Are we experiencing Inflation or Deflation?
I have lost some measure of confidence in the ability of the CPI to tell me what is really going on. Over my adult lifetime, approximately since the Cretien regime began, inflation has been 'vanquished' to less than %2 CPI per year... which would represent a 40% price increase over that time (very worse case of 2%... actually probably about 25%).
Nevertheless, It is my feeling that prices have gone up on my individual purchaces by more than that. I do not know.
Right now, I am troubled by the fact that different indicators are telling me that we are both experiencing Inflation and Deflation, which cannot ne true.
Example: Microsoft is one of many large companies just sitting on a bunch of liquidity. You don't do that unless you think that money is going to hold value vs. everything else. i.e. they think there is real deflation.
Counter-Example: Gold is through the roof in every country i.e. vs. "a measure of real value" currency is losing it's power i.e. inflation.
Which is it?
Interest rates are at an all-time low, money is free... if a bank chooses to lend it to you. Is it the case that only the investor class have the abilty to procure the free money, and they have nothing better to do with it than compete for Gold? If that is the case then Gold is a bubble and the Deflation is real...
...on the other hand, if the CPI is bogus and there is a real fear that the US Fed is going to push the Dollar down, then Gold and Inflation are real. This, to me, seem less likely except for two things:
(1) QE2 (which as far as I am concerned is just a disingenuous scheme for printing money while you try to pretend you are not doing so) would address the US concern that 0% interest rates are not providing enough stimulous.
(2) QE2 will lower the dollar v. China at the same time. There is the growing impression south of the border that China does not play fair.
QE2 kills two birds with one stone. It can be popular with both sides of an incoming divided government, as it can be both protectionist and fiscally responsible at the same time.
I'm not at all decided on which is really true, but i'm leaning 55-45 on Inflation when you add in this last point. I am curious what others think.
Shadow of Victory
8 years ago
3 comments:
I think things are stagnant. It is possible for things to slip either way. This would lead to indicators in both directions. By your 55-45 split it looks as you hold a similar view.
If an economic war with China happens, I see things going south in a hurry.... China would probable survive the result in better shape.
The price of goods is going up - oil, manufactured goods, etc. Is this the real value increasing or simply the result of QE1, QE2...QEn added to the printing of money like mad in the US plus the general fiscal instability of Europe (Germany paying for all)?
I submit that our practical expeience as persons paid in $Cdn and at reasonably set rates is that we are experiencing a reduction in buying power for most tangible good (food, homes, cars, etc). This would be an indicator of inflation (or put another way, a deflation of the valuation of our currency).
If Europe can't get its act together, we're in trouble. If the US can't improve its situation, we're in bigger trouble. If China calls in its markers, everyone is in trouble.
The US growth now is about 2% and that's where, at a similar point in the recovery after the Great Depression, their economy was growing at 7-8%. The stimulus is done, gone, the bank is empty. Maximum stimulus, too big to fail bailouts, and 2% growth as the result? We're in trouble already but it will get worse before we are done, and largely not a result of Canadian policy. Mark my words.
No new blog content since 2010? This is a scandal. I think the blog author needs to SUFR.
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