What is the Best Measure of Monetary Inflation?
Subscribe to MishTalk Email Alerts.
Subscribers get an email alert of each post as they happen. Read the ones you like and you can unsubscribe at any time.
This post originated on MishTalk.Com
Thanks for Tuning In!
Mish
Subscribe
8 Comments
Newest
2 years ago
Prior to 1971, money was tied to something in the Periodic Chart of the Elements. Since then money, and monetary theories are just someone’s opinion. Now, I can’t really say who enforces the Laws of Physics, but whoever it is, is doing a lot better job than the Federal Reserve and the monetary theorists.
2 years ago
I’ve always considered inflation to be “a decrease in the purchasing power of a currency relative to an earlier time period”. It can be measured by comparing market prices today versus an earlier time. The cause of inflation is an increase in the quantity of currency chasing goods and services relative to the supply of good and services.
2 years ago
Like almost everything else, it is a matter of supply and demand. Prices rise when the Fed increases the supply of money more than there is demand for money. The best “measure” of inflation is probably the PCE that the Fed has targeted to grow at 2% pa. on average. Right now bond traders are buying and selling as if they expect the Fed to hit pretty close to its target.
2 years ago
Libertarian and conservative economists and pundits generally make a fetish out of “high” inflation, the “free” market and government spending. The market is not and never has been free much less free flowing and that is because 1) we live in an alternately goosed and strangled form of financially dominating chaos that has no effective, humanly sensitive or ethical means of preventing inflation and 2) the economy is chronically characterized by individual monetary scarcity and systemic austerity despite inflation. Friedman’s pronouncement should actually be: Inflation is always and everywhere a commercial decision maker’s (ethical or unethical) reaction to the chaos created by the present monetary and financial paradigm of Debt Only.
The problem is not government/fiscal spending which is probably only around 3-4% of money creation, it is the human civilization long tendency for the cost of private debt to increase and overwhelm the ability of the economy to be stable. Integrate the new paradigm of Direct and Reciprocal Monetary Gifting into the present paradigm with 1) a 50% discount/rebate policy at retail sale, a $1000/mo. universal dividend for everyone 18 and older, a tax and regulation regime that encourages thrift, competition and innovation and that severely discourages the economic vice of arbitrary inflation….and you’d be able to completely eliminate payroll transfer taxes, severely cut individual and corporate taxes and not only eliminate inflation but integrate beneficial price deflation into profit making economic systems. You want to stabilize the economy and end socialist re-distributive taxation?….change the monetary and financial paradigm.
2 years ago
“Subtracting QE”
What is the effect on U.S. inflation, of all the dollars that are in foreign hands? What does that subtract from inflation?
2 years ago
Pithy stuff. And interesting.
According to Peter Schiff the world has been on the brink and the dollar about to go into hyperinflation any day….for at least the last 13 or14 years. I once held him in some regard…..but nobody is or has been more wrong than he has……well, maybe Bob Prechter……maybe Harry Dent. lol.
2 years ago
It is amazing how money and monetary policy are so little understood to this day. Part of the problem is that textbook macroeconomics has gotten money wrong. Milton Friedman was wrong on quantity theory of money, but many people like to blurt his quote because it sounds simple and intuitive.
The real problem is that nobody even knows how do a) identify money and b) measure the quantity of it. MMT points out that money can be created also endogenously to the banking system, which means that the Fed has only limited ability to control the money supply. In fact, attempts to target the Money Supply in the early 80s failed miserably, thus putting a dent in the Monetarist theory. Similarly, the Austrian libertarians have a too narrow view of money and they think all can be solved by returning to the gold standard. MMT also leaves many questions un-answered and it is fair to say money is still little understood to this day.
One potential hint is to look at the connection between part of the money supply and debt. The increase in money due to debt creation can be offset by the decreased productivity of debt, which is a drag on economic growth. Hence, any potential increase in spending due to more money is offset by the decreased purchasing power of depreciated and indebted labor.
2 years ago
Good Stuff. The real problem is that money (Federal Reserve Dollars) are not tied too anything of real value, be it gold or feathers or whatever you want to use. Therefore they can print and fill in the economic voids with minimal impact. And we as individuals have no defense and minimum ability to protect ourselves from what ever they want to do.
Mish’s comments are great and provide interesting insight but they assume that the those at the FED are not corrupted and are doing what is best for the USA not what is best for their shareholders.