Joe Doakes from Como Park emails:
Liberals think 2% inflation is a good thing, it keeps the economy growing.
That’s insane.
The definition of “money” is “a store of value.” The whole point of using a monetary system instead of a barter system is to maintain the
value of money. Inflation erodes the value of money.
If there’s 2% inflation and you get no cost-of-living adjustment in your wages, then at the end of the year you can buy 2% less stuff because the
money you earn isn’t enough to buy the same amount of stuff at the new, higher prices. Everybody knows this but they accept it because we’re
conditioned to accept it.
Suppose instead there was 0% inflation, but your employer cut your wages 2% each year. End result would be the same – the smaller amount money
you earn isn’t enough to buy the same amount of stuff. But would people shit a brick? Damned right. They’re working just as long, just as
hard, but they’re losing ground.
To me, it’s so obvious I want to scream. How can Liberals not see this?
Joe Doakes
“Liberal economist” is another word for “economic phrenologist”.
Inflation may be the least of our worries.
I have been following Jim Rickard and David Stockman with their respective critiques on the economy, for a couple of years now. Both are credible and hold pretty much the same view on our failed monetary policy and the evil entity that is the Fed.
Both predict the death of the dollar as the world’s reserve currency before the election, replaced by a new world currency sponsored by the likes of George Soros. Rickards is saying that he’s pretty confident that it will happen this Friday afternoon.
They both point to the number of millionaires and countries, especially China, have been loading up on gold. Further, they note that the morons that run this country, haven’t seen the urgency to do so.
The sad thing is that a lot of people who are otherwise conservative fall for the “inflation is good” lie, arguing that we need robust borrowing to stimulate the economy. They forget that you don’t necessarily have to borrow to get capital if you can pay cash.
The whole “inflation is good” argument derives from the belief that you need to increase the velocity of money by threatening to devalue cash holdings. The problem being, of course, that the idea of a fixed amount of inflation becomes worthless very quickly because everybody expects that amount of inflation in relatively short order and adjusts accordingly. Remember when we had massive inflation pre-Reagan? Folks adjusted by indexing things to inflation, like Social Security payments, wage contracts, etc. So many of those things were written into law that most old folks are relatively insulated from inflation. In fact, because it’s the government measuring inflation it’s often the case that the elderly benefit because the inflation basket can’t change fast enough to reflect changes in consumption patterns (it being run by Federal bureaucrats).
Boss, I wouldn’t bet on Stockman’s analysis on the changing reserve currency simply because of practicalities. No sane investor would choose the yuan given the Chinese government’s control over it and the shaky and opaque nature of the Chinese domestic economy. No investor trusts the official government numbers out of Beijing.
The euro similarly is threatened by Brexit and internal instability (e.g. the Italian banking situation is well on its way to imploding and needing a massive bailout that Italy says it will do and that ECB’s Draghi says that can’t, while Deutsche Bank is circling the drain with insufficient and declining capital, the inability to raise more, massive US fines, and Merkel unwilling to come to their aid, etc).
As for monetary policy failing, yes, that’s global. Just look at the mess that is Japan, not to mention the EU. The policy is being run by idiots like the gang that can’t shoot straight at Goldman who depend on government intervention for their profits (why do you think they shove so much money at Hillary and Obama?). As for idiocy, even Goldman now has to admit that they got the effects of Brexit wrong and that the British will avoid recession, while the EU is the one that’s actually adversely affected by the prospect of Brexit. Monetary policy depends on debt being the solution, but the world has been saturated by debt and it’s just not working any more.
You won’t see “advanced” economies recovering until their median wages start rising, and that won’t happen until you stop off-shoring their wages and jobs, neither of which will happen without policies of the sort that Trump has proposed. As horrible as it sounds, the globe won’t advance until we reverse globalization. That will massively slow third-world growth, but it will also put some sanity into development.
Money is not just a store of value. It is also a medium of exchange and means of account. One of the important real world effects of inflation is to erode the value of capital. In theory the value of labor is not affected by inflation because it cannot be stored. I am not sure that is true any longer. The supply of labor can be increased or decreased very quickly these days.
A store of value must be durable and have a limited supply. Birch leaves do not make a good store of value.
Either does the US Dollar.
Gold has lost more than 25% of its value since its August, 2011 high.
Many people consider gold to be a ‘store of value.’
Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal.
Do I hear an amen?
It strikes me that what inflation does is it shifts the assumption of capital from personal capital to corporate capital–to avoid the “inflation tax”, as the Austrians call it, one purchases stocks or bonds, and the capital inflow goes to….those who can afford a bond issuance or an IPO.
Or, to use populist terms, from the workers to the owners, from the proletariat to the bourgeoisie, etc.. And I thought that the major thing I was being taxed to pay for was my coworker’s new Tesla. Yikes.
(why is it that liberals hate people who work so much?)
Bento, I have met “preppers” that tell me having a supply of gold is an essential component of surviving the (to them) impending social collapse.
I’ve told them when the wheels fall off, the alchemists’ dreams will come true; lead will turn to gold.
Bullets and canned pork and beans may be the currency of the 21st century, Swiftee.
Those are good, Bento, but I’m also stocking up on airline bottles of liquor. Six months after, I bet I can get you to swap me a crapload of beans for one bottle of Jack Daniels.
My dad is in finance, and I grew up being taught that inflation is good because it lowers unemployment. We still go round and round arguing over Keynesian economics.
Joe, your stockpile of single serving liquor bottles is worth having. But I think that should be reserved for personal consumption, and for bartering to recover kidnapped compound members.
Better we learn to make passable corn liquor for the rabble outside the wire.
Beans and Jack Daniels? So the collapse of civilization is going to look a lot like that scene from Blazing Saddles, I guess. And is that how y’all are going to keep the zombies away?