Tag Archives: inflation

Fed's Bernanke `Doesn't Understand' Economics, Jim Rogers Says - Bloomberg

Fed's Bernanke `Doesn't Understand' Economics, Jim Rogers Says - Bloomberg

Oh, man—this guy is saying exactly what I’ve been thinking ever since CoalSpeaker first pointed out the Fed’s latest action to “save” our economy (which they decided to do right while we were distracted with the election). Anyway, so here’s a cutting from an article at Bloomberg.com from today:

Federal Reserve Chairman Ben S. Bernanke’s decision to pump a further $600 billion into the economy shows his grasp of economics is weak, said investor Jim Rogers, chairman of Rogers Holdings.

“Dr. Bernanke unfortunately does not understand economics, he does not understand currencies, he does not understand finance,” Rogers, 68, said in a lecture at Oxford University’s Balliol College yesterday. “All he understands is printing money.”

“His whole intellectual career has been based on the study of printing money,” said Rogers, who predicted the start of the global commodities rally in 1999. “Give the guy a printing press, he’s going to run it as fast as he can.”

I’m continually surprised that most people who are aware of how the Fed works and yet aren’t upset by the fact that there’s a bunch of unelected white guys in suits someplace who can just print up more money while the rest of us have to work for it.

What’s really scary here is that Bernanke’s plan to print up a fresh wad of bills, totaling $600 billion, will devalue our currency even more (they did this before, back in September of 2008 while all eyes were on Congress while they debated how to save the economy, and gosh it really saved us?).  $600 billion is a huge amount of money. 

I’m not sure how else to describe this aside from mass devaluation. 

I think the idea is to encourage foreign investment and make it super cheap for domestic businesses to borrow money.  Since that money won’t buy much, what are businesses supposed to do with it?  Hire new employees and pay ‘em!

That’s the hope, I suppose.  In the meantime, our money buys less.  The other irony is that the inflation rate will go up and make your savings accounts useless or even costly to you.  Think about it.  The inflation rate this year has fluctuated between 1 and 2.6(ish)%.  What’s your savings account interest rate? If it’s not more than that window, you’ve already taken a hit.

Don’t have a savings account?  Good boy!  Shove that cash under the mattress or buy stuff with it.  You’re probably better off.

That’s just my ¥2, of course.

Go read the Bloomberg article for all the details.  Sure, Rogers has a book to sell, but his logic is sound, sadly.

UPDATE: And I just read this in another article on Bloomberg about Japan’s economy:

No matter how much yen the Bank of Japan pumps into the economy, deflation deepens. It’s all about confidence, of which there is virtually none. Companies don’t trust that growth will return and so they avoid investing and hiring and trim salaries. Households fret about the future.

Was puzzling about that article is that it talks about deflation being the cause of a race to the bottom for prices.  He cites Hooters as an example because they sell cheap food and cheap alcohol.  But does that mean deflation?  How many wings is the Yen actually buying?  Hm, maybe it’s that we’re switching positions with Japan.  We’ll all be making more money (if this plan works) but the money won’t buy as much so we’ll have to spend more to get the same stuff.

But injecting money into the economy in Japan hasn’t worked and has inspired price-drops across every sector because the money injection didn’t work.  So, maybe we’re seeing into our own futures?

Geh… why does money have to be so confusing?

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Underpaid Genius: Global food crisis forecast as prices reach record highs: The Guardian

Underpaid Genius: Global food crisis forecast as prices reach record highs: The Guardian

Just the other day I was musing to my wife about how the sushi platters at Trader Joe’s now had fewer pieces in them. Same price, but six instead of eight pieces.

“This, right here,” I explained, “is inflation in action.”

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Let me get this straight--inflation is a good thing?

I saw this on Newsweek’s Tumblr and it made me annoyed.

newsweek:

“Making a value judgment about deflation depends in part on which side of the balance sheet you sit on, and on what’s going on in the broader economy.

So, what you’re saying is there’s no hard-and-fast, factual way to judge deflation—like you’d say “murder” is a bad thing but you can’t make a moral call on inflation?  I’m dubious.  All that said, you’re going to go ahead and judge it anyway.

Borrowers with fixed-rate loans—like the government, many companies, and homeowners—will cheer for inflation and worry about deflation.

“YAY FOR OUR DOLLARS BEING ABLE TO BUY LESS!” they shall exclaim! >_O

“Boo for our dollars being able to buy more!” they hope to never have to say.

See, when prices drop, it means businesses are getting desperate to sell more stuff. This is good for buyers because it means we get more for our dollar, but this is bad for businesses because they are making less profit.  Of course, their employees (us) get paid the same for a while, but eventually employee wages get cut to make up for lost sales (the executives have to eat, right?) so, it’s sort of a ripple effect, I guess.  Of course, if profit weren’t the concern (or the execs didn’t have to eat SO MUCH) we might have a more stable system with the wealth spread a bit more evenly throughout our society (distributed wealth? No, that’s NOT socialism!).

When wages and prices grow modestly each year, it’s easier to stay current with existing debt.

But wages aren’t literally “growing.” They just appear to be growing. Because as wages “grow” so do all other prices to make up for your pretend raise.  Inflation doesn’t mean “growing”—inflation is exactly what it sounds like—same amount of balloon material, more air.

And when there’s lots of unused economic capacity—shuttered factories, large numbers of unemployed people—a little inflation can be just what the doctor ordered. Continually falling prices act as a disincentive to investment and risk taking.

Right, because when money can buy lots of stuff the last thing you want is more money. >_<

Yeah, this logic is bass-ackwards. If your money can buy more stuff, that’s WHEN you risk because you have less to lose. At least, that’s how I think—but maybe I’m just a freak.  Think of it like stocks on the stock market—when you can afford to buy lots of stock (the price of a stock is low) you buy more, right?

“Buy low, sell high.” Right?

RIGHT?

Moreover, many economists and most central bankers believe the ideal rate of inflation is slightly above zero.

Well, that shows why you can’t trust economists and central bankers.  So, they WANT our money to slowly lose it’s value. NICE.

“Experience shows that a rate of inflation around 2 or 3 percent helps the economy to perform at full potential with maximum sustainable employment,” says Joseph Gagnon, senior fellow at the Peterson Institute for International Economics.

Because the dollar is sufficiently losing it’s value, we’re all desperate enough to stay in our jobs and not start our own businesses or, god forbid, take it easy (you know in Europe employers give employees 6 weeks off a year!). 

Now think about how much your average savings account pays you in interest.  Yeah, putting money in a savings account doesn’t seem like such a good idea if inflation is growing by the above-mentioned rate. Essentially, your money is gaining nothing and depending on your specific interest rate, you may actually be losing money.  So, don’t bother to plan for that rainy day.

In fact, the Federal Reserve, the nation’s chief inflation fighter, actually wants prices to rise. One of the Fed’s mandates is to provide “price stability,” which means a consistent, reliable annual inflation rate.

No, sorry, that’s not what “stability” means.  Stability means just that—keeping things relatively unchanged. Inflation rising steadily, every year, is not stability (especially when financial crises hit—they make this brand of “stability” even less so).

Without saying it in so many words, the Fed designs monetary policy to target inflation of between 1.5 and 2.0 percent per year.”

Gross, on inflation v. deflation

Nice. So there’s this cabal of white guys in suits that determines how much value our dollar loses every year.  That’s lovely.

What was that thing so many loud-mouth whiners were bitching about?  Oh yeah—the “Free” Market.  What’s “free” about our system if there’s a handful of Wizards of Oz hiding behind a curtain manipulating things?

And no, I never took an economics class in high school (or anywhere else)—maybe that’s why I don’t understand why steadily devaluing a currency is a good thing.  All I see is a way to make the money the poor eventually get (via “Trickledown Economics”) worth way less than the money the rich folks get (since they get it straight from the banks, before inflation steals its value).

Seriously, what this looks like to me is a system meant to keep us desperate enough to stay in our jobs working our asses off while guys in suits get to live large.  There’s no way we can all “make it”—the folks at the top can’t live there without the rest of us holding them up.

I can see why the rich like this system.

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