Interesting People mailing list archives
Re: Report: biggest decline in prices since the Great Depression
From: David Farber <dave () farber net>
Date: Fri, 23 Jan 2009 13:10:32 -0500
Begin forwarded message: From: Steven Schear <schear.steve () googlemail com> Date: January 23, 2009 11:49:36 AM EST To: David Farber <dave () farber net>Subject: Fwd: [Dewayne-Net] Report: biggest decline in prices since the Great Depression
--------- Forwarded message ---------- From: Steven Schear <schear.steve () googlemail com> Date: Fri, Jan 23, 2009 at 8:43 AM
Report: biggest decline in prices since the Great Depression by New Deal Fri Jan 16, 2009 at 05:52:47 AM PST <http://www.dailykos.com/storyonly/2009/1/16/81223/5999/707/684745>In the next 60-90 days, we will know whether or not we have started the first full-fledged deflationary wage-price spiral in over 70 years. If that happens, it will make the entire crisis up until now feel like a walk in thepark.
Yep, all those pipe dreams of living on credit and paying back loans with cheaper future dollars just went up in smoke.
This morning the BLS reported that Consumer prices in December fell ( - 1.0 %) on a non - seasonally adjusted basis. Inflation for the entire year 2008 was +0.1%! (meaning I have officially won my bet wtih Bonddad). In the last 5 months, prices have fallen ( - 4.4 %), or at an annual rateof ( - 11.0%)!
A better CPI measure is the Case-Shiller CPI. "Owners' Equivalent Rent" (OER) is the largest component in the government measure of the Consumer Price Index (CPI). OER is a process in which the BEA estimates what it would cost if owners were to rent the homes they own from themselves. Probably not a valid pricing barometer. By ignoring housing prices, BLS' CPI massively understated inflation for years and is only now coming to terms with its analytic errors. The following chart shows what happens If one substitutes the Case-Shiller housing index for Owners' Equivalent Rent in the CPI: http://tinyurl.com/bzxbb5 In spite of massive cuts in the Fed Funds Rate to zero, real interest rates are still positive by 3.1%!
Yesterday, the Producer Price Index showed the first annual decline since 1950. In the last 5 months of the year, producer prices fell (-8.2%), the biggest collapse since the Great Depression. The day before that, importprices fell the most in its 26 year history.This is the worst deflation since the Great Depression. To make matters worse, in addition to losing nearly 2 million jobs in the last 4 months, wemay be on the cusp of a wage-price deflationary spiral as there are increasing reports of companies imposing wage cuts on their workers.
Clearly, its not in anyone's interests to have run-away deflation or inflation. However, the given wisdom that a constant, small, amount of inflation is tolerable or even beneficial is IMHO nothing but propaganda disbursed by those who stand to benefit by it. Some economists maintain that without the ability to centrally control the monetary supply and interests rates no modern economy can exist. However, during the 19th century, when America was undergoing its westward expansion and massive nation-building, there was no Federal Reserve Bank, interest rates were primarily set by the markets, the dollar was still partly backed by gold (in fact, gold coins circulated widely) and inflation was almost zero over decade time intervals (according to Alan Greenspan). The lack of inter-generational memory (http://en.wikipedia.org/wiki/Kondratiev_wave) and economic group-think is behind our economic troubles. For thousands of years money based on gold has kept money values and banking systems relatively stable but such a basis acts as a restraint on the politically powerful, the foolish, the greedy and the corrupt and so its been abandoned. Time to get rid of the Fed and back to basics. There is certainly enough gold to back the money supply worldwide though the price of gold would sky-rocket. I've been promoting widely a relatively new blog, Mishe's Global Economic Blogspot, that's been a god-send to investors and citizens trying to make some sense from the untimely, inaccurate, incomplete and intentionally misleading data that routinely issues from government and big business. It was just honored by Time Magazine as a top independent financial blog: http://www.time.com/time/business/article/0,8599,1873144-1,00.html Steve ------------------------------------------- Archives: https://www.listbox.com/member/archive/247/=now RSS Feed: https://www.listbox.com/member/archive/rss/247/ Powered by Listbox: http://www.listbox.com
Current thread:
- Re: Report: biggest decline in prices since the Great Depression David Farber (Jan 23)