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Noting the recent increase in inflation, Bernanke once again calls this pressure "transitory."...
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Wednesday, April 27, 2011, 2:26 PM ETNoting the recent increase in inflation, Bernanke once again calls this pressure "transitory." Hopefully, one of the questioners can pin him down on exactly what this means.
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This news story has 31 comments:
game of gotcha....I love it when people get mad because Bernanke can't predict the
future...
groan...oh brother...
headline inflation will move back down and towards the core
think about it for more than a nanosecond
oil prices are not going to go up another 40% from here - even if they remain flat - the yoy over change in that component will be zero
same for anything else you care to mention and
if we see a decline from $4 gas to say $3.50 gas then we see boom a 10% decline yoy
you will all be screaming then - I am sure that the core does not reflect reality - really we will - I guarantee it
this will occur in all the rest of the items - you are already seeing it in a few areas - inflation - true inflation requires
1. too much money and
2. not enough stuff and
3. a belief by people that stuff tomorrow is going to be way cheaper than stuff today..
4. a built in ratchet from a wage price spiral
we have overcapacity - especially of people = unemployment - yes there is a lot of money out there but we have very low money velocity and lowish loan demand, minimal wage growth and there is no expectation of inflation - where is it? point to significant expectation inflation of prices or expectations outside of gas.
and don't tell me qabout apparel - have you shpped at H&M or any other discount store. go and take a look.
this is the problem - you have a bunch of people in the US Congress the majority of whom cannot balance a check book - this also applies to 90% of the SA firthful and assorted Tea Partiers opining about the monetary policy of the US based on the price of gas - great.
Bernanke save the world. that's true. he also save the US. the destruction of productive capacity - read people on the scrapheap - from a Great Depression 2 would have been devastating - this was avoioded - what we have is bad enough but if you were in my shoes me and funding a business in fall 2008 and winter 2009 and unable - completely unable to get credit or even a phone call from a bank - when the only money was at almost usurious rates with very restrictive covenants then you understand what the abyss looked like and what was avoided.
most of you - scratch that - all of you have no clue. you sit in your nice comfy salaried jobs - maybe you work for the Government and you see gas go from $3 to $4 per gallon and you think this is a crises. the luxury of beiong able to complain about this nothing is what Benanke has given you.
the least you can do is to be grateful.
E
Dollar at fresh mullti-year lows. Purchasing power of 70% GDP (read: consumers) gone. checkmate.
I'm grateful for Bernanke as it pertains to my large silver pile's worth. Now that's hedging reality.
remember thumbs down from the economically illiterate are a great endorsement
E
Transitory does not equate as not having long term devastating effects.
He should have walked in with a cardboard box around his torso, visually demonstrating his predicament.
mother: I can't believe you got all F's on your report card
son: Ma, don't worry. These bad grades are all transitory
mother: WHAT?
son: Transitory, you know, temporary, fleeting
mother: What the hell are you talking about?
son: Well, I just got expelled, so I won't be getting any more grades. Like I said, transitory.
All better?
Right..
So, the proper advice for the adherents of the inflation story, isn't to hunker down and await the end of the world, it's to get those dollars translated into other forms of value, or the "markers" therefore, which includes equities.
The impact will depend on how leveraged they are in their customers' purchasing habits. Lower-leverage companies make staples; basic foodstuffs are at the bottom. Things we think of as "staples" may still be higher-leverage because substitutes exist; for example, people see oil as a necessity but in fact much oil consumption can be replaced with natural gas, coal, and eventually wood as the standard of living declines. But before we get there, we will find that the pooring of America will erode demand for luxury goods that are not of a quality that the global elite desire. That will devastate the value of companies that make, transport, and sell such goods. They are the most leveraged to the common man's standard of living, and will be the first to go.
It's unfortunate that the same word is being used for different things. Price inflation without wage inflation is very different from, and much more pernicious than, simply tacking an extra zero onto the price of EVERYTHING each year. The latter can be easily modeled and accounted for in finance. While it's very bad, it's at least manageable. A scenario in which both cash and labour lose value relative to commodities is simply unsustainable and will eventually result in major changes to the structure of the economy itself. There will be few winners and many losers in that restructuring. Equities won't be the worst place to be (that would be cash), but I'm not optimistic that owning an index fund will preserve purchasing power. And that's really the point, isn't it?
I'm just going to have to disagree with you.
The supposed difference in "price inflation" without "wage inflation," i.e., having the former without the latter, is merely a timing issue. Initially, much of the excess in capital (currency) is being hoarded unproductively in commodities, mostly out of the usual fear-based behavior. At some point that unproductively employed capital will come rushing back out of these speculative hedges and get converted into demand for other goods and services, and at that point the economic system's current excess of supply and capacity will start to wilt away, and that will lead to increased cost to exapnd capacity, including labor costs.
The demand for goods and services is ever expanding, short-term concentrations and misallocations of capital, and temporary business recessions, notwithstanding. In the end, the fundamental laws of supply and demand get satisfied, and everything gets repriced accordingly, depending on relative quantities. That's why inflation is perpetual, because fiat currencies always expand faster than goods and services. And, there is never a permanent diminution in monetary velocity.
Also, from an investment perspective, in a global economy occupied by multinational companies, it really doesn't matter too much how one population segment does relative to another. Again, the whole will be constantly expanding, and entities serving it will be priced accordingly, based on available currencies versus the aggregate supply of the things such currencies purchase.
As if they will get a rebate or something, for the money that was once disposable income, and no longer exists.