by Mish

For mocking purposes only, please consider How Cheap Overseas Retailers are Pushing Up House Prices in Australia.

“DOWN Down! Prices are Down!” It’s a jingle that is practically our national anthem. But ever-cheaper retail — and the waves of foreign retailers competing on price — could seriously unbalance Australia.
“Down, Down” might be the only place our economy has left to go if we can’t solve the imbalance between crazy low retail prices and crazy high house prices.
Australia needs a little bit of inflation. Without it, our economy is stuck with low interest rates and all the issues they create. But inflation is turning out to be very hard to generate.
The world’s discount retailers have discovered Australia. Aldi, Costco and Uniqlo were wave one of the discount invasion. Wave two is coming in 2017 and mostly involves Amazon. Every retailer already here is working hard to be able to compete.
Prices keep falling and the RBA is finding life difficult. Its job is to keep inflation in line. It should be between two and three per cent per year. But for a while now inflation has been below that range.
You can almost imagine RBA governor Philip Lowe stomping round his office, muttering “bloody foreigners! Coming over here! Making our retail goods cheaper!”
Having low inflation is a problem. While of course we love low prices, overall the economy runs best with consistent predictable inflation. That’s what the RBA is supposed do. It is pledged to makes sure inflation is predictable: between two and three per cent.

The Think Engine

That bit of economic nonsense was courtesy of economist Jason Murphy. He publishes the blog Thomas The Thinkengine. You can follow Jason on Twitter @Jasemurphy.

Murphy provides lots of charts, coupled with complete nonsense to support his view. He blames Amazon, Aldi, Walmart, and other low-cost providers for lack of inflation.

His tie to real estate is the Reserve Bank of Australia (RBA) was forced to cut rates to spur inflation and that fueled the housing bubble.

Rather than viewing rate cuts as the problem Murphy blames consumers for wanting low prices and Amazon, Walmart, and Aldi for providing them.

How Economic Twisted Minds Function

  1. They see a non-problem (falling prices)
  2. They accurately connect the inane responses of central banks (lowering interest rates) to asset bubbles
  3. Rather than blame central banks for asset bubbles, they blame the alleged lack of inflation.

I challenge Murphy to respond to things I have written, and things the Bank of International Settlement (BIS) has stated.


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.

  1. My article Deflation Bonanza! (And the Fool’s Mission to Stop It) has a good synopsis.
  2. 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.

BIS Deflation Study

The BIS did a historical 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 study.*

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

Mike “Mish” Shedlock

How Much Gold Should the Common Man Own?

Earlier today, I had the pleasure of discussing gold, equity valuations, bond bubbles, and inflation with Greg Hunter at USA Watchdog.

Target Zero a “Commitment to be Irresponsible”: Latest Insanity from Bank of Japan

In the latest bit of interest rate insanity, the Bank of Japan Launches New Form of Policy Easing.

Inflation Coming? How About Deflation?

Economists expect higher inflation based on rising producer prices. But will producer prices feed consumer prices? When?

Historical Perspective on CPI Deflations: How Damaging are They?

Yet another central bank has announced a warning about the perils of deflation. Please consider China Central Bank Calls for Vigilance on Deflation.

University Professor Asks: How Accurate and at What Cost is BLS Data?

Here’s the interesting set of questions from the “Mish Mailbag” summarized as follows: How Accurate and at What Cost is BLS Data? Why isn’t there a private industry alternative?”

“Bad Options” Regarding 2% Inflation Targets (And Other Silly Notions)

The Wall Street Journal and Bloomberg both posted ridiculous articles regarding today regarding inflation. The former was on “bad options” the latter on “inflation expectations”.

Advertisers’ Dilemma: Figuring Out How to Target Millennials, Now the Largest Demographic

Millennials are now the largest age group but retailers and advertisers in general haven’t quite figured out how to reach them.

How One Billionaire Became a Gold Bug

Hugo Salinas-Price, a hard currency advocate, and the founder of Mexico’s Elektra retail chain explains in the following guest post how he became a gold bug.

Fed Tightening Cycles Coincide With Bursting of Asset Bubbles: How to Play It

Fed tightening has been a reliable catalyst for the bursting of asset bubbles globally, says Crescat Capital.