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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: jim black who wrote (67897)	8/10/2006 11:15:28 AM
From: Lee Lichterman III	Read Replies (4) \| Respond to of 110194

Agree! I have sat here and lurked over the years and just shake my head every time that I see a blog being pumped ad nauseum knowing that it will eventually turn into another pay-for site eventually like so many others have done here on SI over its life. (OJ's room, hedge funds that blew up, newsletters etc). The deflation crowd has been wrong for years and anyone following them is being eaten alive by Healthcare, insurance and energy prices that have soared astronomically yet as we say on our site (which is free and always will be), never underestimate the ignorance of the public, especially when massed in large groups. Fed Gov Kohn even did a speech in July talking about inflation pressures and briefly mentioned inflation vs monetary inflation, "Although inflation is ultimately a monetary phenomenon, it is important to stress the word "ultimately" in that formulation. The long run in which monetary policy exerts its influence on nominal magnitudes is the summation of individual short runs in which pressures in labor and product markets help to shape price dynamics. " federalreserve.gov To belive inflation can ONLY be preceded by printing is to ignore so many other variables is pure silliness. SO many on SI spout economics based on no real knowledge of the subject and soley based on a few articles read or their own short experiences based on the latest trends. We have seen massive money printing in the past years to stem the Asian contagion, the Russian crisis, LTCM, the Y2K scare etc yet inflation was held in check to some degree because the money entered the system high up so that it fueled specualtion and not so much lower level consumption. The injection site for liquidity greatly influences how that money will flow in an economy and not all injections are alike. Another factor was globalization as production moved to lower cost areas thus where costs could not be controlled, they went up yet anything that could be offshored saw price declines. AS the offshoring pushed ahead, more and more "disinflation" occured yet printing continued and rates were pushed down so there were forces at work pushing hard to fight deflation. It is now appearing that due to raw material prices, the cost controls and savings from offshore may have spent much of their fuel and prices are now rising in India, China etc allowing creep into today's prices. Beggar thy neighbor currency policies to maintain trade davantages have masked a lot of the distortions thus when comparing yen to euros to US DOllars etc, all looks OK yet currency to commodity prices show the global devaluation of the currency baskets as a whole that are greater than one to another currency comparisons. Labor policies, offshoring capabilities, government regulations, tarriffs and a multitude of other factors can stem or contribute to inflation. Even if no dollars are withdrawn or introduced, you can have deflation, disinflation or inflation that will show up as it should in the end in monetary terms just due to money velocity as cash is hoarded/saved or spent at a rapid pace based on public tendencies for individuals or business. I am getting too long winded in this post as I have been biting my tongue for over a year and it is now spilling out and maybe not even making sense so will cut it short. ( too late?) To ignore rising costs as not being inflation because there is no monetary signal is silliness. AS Fed Gov Kohn said, inflation will EVENTUALLY become a monetary event but it can occur long before and independent of monetary factors. If costs are rising, productivity ceases its meteoric rise or cheap goods cease thier offshoring savings, we can and are inflating. We just won't see it in monetary terms until later. I could argue that we already are seeing it in monetary terms as well since Gold is high, oil is high, services like insurance are high etc. I also agree with the poster that mentioned existing homes have appreciated in price as well. I am going to have to move soon and have been house hunting various locations. Home prices are up for existing homes by a HUGE margin vs just a couple years ago. I am looking at a 1920 home that is up 40-50% over a couple years. Same for a Korean era home built in the 1950s. A 1996 home I looked at has more than tripled in price. In the late 90s, these would have been easily under $50 a sq ft. Early 2000s they were $75 sq ft and now are around $90-$100 sq ft and this is in the cheap fly over country. I am currently still in California and homes in what we nicknamed the Meth capital of the world couldn't be given away in 2001. they cost about $80K in crack city but now are commanding $300K - $450K. This is not new homes, it is the same houses, the same neighborhood but the LA crowd is migrating to find cheaper housing in droves. Costs are relative thus they are cheap to them and outragious to those of us that were used to the old prices and know the area's history. Anyway, I am ranting again getting too long winded. I have asked those I work with that are on steady fairly fixed COLA adjusted wages how they are fairing. ALL of them, not a few, ALL of them say they are struggling to live on thier pay because costs are rising too fast. That IS inflation! The M3, velocity and other monetary numbers will show up later. Good Luck, Lee