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03:07 PM on 05/02/2013
Dear Friends,

High inflation is a means to reduce the value of labor, while increasing the value of capital, hence, the wealthy do very well when we have high inflation, working people take it in the shorts.

What has been going on the last couple of years is under reporting of inflation, this has allowed the government to show growth in the economy, as under reported inflation, shows up as growth.

The truth is our economy has been in free fall since September 2008, and it has not gotten better, real medium take home after inflation is down a lot.

http://data.bls.gov/timeseries/LNS11300000

The additional tax increases and regulations like Obamacare, have made a bad economy worst, but if you listen to the government all is well, unemployment is down, growth is here, and everything is doing well.

People are you really going to believe this? Are you doing well?
03:34 PM on 05/02/2013
Why do people keep saying that inflation is bad for the little guy? It is bad for long term lenders. It doesn't make much difference to people that don't borrow or lend, and it is good for long term borrows. Since most middle class people save through their own home, financed by long term debt (mortgage), inflation is good for the middle class.
Inflation is bad, in the short term, for the very poor as wages don't keep up with consumer good price inflation in the short term and poor people don't have homes to offset inflation.
06:03 PM on 05/02/2013
Dear enn,

Inflation is bad for anybody that has to work to earn money, this is the reason for inflation to make labor worth less over time.

The key is to increase worker productivity, hence, each worker is able to make more, and hence get paid more to real wages will rise faster than inflation.

This created the middle class, today we are going to in the opposite direction.
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Carl Caroli
I just don't understand people
03:54 PM on 05/02/2013
It's also a cheesy way for banks to squeak their way out of the really bad decisions they made on the housing market.
03:03 PM on 05/02/2013
WT? High inflation is BAD. And BTW - INFLATION IS FAR HIGHER THAN THE OFFICIAL NUMBERS - been food shopping lately? We're only seeing deflation in the prices of things we DON'T NEED. Anything you DO NEED has been going up in price (except your wages).

Another MOPE PR piece. Inflation devalues savings (for the few that manage to have any) and reduces the buying power of wages - while suppressing them in general. As far as being able to CUT wages...bwahaaaaaaaaa Wages have LOST BUYING POWER FOR 40 years. How much more do you want to cut the average worker's wages. You might try cutting top exec wages which have risen ridiculously (but that will never happen).

Inflation is BAD for those that 'do the right thing' and benefits only those who pile on debt (like government).
03:49 PM on 05/02/2013
You talk about 'govt' like it is it has separate financial concerns than you. The govt is funded by your taxes and provides you with services. "Their" high debt is your problem. Also, everyone borrows a lot of money to finance their house. It is hardly irresponsible to take on a mortgage.
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Keith LeBrun
04:14 PM on 05/02/2013
This is the main problem with our way of doing things. You can do things that improve the business aspect or you can do things that improve the lives of the population, but it's becoming increasingly difficult to do both.

With real wages in decline, buying power - which is the fuel of the capitalist engine - also declines. If prices remain static or even increase, we lose even more. So much for good jobs at good wages. Once this is coupled with technological advances which further reduce the amount of labor, we have business which manages to maintain a sufficient level of productivity and an even larger decline in employment, which can mean nothing less than further decline in business growth - at least in the domestic market.
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phantastic830
I aspire to be a bourgeois American
02:19 PM on 05/02/2013
Mr. Bernstein, allow me to point out a major flaw in argument. As inflation increases, it decreases the value of our currency. If the value of currency is reduced enough, it won't matter what people are being paid. It becomes a moot point, because the dollar amount earned hourly will essentially be the same, if not lower than before.
03:54 PM on 05/02/2013
Yes, true. Your wages stay the same in true value. However, your mortgage payments become much less in true value. So does our gigantic govt debt. Inflation is bad for long term lenders (like the bank that issued you a 3.5% 30yr fixed rate loan) and good for borrowers (like those paying off 30 yr fixed rate loans, or our debt ridden govt).

Imagine if inflation was 5%/yr. Your mortgage rate is 3.5%/yr. Your principle is 1.5% less every year in true dollars even if you never paid a dime of principle.
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phantastic830
I aspire to be a bourgeois American
05:42 PM on 05/02/2013
"However, your mortgage payments become much less in true value. So does our gigantic govt debt." While the mortgage payments would be effected, the government debt wouldn't.  Even that debt is now backed aganist a Fiat currency, it won't change.  We still owe other nations, even if it is just paper.  That paper and what they want to value can be changed if the world market decides, not us.  In short, it could put the U.S. Government and it's citizens in a very precarious and possibly dangerous situation.
 
07:03 PM on 05/02/2013
I agree with you on mortgage payments. However, rising inflation doesn't help out gigantic government debt UNLESS it happens to be timed with massive cuts in the current borrowing rates. That is, rising inflation --> increased interest rates --> increased cost of borrowing --> more government debt
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phantastic830
I aspire to be a bourgeois American
02:14 PM on 05/02/2013
Mr. Bernstein, while I'm sure you're quite proficient in philosophy, social welfare, and fine arts, you do not have a degree in economics, and you also do not have any formal training in business, and private sector economics. That is, if your biography stands to be true. How then, are we the readers supposed to believe anything you write regarding the financial sector, specifically the private sector, to be credible? Not to mention your public position and outspoken support of Economic Liberalism, in stark contrast to the free market.
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stewartm0205
02:13 PM on 05/02/2013
The problem with low inflation is that the rich can leave their money in the bank. They don't have to invest it. Raise the inflation rate to 4%-5%. Force them to invest it, spend it or watch it disappear.
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J Maness
My micro-bio is empty.
03:43 PM on 05/02/2013
Only if that low inflation results at the very least in a positive real rate of return, which is not the current case.
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spoonbill1963
02:04 PM on 05/02/2013
Oh Jared, how can you be wrong 100% of the time? We have inflation....big time inflation. You can never believe the figure the government puts out. Just believe your eyes. Go into a grocery store on a regular basis and you'll have your eyes opened. Not how small those cereal boxes are getting or how much peanut butter is going up.
Fortunately we do not have to accept government lies. Some objective sources out there will set you straight. Look at ShadowStats. They have inflation for the stuff we buy everyday at about 9-10%. That about matches my sample market basket I look at when I go into a grocery.
Jared, is the government paying you in any way, shape or form? Just curious.
03:10 PM on 05/02/2013
Dear Spoon,

The issue for the wealthy inflation is low, what they buy have not gone up much, and as they consume labor to do stuff for them, you had no labor inflation, hence, times are good.

You want somebody to mow your lawn, the price has gone done, somebody to cut your hair the price has gone down, as the wealthy do not buy basic goods, they do not see the rise in basic good cost, because they buy goods that have value added labor.

Hence, they go to eat, the people working at the restaurant are making less, the basic food costs more, but it balances out.

Hence, no inflation for them, just for us.
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Keith LeBrun
04:29 PM on 05/02/2013
There's a big difference between controlled shortages and inflation. Midwest drought contributes to a decline in the amount of wheat grown which means less flour and higher prices for bread. Similarly, if a conflict breaks out in the middle east, oil futures skyrocket causing gas prices to rise which increases shipping costs which get rolled into the prices we pay at the store.

We can talk about sticky wages, but there's something else that ought to be examined - sticky prices. It seems that for every perturbation of the market, prices don't necessarily float back to pre-crisis levels. Again - this isn't inflation, it's simply corporate greed.
05:00 PM on 05/02/2013
Prices don't really float down anymore because people blindly eat whatever costs are thrown at them. Sure they'll protest and grumble, but they'll pay at the pump, they'll pay at the grocery, and they'll buy the latest gizmo and gadget. I often chuckle when people start preaching about how governments or other "groups" spend money....most of the population barely understands basic financial discipline, let alone understanding how the world around them actually works.

So yeah, it's greed. But when people are continuing to pay anyway, nothing is deterring that greed from continuing to do it....or to up the costs. What's the phrase, "charge what the market will bear"? And it's not just consumers either. There's a lot of awful investors and speculators with too much money and not enough common sense, as well.

And while many of these same people will champion free markets and individualism, in the end the burden of their folly always ends up on the shoulders of everyone else, too. Privatize the gains, and socialize the losses, as the saying goes.
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spoonbill1963
10:35 AM on 05/03/2013
No, it's inflation. You pump two trillion of funny money into the system and this is what you get.
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jeffrey678
You don't happen to make it. You make it happen.
02:04 PM on 05/02/2013
Monetary policy will only feed into inflation if it feeds into demand. As it stands the additional funds is being soaked into assets and other non consumption or enhanced supply areas. Look at Apples ability to have raised 50b just the other day.

Political constiuencies are not monolithic. Even somethings as narrow as the Tea Party is a conglomerate of wealthy funders (not all local), a few "notable" influential local citizens, some trying to get recognition for their leadership and knowledge, and a flock of disgruntled followers with various reactionary beefs against liberals.

The same group of anti-Fed types used to love Greenspan. Low inflation is certainly beneficial to the funders, but low wages are even better. Inflation is tougher on bond holders than equity or real estate holders. Low taxes and low wages have the broadest appeal, but inflation strikes a reflexive disdane beyond its actual cost/risk.
02:02 PM on 05/02/2013
Inflation hurts the savers. It traps the average wage earner into having to work longer, or having to invest in risk in order to preserve his savings. When I was growing up in the 50's and 60's, many older people were living off just their savings. Our government has made that practically impossible for all but the most fortunate. We live to work, instead of working to live. And then we wonder why people are unhappy with government.
03:25 PM on 05/02/2013
This isn't really accurate. Savers are always going to lose money without taking risk. The rate on a CD in the 80s was 13%, but inflation was a few points higher. The rate on a CD now is 1%, and inflation is a point higher. No one is or has ever given away money, not now, not in the 60s, not in the 80s.
Also, no one saves real cash, so inflation hurting savers is mostly a myth. If you have savings they are in stocks, bonds, commodities, real estate (most people's wealth is in their house, never cash) etc. These items mostly adjust to inflation.
Inflation is actually great for home owners paying a mortgage. If my payment is $1,000/month today on a 30 yr fixed and we go through 10 years of 5% inflation my payment is still $1,000, but that is worth about half in 2023 dollars what it was in 2013 dollars.
12:41 AM on 05/05/2013
Most financial consultants will tell you that you should have six months worth of income in the bank.  To me, that's real cash.
I agree, inflation helps the borrower, but only on appreciating items, and only if the wages keep pace, which they haven't.  Plus, excessive debt slows the economy, in spite of the Fed.  Regardless, inflation is obviously here to stay, and your right, we just have to learn to work within the system.  Good reply.
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Keith LeBrun
04:41 PM on 05/02/2013
Personally, I think that the people are unhappy with their government for the wrong reasons. Certainly, monetary policy has an impact, but our capitalistic society is simply reaching a point where consumption levels are no longer sustainable. Back in the 50s and 60s, if you bought an appliance, the quality was such that you probably gave it to your kids who were just starting out on their own - in great working condition 15 to 20 years later. This is awesome for savings as the replacement cost is very low. It's bad for business though, because once the market saturates, production has to fall drastically. To combat that problem, business begins to use cheaper components with shorter lifetimes. Profits continue, but at the cost of increased consumer consumption - which means fewer dollars available for savings.

This isn't a government problem, this is an economic problem which can only be ameliorated in the short term by the government. Eventually, this system we have will collapse on it's own.
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roopsag
Saving the world. One smelly person at a time.
01:52 PM on 05/02/2013
Read this again people - this author is essentially admitting that the purpose of inflation is to lower wages without having it look like lower wages.

(which is why you should never adjust for inflation when comparing year over year government spending - inflation benefits a) people who get the first dollars (government and cronies) at the expense of the people who get the last dollars (workers) and b) people who borrow (government) at the expense of people who loan and save (savers and investors).) What we have now is actually worse than high inflation - it is off-the-books borrowing on a massive scale.
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spoonbill1963
02:06 PM on 05/02/2013
We are buying 70% of our own treasuries with money we have just printed.
How could anything go wrong?
03:05 PM on 05/02/2013
The main entities that loan are are banks, not savers and investors. Most Americans have more in debt (mortgages) than they do in savings. Those that do have large savings usually have those in stocks, bonds, gold, real estate etc, which all appreciate to some degree with inflation. Really, inflation over the long term is bad for lenders and good for borrowers. Most people are borrowers, as is the US Govt (and we pay their tab). Reducing the true value of my 300k mortgage and the trillions in govt debt by a few percentage points per year is mostly a good thing for average people and bad for issuers of long term loans (banks) and holders of large amounts of cash (rich guys). Don't be a chump, a small amount of inflation can be a very good thing for average folks and the govt we pay our taxes to
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jeffrey678
You don't happen to make it. You make it happen.
01:50 PM on 05/02/2013
As Kalecki said the wealthy do not like full employment. Low interest rates for their financial games are second order. Low inflation is first order. That means overly tight monetary, not accommodative policy. See the confusion....

Yes they want easy money and the Fed to replace fiscal policy in boosting the economy, but not too much.
01:42 PM on 05/02/2013
Arguably most people need higher inflation. Too many people are in too high of debt and the deleveraging effects of inflation are needed. And by higher inflation I mean like 5% not 10 or higher.

Though personally I prefer the low inflation right now due to low assets, no debt, and trying to build more liquidity, but I understand for the greater good of the country more inflation would be better.
02:13 PM on 05/02/2013
And what about elderly people who saved for retirement. Is 5-10% inflation good for them?
02:32 PM on 05/02/2013
And the banks who will lose money even though they got paid back in full. Most liberals are not intelligent enough to see that.
02:44 PM on 05/02/2013
Depends on how their assets are invested. If they are invested in inflation adjusted assets and living off their returns it doesn't matter to them. If they're living off of principle then no.
01:27 PM on 05/02/2013
My salary has stayed the same for the last 4 years BUT more taxes are coming out of it AND living expenses have increased across the board SO it might as well be a wage cut.
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Martha Fair
Crusader against oral flatulence
02:16 PM on 05/02/2013
If you live under the flag you wave, look no further than the Republican party that you work to keep in office. The 10 poorest states in the nation, as well as the 10 receiving the most federal entitlements are all Republican controlled, and have been for decades.
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OliverTwist
Contrarian advocate for truth and justice
01:27 PM on 05/02/2013
If you follow this logic and evidence further you see a more fundamental problem - the shifting ratio of the productivity of labor and the productivity of capital. It is not necessary to decrease the wages of labor when replacing labor with capital will do as well. An old problem - with a new aspect. In the last industrial revolution technology made it possible to considerably reduce the need for human physical work by leveraging human capabilities for mental and physical work with machines that do physical work more efficiently. In the current industrial revolution technology is making it possible to considerably reduce the need for human mental work with machines that do mental work more efficiently. Maybe in thirty years the CEO's of major corporations will be redundant.

Something to think about while what you think about it still matters.
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TheRealThang
Boycott Florida
02:24 PM on 05/02/2013
an inversion of the current paradigm would be great. IE: CEO's who don't do anything getting replaced by interns- and workers - ie people who actually do things - getting a living wage. I know it's a fantasy, but it would rule.
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OliverTwist
Contrarian advocate for truth and justice
07:39 AM on 05/03/2013
I agree. Still, CEOs and other powerful people generate much of their market worth from their membership in self segregating groups that have thrived. The formation of such groups is a kind of social nucleation phenomena and is likely in any system even one where people don't start with power and privilege at birth. Some of the water molecules get to be in the ice cubes and some get to be in the liquid, even if they are all the same.
01:24 PM on 05/02/2013
It appears to me that "inflation" reduced to a single number may be a useful guideline for some purposes but that it hides much of what really matters. For example, real estate prices,while picking up, are still low compared to the bubble, but food items, at least the ones I buy sold in my region, have gone up a lot since the crash. And while fortunately for me, can absorb these price increases, I have the impression that some of the cheapest items on which the poor rely, rice, beans, corn flakes, etc. have shown greater price increases over the last 30 years than merchandise in general. Unlike the case with electronics, it seems harder to spot items that are consistently exceptionally cheap at the super markets. It also seems to me that sources of entertainment that I relied upon as an impecunious student which were formerly free or by token admission (even without a student discount) now bear substantial fees that are going to matter a lot when you worry about running out of money for food and still make the rent.

The impact of inflation is affected by what you earn and what you buy, and as far as the "chained CPI" it appears to me that it is becoming increasingly harder for those who live on very little to live on less.
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Tresco
Sistagirl Laughin' Thingy Award Winner!
01:18 PM on 05/02/2013
Inflation is higher than the official figures. The numbers are rigged. So much money is being pumped into the economy that the money is worth less. You are either paying more for the same product or you are paying the same for less. Don't pee on my leg and tell me it's raining.
01:38 PM on 05/02/2013
I know right? What a joke- not sure what world this writer is living in, but the cost of EVERYTHING has gone up for me- just to get a fast food lunch quickly approaches $10. Grocery bills have skyrocketed too, and you are right- the amount of product that goes into the box is significantly less than it used to be.
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01:58 PM on 05/02/2013
And don't trickle down on me and tell me it's raining jobs!
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golfvue3
It's all ball bearings these days.
03:05 PM on 05/02/2013
Mfg jobs went to China. If you want them back Obama has some work to do:

1. label China a currency manipulator ( ala Romney).
2. Put tariffs on goods coming from countries that have lax environmental and worker safety/healthcare regs. This adding significant cost to US produced goods - if we consider those things important, then why import goods that are produced at much, much lower standards.

I haven't seen anywhere near enough steps taken to make the US more competitive and/or level the playing field against other countries who "cheat".