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US wholesale inflation sees biggest monthly gain in 4 years

joG said:
Mild inflation of say 2 percent is even relatively positive. But if everyone has high inflation it'll be a case of "we all go together, when we go".

;)
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Yeah, I see mild inflation as a positive too. It helps build equity in one's non-depreciating assets.
 
Chomsky said:
Yeah, I see mild inflation as a positive too. It helps build equity in one's non-depreciating assets.
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Absolutely and creates an easily accepted instrument that corrects sticky prices like wages, when they turn out to be too high for whatever reason.
 
Visbek said:
Even with 3% inflation, the NOMINAL value of a dollar -- not its purchasing power, but face value -- is cut almost in half in 20 years. Allow me to demonstrate:

1960 $10.00
1961 $10.30
1962 $10.61
1963 $10.93
1964 $11.26
1965 $11.59
1966 $11.94
1967 $12.30
1968 $12.67
1969 $13.05
1970 $13.44
1971 $13.84
1972 $14.26
1973 $14.69
1974 $15.13
1975 $15.58
1976 $16.05
1977 $16.53
1978 $17.02
1979 $17.54
1980 $18.06

What you're doing is mistaking the nominal (face) value with the real (purchasing power) value..
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Ummm the nominal value of the dollar doesn't change. Face value is nominal value. A $10 bill is always and forever a $10 bill. The only occasions I can think of when nominal value does not equal face value would be when the UK switched to the decimal system and the shilling, which no longer existed, became worth 5p, and the 6p coin became worth 2.5p, and in Russia in 1998 when the ruble was revalued at 1,000 old rubles to 1 new ruble.

Purchasing power of the dollar goes down through inflation, but purchasing power of the individual is the difference between wage inflation and price inflation. fmw is correct that inflation devalues savings through loss of purchasing power.
 
Tariffs have been in place on American products for ages. We have had tariffs on other nations products for ages. This so-called "trade war" is nothing but economic fearmongering spread by the MSM and their corporate masters.
 
j-mac said:
Makes sense...When the treasury prints money like it's no problem, at some point all that fiat currency has to be clawed back in, for stability in currency...Which IMHO means, we are still waiting for the pain....Thoughts?
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It's way past time.
 
Visbek said:
This is what I'm talking about with the "Money Illusion."

Purchasing power hasn't declined much since the 1960s. In fact, we are awash in goods and services that were barely imaginable in 1960 outside of science fiction stories.

If the average American had lost 90% of their purchasing power since 1960, our entire economy would be completely screwed. Even with the improved access to credit, no one would be able to afford to buy homes or cars.

Even with 3% inflation, the NOMINAL value of a dollar -- not its purchasing power, but face value -- is cut almost in half in 20 years. Allow me to demonstrate:

1960 $10.00
1961 $10.30
1962 $10.61
1963 $10.93
1964 $11.26
1965 $11.59
1966 $11.94
1967 $12.30
1968 $12.67
1969 $13.05
1970 $13.44
1971 $13.84
1972 $14.26
1973 $14.69
1974 $15.13
1975 $15.58
1976 $16.05
1977 $16.53
1978 $17.02
1979 $17.54
1980 $18.06

What you're doing is mistaking the nominal (face) value with the real (purchasing power) value.

And what alternative do you recommend? Hitting a 0% inflation target would be difficult, and won't change purchasing power.



Again, what you're saying is deeply incorrect.

If the federal government was printing up currency to pay its bills, we'd be in a hyperinflation. That's what Zimbabwe did, what Weimar Germany did.

We also wouldn't have a fairly large federal debt -- since the "printed" dollars would have paid it off.

The reality is that the US has paid most of its bills via taxation. Whatever isn't covered by taxes is borrowed. We aren't printing up money to pay off deficits or debts.
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And that differs in what way from buying our own debt? The FED doesn't buy our debt?
 
pinqy said:
Ummm the nominal value of the dollar doesn't change. Face value is nominal value. A $10 bill is always and forever a $10 bill. The only occasions I can think of when nominal value does not equal face value would be when the UK switched to the decimal system and the shilling, which no longer existed, became worth 5p, and the 6p coin became worth 2.5p, and in Russia in 1998 when the ruble was revalued at 1,000 old rubles to 1 new ruble.

Purchasing power of the dollar goes down through inflation, but purchasing power of the individual is the difference between wage inflation and price inflation. fmw is correct that inflation devalues savings through loss of purchasing power.
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Allow me to rephrase.

Money illusion is when people ignore the effects of inflation, and think of a dollar purely in nominal terms. They think back to when a slice of pizza cost 75 cents, see that it now costs $2.50, and conclude that "a dollar isn't worth anything anymore." They ignore how during that same time period, their wages increased from $7.50/hour to $25/hour.

AFAIK the average American has a significantly higher standard of living than in 1960. Part of this is technological advances (cable TV, cell phones, consumer-grade computers etc did not exist then), some is due to American preferences (we want bigger houses and fancier cars), some is due to higher productivity, some is due to significantly increased access to credit.

It is possible that a particular individual who was 15 years old in 1967, and is 65 today, will have certain higher costs (medical, mortgage, car payments etc) and lower income (as they may have just retired). They would have gone through rampant inflation in the 1970s. There are also social changes which have affected some people more than others, e.g. in 1960 it was relatively easy for a high school graduate to find and hold a manufacturing job that paid middle-class wages, and that is increasingly difficult today.

However, on the whole, FMW's claims are incorrect. Purchasing power of the average American hasn't deteriorated significantly, except for some small wage losses.
 
joG said:
Absolutely and creates an easily accepted instrument that corrects sticky prices like wages, when they turn out to be too high for whatever reason.
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While you are correct, I came from a union neighborhood and have union family members - pls use a different example! :2razz:
 
pinqy said:
Ummm the nominal value of the dollar doesn't change. Face value is nominal value. A $10 bill is always and forever a $10 bill. The only occasions I can think of when nominal value does not equal face value would be when the UK switched to the decimal system and the shilling, which no longer existed, became worth 5p, and the 6p coin became worth 2.5p, and in Russia in 1998 when the ruble was revalued at 1,000 old rubles to 1 new ruble.

Purchasing power of the dollar goes down through inflation, but purchasing power of the individual is the difference between wage inflation and price inflation. fmw is correct that inflation devalues savings through loss of purchasing power.
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Don't get upity now, son.
;)
 
fmw said:
And that differs in what way from buying our own debt? The FED doesn't buy our debt?
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Not in the way you suggest, no.

There is some intragovernment debt, but this is mostly a fig leaf over the nature of Social Security. For decades, payroll taxes collected more than were paid out in benefits, and went into the Trust Fund. By law, this was required to be loaned to the rest of the government, and it is paid back on time, without fail, with interest rates that basically match inflation. It's just a fancy way to pretend that there is something special about payroll taxes. I.e. it's a fiction.

Quantitative easing buys debt and certain assets or credit instruments, but it doesn't do this to pay for government spending. It does this to lower the cost of credit, and increase liquidity. Or, with "Operation Twist," the Fed bought $400 billion of securities with longer maturities (76-360 months) and issued another $400 billion of securities with shorter maturities (7-36 months).

And as the Fed itself says:

The term "printing money" often refers to a situation in which the central bank is effectively financing the deficit of the federal government on a permanent basis by issuing large amounts of currency. This situation does not exist in the United States. Global demand for Treasury securities has remained strong, and the Treasury has been able to finance large deficits without difficulty. In addition, U.S. currency has expanded at only a moderate pace in recent years, and the Federal Reserve has indicated that it will return its securities holdings to a more normal level over time, as the economy recovers and the current monetary accommodation is unwound.
https://www.federalreserve.gov/faqs/money_12853.htm

I.e. the Fed doesn't need to buy up federal debt, because demand for that debt has been very high. Private banks, foreign banks, foreign governments, large investors etc have spent years clamoring for securities.
 
Visbek said:
Allow me to rephrase.

Money illusion is when people ignore the effects of inflation, and think of a dollar purely in nominal terms. They think back to when a slice of pizza cost 75 cents, see that it now costs $2.50, and conclude that "a dollar isn't worth anything anymore." They ignore how during that same time period, their wages increased from $7.50/hour to $25/hour.

AFAIK the average American has a significantly higher standard of living than in 1960. Part of this is technological advances (cable TV, cell phones, consumer-grade computers etc did not exist then), some is due to American preferences (we want bigger houses and fancier cars), some is due to higher productivity, some is due to significantly increased access to credit.

It is possible that a particular individual who was 15 years old in 1967, and is 65 today, will have certain higher costs (medical, mortgage, car payments etc) and lower income (as they may have just retired). They would have gone through rampant inflation in the 1970s. There are also social changes which have affected some people more than others, e.g. in 1960 it was relatively easy for a high school graduate to find and hold a manufacturing job that paid middle-class wages, and that is increasingly difficult today.

However, on the whole, FMW's claims are incorrect. Purchasing power of the average American hasn't deteriorated significantly, except for some small wage losses.
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Ok, we're on the same page. People ignore quality change and income change. A new car or house made to 1950's standards would be way cheap now, but the car would not be street legal and you'd never find gas for it, and the house would be far smaller and less pleasant than a modern house.

But I think that fmw was specifically talking about savings....which are devalued through inflation.
 
j-mac said:
Sounds all good and everything what you are saying, and maybe my view is deeply simplistic here, but after the spending binge/printing binge of the last eight years, doesn't that excess have to be clawed back in at some point? And isn't 'inflation' the way to do that?
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You can't put a slash between spending and printing. They're two different things.
 
j-mac said:
Sounds all good and everything what you are saying, and maybe my view is deeply simplistic here, but after the spending binge/printing binge of the last eight years, doesn't that excess have to be clawed back in at some point? And isn't 'inflation' the way to do that?
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We're seeing reflation, but it's concentrated in asset prices and is not "trickling down" as it were. If you don't own a house or stocks, you're probably not feeling particularly prosperous at this point. Low interest rates have permitted households to borrow more, and they've done it in spades (U.S. Household Debt Jumps to Near Crisis-era Record: NY Fed Survey). Much of the increase in housing prices is concentrated in certain particularly frothy markets like San Francisco, Seattle, and Austin, Texas. As for the "spending/printing binge" you referred to, the Fed has moved into a tightening cycle, albeit slowly and with some trepidation because they don't want to upset the debt apple cart. But it is tightening nonetheless. The Fed has also indicated its intention to reduce its balance sheet and move to an all-Treasury portfolio (by not reinvesting maturing proceeds into mortgage-backed securities) once again.
 
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