Fed Says Inflation Is Not Going Up Fast Enough

Article

WASHINGTON (AP) -- It might seem like prices are rising wherever you look, from medical care to college tuition. Yet to the Federal Reserve, they might not be going up fast enough.

The Fed says a little more inflation might be just the thing to start a chain reaction that would ultimately create jobs -- and avoid a spiral of falling prices that could damage the economy.

Once deflation takes hold, it can wreck an economy. Workers suffer pay cuts. Corporate profits shrivel. Stock values fall. People, businesses and the government find it costlier to pare debt. Foreclosures and bankruptcies rise.

And people spend less, convinced that prices will fall even further if they just wait. That trend has already emerged in the housing market. Many would-be buyers are standing on the sidelines, waiting for home prices to fall further.

Spending by shoppers accounts for about 70 percent of economic activity in the United States. A further drop in their spending could potentially throw the economy back into recession.

Personally, I dont know much about economics that much yet. From what I understand from this article, the Fed Reserve wants prices to go up. Not sure if I understand that......Inflation of prices going up will create jobs they say.....Not sure if I understand that either.

Maybe people arent buying much because prices are high? If nobody is buying anything, why would a bunch of jobs be created if nobody can buy the products?

I guess I need an economics lawyer to help me understand all this.

Edit - I wonder how rising prices will help the 1 out of 7 Americans living in poverty?

Not sure if this should be in Breaking or Political Madness or anyplace else.

Tell you what, if you want to know about economics, do not read anything from the general MSM locations.

Start out with the Zero Hedge.

Deflation does not really hurt the economy. It can actually help.

Houses and other real estate were artificially inflated in price over the last few decades. It is normal for the prices of things to go down to find their own equilibrium.

Tell me, do you know how wages have not really increased over the last few decades? The problem was not wages. It was all the bubbles the fed created. Artificially increasing prices of things.

This recession was necessary for the realignment of prices. Of course this is not good for people, banks or government that are sitting on debt. That is why the fed now wants to start inflating again. They are sitting on all this debt. If they inflate the inflationary rate, their debt will not be so bad.

They cause the problem, and we are all the one's that suffer. Anyway, this is just a small part of it. Look into Zero Hedge and other economic sites linked there. You will get much better info, from people that do not have an ulterior motive.

The traditional Keynesian Model (favored by liberals and indeed all big government proponents like GWB) preaches that inflation indicates a shortage of labor, while deflation (prices going down) points to a shortage of capital. (No one has money to lend or invest. Kind of like now....)

You should know if you bother to read my economics threads (like "Survival Investing from several years back) that I am a monetarist. This is the belief that inflation is simply an indication that the government is printing money faster than the economy is expanding.

Think of it this way. Imagine a world with only 1000 dollars in the public's hands, and a single good, say, TV sets produced at a factory. As more and more TV sets are made, what should happen to the price of each unit? It should go down---that's deflation.

So how could the price ever go up? Well, if the government is printing more money, and printing faster than each TV set can be made, then the price of TVs will go up over time----this is inflation.

So, basically the fed has just told you they plan to fire up the presses and print our way out of any problems.

Watch this not work. Again.

reply to post by dr_strangecraft


The banks and capital firms are sitting on tons of money. They are making income above inflation. Why spend?

If they attempt to inflate out of this, we will be Waimar. They will not be able to control it once it gets going.

I have no faith in them at all.

Originally posted by dr_strangecraft

Watch this not work. Again.

That, my friend, is the "Quote of the Day"! Bravo

I am the farthest thing from an economist, but I don't think it takes an expert to understand we can't spend our way out of this. That is to say, the government going on a spending spree won't help. And, as you so eloquently stated, printing more money won't either.

I do think, however, that people holding onto their money is necessary to correct some artificial inflation of real estate values and durable goods.

If they want to make a difference in the job market, why don’t they make all the US company’s overseas, come back and hire US workers. Don’t tell me that they can’t do it, all they need to do is tax and embargo them to the point that it will not be worth it to do business overseas. Yank any company officers citizen ship if they don’t comply. The influx of jobs will change the economy.

Originally posted by saltheart foamfollower
reply to post by dr_strangecraft

 

The banks and capital firms are sitting on tons of money. They are making income above inflation. Why spend?

If they attempt to inflate out of this, we will be Waimar. They will not be able to control it once it gets going.

I have no faith in them at all.

Ya... All we can hope for the time being is that they realize if our money goes south so does theirs.

If I think about it we could not shift over to commodity without a total collapse anyways, that's is a pretty screwed notion to think about. In fact if it is inevitable (if it is not let me know), the best way to reach
the goal of real currency, less government, etc... is to jump into the fire and aim for a collapse. The left
lets the corporations in with programs and regulation - the right lets corporations by ensuring their ability
to do as they want under this false pretense that there is a free market of any kind which is utilized just as regulation is. Its like an eternal foot shooting match

At this level the notion of work, reward, etc is sort of ignoring the fact that it is a suckers game we bicker about.
We all act if our ideological hammers are based upon some tangible foundation, the only foundation is that we do work and play along

This is why it would be nice to do away with the fed. The economy could be fine where ever it was at, but according to the fed things are either good or bad and they want to manipulate things. Bubble and burst like we all know is a fed creation.

reply to post by saltheart foamfollower

Deflation does not really hurt the economy. It can actually help.

WOAH! NOOOOO .. deflation NEVER helps an economy. Price adjustments for certain items (like foods, energy etc) help the economy .. however, all those things that actually MATTER do not get counted on Inflation/deflation measures.

Deflation of the economy in general will always = warning signs of recession.

Generally Economic Inflation of 2-4% is were we strive to be.. it's best if the inflation is lead by job/wage growth and not through price.

It's extreeeeeeeeemely complicated and it's not black and white "this is inflation this is deflation" .. this is Keynesian Economics at it's core.. and the inflation/deflation modules are like a multitude of helix's wound together.

Inflation is not rising fast enough. That is a fact.. and it's a very scary fact. We inflated the economy by pumping funds into the higher echelons of the Corporate world and it never "trickled down" to us peons. When the Fed says "Inflation" at this instance what they are really saying is: "The consumer is badly wounded and new consumers aren't being made, and the consumers we have left are going broke because their wages aren't growing"

We need jobs, we need a reason to hire, we need something to produce that actually generates wealth.. when 75% of your economy is dependent on your own citizens blowing their paychecks every week .. when those pay checks disappear and their savings are gone ... you don't have much of an economy left, do you?

reply to post by dr_strangecraft


Right on! It's good to see some people who understand. I would add that the Fed is probably going to try and get Congress to begin thinking of another "stimulus" plan or "jobs bill" to artificially boost GDP before Q1 2011 sets in.

Originally posted by Rockpuck
We need jobs, we need a reason to hire, we need something to produce that actually generates wealth..

I think the key word is "produce". Back in the late seventies, I often heard about the U.S. moving away from manufacturing, toward service. I was, fairly, young then, but still wondered how that could work. Someone has to be earning income outside the services industries, in order to be able to pay for the services. This, I think was the beginning of our problems.

American economy has undergone a fundamental shift since the conclusion of World War II, at which time service industries accounted for 10% of nonfarm employment, compared with 38% for manufacturing. Since the 1970s the American economy has moved away from producing goods to providing services, and the service-producing sector has accounted for an increasing proportion of workers. In 1970, for example, there were 48.8 million service-providing workers, and 22.2 million people in the goods-producing sector, representing a service-to-goods ratio of 2.2 to one. (See Table 2.2.) By 2000, the number of workers in the service-providing sector was 107.1 million, compared with 24.6 million in the goods-producing sector, representing a service-to-goods ratio of 4.4 to one. In 2005, according to preliminary statistics compiled by the Bureau of Labor Statistics and published in Establishment Data Historical Employment (2005), workers who provided services (111.5 million) outnumbered workers who produced goods (22.1 million) by a ratio of five to one.

Read more: The American Workplace - The Shift To A Service Economy - Jobs, Million, Industry, Producing, Services, and Workers jobs.stateuniversity.com...

Good ideas guys

I want to offer up one caveat though, are the same definitions of inflation/deflation properly applied to the masses as they are applied in the business game?

It truly is a con game, your wages are frozen and the prices go up on everything. Prices on goods go down, but you still have the same wage. Is it a grace period? NO, prices fluctuate (according to the freemarket) to ensure consumer confidence. They don't want anyone to make a run on 'their money'.

Putting your money in the bank is called giving out an almost free loan, but on their terms. Just try going into the bank and closing your account in cash. You will find out that they need you more. It became so easy to borrow out other peoples money that they don't want to even touch their own. Its called free money. Welfare for the rich and even the middleclass conservatives won't see through the illusion.

By all means, we are not playing by the same rules.

reply to post by buni11687


Well Inflation sure helps the Fed..

They get to print more money and charge the taxpayer interest while its in circulation...

Asking the Fed if we need inflation is like asking Toyota if we need more cars...

Originally posted by xyankee
If they want to make a difference in the job market, why don’t they make all the US company’s overseas, come back and hire US workers. Don’t tell me that they can’t do it, all they need to do is tax and embargo them to the point that it will not be worth it to do business overseas. Yank any company officers citizen ship if they don’t comply. The influx of jobs will change the economy.

As long as you are only talking about goods sold domestically, I agree. What these companies do with overseas sales is their own business.

I also think we need inflation but for far different reasons than the fed. There is some point where wages and living cost can come into proper equilibrium. To get to that point, wages will need to rise drastically for most lower level jobs and even some middle level jobs. To pay for these wages, the prices of goods will have to rise. I would estimate that prices would have to rise about 30%-40% for equilibrium to be reached, with every worker being able to afford a decent standard of living.

Of course none of this helps if you can't find work. As part of resetting the price / wage scale you would also return the country to full employment. You do this with massive public works projects. Our infrastructure has a zillion needs anyways. Sure you have the government spending money, but heck we are going to have inflation
anyways. Let's just make them actually print it into circulation instead of lend it and it will all work out. This will allow full employment until we return our manufacturing base to our country. Going forward employment will not be such an issue. We may not have the growth Wall Street wants, but why is it bad for us if Wall Street take on a more Utility type model? Once we reach equilibrium, and stop lending money into circulation, then inflation will be almost non-existant as a whole. In that scenario your required investment returns fall drastically.

All just common sense if anyone would stop and think about it.

One thing I want to mention, Where does all this money, property, and assets go?

Maybe all these federally funded banks had agents who were told to give away fake money in order to passive/aggressively steal real property, and to top it all off, saturate them with debt?

I guess it just seems so to me.

reply to post by Rockpuck


I had these same arguments with my professor in economics.

If you artificially inflate an economy, sooner or later an adjustment has to be made. If you try and inflate out of it, you will only kick the problem down the road.

IMO, if they try to inflate out of this one, look for wheelbarrows to go get yourself bread.

The ONLY thing keeping the dollar solvent is that it is tied to oil.

Just my viewpoint. I never believed half of what I was taught in my macro, micro courses in college. To this day, digging a deeper hole does not seem to be the smartest thing to do.

The only reason deflation would hurt is if you are the holder of debt. Right now, IMO, the deflation is the only thing keeping the economy from imploding.

I have tried wrapping my mind around Keynesian beliefs for 23 years now, they did not seem to see the cliff where the Austrians did. The manipulations the IMF and the Fed do with fiat currency are incomprehensible. How is it that we dumped $30 Trillion (very low estimate) into the economy, yet the inflationary rate since early 09 has been -2.3 to -2.9?

No, the only thing keeping the stock market from tanking are commodities and manipulations, IMO. All the debt has not been taken care of, it has been hidden and not even touched.

Quantitative easing. Yeah right, more like print up tons of cash and do what with it?

We will find out soon enough. The scenario I see happening with the new CPA controlled by the Fed is not a rosy outlook. The only thing I can think of it's purpose is one thing. If true, you can bet that the dollar is gone.

PC.

reply to post by WTFover


The idea being produce it cheaper else where, sell it to the rest of the World, keeping the Corporate "home base" in the US and employ the R&D + service side of the corporations. In theory.. it's a damn good business plan. Unfortunately.. not a very good plan for a Nation lol.

reply to post by dfens

I want to offer up one caveat though, are the same definitions of inflation/deflation properly applied to the masses as they are applied in the business game?

There's numerous definitions just in Economics let alone the Business world.. for the most part "inflation and deflation" to a company is simply profit growth vs. profit loss over a period of time. Not much in comparison to the economy.

reply to post by CynicalM


There are buyers that "have" to buy at auction, but the Federal Reserve it's self is a Board, it is not an entity and cannot own anything. As part of the agreement profits from the Fed are pushed into the Treasury at the end of the Fiscal Year -- which is like loaning your self $10, hiding it but telling everyone you're $10 richer, spend $10, then pull the $10 back out of it's hiding spot a year later and tell people you broke even.



No Keynesian Economics is not supposed to make sense.

reply to post by dfens

One thing I want to mention, Where does all this money, property, and assets go?

If you're talking about the Federal Reserve buying "bad assets" the Fed, being a Board, which cannot own anything, created two "Receivership Corporations".. it was rumored they were called Mary Lane one and two .. inside these "bad banks" as the media calls them, is a massive abundance of bad debts. Most mortgages were sent to Mae and Mac, while bad paper, bad derivatives, etc went to the shadow corporations where they cant harm the "real" banks.

reply to post by saltheart foamfollower


Deflation, economically, is the shrinking of the economy, which naturally means lower wages, wage stagnation, shrinking employment pool.

Deflation on a monetary level is generally a good thing for an importing country like us, our dollar goes further. Even still, inflation is generally preferred because it signifies both job growth and economic growth.

The Monetary supply is not deflating, it's inflating, even while the economy is Deflating .. very unusual circumstances .. the only reason the Dollar has not had a melt down is because this is a Global Depression, and our Dollar is compared to other currencies.. the Euro and Pound fell harder, and the Yen got to strong .. it kept the Dollar in equilibrium. For now.

Hey, everybody! The Problem is this guy, right here !!!!!!


Paul Volcker

He was Chairman of the Federal Reserve back in the Carter Administration. It was he who, back in 1978, convinced the board of governors of the Fed that because of economic stagnation, the only (Keynesian) answer was to fire up the printing presses. The result by 1981 was:

21.5 % prime interest rate


I realize most of you were too young to remember.

Volcker was despised in the media of the day (look back through old time magazine issues; he was vilified by congress). He couldn't be fired until his term expired, but the board of fed governors continually voted against him. He was actually the main popularizer of Milton Friedman's monetarism---by way of providing a negative example of Keynes(!)

So, who in the hell put this Carter era goblin back in a position of public trust, after the way he creamed our corn back in the 1970s? Wait for it..... President Barack O'bama. He's on the president's board of economic advisors, as Chairman of the Economic Recovery Board (TARPS, stimuli, banking overhaul...)

Pay absolutely no attention to the fact that he's as mobbed up as the illuminati ever get:

Council of 30
Tri-lateral Comission
Bilderberg Group
Chairman of Rothschild, Wolfensohn and Co. (yeah, THOSE Rothschildren)


"Vanity of vanities, all is vanity. There is nothing new under the sun"

PS. I just love how wikipedia repeatedly says that Volcker alone saved us from TEOTWAWKI back in the...80's. As always, the victorious elites write the history books.