In Fed And Out, Many Now Think Inflation Helps

[interestrateripoff]

http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html?ref=business&_r=0

WASHINGTON — Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.

Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment.

The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.

The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts. Yet by one measure, inflation rose at an annual pace of 1.2 percent in August, just above the lowest pace on record.

“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about,” Kenneth S. Rogoff, a Harvard economist, wrote recently. “It should be embraced.”

The Fed, in a break from its historic focus on suppressing inflation, has tried since the financial crisis to keep prices rising about 2 percent a year. Some Fed officials cite the slower pace of inflation as a reason, alongside reducing unemployment, to continue the central bank’s stimulus campaign.

I can't remember the authors name now but in the 1960's someone argued the inflation was benign and nothing to worry about, I think his name began with a H.

Still good to know they are going to control inflation and only let it go up a little bit....

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

It would appear that we are going to test what von Mises stated to the limit. How far can the Fed push the world's reserve currency before trust is lost?

[XswampyX]

The question should be... who's been eating my porridge? Not how much is acceptable. :angry:

[Allez_L'OM]

"The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers’ wages. Retailers including Costco and Walmart are hoping for higher inflation to increase profits."

Everyone wants to put their prices up, but nobody wants to pay higher wages. How is inflation going to be stoked without giving people more money ? Oh yeah, easy credit.

[wonderpup]

Everyone wants to put their prices up, but nobody wants to pay higher wages.

Yes- that is a bit of a problem. As you point out the solution has been more debt. But if the idea is to inflate away debt then it's hard to see how adding more debt helps.

What I find really strange is that even in the minds of the architects of Globalisation the idea that inflation=pay rises seems unshakable. But since the jewel in the crown of the globalisation project was it's negative impact on the bargaining power of western labor it's hard to see why they hold this view- unless they expect a mass outbreak of philanthropy amongst western employers who will suddenly decide that paying their workers more is a good idea just for the heck of it.

[rollover]

U.S. manufacturing output barely rose in September and contracts to buy previously owned homes recorded their largest drop in nearly 3-1/2 years, the latest signs the economy's momentum ebbed as the third quarter ended. The reports on Monday showed economic activity was on weak footing even before a 16-day partial shutdown of the U.S. federal government early in October that is expected to weigh on fourth quarter growth. "The economy seems to be losing steam as higher mortgage rates have hit the housing market and destructive government policy will likely bash the rest of the economy," said Joel Naroff, chief economist at Naroff Economic Advisers in Holland, Pennsylvania.