mrbill

Inflation Expectations: A Primer

Here's my version of what you just said:

(DON'T) Ignore all predictions of inflation (defined as the rise of the cost of goods and services). The money that the government is printing only matters if someone is spending it (LIKE CHINA)- the money is not chasing goods (BY AMERICAN CONSUMERS) it is not spurring price increases (AS LONG AS CHINA IS NOT BUYING LOTS OF THINGS LIKE BASIC MATERIALS, BUT THEY ARE). The American consumer has stopped spending in a reckless manner (BUT CHINA WILL SPEND AND MAKE UP THE DIFFERENCE). The velocity of money has slowed to crawl (BUT CHINA'S SPENDING IS PICKING UP PACE). Trillions of dollars have been removed from the economy (THOUGH CHINA IS MORE THAN WILLING TO PUT IT BACK IN) from the decline of real estate values (no more HELOC ATMS) and banks cutting back on credit available to borrowers.



On Apr 12 01:34 PM six wrote:

> Ignore all predictions of inflation (defined as the rise of the cost
> of goods and services). The money that the government is printing
> only matters if someone is spending it- the money is not chasing
> goods it is not spurring price increases. The American consumer
> has stopped spending in a reckless manner. The velocity of money
> has slowed to crawl. Trillions of dollars have been removed from
> the economy from the decline of real estate values (no more HELOC
> ATMS) and banks cutting back on credit available to borrowers. The
> money that the US gov is printing is nothing in comparison to the
> disappearance of the aforementioned wealth. As the economy slows
> there are signs of deflation, wages are being cut in unlikely professions-
> the State of Deleware cut wages by 8% accross the board. Less money
> being made MUST result in less money being spent. How can asset
> prices rise in such a situation? They can not. In fact, they have
> to fall thus deflation.
> The situation is similar to pre 2006 when real estate prices skyrocketed
> and the gov told us inflation was low. Today those real estate prices
> are crashing and they are telling us we are seeing normal inflation.
> Neither makes any sense when you stop and think about it. Whatever
> happens to the price of largest asset that most Americans will own
> in their lifetime is endemic to the rest of the economy. Especially
> when you consider that the homeower is the primary driver of the
> consumer economy. There will be no recovery in the market or the
> economy has a whole until real estate finds a bottom. That is not
> something certain to happen in 2009, 2010 is possible but it could
> last in 2011. When the bottom is formed, do we see a recovery to
> the economy of 2006? That hardly seems likely. Growth will likely
> be much more moderate and not based upon the pie in the sky increase
> in the value of assets such as stocks or real estate. Credit markets
> will never be the same, lending money to anyone with a pulse. The
> growth of asset values will be moderate but much more stable. None
> of the indicators point to inflation of prices but the technical
> definition of the increase in the supply of money.