Depression in the USA - Deflation verus Inflation

[macduffy]

Not quite accurate to say that "housing isn't part of the inflation figure". Here's an explanation of how it is treated. All a bit technical for me these days but I think the general drift is that new housing costs and rentals get captured - somehow and eventually - but that "market" movements aren't directly included.

http://www.stats.govt.nz/browse_for_...n-the-cpi.aspx

A clearer explanation would be appreciated!

[Aaron]

Not quite accurate to say that "housing isn't part of the inflation figure". Here's an explanation of how it is treated. All a bit technical for me these days but I think the general drift is that new housing costs and rentals get captured - somehow and eventually - but that "market" movements aren't directly included.

http://www.stats.govt.nz/browse_for_...n-the-cpi.aspx

A clearer explanation would be appreciated!

A skim read it and it hasn't enlightened me so I will have to have a more thorough read later. I guess I should at least try and understand how the CPI is calculated before I bitch about it. Informed debate is just so much harder than spouting off.

[Aaron]

Shamubeel Eaqub
Is starting to ask the right questions.

http://www.stuff.co.nz/business/opin...-charged-topic

"This raises two big questions. First, on the unspoken consensus that we must have some form of immigration. Second, that growth in of itself is a good thing."

Although he will be kicking himself on choosing not to buy an overpriced house a few years back.
No tax on capital gains and a govt and financial system designed to ensure inflation of "AT LEAST" 1%-3% per annum. How could you possibly lose over the long term.

[fungus pudding]

Shamubeel Eaqub
Is starting to ask the right questions.

http://www.stuff.co.nz/business/opin...-charged-topic

"This raises two big questions. First, on the unspoken consensus that we must have some form of immigration. Second, that growth in of itself is a good thing."

Although he will be kicking himself on choosing not to buy an overpriced house a few years back.
No tax on capital gains and a govt and financial system designed to ensure inflation of "AT LEAST" 1%-3% per annum. How could you possibly lose over the long term.

He may well have done a lot better with his money elsewhere. Houses are far from the be all and end all of the investment world, although for the average Joe Blow they may be.

[Aaron]

He may well have done a lot better with his money elsewhere. Houses are far from the be all and end all of the investment world, although for the average Joe Blow they may be.

Probably he seems like a smart guy. Although the current 10%-20% per annum tax free gains would be hard to beat with rental returns on top.

[Aaron]

http://www.scoop.co.nz/stories/BU161...-inflation.htm

Looks like monetary policy is working well. Inflation starting to rise, the poor and people on fixed income(superannuitants) hit hardest while the well off enjoy the double digit inflation on their assets.
Doesn't this enrage anyone else or is this the wrong forum to be worrying about the less well off in society and a global monetary/economic ideology that is trying hard to make the situation worse. Trying to save those who borrowed too much and now trying to save the governments after bailing them out. It is so wrong.

[Aaron]

Maybe Liam is finally starting to get on board the change train with this article.

http://www.nzherald.co.nz/business/n...ectid=11750044

Although I have a xenophobic distrust of any American at least he might be able to get some change in thinking. Donald Trump is proposing to do the fiscal spending that will bring the world to right according to the current mainstream economic thinking. If that fails then maybe they will look at a better way to view the world economically.
Deflation fighting central banks creating assets bubbles will be viewed as insane in the future.
They are looking insane to me right now.
GDP as some sort of relevant measure of the economy is bull**** although there may not currently be a better alternative. Car accidents 3% of GDP? Wow bring on the earthquakes NZ GDP through the roof = successful economy.
Economics is not a science it is a study of human nature concerned with the production, consumption, and transfer of wealth.
This idea inflation is good needs to be kicked to the curb before the world becomes even more unequal.

[Aaron]

Cost of housing construction up, inflation back over 1% per annum and rising looks like the world has been saved from deflation and I am a chump for trying to predict the future. problems might arise if they are too successful with inflation but central banks will be reluctant to raise interest rates without bankrupting their countries (Japan & USA) so I might as well admit defeat everything has shot up while I waited for deflation in asset prices. No one really knows what happens from here. Why didn't I listen to Phaedrus, probably because I thought I knew better.

[Aaron]

I’ll carry on my conversation with myself. Wrong thread I know but it keeps it together.

Found this interesting

https://www.youtube.com/watch?v=8tpm2IoK3wE

If you go to 11.50 in, Gary Shilling has an interesting theory regarding inflation in times of peace and times of war. During peace time there is a plentiful supply of goods and services so it is deflationary. In war a fully employed populace on top of increased govt spending generates inflation. He also argues globalisation has helped create deflationary pressures.

Central banks increasing the price of assets and increasing inequality with their mindless policies of cheap plentiful money and ZIRP/NIRP in the hope of creating inflation have only increased anger at how unfair the financialisation of the world economy has been. The risk takers should have been wiped out in 2008 and the GFC.

I guess central banks will inadvertently cause inflation by angering the majority of the population and getting war mongering politicians elected as people are unsure why they feel like life is getting harder. Blaming foreigners is the simple solution but I would suggest pushing up prices while wages stay flat will lead to people finding getting by harder and harder.
There is no way Donald Trump will accept deflation his whole empire is based on debt and the repayment of this debt through inflation rather than saving and paying down debt. War really is the only answer if we want to keep the status quo.

Hopefully economists will put a bit more effort in coming up with a system that will help a majority of people, not just the well-off but I don’t imagine they will. The endless growth model probably has a lot further to run, who knows.

What is the problem with deflation the arguments against it don’t seem compelling to me.
The arguments against deflation are as follows as far as I know.
1/ people will spend and consume less. (in a world that has concerns about global warming is this really a problem)
2/Borrowers will be worse off than lenders (horrors responsible people not borrowing to excess being rewarded for their conservative approach)
3/Wage earners might do better as there would be a reluctance to reduce wages.(People on a fixed income like wage earners do worse with inflation)
4/ the reduced economic activity would lead to marginal businesses going under and increased unemployment but how bad a problem would this be.

Save the wealthy, overconsumers and the speculators at the expense of the investors and savers and the average man on the street who doesn’t yet fully understand how inflation works particularly if there is no real wage growth but upwardly spiralling house(asset) prices.

[Aaron]

Looks like inflation is the clear winner.
7% increase in my insurance premium
4% increase in software subscription
http://www.cnbc.com/2017/03/21/uk-in...-jumps-23.html
I doubt we will see any significant interest rate rises to head inflation off at the pass as this is what is required to deal with all the debt.
What to do. I need rising interest rates to trigger a financial market crash and bring asset prices down. Looks like savers are about to be robbed big time but I don't want to be investing in anything at what could be the top of the cycle.
Bring on a black swan.
S&P 500 index looking interesting this morning.