There is supply inflation (QE, as admitted to) and price inflation/value loss (which the fed and the media is denying).
10 year gasoline prices: (2003 to 2013) 150% increase
10 year college prices: (2002-2011) 31% increase
10 year health care prices: (2002 to 2012) 125% increase
10 year home prices: (2002 to 2012) 24% increase and that’s including the largest crash in history.
Based on this inflation calculator (http://www.usinflationcalculator.com/) there’s been 26.9% inflation over the last 10 years. That’s very significant.
So, how is there no inflation?
You’re attacking a straw man and using bad data to do it. No one is literally saying that there has been “no inflation.” The debate is why inflation has been so low despite the massive currency expansion in 2008. Obviously QE has caused some inflation and likely prevented further deflation; no one is disputing that.
But inflation is not “low”.
Let’s start with this: I don’t agree with Schiff about hyperinflation. I think that the Fed can control that with the tools that they have. So, no, we won’t be seeing hyperinflation soon (unless things spin drastically out of control).
But inflation itself is real and QE has caused some of it. You say that no one disputes that, but it is being disputed. That’s the entire premise of this segment. That some of the Fed predicted no inflation and it happened. And Schiff’s premise is that ‘no, there is inflation real inflation’.
Surely there is supply inflation, lots of it.
There’s some price inflation but it hasn’t completely hit because of a few reasons, some of which Schiff hits on. Other reasons are that banks (2,3,4) and some large corporations are hoarding the cash and it has not yet made it’s way into the public.
The Fed is literally paying banks not to loan the money to the public, helping limit QE-driven inflation:
(Side note: I don’t believe in the Quantitative Theory of Money in that supply inflation IS price inflation. I think there is a lag and this is a good example of how.)
*** You’re right about one thing, I made a mistake to attribute all of this inflation to QE. But I will also say that many institutions have been sitting on and growing reserves and that the influx of liquidity from the Fed has not yet hit the market and it’s probably one of the reasons that we haven’t seen larger (above average levels) of inflation. But the threat is certainly there, hovering above our heads, within the reserves of the institutions and cash-rich corporations. ***
The 26.9% inflation over the last ten years means an average 2.69% inflation rate per year—which is not very large considering how much the money supply grew in 2008.
If I take smaller and smaller increments of time, inflation will look smaller and more insignificant.
But the point still remains that your money has lost nearly 27% of it’s value in just 10 short years.
Perhaps this isn’t a problem for you, personally, but it is a problem for the majority of the general public.
First of all, what bank even pays customers an interest rate on savings anymore? If they do, it’s rarely higher than 1% (If there are better rates, PLEASE point me in the right direction).
I think the best I found is Ally bank (and other digital-only banking centers) at 0.84% annually.
This means that on average, over the last ten years, if I was lucky enough to have a savings account that paid this high of a rate, I still lost (or will lose) 1.85% (2.69% - 0.84%) of the value of my money PER YEAR!
And interest rates that banks pay are only going in the other direction and I haven’t even counted in bank fees. And this is the top rate.
Most institutional banks pay 0.01% on savings and nothing on checkings accounts, again, before bank fees.
The average consumer is losing between 2-3% of value annually!
Again, if you don’t have a problem with this, that’s you’re deal. But if I asked you to open your wallet and hand me 3% of it’s contents every year, you’d probably object.
Why you are okay with this or find ~27% to be “low” is beyond me.
Based on your inflation calculator:
1973 to 1983: 124.3% inflation
1983 to 1993: 45.1% inflation
1993 to 2003: 27.3%
2003 to 2013: 26.9%
The latest ten-year period has had the lowest inflation over the last forty years, and that’s despite the spike in the monetary base in late 2008.
All of those periods had different sectors driving inflation. Some of them were external, like imports, others have been internal, like gov’t regulations and QE driven.
With that said, yes, we’ve had lower inflation in this decade but not really. Like I mentioned before, the cash infusion hasn’t yet hit the public.
In fact, looking at median household income, it’s dropped nearly 10% since 2007 and it continues to drop today. So the money that’s being pumped in from QE isn’t reaching the people given that people are making less despite the fact that there’s more money in circulation…
Couple the falling income rates with the rising inflation rate and you have a recipe for a fucked up economic situation.
Selectively picking out gasoline, college, health care, and housing prices, and selectively using ten year increases is confirmation bias. Choosing these selective prices tells you nothing about the aggregate price level.
CPI itself cherry picks. Not only do they cherry pick, they assign arbitrary levels of importance to each product.
I admit, I cherry picked specific sectors, but those sectors comprise the majority of each households expenses. Not only are these products some of the top purchased, they are accelerating upward in prices at such a rate that most consumers can’t even afford other products and have to stick with just the necessities, rendering the pricing and price changes of other goods pointless.
From your likes:
Gas prices plateau’d in the summer of 2008 at $4.12 per gallon, months before the increase in the money supply. And then dropped in the winter to under $1.70 per gallon, a likely symptom of the deflation that was occurring during this time. Likewise, health insurance and tuition were increasing at high rates long before 2008—health care and tuition have been increasing at more or less stable high rates since the 1970’s. You’re trying to explain how QE in November of 2008 was causing high tuition prices and high healthcare prices in the 1970’s, which makes no sense.
You’re right, perhaps I made the mistake of attributing QE to the current inflation rates, but like I mentioned above, a lot of QE’s inflammatory impact has not yet hit since the banks and institutions are still sitting on the majority of that liquidity.
Peter Schiff’s thesis, which he has been saying for at least five years now, is that hyperinflation is just around the corner. But he’s been consistently wrong. We had deflation in 2008, and modest inflation since. And the low interest rates, which reduce the opportunity cost of holding on to cash, and the interest on reserves, which increase the opportunity cost of not holding on to cash, explain fairly well why there has been no hyperinflation (or even moderate inflation), and why any hyperinflation in the near future is unlikely.
But that’s the problem. People and corporations and banks are holding on to cash, mainly because there is no real good investments out there right now.
Take Apple for example. They have more cash on hand then they will ever need but what did they do? They borrowed money for business use. Why? Because why spend their own money when the rate of lending is so cheap.
There’s nearly no reason to put a single cent into a bank these days other than safe keeping. I’d almost rather buy a safe instead of pay bank fees. There aren’t many good investing opportunities and the rate of return vs risk isn’t as favorable as it’s been in the past.
There is no hyperinflation, no. And there probably will never be. So long as the banks the the Fed can keep up their tango.
Further, Scott’s point needs to be addressed. That if inflation is really a lot higher than what CPI estimates assume, then how do you explain the growth in employment, or the positive GDP growth, or the modest NGDP growth? If inflation were a lot higher than the CPI assumes, then we should have really high NGDP growth and low/negative GDP growth (which as Scott points out, is inconsistent with employment gains).
First and foremost, GDP is just a measure of money exchanging hands. If I handed you a $100 and you handed it right back, it would positively impact GDP… and that’s all you need to know about GDP as a “statistic”. They can just add $500 billion to the GDP out of no where… It’s political nature makes it one of, if not the worst way to measure our economy’s health.
But there isn’t employment growth. There’s employment growth in terms of total labor force size. But there’s a contraction of the total labor force which leads to better unemployment numbers but not more actual jobs. We are adding jobs, but we are comparing it to the total number of jobs we lost in 2007-2008. The problem with that is that we need to recapture those lost jobs PLUS account for the growth in population and labor-aged population.
From the BLS website:
When you look at how many people that are of age to work are actually working in America, we aren’t trending up…
Also, the growth of employment is very misleading because there’s a growth (but not keeping pace with population growth) in physical employment (number of jobs) but no growth in wages and benefits of those jobs. We are adding lower paying and even part time jobs and considering those “new jobs”.
P.S. Your link for housing prices references Ukrainian housing prices, not US housing prices. Though I imagine the story here isn’t terribly different. But you should be more careful.
I am careful. If you scroll down, US Home Prices are just a few countries below the Ukraine Prices.
- If you don’t mind losing 2.5% of your money every year, then inflation is fine.
- QE’s complete impact hasn’t been felt because increased liquidity isn’t really reaching the public. banks and corporations are sitting on cash.
- There isn’t a growth in employment in America. Not even close.
- Not only are there less jobs, there’s less money for people who do have jobs.
- If all of this is a-okay with you, then i want to live in your world.