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Napanee, Ontario | Hey Chris, i'm no economist, but here's my two cents if it helps. I think its just as good as the sage predictions we've had from Greenspan, Summers and Bernanke (cough, tapering???) and the other wizards who have such a great track record....
Any asset can experience price deflation if too much supply is available - just look at corn dropping as the FED churns out billions every day. So you can have both inflation and defaltion at the same time, that vary across asset classes. Look at how cheap computers, phones, tv's ect have gotten that are much easier supplied now from acces to vast asian labor markets. These asset classes have been in a deflationary trend for several years now.
At the same time, other asset classes where supply is tigher have price inflated - stocks, bonds, derrivatives, land ect. as John mentioned. Supply is tighter because there is huge demand coming from free money borrowed at 0% from the FED, coupled with the FED itself buying up an estimated 50% of bonds traded in treasury markets. Unfortunately price inflation in these asset classes don't get measured in the Core CPI calculation, which is what the FED uses as the barometer for inflation. Kind of a head scratcher as that is exactly where all the money borrowed at 0% has gone into.
here's the CPI:
* FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks)
* HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture)
* APPAREL (men's shirts and sweaters, women's dresses, jewelry)
* TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance)
* MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services)
* RECREATION (televisions, toys, pets and pet products, sports equipment, admissions);
* EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories);
* OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses).
This is not the same as Core CPI. It would be a reasonably good measure for most consumables inflation except for the fact that Core CPI excludes most of the dollars spent in the first and fourth categories. So you are left goods from China getting cheaper all the time in categories 3, 5 and 6, .....then toss in a cyclical housing decline /stagnation for most of the last 6 years and walla, you get your low CPI.
But the other bigger reason, and the current major lie underpinning FED policy, is the fact that investments are not measured. Trillions of dollars more are spent and exist in this category that are printed every day by the FED. Much of the money that is minted in FED magic is used by banks speculating in carry trades on everything from notes, corp bonds, commodities and equities, and will continue to do so as long as they can borrow at 0% on the overnight rate.
So yea, there is inflation in items the average Joe doesn't have much exposure to and can increasingly not affard. And this doesn't get measured in 'inflation' as it is officially measured. So sure, we might have deflation in some goods, always will if they become overproduced for the level of demand for them, regardless of overall monetary policy.
But the reality is that they are still printing a trillion dollars a year. That money doesn't just dissappear, it has to chase something. And go figure its not the assets that the average North American owns.
Edited by OldMcdonald 11/4/2013 11:48
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You all know a lot but are we going into deflation?
