shown an inverted yield curve has tended to be a precursor to a recession.”
Patience Required
The BBC reports Fed urges patience as inflation lags.
Many policymakers are worried that the slow pick-up in price increases may be due to long-term trends, not just short-term factors. They urged that “some patience” guide the Fed as it considers plans to raise interest rates.
Inflation Benefits
The BBC is right on board with the Fed preaching the benefits of inflation.
Please consider How can inflation be good for you?
Most central banks favour an inflation target that is in the region of 2% to 2.5%. The Bank of England’s target of 2% under the CPI measure is fairly typical. Some economists argue there should be a higher target in times of recession, such as 3%. This can promote higher growth, by keeping interest rates lower for longer.But whatever the precise level, most do agree that a little dose of inflation is absolutely essential.”The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague,” said the Austrian philosopher and economist Ludwig von Mises.”Inflation is a policy.”
Inflation is Theft
Inflation is certainly policy, but it’s also theft. And quoting Ludwig von Mises as a proponent of inflation is beyond the pale. Let’s look at Mises View of Inflation, in context.
Danger Charlatans at Work
The Fed wants to hit the “natural” rate of inflation but they do not even know what it is.
For discussion please see Down the Rabbit Hole: SF Fed President John Williams Seeks “Direct Attack” on Low Inflation
Economic Challenge to Keynesians
Of all the widely believed but patently false economic beliefs is the absurd notion that falling consumer prices are bad for the economy and something must be done about them.
I have commented on this many times and have been vindicated not only by sound economic theory but also by actual historical examples.
My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
And my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.
There is no answer because history and logic both show that concerns over consumer price deflation are seriously misplaced.
The BIS did a study and found routine deflation was not any problem at all.
“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the BIS study.
It’s asset bubble deflation that is damaging.
Note that central banks’ seriously misguided attempts to fight routine consumer price deflation, they create destructive asset bubbles that eventually collapse. When those bubble burst, and they will, it will trigger debt deflation, which is what central banks ought to fear.
For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?
Meanwhile economically illiterate writers bemoan deflation, as do most economists and central banks. The final irony in this ridiculous mix is central bank policies stimulate massive wealth inequality fueled by soaring stock prices.
Finally, please consider Barry Ritholtz Asks “Why Has Inflation Remained Low for So Long?” Mish Asks “Is Inflation Low?”
Inflation is in the eyes of the beholder. The Fed and economic writers in general are clueless when it comes to measuring it.
Please note I have moved my website to The Maven. For details, please see Welcome to the New MishTalk .
Mike “Mish” Shedlock
“if there was a natural rate, it would be impossible to measure because the Fed does not count asset bubbles or home prices in its measure of inflation…my Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered…trigger debt deflation, which is what central banks ought to fear.”
1) Factor in Obamacare 20+% health cost increases, which are 25% of family expenditures, and you get 5% price inflation right there. Faulty models yield faulty data, purposely because 5% price inflation would mean 5% increase in Federal gov benefit payments like Social Security, pensions.
2) Keynesian challenge goes unanswered, because the whole point has nothing to do with economics, which is secondary to consolidating power and control in the unelected bureaucracy that rules the USA.
3) Debt deflation will give the Fed and central banks more power, as every new problem means larger staffs and more delegation of power to the unelected bureaucracy by the Crony Congress whose campaigns are financed by those with financial power.
Mainstream economists believe that lower retail prices will lead to lower profits by corporations, leading to layoffs, which then creates lower demand for goods. This results in lower prices, and the cycle repeats. Were it not for Bernanke’s policies of lower rates and QE, we would have likely entered a deflationary spiral and a severe recession or depression. Instead, stocks are hitting all time highs and unemployment is at cyclical lows. The predictions for recession have not yet panned out, and in fact, we are approaching the longest period in history without a recession. Until the bubble actually pops, the results of the last 7 years suggest that central bank policies have revived an economy on the verge of a deflationary depression and helped most investors grow their wealth substantially.
The Fed (and all the other central banks) are in the business of supporting their debt funded governments. Of course they want low interest rates and inflation; it keeps the governments in business spending money they don’t have.
Prefer the old layout & functionality.
@Maximus_Minimus good points, as a heads up, if you hover over any comment, you can see a little menu on the right with three dots, in that menu there are actions you can do like EDIT. A POST button is also a good idea, I think there are some design conversations going on about this right now.
I would say, a POST button, and an EDIT your comment button would be most useful. Removing
embarrassing typos.
It’s laughably ironic that the FOMC posts it’s latest inflation and market manipulation wisdom using technology platforms that have experienced 30 percent price erosion annually for decades now.
Good idea on a post button
I often argue with myself that these jackasses can’t be that stupid, and there must have some ulterior motive behind this, but then they open their mouth, I remove all doubt. PS: Can we have a post button?
Economists believe that American workers still get COLAs. So inflation would mean increasing paychecks, lower debt to income ratios and more spending. They didn’t get the memo that when labor unions go away, COLAs go away with them.
I am in the apartment rental business and I have benefited from rising rental rates due to increased demand.
Love your ironic take on this. I am also in favor of increasing the cup and spoon so I can eat more ice cream. And while you’re at it, how about increasing the gallon and litre so I can use more fuel?
I think inflation of dollars is good, so that businesses keep making more and more money. Likewise, I would also be in favor of inflating the foot and the meter, so that my house will keep getting bigger.
The people who benefit from this kind of inflation are the first to receive the free money — government, military industrial comples, and banks. I think this is covered in “The Mystery of Banking”.
So you have to convince the Federal Government to lay down the crack pipe and ignore their billions in political contributions for them to make the change. Or elect some real “crack pots” as seen by current politics and media so do that.
Is there any way to turn this around? Why are we doing this to ourselves?
Hopefully sometime in the near future people will wake up to what these thieves are upto in the guise of saving them and it will be pitchfork times for these jackasses
These jackass