24
Mar
2014
Every Breath Bernanke Took
I dug this up for somebody on Facebook, and I was pleasantly surprised at how (unwittingly) prescient it was (particularly if we define inflation as an increase in the quantity of money).
(The backstory is that the dean of Columbia Business School [CBS], Glenn Hubbard, had been in the running to replace Greenspan, but obviously Bernanke was picked instead. So the students at CBS made this spoof video, and apparently the singer has a passing resemblance to Hubbard.)
I like it.
Midpoint I realized Yellen is a progression of Bernanke who was progression of Greenspan. If Yellen multiplies fed reserve size, scope and influence, the same multitude as Bernanke and Greenspan. Freedom R.I.P.
Lovely
So prescient. The history rate of inflation from creation of the Fed to Bernanke was 3.2%/year. Under Bernanke the rate of inflation was 2%/year.
annual CPI 1913: 9.9
annual CPI 2006: 201.6
annual CPI 2013: 232.957
annual rate of inflation from 2006 to 2013: 2%/year
annual rate of inflation from 1913 to 2006: 3.2%/year
Since we are at inflation. A question to all regarding the substitution effect.
If say apples are used to calculate the CPI and this year they increase in price 10% and oranges only by 1% then those guys calculating CPI take out the apples and use the rate of the oranges instead. So annual inflation according to the CPI is only 1%.
Now next year happens the opposite. Oranges increase in price by 10% and apples now only by 1%. Hence those guys calculating the CPI switch back to apples, and we again have only 1% annual inflation rate. So the real rate was 5.5% annually though the CPI would only say again 1%.
Is it basically really done this way if prices would move like that?
Short answer…generally yes
macro perspective… CPI is a political statistic NOT an economic statistic
Since nobody disagrees I guess it really must be right. Thanks.
The Illusions of Hedonics
http://mises.org/daily/1873
Most of what appears like an objective standard of measurement in economic statistics is a deeply flawed endeavor to measure the non-measurable. As the price statistician must admit, there is no meaningful way to measure the “price level”. At best, it is changes of the price level that can be constructed. But even with these changes, the measurement is flawed, because one cannot measure something, when both, the measurement rod and the object of measurement, are subject to change.
The price statistician constructs a basket of products in order to measure the changes of the value of money. He claims that this basket is representative. But he cannot ignore the fact that the composition of this basket changes over time. Some products become obsolete, other products get modified and new goods and services appear. So he will change the composition of the basket. By this procedure, however, he implicitly changes also the units of measurement.
…
In order to measure something one needs a constant measuring rod on. One cannot measure something in a meaningful sense when both are variables: the price changes as the object of measurement and the goods basket as the meter. The problem with the price index is that both do change: the composition of the individual basket of goods changes and the quantity of money.
The urge to measure the “price level” appeared after the demise of the gold standard. Under the gold standard, money was fairly stable, at least to a degree that allowed individuals and business to perform sound economic calculation. With the abandonment of the gold standard, the necessity emerged to “measure” the purchasing power of money. With money now as the variable, a “representative” basket of products was said to serve as the measuring rod. The BLS felt rightly so that the traditional way of calculating the price index was flawed. Now they use hedonics. However, the critique against measuring the un-measurable as put forth by Ludwig von Mises still holds that the “notion of stability and stabilization are empty if they do not refer to a state of rigidity and its preservation.”
I thought Bob specifically mentioned this….
But it was in parentheses so it doesn’t count.
My guess is that the apoplectic fits would have set in at the word “inflation” given that it was preceded by the word “prescient”.
You expected him to read past the top line?
Only a boob would believe published CPI.
Not only are CPI prices a lie , prices are merely a symptom of inflation because inflation by definition is the unwarranted expansion of money supply.
“Hey look over here at this inferior food substitute, don’t look over here at the money base graph that looks like the space needle…
http://wiki.mises.org/wiki/Inflation
Joe doesn’t get that is as far from a compliment to bernanke ot a fed chair as one can get, even by their own standard as they have been trying and failing to create inflation since they created the dreaded deflation disaster.
By not maintaining trend after helping create the bubble bernanke caused a deflationary near depression on the way to using extraordinary experiment measures in failing to produce trend inflation by creating an unprecedented impending balance sheet disaster.
An amateur joke song notwithstanding, the fed’s job is to get it right and they got it wrong at almost every opportunity.
2003 Chevy Silverado HD2500 Price 37000
2015 Chevy Silverado HD2500 Price 51000
2.8% annual compound.
Tires and fuel and other service repair items have increased similar amount.
Certainly not stable nor declining.
Crazy to think about personal budgetary implications. Everything in your budget, must be accounted for and your income must increase @ 2.5% -3% jus to remain status quo.
If you omitted 1 single budgetary item, if 1 included item goes up more than 2.8% or if salary increase is less, your entire personal budget will come crashing down.
Now how do creditors give loans knowing when every loan and real life obligations is looked at on 1 sheet of paper the sum bust the budget?
Notice the constant and relentless Keynesian push to change the subject from a) funny money induces false, distorted and unsustainable prices and price structures to b) “THERE WASN’T AS MUCH CPI INFLATION AS ONE OF YOU PREDICTED IN 2009!!”.
Hey look over there, not over here where we are desperately trying to to centralize reality.
There is also that they would have been trying to produce inflation.
At anything other than failing and creating bad debt they are utterly impotent.
And these numbers do not account for registration or other tax changes…
Think about how a 1% income tax change, effects your entire personal price structure…
Oh how these simple minded politicians and wannabe centralizers agitate me. I don’t dare label them economist…
[T]he nation’s central bank during the Greenspan era had become the sponsor and patron of the TBTF (too big to fail) doctrine.
This was an astonishing development because it meant that Alan Greenspan, former Ayn Rand disciple and advocate of pure free market capitalism, had gone native upon ascending to the second most powerful job in Washington. In fact, within five months of Greenspan’s appointment by Ronald Reagan, who had mistakenly thought Greenspan was a hard-money gold standard advocate, the Fed panicked after the stock market crash in October 1987 and flooded Wall Street with money.
For the first time in its history, therefore, the Fed embraced the level of the S&P 500 as an objective of monetary policy. Worse still, as the massive Greenspan stock market bubble gathered force during the 1990s it had gone even further, embracing the dangerous notion that the central bank could spur economic growth through the “wealth effect” of rising stock prices.
This should have been a shocking wake-up call to friends of the free market. It implied that the state could create prosperity by tricking the people into thinking they were wealthier [emphasis added], thereby inducing them to borrow and consume more. Indeed, the Greenspan “wealth effects” doctrine was just a gussied-up version of Keynesian stimulus, only targeted at the prosperous classes rather than the government’s client classes. Yet it went largely unheralded because Greenspan claimed to be prudently managing the nation’s monetary system in a manner consistent with the profoundly erroneous floating-rate money doctrines of Milton Friedman.
Indeed, the Greenspan wealth effects doctrine sounded conservative and reassuring, especially since it was conducted behind a smokescreen of Friedmanite rhetoric about the glories of free markets and the wonders of the 1990s upwelling of new technology and productivity. In fact, Greenspan had made a Faustian bargain: once the Fed got into the stock market– propping and Wall Street– coddling business as tools of monetary policy and took on vast pretensions about its role as the nation’s prosperity manager, it could not let the stock market fall back to free market outcomes.
David Stockman “The Great Deformation: The Corruption of Capitalism in America” pp. 13-14
Look at that. The Fed finds out that its policies benefits especially the largest banks. Don’t tell LK, he thinks it hurts them, but helps the poor. And that this subsidies increase systemic risk…
“Naturally, it goes without saying that the Fed, which as even Fisher now admits, has over the past five years, worked solely for the benefit of its banker owners and a few good billionaires, has done everything in its power to subsidize banks as much as possible, which is why this debate was so ridiculous it merited precisely zero electronic ink from anyone who is not a clueless economist. Today, the debate, for what it’s worth, is finally over, when yet another set of clueless economists, those of the NY Fed itself, say clearly and on the record, that TBTF banks indeed do get a subsidy. To wit: ” in fact, the very largest (top-five) nonbank firms also enjoy a funding advantage, but for very large banks it’s significantly larger, suggesting there’s a TBTF funding advantage that’s unique to mega-banks.””
““This insensitivity of financing costs to risk will encourage too-big-to-fail banks to take on greater risk,” Joao Santos, a vice president at the Fed bank, wrote in his paper. This “will drive the smaller banks that compete with them to also take on additional risk.”
http://www.zerohedge.com/news/2014-03-25/fed-finds-tbtf-banks-increase-systemic-risk-have-funding-advantage
Sounds like a great formula to cure recessions. Just double down !!
I always fail to see the point of the Keynesians and their “Nya nya nya, inflation isn’t as bad as you said it would be!” Price, and thus information distortions are the initial problem with funny money emissions even if it does not show up immediately in the CPI (and Keynesian will not grasp that simple concept). And David Stockman has found some consumer inflation, hiding in plain sight:
So when you get by the rent imputations and the ”hedonic adjustments” for cars, toasters, big screen TVs and iPads— the rest of the cost-of-living menu is has been downright inflationary. Renters’ costs have risen one-third faster than the Fed’s target; electricity bills rose by double; college tuition is up by 2.3X and ground beef, eggs, movie tickets and health care by three-fold. And, of course, hydrocarbon-based energy is not even in the Fed’s zip code: Gasoline prices have out-run the target by 5X since January 2000 and home heating oil in places like the Northeast by 6X.
http://davidstockmanscontracorner.com/2014/03/25/let-them-eat-ipads-14-years-of-data-debunk-feds-inflation-shortfall-canard/
I just read that Stockman article, thanks for the link. His price increase charts says it all. Did you notice kw hour electricity only went from .08 to .13? I have seen other statistics that say similar year I am curious as to how much electricity cost have really increased? My bill is only 50% kwh charge and the other half is regional adjustments, fees, charges and taxes.
I think electricity has increased more than the published numbers claim.
I know the zero compromise crew will hate me for this but I think a campaign to adjust Fed target from 2% downward to 0% would be great place to start! Its not like the Fed will be ending anytime soon…
Having been politically involved first hand, I have come to realize extreme principled position accomplish nothing more than waste all resources that could of instead have been used for baby steps. They used incrementalism to enslave us, we are going to have to use it to free ourselves.
Where is Rand Paul, Cruz and others? Fed Target rate needs to be adjusted downward to 0% inflation!