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

To: bart13 who wrote (78136)	1/26/2007 12:20:43 PM
From: ahhaha	Read Replies (3) \| Respond to of 110194

CPI has understated inflation since the '80s, depending of course on one's definition of inflation. In the modern era inflation is defined as acceleration of the general price level(roroc of GPL). That inflation bubble chart is nowhere near real world in my opinion. In fact, the chart shows the 2.4% rising structural rate of general price level(the straight line of zero slope) and the current era's definition of inflation(acceleration or deceleration, rising and falling of graphed function). They follow, they don't lead. They aren't correlated. The Fed's SecLend operations lead. Your chart doesn't show that. Your chart purportedly shows rate of change of secLend vs Tbond yield. On the face of it please tell me how you think your chart shows any correlation. The Tbond yield is exclusively determined by inflation(roroc of GPL) since principal risk is nil(backed by full faith and credit = power to tax). Seclend determines the level of marginal support for total transactions. Seclend does not determine money supply(You can lead a horse to water, but you can't make it drink). SecLend only supports the quantity of money needed for the level of economic transactions. If you want to make an argument that there's a connection between fiat money and inflation, you have to look at Permanent. You'll find there's not much correlation between Permanent and SecLend, but obviously there's correlation between secLend and Temporary. However, the same problem that exists with correlating secLend and roroc of GPL exists with correlating Permanent and roroc of GPL. You have to remember that the private sector, not FED, creates the extra money that enables entities like monopoly unions to cause say, rising roroc of GPL. FED only creates the basis upon which the private sector money creation rests. FED can create the same quantity of raw money in one era that allows the private sector to bring about rising roroc of GPL, and then in another era, the same quantity allows the private sector to bring about declining roroc of GPL. Grace's chart shows this. During "disinflation" when roroc of GPL goes negative FED was allowing an ever increasing quantity of Temporary and was creating a fairly constant quantity of Permanent.