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Thread: Inflation on the rise? Market says not so much

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    Inflation on the rise? Market says not so much

    Inflation on the rise? Market says not so much

    Options traders push out Treasury market sell off expectations


    October 1, 2012 10:08 am ET


    Bill Gross, who runs the world's biggest bond fund, says the Federal Reserve's open-ended plan to flood the economy with $40 billion a month will ignite inflation. The options market is signaling that won't happen anytime soon.


    Demand to protect against higher long-term bond yields over the next six months has been static since Fed Chairman Ben S. Bernanke announced a third round of quantitative easing, or QE3, Sept. 13, Barclays Plc data shows. Appetite, though, is rising for options that mature in 2015. Traders' expectations for consumer price increases as measured by inflation-protected Treasuries have fallen from highest levels since 2006.


    The market measures show tame inflation is giving Bernanke time to nurse the economy back from the depths of the worst financial crisis since the Great Depression without pressure to withdraw stimulus just as $1.2 trillion in mandated fiscal spending cuts and tax increases start Jan. 1. Consumer prices are in check though the Fed pumped $2.3 trillion into the economy through QE bond purchases since 2008.


    “The market is not suggesting there's any kind of runaway inflation in the next one or two years given the below trend growth trajectory and the impending fiscal cliff,” said Gemma Wright-Casparius, who manages the $43.9 billion Vanguard Inflation-Protected Securities Fund at Valley Forge, Pennsylvania-based Vanguard Group Inc.

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    "I do not claim that every incident in the history of empire can be explained in directly economic terms. Economic interests are filtered through a political process, policies are implemented by a complex state apparatus, and the whole system generates its own momentum."

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    Re: Inflation on the rise? Market says not so much

    Quote Originally Posted by Khayembii Communique View Post
    Inflation on the rise? Market says not so much

    Options traders push out Treasury market sell off expectations


    October 1, 2012 10:08 am ET


    Bill Gross, who runs the world's biggest bond fund, says the Federal Reserve's open-ended plan to flood the economy with $40 billion a month will ignite inflation. The options market is signaling that won't happen anytime soon.


    Demand to protect against higher long-term bond yields over the next six months has been static since Fed Chairman Ben S. Bernanke announced a third round of quantitative easing, or QE3, Sept. 13, Barclays Plc data shows. Appetite, though, is rising for options that mature in 2015. Traders' expectations for consumer price increases as measured by inflation-protected Treasuries have fallen from highest levels since 2006.


    The market measures show tame inflation is giving Bernanke time to nurse the economy back from the depths of the worst financial crisis since the Great Depression without pressure to withdraw stimulus just as $1.2 trillion in mandated fiscal spending cuts and tax increases start Jan. 1. Consumer prices are in check though the Fed pumped $2.3 trillion into the economy through QE bond purchases since 2008.


    “The market is not suggesting there's any kind of runaway inflation in the next one or two years given the below trend growth trajectory and the impending fiscal cliff,” said Gemma Wright-Casparius, who manages the $43.9 billion Vanguard Inflation-Protected Securities Fund at Valley Forge, Pennsylvania-based Vanguard Group Inc.

    Source
    I tend to cue onto pieces of information like "no runaway inflation". I don't think anyone claimed we'd be using wheelbarrows to carry dollars for bread. But when the federal reserve has an intentional inflation policy of at least 3%, it's tearing at the underbelly of the middle class, and is 3% too high.
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    Re: Inflation on the rise? Market says not so much

    I have heard quite a few claims of near-future hyperinflation and economic collapse.

    Also, inflation isn't inherently bad.
    "I do not claim that every incident in the history of empire can be explained in directly economic terms. Economic interests are filtered through a political process, policies are implemented by a complex state apparatus, and the whole system generates its own momentum."

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    Re: Inflation on the rise? Market says not so much

    Quote Originally Posted by Khayembii Communique View Post
    Also, inflation isn't inherently bad.
    I disagree. It directly benefits the rich, and directly disadvantages the poor. The rich own hard assets, which appreciate in value with inflation. When helicopter Ben hands out cash at one of his giveaways, it's always to the hands of the mega rich.

    There's something inherently wrong with a system where the government puts a gun to my head to take a portion of my money, so that they may loan to banks at a .1% rate, so that banks may loan to me at a 3% rate.
    Quote Originally Posted by LowDown View Post
    I've got to say that it is shadenfreudalicious to see the rich and famous fucquewads on the coast suffering from the fires.

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    Re: Inflation on the rise? Market says not so much

    I disagree.
    Of course you do, but I'm not here to argue with you.
    "I do not claim that every incident in the history of empire can be explained in directly economic terms. Economic interests are filtered through a political process, policies are implemented by a complex state apparatus, and the whole system generates its own momentum."

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    Re: Inflation on the rise? Market says not so much

    3% inflation is terrible

    2% inflation (what we've been hovering around the last few years) cuts the purchasing power of the dollar in half every 30 years.. So $100 now would buy what you could currently buy with $50 in 2042. That's pretty rough.

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    Re: Inflation on the rise? Market says not so much

    Quote Originally Posted by RabidAlpaca View Post
    I disagree. It directly benefits the rich, and directly disadvantages the poor. The rich own hard assets, which appreciate in value with inflation. When helicopter Ben hands out cash at one of his giveaways, it's always to the hands of the mega rich.
    Inflation is negatively correlated to unemployment (at least when the unemployment rate is above the natural full employment rate), so it benefits workers or potential workers by reducing real wages and making it easier to hire people. It also benefits debtors at the expense of creditors, who are more likely to be poorer. You are correct that there are some ways that inflation benefits the wealthy and hurts the poor, but generally these ways are outweighed by the benefits to the poor and costs to the wealthy.

    There's something inherently wrong with a system where the government puts a gun to my head to take a portion of my money, so that they may loan to banks at a .1% rate, so that banks may loan to me at a 3% rate.
    That's not what's happening with QE3. In fact, if that were happening, it wouldn't cause any inflation at all because there would still be the same amount of money in circulation. The Fed isn't putting a gun to your head to take money and loan it to the banks; they're creating entirely new money and loaning it to the banks.
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    Re: Inflation on the rise? Market says not so much

    Quote Originally Posted by Voltaire X View Post
    3% inflation is terrible

    2% inflation (what we've been hovering around the last few years) cuts the purchasing power of the dollar in half every 30 years.. So $100 now would buy what you could currently buy with $50 in 2042. That's pretty rough.
    Yes, and you used to be able to buy a soda for a nickel, but you certainly didn't make $7.25 an hour in minimum wages. Over time inflation becomes almost meaningless because everything adjusts upward, there is no relay problem.

    So 3% inflation is fine really, the issues is when inflation runs away in a short period of time, time that markets cannot adjust to. Proponents of free markets like to think they react perfectly with this invisible hand but the reality is that lots of contracts fix prices for set amounts of time, both on the labor and purchasing side of business. This means that a 30% inflation for even a month is very hard to deal with, since lots of people are buying things at fixed rates while everything else becomes more expensive.


    In fact if we knew inflation was going to rise 100% a year every year we could deal with that, businesses and financial transactions would reflect the massive inflation, credit would collapse but the world would continue to function, really the issue with inflation is the ambiguity we don't know exactly what it will be, we can make projections but when they are wrong consequences can be dire.

    The issue with what the fed has done is once the economy does pico up steam there will be lots more of a money floated around and when it enters the market even jacking up the intrest rate may not be enough to prevent inflationary pressure on the dollar and when that happens who knows how much pressure will be put on it and that ambiguity is scary to lots of people.

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    Re: Inflation on the rise? Market says not so much

    My economics teacher said that a loaf of bread and a Brooks Brother's black suit will cost you the same today as they did in the 20's in real dollars adjusted for inflation. I never believed it, but I never checked it.

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    Re: Inflation on the rise? Market says not so much

    Quote Originally Posted by Kandahar View Post
    Inflation is negatively correlated to unemployment
    tell me more about the 1970s?

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