May 4, 2013

GLOBAL DEFLATIONARY PRESSURES ARE TOO STRONG FOR THE FED TO HAVE MUCH OF AN EFFECT...:

Why We Should Be Worrying About Deflation (BRUCE BARTLETT, 5/03/13, The Fiscal Times)

Perhaps more importantly, expectations of inflation are falling. This can be derived from Treasury bonds that are indexed to inflation. Comparing yields on such securities with those on non-indexed bonds tells us what markets are expecting in terms of inflation. While not a perfect indicator of future inflation, those buying indexed bonds are putting their own money at risk if they are wrong and inflation comes in higher than expected.
 
Some people believe that the price of gold is a very accurate indicator of inflationary expectations. Insofar as this is true, it is also signaling declining inflation. The price of gold is down 13 percent since the first of the year and many observers think it has much further to fall to be consistent with the moderate inflation since the big run-up between 2009 and 2012.
 
In the last few days, steelmakers have complained about plunging prices for steel, and one of the Federal Reserve's leading "inflation hawks," James Bullard of the Federal Reserve Bank of St. Louis, has warned that inflation in running so far below the Fed's target rate that it may require further action by the central bank.

Yet conservatives continue to insist, as they have continuously since 2008, that hyperinflation is right around the corner because they Fed has increased the money supply.  For example, on March 21, Rep. Louis Gohmert (R, Texas), warned that people's bank accounts are disappearing daily because of the massive, ongoing inflation caused by the Fed.

One explanation for the disconnect between monetary stimulus and falling inflation is the deflationary effect of fiscal policy. The budget deficit has fallen by half from 10 percent of the gross domestic product in 2009 to 5 percent this year and will fall by half again in 2015, according to the latest Congressional Budget Office projections. In fact, the Treasury expects to run a $35 billion surplus in the second quarter of this year. 


...but, it seems pretty obvious (as it has since the original credit crunch) that we'd derive some benefit from having them buy and retire consumer debt (starting with housing and educational--which borrowing served public purposes) instead of sitting on reserves.

Posted by at May 4, 2013 8:55 AM
  

blog comments powered by Disqus
« $200 BILLION STILL LEAVES PLENTY OF ROOM FOR PORK: | Main | MEANWHILE, SUCH HATERS OF THE wEST ALWAYS HAVE TO AVOID THE COROLLARY QUESTION...: »