Great Minds Think Alike

Coyote, November 10

But what is really happening here is that the dollar is being devalued.  This is one of the semantic quirks that make me laugh "” when Argentina or Zimbabwe do this, its called devaluation.  When a western nation does it, it is called quantitative easing.

Don Boudreaux today:

Fed Chairman Ben Bernanke, fresh from injecting hundreds of billions of new U.S. currency units into the economy "“ and from planning the injection of yet an additional 600 billion such units "“ criticizes the Chinese government for injecting hundreds of billions of new Chinese currency units into the economy ("Bernanke Takes Aim at China," Nov. 18).  Apparently, when Beijing increases the supply of Chinese currency it does so as part of what Prof. Bernanke ominously labels a "strategy of currency undervaluation," but when Uncle Sam does the same thing with U.S. currency units it's called "quantitative easing" and "a move in the right direction."

  • jsalvati

    TIPS spreads are still indicating below trend inflation, and even if they weren't, it would take us quite a bit of inflation to get us back make up for the price disinflation we've seen over the last two years or so. A little more devaluation would be a good thing.

  • Henry Bowman

    I suspect that the Chinese central bank, whose stated policy is to keep its currency pegged to the U.S. dollar, is simply trying to maintain parity.

  • Will

    OK so according to Milton Friedman:

    Increasing the money supply leads to inflation
    Reducing the money supply leads to deflation
    A small amount of inflation is optimal

    The US has or will have low inflation/no inflation/deflation, so it should increase the money supply.
    China has high inflation, so it should reduce the money supply.

  • tomw

    So we have NO inflation? Not true. Maybe the 'official word' is that there is no inflation, but I beg to differ. Go to the grocery store, and price canned vegetables compared to last year. Compare the price of a can of tunafish, a pound of Colby, and a 'half-gallon' of ice cream that is not quite 64oz.
    Check the price of a 2-liter bottle of any soft drink, and when there check the price of a 24 or 30 pack of Budweiser -- compared to a year ago. They are up. No longer do the sodas go on sale for $.99 or the 24-pack of Coke as 4 for $10. Now it is 3 for $11. The beers went up $1 in October, after going up $2 in April.

    Inflation is here and now. To say otherwise and accept it as fact is to be wilfully blind.
    tom

  • morganovich

    "TIPS spreads are still indicating below trend inflation, and even if they weren’t, it would take us quite a bit of inflation to get us back make up for the price disinflation we’ve seen over the last two years or so. A little more devaluation would be a good thing."

    TIPS are not keyed to inflation.

    TIPS are keyed to CPI.

    unfortunately, there is now a massive difference between the 2.

    we changed the CPI calculation dramatically in 1992 so that it now takes products that go up in price out of the consumption basket and overweights those going down. this is called "geometric weighting". iterate this enough times and anything looks like deflation. this is how healthcare comes to be 1/16 of CPI while it is 1/6 of GDP...

    owner equivalent rents are also heavily manipulated.

    then, we take even more inflation out of the CPI through hedonic adjustments which eliminate price increases through presumed increase in quality. not only is this utterly subjective, but it only works in one direction and is completely irrelevant if you can't buy a new 2007 taurus anymore.

    the net result of all this is our low CPI. if we used the pre 1992 methodology, current CPI would be over 8%. alternately, if we used the current system in the 70's, there was never any serious inflation. 1974 looked about like now.

    there is an excellent explanation of this in a couple of spots:

    http://www.shadowstats.com/article/consumer_price_index

    http://www.safehaven.com/article/5795/real-inflation

  • John O.

    Kettle and Pot. And they both look the same color to me.

    -- John O.

  • caseyboy

    Morganovich - Nicely done. The housing market depression has a disproportionate impact on the CPI. The Feds like to change the way their performance criteria are put together. Keep changing the measurement methodology and you can deliver the desired results (for a while). Once the true inflation starts showing in very visible ways it will accelerate rapidly with painful consequences.

    The labor department (under both administrations) has been doing the same thing with the unemployment stats. I marvel at the high weekly first time unemployment applicants being reported versus the much lower jobs created numbers and the fact that the rate of unemployment stays at 9.6%. Too bad we don't have investigative reporters anymore.

  • Gil

    Other Libertarians prefer to use the "c" word - "counterfeiting".

  • Henry Bowman

    Tomw:

    I'm not disputing that there may well be inflation occurring in the U.S. at present. However, an increase in the price of a commodity does not necessarily imply inflation. If a commodity (such as food) is in short supply, its price will increase even if the money supply is constant. Prices increases that are due to an increasing money supply reflect inflation.

    A current example is wheat, whose price is nearly twice that of a year ago. The price increase is due largely, perhaps wholly, to poor wheat harvests in parts of the world.

    Helicopter Ben loves to print money; he has an irrational fear of any deflation. All indications are that, despite being a bright guy, he really doesn't know much about how economies actually work.