INFLATION really is a dirty word!

[just-john]

Ethanol bought my first full tank of what is called E85 about a buck a gallon cheaper than gasoline. Well what I didn't know is my mileage was cut about in half so it cost a buck more a gallon really and it smells bad not that I huff gas.

[Conder101]

{quote]Well what I didn't know is my mileage was cut about in half so it cost a buck more a gallon really

It actually cost even more than that. The cost of the alcohol is lower than the real cost because it is subsidized by the government from our taxes. Without that subsidy the E85 would probably not be any less than the gasoline price, with half the mileage.

[CHABSENTIA]

You don't hear that much about Ethanol as before because of the reasons I mentioned.Because of the problem of it corroding the Pipes it is going to be cheaper and more Economically feasible the closer one is to the Plants.It would be even cheaper if the Government did not put a large Tariff on Ethanol exported from Brazil to protect the Farmers since Brazil could pull into any Port etc.

 

I have saved the worst for last.Everybody is familar with Iraq. I am sure everybody is familar with Iran and its claim that the Bay of Hormuz over there that is shared by both Iraq and Iran actually belongs to them 100%.

 

Now it is also a fact that 60% of exported Oil from the Middle east has to flow through some part of the Bay of Hormuz.If the U.S was to leave Iraq then there is no doubt that Iran would take over the entire Bay of Hormuz. We saw their attitude when they kidinapped the British Sailors and when they "mined " it during the Iraq/Iran war

 

Another fact that most people are not aware of is that Russia has more Oil Reserves then the Middle East .They just aren't as developed as now.

 

We get about 20% of our Oil from Venezuela. Iran, Russia, and Venezuela are allies.

 

I would personally like to see the U.S. leave Iraq. If they left Iraq then Iran would completely control the Bay of Hormuz and since Iran is mostly the Religion as is Iraq then............. You get the possible picture.

 

Should Iran act alone then you will see the Price of Gasoline go up in Cost and if they act in concert with the other Countries then you could see gas as much as $10.00 a gallon. In Economics they use terms sich as Inelastic and Elastic Demand to describe certain demands. The Comparison used is the Diabetic who needs Insulin to survive when the Prices for Insulin double in Price as opposed to Coffee which doubles in Price.

 

 

Since I am retired and use about 10 to 15 gallons a month if I do nottake any long trips would be about $100.00 to $150.00 a month. I could live with it. How about the people that use 20 gallons a week or 80 gallons a month just to drive to work? It now costs them $800.00 a month just to drive to work. Some people would cut the Vacations and the Restaurants and Starbucks etc and might survive. What about the person who takes home $350.00 a wek or less for a max total of $1400.00 and now has to soend $800.00 just to drive to work etc.?

 

My point was that all of these Economic theories sound great on paper but in todays World one has to be aware of a Geo Political -Economic situation and its consequences as well as its possibilities. If the American people were informed of the points I made earlier and those in this Post then some would probably Panic. Many would see everything in a different light and many would re-act differently based on their situaion.I am willing to spend $10.00 for a gallon of gas in amny situations. Can that be said about everybody else given that choice?

 

We live in a complex society with multiple artificial Pricing Policies and while it is true that if there was great Economic Policy that there would be less severe disruptions in the Economy were they followed as opposed to bad Economic Policy in the same Economy there is no cut and dried result in the present day Economy should Great Economic Policies be followed.

 

[just-john]

the loss of oil from IRAQ or IRAN won't matter or change gas prices

[physics-fan3.14]

the loss of oil from IRAQ or IRAN won't matter or change gas prices

 

What they need to do is shoot the tree huggers and drill in Alaska, Colorado, California, Florida, off the coast of the Carolinas, and the elsewhere where there are billions and trillions of untapped barrels of oil that we just aren't allowed to drill because everybody loves to send all their money to people who would just as soon shoot us as give us oil. And as I am sure ScottB can explain much better than I can, don't even get me started on the misguided policy of government subsidies.

[CHABSENTIA]

Again! At least 60% of Oil from the Middle East flows through this Bay. The U.S. does not get any Oil fron Iran and now the Oil they do get from the Middle East flows through the half of Iran that they do not control now..Iran has already said that they have a right to 100% of that area. There is no doubt that they would move to take it if the U.S. is gone since a power vacuum would exist. Wheter or not they would threaten anything once they had 100% control is not known.My point was that the possibilty does not exist now but would exist in that case.

 

We do get at least 20% of our Oil from Veneuzuela. Last year Chavez Nationalized almost 100% of the American Oil Companies in Venezuela. Ever heard of CITGO? It has one of the largest refineries in the U.S. Citgo is also 100% owned by Venezuela.

 

 

Last week Chavez met with the Heads of all the other South American Countries to try and get them to take all their Money out of U.S. Banks. Check your News. Venezuela and Iran are Allies.

 

Anyone that doesn't see a Potential problem here is ignoring the Facts.

 

 

Russia has larger Oil Reserves than the Middle East. Mexico where we were getting some of our Oil has decreased Production drastically. We get most of our Oil from the Saudis. What kind of Military do you think they have and how will they get our Oil through the Bay of Hormuz if Iran does not wish it to happen?

 

Right now Russia supplies a good percentage of Oil and Natural Gas to Europe.If Russia decided to withhold supplies etc then the only European Country in good shape is France which gets over 75% of its Energy from Nuclear.

 

Russia also has the 2nd Highest Gold Reserves

 

My point was that there can not be any simplification of the Money Supply or Inflation etc. There are too many undercurrents in the Present and possibly more in the Future.

 

I was over in Italy in the 1980s. They don't sell it by the Gallon. It is so expensive that they sell it by the Liter. Unless they are Wealthy they drive samll cars by necessity.

 

The fact of the matter is that people are not only informed but the Governemtn likes it that way as mentioned in my previous post regarding Tariffs, Taxes, and Subsidies. One morning people are going to wake up and it is going to be too late.

 

 

 

 

 

[CHABSENTIA]

You are kidding. The Environmentalists have blocked Drilling in Alaska.Although China and Cuba are exploring for Oil off the Florida Coast we are prevented from doing it.

 

Another problem is that at least 50 % of our Oil Rigs are located in the Gulf of Mexico.The reason for this is the Enviromentalists and certain Governors do not want these Rigs in their Backyard.

 

This is why people get worried during Hurrican season in the Gulf because all these Oil Rigs are concentrated there. One Hurricane going down the Center can wipe them out.Ditto for some RefineriesYet there is no movement to change it.

[rons]

I was in Rome in November and was told that there are over 1 million motor scooters, not motor cycles, in the city now. I believe more people ride scooters than cars based on my observations of traffic in the city. Now a rainy day might change that around bit but gas is frighteningly expensive in Europe. The signs I saw were for about 6.5 euros per liter. there are 3.8 liters in a gallon and $1 is equal to .68 cents Euro so a a gallon of gas would cost about $9.55 U.S. In Turkey it was even more expensive The Eurpoeans have lived, adjusted, and prospered with the oil crunch. We have much to do to become more energy independent and until the government pulls its head out of the sand its up to individuals to make the necessary choices. And most of those choices will be driven by the household economics.

[Oldtrader3]

I beg to differ with Bill on Social Security. I paid in the maximum amount for over forty years during which, had I invested this same money at 5% (a lower than average return for the period), I would have in excess of $500,000. in added savings. Much more than the SS Administration will ever pay me in benefits.

 

Secondly, I don't remember voting to allow Congress to steal all the annual surplus Social Security dollars in the kitty every year since the start of the Viet-Nam War and to use them as a slush fund for their stupid pork projects.

 

Younger people have been brainwashed to not believe in Social Security. Most older people who worked all their lives for an organization or company depend on it. It is neccessary in an economy where most working people can barely make ends meet, let alone buy a house. Maybe coin dealers do not pay or need Social Security, but the rest of us do!

[just-john]

here we we get our oil---The top sources of US crude oil imports for November were Canada (1.919 million barrels per day), Saudi Arabia (1.530 million barrels per day), Mexico (1.484 million barrels per day), Venezuela (1.227 million barrels per day), and Nigeria (1.215 million barrels per day). The rest of the top ten sources, in order, were Iraq (0.508 million barrels per day), Angola (0.408 million barrels per day), Colombia (0.197 million barrels per day), Algeria (0.184 million barrels per day), and Ecuador (0.154 million barrels per day). Total crude oil imports averaged 9.948 million barrels per day in November, which is an increase of 0.172 million barrels per day from October 2007.

The problem will be as I see it as China grows its own consumer market they will need double the oil the now use which is about 7% of world production .That will grow to 14% in 5 to 7 years this year they had some problems with high prices on diesel fuel and took their 17% vat tax off import oil to calm things down.When their demand goes up and the price of oil goes up to cover higher cost their going to start selling the (a trillion dollars) is in U.S. dollar assets, mostly treasury bonds .Dollar goes down our gas prices will go up. Interesting times we live in

[CHABSENTIA]

My last personal experience is in 1980. My Wife was born in Italy and talks with Relatives in both Rome and Naples. She also has a Brother and Sister and Law in France. She has mentioned several times of how much more things cost. A part of it is the relation of the Dollar to the Euro.

 

I worked for Nato when I was there and they gave each Family Gas Rationing Coupons based on the number of Cars in the Family.Each coupon was for so many gallons of Gas based on the cost in the U.S. so if a gallon of gas in Italy was equivalent $2,00 and in Italy it was $8.00 then you could get 10 coupons worth for $20.00 or maybe a little less. There was also a Black Market for them. People could exchange this for Rent and other things for some place in between so that both sides made a Profit.

 

 

Most people drove little cars that were referred to as the Cinco Cento which translated as the 500. I beleive they are made by Fiat.

 

$9.55 for a gallon sounds about right. If it is $3.20 here then we are talking 3 times that amount in Italy.Don;t forget that the Un Employment rate is greater etc. You are correct in that the Europeans have learned to deal with it better and the Transportation system is better. Their Politics are different. For example if the Transportation workers are going to go on Strike it will be on the News and in the Newspapers that they are going on Strike at such and such a time .Say it is at 12 noon on Thursday. You may be riding in a Streetcar or a Bus and at Noon on Thursday the Driver just stops and gets off and walks away. The Italians now but if you are a Tourist etc then you are just stuck.

[CHABSENTIA]

I did not use a figure but you proved my point. That $500,000.00 invested at the same 5% returns $25,000.00 a year or over $2000.00 a Month. I know of no Social Security payments for one person that are $2,000.00 a month

 

Not only would you get $2000.00 a month but you would still have the $500,000.00 in cash.With that amount of Money you would also qualify for Jumbo Certificates and could do better.

 

For many years Government Employees did not have ot Contribute and could have their own plans. As Things started to get worse because of Congress expanding it to include other Programs they changed it to force Government Employees to join the Program to shore it up,however, Congress excluded themselves and chose to keep their own Program.

 

When Bill Clinton was President there was Legislation passed so that Single People on Social Security that had C ertain extra Income had a certain amount of their Social Security Earnings Penalized. It is $32,000.00 for a Joint return. Those old enough to remember will remember the saying that "Clinton and Congress considered anybody making over $32,000.00 as Rich".

 

The Age limits have been moved up and the Earnings limit that qualifies for the Deduction has been raised in order to shore it up.

 

I suspect that the next move will just be to elimiante it for People who have a Certain amount of Money or amke a certain amount of Money in other Investments etc.

 

 

Of course, people will still be required to Contribute to it.

 

 

[CHABSENTIA]

As I mentioned earlier Mexico has either decreased its Contribution or eliminated it entirely.They are presently having some kind of Internal Problems. As I also mentioned earlier Chavez in Venuezuela has Nationalized American Oil Companies and is now trying to encourage other Latin American Countries to remove their Money from American Banks.

 

I suspect that Venezuela will merely charge more Money for their Oil. I could be wrong but I don't see them eliminating it entirely.I mentioned Nigeria because Speculators have used unrest there to raise the price of Futures Contracts and you are correct on their Contribution.

 

With Canada you have another Problem.Although many think it will be repealed the Present Government has put a heavy Tax on Oil Company Trusts which are due to take effect in several months.

 

I mentioned China earlier and their Present Needs. China has planned several Nuclear Reactors but these will not be on line and contributing for another 15-20 years.I also metioned India and their Consumption needs to be considered.

 

The problem would be the 1.5 million barrels of Saudi Arabia in my scenario if the U.S were to leave Iraq. There is no doubt that Iran would move to take over 100% of the Bay of Hormuz which is a Sea Channel for Oil in the Middle East. Since Iran is predominately as is Iraq then the .5 million in Iraq would be taken over by Iran. There is not guarantee that Iran would stop the flow but it would be used as Blackmail and if not then the Prices would assuredly be increased.

 

You are also correct in your other assumptions. You just aren't bleak enough.

 

 

My points were that one can no longer use Classical Text book defintions of how the Economy and the Money Supply operates as well as Inflation especially comparing it to 200 or even twenty years ago. I have listed the causes for the increase in the Price of a gallon of Gas including the Government Tax on it and the Restriction of Imports such as Ethanol through High Tariffs to protect U.S. Farmers.There is alo the other uses of Oil such as it is needed for amking Plastics etc so Gsoline is not the only Commodity that will be affected by a rise in Prices for Oil.

 

 

We haven't even gone into the disruptions in the Food Market because of various Treaties between Canada and South American. Here in Florida which is the Citrus State and because of these Treaties we have to accept Citrus outside the State and ship ours outside the State which results in a disruption in Prices. A few months ago , Large Lemons were $.75 each here.

 

 

[World Colonial]

I did not use a figure but you proved my point. That $500,000.00 invested at the same 5% returns $25,000.00 a year or over $2000.00 a Month. I know of no Social Security payments for one person that are $2,000.00 a month

 

Not only would you get $2000.00 a month but you would still have the $500,000.00 in cash.With that amount of Money you would also qualify for Jumbo Certificates and could do better.

 

For many years Government Employees did not have ot Contribute and could have their own plans. As Things started to get worse because of Congress expanding it to include other Programs they changed it to force Government Employees to join the Program to shore it up,however, Congress excluded themselves and chose to keep their own Program.

 

When Bill Clinton was President there was Legislation passed so that Single People on Social Security that had C ertain extra Income had a certain amount of their Social Security Earnings Penalized. It is $32,000.00 for a Joint return. Those old enough to remember will remember the saying that "Clinton and Congress considered anybody making over $32,000.00 as Rich".

 

The Age limits have been moved up and the Earnings limit that qualifies for the Deduction has been raised in order to shore it up.

 

I suspect that the next move will just be to elimiante it for People who have a Certain amount of Money or amke a certain amount of Money in other Investments etc.

 

 

Of course, people will still be required to Contribute to it.

 

 

I share your sentiments (if I understand them correctly) with this giant ponzi scheme. I consider my "contributions" to be money thrown down a giant rat hole which may never see the light of day. I do not expect the program to be eliminated, though that is my preference, but I do not consider this in my personal financial planning. Here are my objections with the system:

 

It is compulsory and I do not need the government (or anyone else) telling me what to do with my money;

 

No one has any private property rights in the system. If you or I died today, I believe our heirs would collect a whopping $255 if they do not qualify as a spousal or dependent beneficiary. (I do not have either.) My last statement told me I had contributed $100,000. It would be gone and just think what kind of a coin collection anyone else could have bought wiht this money.

 

It is a welfare program in disguise and makes a mockery of insurance principles. Benefits are paid on a sliding scale and the more you make, the less you get back.

 

As for the proposals to privatize any part of it, I am opposed to that as well. As you say, Congress in its infinite wisdom may decide that any one of us may not need all or any part of our current benefits. Whose to say that will not happen with this?

 

[MikeInFL]

My points were that one can no longer use Classical Text book defintions of how the Economy and the Money Supply operates as well as Inflation especially comparing it to 200 or even twenty years ago.

 

Why not? Said a bit differently, what's changed?

 

I would argue that the same rules still apply and nothing has really changed -- inflation was present back then, so was an expanding money supply (albeit from a different cause), so was the fluctuating cost of commodities -- but I'd be interested in understanding what you think has changed.

[CHABSENTIA]

I thought I pretty much explained it. People are trying to use the 1800s or even early 1900s to explain a theory regardinf Inflation especially as comapred to the Money supply.

 

1. There is a Government Tax on a Gallon Of Gasoline that is a National average of $,48 per gallon. You can't talk about Inflation in pure terms without taking this into consideration.

2. There is Oil which has several Prices built into it that were present 150 years ago.I have mentioned the Majority of these and they were non- existent even in the early 1900s

3. Ethanol as a substitute for Gasoline did not exist in the 1900s and even now is impractible until they figure out a pipeline for transporting it because the side effects of it corrode present day pipes in place.

4. There are artificial types of Price increases such as the Tariffs against the Importation of Ethanol to protect U.S.Farmers.

5. There are Subsidies that keep the Price of such Commodites as Sugar and Peanuts at an Artificially high Price.

6. Are you aware that there are Government Programs that pay large Landowners "Not" to grow certain Products so as not to deflate the prices of certain Products?

 

You can define Inflation in a pure sense but you can't define the reasons and/or results of it without taking in to consideration of the above and many many more existing things that did not exist amny years ago.

 

As far as the Money supply is concerned concepts such as M1 as a factor do not have the same effects as before. Automobiles once had a lot of weight in predicting swings in the Economy because of the several different Industrys invilved in their Construction.

 

Today when Toyota is fast becoming the number two if it is no there yet has cahnged thing such as other World wide competition taht did not exist in the 1900s. .You can't define things in a pure defintion and especailly you can't compare it to 150 years ago etc.

 

 

 

 

[MikeInFL]

You did explain it, but none of those factors you mention are new -- in almost all cases they have been prevalent in our monetary policy from the beginning of our country and in other countries even before.

 

Taxes aren't new.

Fluctuating/rising commodity prices aren't new (gasoline of today is the coal/wood of yesterday).

Tariffs aren't new.

Subsidies aren't new, although their use has been greatly expanded in modern times, they have been present in our economy for over 100 years.

M1 in our fiat money isn't really any different than mining when money was based on gold/silver.

Global competition isn't new, only made easier.

 

All of these (except perhaps subsidies) were present in the economy of the 1780s, 1880s, 1980s, and today.

 

Again, what's new?

 

While it could be argued that some factors have changed/increased, there is fundamentally no difference in the forces that cause inflation in today's economy as compared to that two hundred years ago, and none of the factors you mention are net-new to our economy or the global economy in the last 100 years.

 

Respectfully....Mike

 

[EZ_E]

You did explain it, but none of those factors you mention are new -- in almost all cases they have been prevalent in our monetary policy from the beginning of our country and in other countries even before.

 

Taxes aren't new.

Fluctuating/rising commodity prices aren't new (gasoline of today is the coal/wood of yesterday).

Tariffs aren't new.

Subsidies aren't new, although their use has been greatly expanded in modern times, they have been present in our economy for over 100 years.

M1 in our fiat money isn't really any different than mining when money was based on gold/silver.

Global competition isn't new, only made easier.

 

All of these (except perhaps subsidies) were present in the economy of the 1780s, 1880s, 1980s, and today.

 

Again, what's new?

 

While it could be argued that some factors have changed/increased, there is fundamentally no difference in the forces that cause inflation in today's economy as compared to that two hundred years ago, and none of the factors you mention are net-new to our economy or the global economy in the last 100 years.

 

Respectfully....Mike

 

(thumbs u (thumbs u

 

Most any pre 1960 dictionary defines inflation simply as an increase in money supply. Yet, like in most fields of academia, the "scholars" are not content until they have convoluted, twisted and redefined terms to suit their agenda. Evolutionists define adaptation as micro-evolution. Since adaptation among species is a legit science then they are trying to also make evolution legit despite the lack of any evidence what-so-ever. (Let's not get off on a tanget with this statement, guys) Economists have basically done the same thing. Remember the acronym: K*I*S*S? That should be our goal with defining the term inflation , IMO.

[CHABSENTIA]

Lets look at a specific'

 

It is announced through the Media that Oil Company xyz has made 40 billion Dollars.

 

1. Is this 40 biillion dollars in Sales?

2. Is this 40 billion dollars in Gross Profit?

3. Is this 40 billion dollars in Net Profit?

 

The fact of the matter is that not only does one not know which they are talking about but the Media as well as others use the terms interchangeably for thie own reasons.

 

The Average Margin of Net Profit for an Old Company is 10%. For a large Pharma Company the Average Net Profit is 19% or almost twice that amount. The main reason is that there is not the Volume in Pharma as everybody does not need their Products and then the needs are Specialized.

 

Everybody is not a Diabetic. If a Person is a certain type and needs an injection of Insulin and the Price goes up 50% it is not usually because of Government Taxes and Subsidies.As a Matter of fact Medical supplies are not taxable in Florida as you know and I would imagine that it is the same everyplace else.

 

Not only that but there have been Progress in this field as well as others.While there are people who are forced to do the Injections there has been Progress to the extent that Insulin can get into the body via an Inhalant and people that were adverse to the Injections now have another Path.

 

The Government hasn't restricted the Importation of Insulin by say Glaxo which is based in England or abolished any New Companies seeking a cure for a Diabetic as they have in passing Legislation that no more Oil Refineries could be built. So any Inflation in the Price of Insulin is not the same as Inflation in the Price of Oil.

 

 

As I mentioned earlier. If a Person lives in New York City where there is a $.60 Government Tax on each Gallon of Gasoline then this represents a 25% rise in Cost if the Gas Cost went from $2.40 to $3.00.Is this not an Inflationary cost or si that 25% not counted. It counts to the Person who has to pay $3.00 instead of $2,40

 

When was the last time you heard a Politician say we caused a 25% increase in the Price of a gallon of Gasoline and thus contributed a 25% rise in the cost of Inflation in a gallon of gas? For that matter where have you heard it by anyone in the Media?

 

It is always that the Oil Companies are Greedy and that they are responsible for all the increases and the restriction on Alternate Foms or the weakened dollar are never mentioned by anybody.

 

It is no longer possible to use a Definition such as Inflation is caused by an Increase in Demand for the same amount of goods or am equal demand or more for a lesser available amount of Goods or that the Money Supply has decreased and look what happned in 1857 when the Money supply was increased.

 

The Economy was not the same in the 1780s 1880s or even the 1980s. Such Exotic Financing Tools such as CDOs and CMOs were not Present. There were not the Restrictions on Alternate Forms of Power that there is Today.

 

If one is seriously going to talk about Infation then they first need to talk about it by Industry whether it be Oil, Agriculture, or Pharma. All Taxes, Tariffs and Restrictions are not the same. Inflation is not same across al Industry because the parameters that cause it in any given Industry are not the same.It is no longer the classical definition of before. About the only General thing you can say about Inflation is that it is an increase in the Cost of Goods which in itself means nothing..

 

 

While Taxes and Tariffs etc have appeared in previus Economies they haven't appeared to the extent that they appear today. If some thing went up in Price you might not like it but you knew it was because the Price of Materials or the Price of Labor to Manufacture it went up or even the Scarcity or a combination of them.

 

 

People were not paid to " Not " grow a certain commodity on Land they owned to keep Prices artificially high and while there were Tariffs they were not Tariffs for the most part that that restricted the use of Alternate Energy Forms to keep Prices artificially high for a certain Specialized Segment of the Economy.

 

 

If there are Subsidies for Peanuts and Sugar I do not have to eat their Products. Its a little more difficult to ignore Gasoline. Not only that but since Oil is used to make Plastics etc then I not only pay more for the Transportation for Food but in the case of Meat I have to pay more for the Plastic wrapping around it etc.

 

 

What is new is that not only are there many more Factors that have to be considered when describing the reasons for Inflation including the Misrepresentations or the out and out lies from the Media and Politicians not to mention a more un-informed Population.

 

 

 

 

 

 

 

[MikeInFL]

I am not saying that all of the things you mention are inflationary -- quite to the contrary, I agree with you.

 

However, my argument is that nothing has fundamentally changed, and none of the examples you posted are new -- they have been present in the world economy for a long, long time in one form or another.

 

That said, and while you say that "About the only General thing you can say about Inflation is that it is an increase in the Cost of Goods which in itself means nothing", I would argue that inflation is defined as change in the price of goods, and it means everything.

 

Inflation (i.e. change in the cost of goods) is the measurement of all those factors you and I mentioned in our posts above (including profit, taxes, money supply, etc.).

 

Now you can, and have to a certain extent, pointed out things that have changed recently, but my argument, and I apologize if I'm repeating myself, is that the fundamental drivers of inflation have not changed, and you have yet to point to a single instance of an economic driver that wasn't present in our economy 50 or even 100 years ago.

[Oldtrader3]

The classic theory of micro-economics is that the supply/demand curves drive inflation and deflation, vs a vs when supply is greater than demand, prices fall. When demand is greater than supply, prices rise. This is basic Keynesian economics which includes money supply, oil and almost everything else. This runs in the face of modern "Supply economics" theorists who have been somewhat discredited recently.

 

The other factor in the money value equation is the International Monetery Exchange Formula, which takes into account money supply, trade imbalances, national debt interest and GNP. Foreign indebtedness pressure on interest rate yields also affects the inflation index. Interest rates also affect bank reserve capital requirements and the accelerator factor of invested money growth. The model is more complicated than just printing more money.

[CHABSENTIA]

The defintion is true. Nice Textbook defintion. Now how does that $.60 Government Tax which adds 25% to the cost affect the supply demand curve? What about Elastic Demand and Inelastic Demand?

 

 

 

 

[MikeInFL]

"Now how does that $.60 Government Tax which adds 25% to the cost affect the supply demand curve? "

 

The same way that demand/supply curve for tea in the US Colonies was affected when the Stamp Act of 1765 went into effect.

[CHABSENTIA]

First of all not all Economists agree on the salutary effects of say constraining Money Supply growhrt within the 3% to 6 % range. These figures are used because many Economists believe that Inflationary pressures are created when the long run growth of M1 exceeds 3% per annum and growth rate ploicies as low as 1% are supported. A money supply growth of 6% per annum is thought by some experts to be sufficient to allevate unemployment without creating too much infaltion.

 

Secondly there is almost no agreement among experts as to the length of time over whuch money supply growth rates should be calculated in order to be meaningful. Some practitioners believe that weight should be placed on monthly changes while others agree that a time line of less than 6 months or even a year are meaningless..

 

Also any curve or any other geometric figure has to be plotted after the fact. Therefore we can see where we have been as to certain policies rather than an accurate presentation of where we are going. It also depends on who is making the decisions because of the reasons stated above.

 

 

Another element is the confusion introduced by the adjustment of Money supply data to remove the effects of Inflation producing data that is called "real money supply.The adjustment is usually accomplished b dividing the published money supplt data by an inflation deflator based on a price index to obtain the effective or real money money supply. The resultant series of expresses money supply interms of its dollar purchasing power. As the inflation adjustment can be made using a variety of possible price indexes and time intervals , the potential array of monetary growth statistics becomes almost infinite.

 

Such Price indices that do or do not include such things as the taxes and/or the restrictions on a commodity that is needed for maintaining a certain degree of a Standard of Living such as Oil and all its uses as well as Monetary decisions which affect the restricition or easing of Credit will Contribute to some degree of the adv ent or the easing of Inflation and its Money supply etc.

 

We have seen what happens when the Federal Reserve raises the Federal Funds rate 17 consecutive times in the face of History and then sits on its hands. If you go back several months in these Forums you will see where I was the only one here who predicted the outcome . No big deal here , It is simple Economics.

 

If somebody wants to compare the Economy of 1795 to the more complex Economy of today then this is a Persona; matter.

 

 

I didn't catch the name of the head of the Federal Reseve in 1795. What was that name?

[Oldtrader3]

Alexander Hamilton?

 

[World Colonial]

Since the United States (and most every other economy) has a fractional reserve banking system, the total volume of credit is a far more important factor than the various measures of the money supply used by almost every economist. The reason for this is that all of the components included in M1, M2 etc are not "money" at all but credit and debt. That is, except for cash; the only "real" money in the money supply is currency in circulation and it is a fraction of the overall money supply and the total available credit which is what represents most purchasing power in the economy today. Credit is a money substitute.

 

Every other financial instrument money substitute is someone else's debt. This is true of checking accounts, savings accounts, CD's and all publictly traded debt too. The last time I checked, the total volume of USD credit was somewhere over $30 trillion.

 

Since credit functions as money in our economy and is most of it, the expansion or contraction is entirely dependent upon the willingness to borrow and lend which is strictly a PSYCHOLOGICAL phenomenon. Though in my opinion recent credit practices (like for the past few decades) have become more and more absurd to the point of becoming preposterous, it does not matter. And this is the only thing which explains how credit practices which would have been considered completely reckless under more prudent lending standards could become so widespread.

 

As anyone who has been following recent events should know, there is less confidence now which is why it has become much harder for many borrowers to obtain credit. .The "reason" for this lack of confidence does not matter. And if psychology becomes bearish enough as it is now heading, then credit will contract and the "money" supply will too.

 

If credit contracts enough, then the economy will experience what most people consider deflation or falling prices. This credit contraction can happen both by the reduction of new credit, retirement of debt through repayment and the reduction in value of existing credit through default or when the market price of tradeable instruments loses value such as what has happened with the alphabet soup of garbage loans.

 

The reason why this expansion of credit has resulted in what most people consider moderate consumer price inflation since the 1980's is also pshychological. (And so is the velocity of money.) Instead of flowing into consumer good prices, it has mostly gone into financial and other investment assets including our coin collections, the stock market, various debt markets and housing. To most people this type of inflation is good because it makes them feel wealthier even though no additional real wealth was created by these rising asset prices. And just as this wealth seemingly came out of nowhere with the credit expansion, it can disappear into nowhere if and when the volume of credit contracts.

[CHABSENTIA]

Alexander Hamilton was the head of the Treasury. I think that he is the only one whos Picture is on Currency but was not a President. I hardly think the Head of the Treasury and the head of the Federal Reserve have the same powers.

[CHABSENTIA]

This is largely true. My earlier point which seems to have beem lost in the shuffle was that Historically anytime that Interest rates have been raised or gone up 6 consecutive times there has been some leval of a recession. Bernake raised them 17 Consecutive times or three times that amount.

 

What you mention is why other forms of "M" have been largely discounted and M2 is used as a Broad indicator. One does not heat this term used except in certain circles and most people would not know its meaning.

 

The Federal reserve has many different choices and like it or not it is our Central Banking system.The Laws of Economics and how they work can't be repealed but they can be accelerated or delayed by certain actions.

 

 

There are different schools of Economics and there are different indexes and how certian statistics are calculated depends on whether some are included and excluded and which School of thought at the time is in a position to do the least or most Damage.. Meanwhile people as a whole not only do not have any understanding for the most part and do not care.

 

They just exercise their priorities such as spending thousand of Dollars on Football Games and the Super Bowl while whining about a few cents increase in the Price of a gallon of Gas and not knowing whay it got to that point.

 

Unless one beleves that

1. There was a Central Banking System and a Board of Governors in 1795 there is no comparison to today.

2. Unless one believes that the same undercurrents both Political and Economic existed in 1795 then there is no comparison to today

3. Unless one believes that the Central Banking system etc today has no powers and is just a figure head today thereby cancelling out its non existence in 1795 then there is no comparison.

 

I thought that the first Oil Discovery was in Spindle top but I guess there must have been one in 1795 that didn't make it into the History books.

[physics-fan3.14]

 

(thumbs u (thumbs u

 

Most any pre 1960 dictionary defines inflation simply as an increase in money supply. Yet, like in most fields of academia, the "scholars" are not content until they have convoluted, twisted and redefined terms to suit their agenda. ... Remember the acronym: K*I*S*S? That should be our goal with defining the term inflation , IMO.

 

Indeed! Very good point!

 

Since the United States (and most every other economy) has a fractional reserve banking system, the total volume of credit is a far more important factor than the various measures of the money supply used by almost every economist. The reason for this is that all of the components included in M1, M2 etc are not "money" at all but credit and debt. That is, except for cash; the only "real" money in the money supply is currency in circulation and it is a fraction of the overall money supply and the total available credit which is what represents most purchasing power in the economy today. Credit is a money substitute.

 

In today's economy, the actual amount of printed paper money is meaningless. Everything is either electronic, or like you menitoned it is all debt based. When the Fed "prints" money, do you think they actually print it? No, they press a button and $50 billion dollars gets wired to a bank immediately. They are still creating the money, though, and they are still increasing the money supply, even if "money" itself is being redefined. Inflation is still inflation, an increase in the money supply.

 

And you are spot on with your comments about the credit crunch: since credit is money, a decrease in credit is a decrease in the money supply, and will (or has) lead to recession.

[mrearlygold]

Freedom works best. Non freedom works the worst. This country is less free now than it's ever been and with the media picking the new leader/president and the people whining and begging for more wars and more welfare, the direction of the country is headed into an even less free future.