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Inflation on the rise? Market says not so much

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[h=1]Inflation on the rise? Market says not so much[/h] 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
 
[h=1]Inflation on the rise? Market says not so much[/h] 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.
 
I have heard quite a few claims of near-future hyperinflation and economic collapse.

Also, inflation isn't inherently bad.
 
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.
 
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.
 
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.
 
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.
 
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.
 
tell me more about the 1970s?

Are you aware of how Paul Volcker finally broke the back of inflation? It was by raising interest rates, which led to an intentional-but-necessary recession from 1980-1982. Just because unemployment and inflation are sometimes both high or both low doesn't mean that they aren't inversely related; the late 70s is a perfect example of dialing up unemployment in order to dial down inflation. In our present situation, we have the opportunity to dial up inflation in order to dial down unemployment. Hopefully the Fed makes good on their promise to do so.
 
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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.

Median wage levels are at the same level they were in the mid 1990s. Inflation hasn't stopped since then. The middle and lower classes are getting screwed over. Wages for most people aren't rising with the cost of living.
 
Median wage levels are at the same level they were in the mid 1990s. Inflation hasn't stopped since then. The middle and lower classes are getting screwed over. Wages for most people aren't rising with the cost of living.

Yes, they are getting screwed but it has a lot less to do with inflation than it does globalization. The ruling class has an easier time exploiting the American working class by exposing them more directly to competition from the third world, this has allowed wages to remain stagnant after all why pay people in Michigan a dime more if you could save money by sending that job elsewhere.

If we go down a path of Keynesian economics again, which I think we will, we will probably live with a moderate amount of inflation, and the ruling class wanting to maximize profit will make no moves to do things like peg minimum wage to inflation (which is a very good idea imo) so it will continue that wages will sink till congress needs a boost.

The thing that has changed really is that NAFTA and all the other pro globalization legislation were touted as things good for us, they were not.
 
I have heard quite a few claims of near-future hyperinflation and economic collapse.

Also, inflation isn't inherently bad.

The fed can not hold it back forever, as they more and more devalue the dollar, odds are good things are going to get worse...
 
The fed can not hold it back forever, as they more and more devalue the dollar, odds are good things are going to get worse...

Right ... except they aren't devaluing the dollar. The dollar goes up and down, but if you look at the last five years, it's presently higher than average.
 
Right ... except they aren't devaluing the dollar. The dollar goes up and down, but if you look at the last five years, it's presently higher than average.

You need not reply to me, as I don't care to deal with your hackish junk...
 
You need not reply to me, as I don't care to deal with your hackish junk...

My reply was 100% factual. That seems to be what you have a problem with.

Maybe you can point out the rampant dollar devaluation you mentioned?

DXY.JPG
 
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My reply was 100% factual.

I'm sure by your definition of 'fact' it was. It's the continual redefinition of words, as well as selective data sets, that are the problem with your posts.
 
Inflation?

A brand new base model corvette in 2002, exactly ten years ago, would set you back some 41K.
A brand new base model corvette in 2012, ten years later, will set you back some 50K.

That's about 10 grand, in ten years.

To put that another way, it's about a dollar a day.

When you look at inflation, you have to look at REAL WORLD dollar amounts. That's all that matters.
 
Yes, selective data sets. Looking at the big picture might upset your beliefs.

Come oooonnnnn.....use my post, in reference to selective data sets....it's why I made it!
 
Yes, they are getting screwed but it has a lot less to do with inflation than it does globalization. The ruling class has an easier time exploiting the American working class by exposing them more directly to competition from the third world, this has allowed wages to remain stagnant after all why pay people in Michigan a dime more if you could save money by sending that job elsewhere.

If we go down a path of Keynesian economics again, which I think we will, we will probably live with a moderate amount of inflation, and the ruling class wanting to maximize profit will make no moves to do things like peg minimum wage to inflation (which is a very good idea imo) so it will continue that wages will sink till congress needs a boost.

The thing that has changed really is that NAFTA and all the other pro globalization legislation were touted as things good for us, they were not.

*sigh* I have to respond to this argument every few days now.

Free trade is a good thing for everyone in the long run. It increases our standard of living. Outsourcing jobs is actually good for our economy. It allows us to focus our resources on producing goods that we have a comparative advantage in compared to other countries. We'd have a much lower standard of living if we manufactured everything here in the US as opposed to importing most basic goods like we currently do.
 
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