Tuesday, October 29, 2013

All the News That is (Un)Fit to Print

The world of economics is chock-full of ignorant and brain-dead theories – theories designed to skim wealth from the masses, and theories peddled by the anointed elixir peddlers.

One such theory regards inflation, and the New York Times offers a nice example of the sales pitch. The article is referring to price inflation, and I will address the comments accordingly; I will add a few thoughts about monetary inflation at the end; no respectable mainstream outlet would ever broach this subject….

The first twelve words offer the about only sensible thought in the article:

Inflation is widely reviled as a kind of tax on modern life…

It goes downhill fast thereafter:

Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.

Then followed by a total lie:

The Fed has worked for decades to suppress inflation…

The Fed exists to create inflation.  It has done a remarkably good job of it: even by official measure the dollar has lost about 95% of its purchasing power since the creation of the Fed.  In the 100 years before this dastardly birthing, prices generally fell slightly.

…economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak.

Does anyone still believe we will see any deflation before we see a significant surge in inflation?  Obama isn’t nominating Jim Grant, for goodness’ sakes.

“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”

Economists believe the economy can be finely tuned and controlled.  Note that Rogoff describes the possibility as a “sustained burst.”  The image is one of a space ship making a course adjustment via a controlled burst from the port thruster.

Whenever I see the economy described in terms suited for either something mechanical or biological, I conclude the purpose is to fool the layman. 

The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year.

What focus on suppressing inflation?  If they were actually attempting this, they have failed miserably without any doubt.  In any case, if the Fed wanted prices to increase today, they could charge the banks for holding excess reserves.

Critics, including Professor Rogoff, say the Fed is being much too meek. He says that inflation should be pushed as high as 6 percent a year for a few years, a rate not seen since the early 1980s.

Rogoff is certainly old enough to recall how miserable economic life was for the average American beginning in the early 1970s and through the early 1980s.  Yet this is his wish for Americans today.  It suggests something about how much he despises humanity, it seems.

And he compared the Fed’s caution to not swinging hard enough at a golf ball in a sand trap. “You need to hit it more firmly to get it up onto the grass,” he said. “As long as you’re in the sand trap, tapping it around is not enough.”

Oh…and sports analogies.  So, when they use mechanical, biological and sports terms to describe the economy, the intent is clearly to fool those dumb enough to read mainstream sources for news.

But, thankfully, the Times throws in some common sense:

All this talk has prompted dismay among economists who see little benefit in inflation, and who warn that the Fed could lose control of prices as the economy recovers. As inflation accelerates, economists agree that any benefits can be quickly outstripped by the disruptive consequences of people rushing to spend money as soon as possible. Rising inflation also punishes people living on fixed incomes, and it discourages lending and long-term investments, imposing an enduring restraint on economic growth even if the inflation subsides.

And wait until you see who is quoted in support of these few words of wisdom:

“The spectacle of American central bankers trying to press the inflation rate higher in the aftermath of the 2008 crisis is virtually without precedent,” Alan Greenspan, the former Fed chairman, wrote in a new book, “The Map and the Territory.” He said the effort could end in double-digit inflation.

Alan Greenspan, the paragon of central banking virtue.  He is now trotted out as the sensible one regarding inflation.

The worst possible outcome – that the US turns into Japan:

Kariya, a popular instant dinner of curry in a pouch that cost 120 yen in 2000, can now be found for 68 yen, according to the blog Yen for Living.

Yes, this would be a problem for the working man – his necessities of life are falling in price.

But rest assured, those calling for higher price inflation are thinking of the little people:

Many households also have reason to miss higher inflation. Historically, higher prices have led to higher wages, allowing borrowers to repay fixed debts like mortgage loans more easily.

“Let me just remind everyone that inflation falling below our target of 2 percent is costly,” Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said in a speech in Madison, Wis., this month. “If inflation is lower than expected, then debt financing is more burdensome than borrowers expected. Problems of debt overhang become that much worse for the economy.”

Somehow, the debt burden of Americans has only grown, and not shrunk, during this wonderful period of inflation.  How can that be?  Perhaps they forgot to mention the cheaper credit induced by policies of the Fed and the US government that have incented people to borrow more. 

Back to the use of the term “inflation”:  note that the entire article uses the term “inflation” in the context of prices as measured by the CPI or other such index.  There is no discussion of monetary inflation – which at one time was what one naturally was discussing when the term “inflation” was used.

The most damaging distortions come with monetary inflation – money and credit is funneled to those closest to the money-printing machine.  This distorts supply and demand, and therefore prices in ways outside of normal market forces.

Think of money as chits.  Those closest to the Fed have access to an unlimited supply of chits, at virtually no cost.  The rest of us have to produce something in order to earn chits.  All chits are equal in the market and compete equally for stuff to buy.

Whether or not prices rise is immaterial to the reality of monetary inflation (although in all likelihood, prices would generally decline absent the monetary inflation – a “good” for most normal humans).  The chosen few are able to buy more because of the monetary inflation.

Price inflation is only one possible damaging consequence of monetary inflation, but not the only one and not necessarily the first one.  But the conversation is shifted to price inflation because this allows the gatekeepers to hide the true objective – confiscate wealth through the creation of chits for the select few.

An article about this would be news that is fit to print.  Don’t expect to see this in the New York Times.


  1. BM: Those closest to the Fed have access to an unlimited supply of chits, at virtually no cost. The rest of us have to produce something in order to earn chits.
    SB: I would also like to add the closest to the Fed don't have to give up their property when they make bad investments and default. They're just given more bailout chits so they can stay in business when they should fail. The rest of us have our houses or cars taken from us when we make bad investments and default. No bailout chits for the rest of us.

    Thanks for the explanation as to why those closest to the FED are the ones always making out like bandits. The Daily Bell has stated this many times but your "chits" explanation helped me understand why it works this way.

    1. SB, good comment regarding those closest also receiving the bailouts. I must remember this when I write on this topic in the future! Thank you.

      Just FYI, I expand a bit on this idea of "chits" in this post, if you are interested:


  2. Inflation is simply an effect of the dishonesty of money today and for decades. Every economic pathology of the past 43 years coincides (and correlates) to floating the dollar free of any anchor to "real production" (AKA product that is validated by being bought in a free market by a willing buyer).

    Dishonest money serves many insidious purposes. It causes tax bracket creep, raising the extortion bite on income. It punishes holding monetary value outside of the regulated, seizable (by legalized theft) banking system, enriching plaintiffs' attorneys, tax authorities and cartels like the Medical system. Basically, dishonest money rewards thieves and punishes the prudent.

    It is a perfect system for a nearly perfect criminal enterprise, the USA.