Japan’s New Framework Of Hyperinflationary Failure

By Andrew Hoffman – Re-Blogged From http://www.Silver-Phoenix500.com

Am I allowed to start with Deutsche Bank?  Or do I have to defer to the Bank of Japan’s Keystone Kops; who once again laid a giant goose egg?  Who, beyond a shadow of a doubt, proved they have not a clue what they are doing – in dramatically accelerating the pace at which the “Land of the Setting Sun” plunges to “second world” status, en route to becoming the first “Western Power” to experience 21st Century hyperinflation.

Hmmm, what to do?  As sadly, I could easily write entire articles on countless other topics as well – such as the Bank of International Settlements issuing a dire warning about the massively over leveraged Chinese banking sector; Donald Trump’s surging popularity; Wells Fargo’s “crime of a lifetime”; the exploding worldwide pension crisis;  OPEC’s Secretary General all but confirming “no deal” at next week’s “all-important” crude oil producers meeting; and the U.S. national debt – and budget deficit – expanding at the fastest rate since the 2008-09 financial crisis.  And the answer is, I’m starting with Deutsche Bank – as unquestionably, it poses the greatest near-term risk to global political, economic, social, and monetary stability.

To that end, on June 13th article “the Lehman of Europe is on the verge of collapse,” I stated the following…

“In my view, the ‘powers that be’ are for some as yet unknown reason, distancing themselves from DB – just as was the case with Lehman in the States, as its competitors were serially deemed ‘too big to fail.’  I mean, the rapidly growing list of lawsuits and allegations against Deutsche Bank is utterly staggering – including its admission of manipulating Precious Metal markets for the past 15 years; to the point that clearly, this massive European crime center is not far from total, and irreversible, implosion.  Only this time, the ramifications would be dozens of times uglier than Lehman, as its derivatives web is so large, it would likely entangle every financial institution in Europe – as well as countless non-European corporations, institutions, and sovereign governments.  Not to mention, seven years after the Lehman crisis, the global banking sector is far less liquid, amidst the worst worldwide economic conditions since the Great Depression.  Not to mention, an unprecedented, worldwide debt edifice nearly twice that of 2008’s level, with Central bank balance sheets so bloated – and credibility so thin – there is no chance they could ‘bail out’ the world again, unless they resort to outright hyperinflation.  Which unfortunately, the sad, sordid history of all fiat Ponzi schemes guarantees.”

And that, two weeks before the IMF – incredulously, given the obviously horrific ramifications – labeled Deutsche Bank the “most important net contributor to (global) systemic risks!”

In other words, with each passing day it’s becoming more and more clear that for whatever reason, Deutsche Bank has been “marked for death” by “someone” or “someones” with the power and capital, to make it happen.  Even I am clueless to guess why Deutsche Bank is being specifically targeted – which it most certainly is.  Consequently, I am exploring all potentialities – including even a grand conspiracy, as discussed in last Friday’s must listen Emergency Podcast with Bix Weir; or perhaps, a geopolitical battle for Western domination, as suggested by Max Keiser.  Whatever the reason, the fact remains that Deutsche Bank is unquestionably on the verge of collapse, as exemplified by exploding credit default swaps; and its stock closing yesterday at an all-time low, down 50% year-to-date, and 91% from its 2007 high.

At this point, I’m not sure there’s much more to add than the reams I’ve already published about my staunch belief that Deutsche Bank is not only going down, but going down soon.  And that when it does, it will be the financial, political, and monetary equivalent of the 2004 Indian Ocean tsunami – which killed 230,000 people in 14 countries, the vast majority within a few minutes time.

On that happy note, let’s shift to the “Land of the Setting Sun” – whose lunatic Central bankers, yet again, proved the thesis of my July 29th article, that the “clueless Bank of Japan exemplifies the awe-inspiring, irreversibly destructive power of the printing press.”

Heading into the meeting, every manner of opinion was spewed from the mainstream media about what a desperate BOJ might do, given that nearly four years after Shinzo Abe took office; and 3½ years after his “two-year” Abenomics plan commenced; Japan has accomplished nothing but collapsing economic activity – and for “good measure,” a flat-lining stock market, despite the BOJ purchasing nearly two thirds of the ETFs tracking the Nikkei 225 average!  This time, not only was Haruhiko Kuroda going to unveil his latest hyperinflationary effort (FYI, despite a “plunging CPI,” Tokyo’s cost of living is the same as London’s); but the results of the “comprehensive review” of Abenomics, as ordered at the BOJ’s July 29th meeting.

Foremost amongst “expectations” was the lunatic concept of a “Reverse Operation Twist” – in which the BOJ would lower rates further into negative territory, and shift its massive, $65 billion/month QE purchases (actually, Japan calls it QQE, or “Quantitative and Qualitative Easing”) toward shorter duration securities.  The ludicrous “reasoning” was that a steeper yield curve would somehow benefit pension plans and insurance companies; but for the life of me, I fail to see how it would matter a whit, or how it could possibly be “beneficial” to reduce purchases of ultra-long-term duration bonds, causing massive capital losses to everyone that owns them.  Most importantly, themselves, as the BOJ owns 40% of all JGB’s, or Japanese government bonds.  Which is why, last week, I deemed such a proposal as a Frankenstein-like experiment.

Unfortunately, the reality wasn’t far from the description – although in true Central bank fashion, it was watered down with Fedspeak to avoid shocking markets, by euphemistically deeming the strategy shift “QQE with yield curve control.”  In reality, it’s “new framework” of targeting the 10-year interest rate specifically – i.e., setting a de facto long-term cap at 0% – is hard to discern from what it was doing all along, as the 10-year JGB yield was -0.06% before the decision, and -0.03% afterwards.  Moreover, interest rates were maintained at -0.1% – although expectations are that they’ll reduce this rate further in November; and QQE buying was maintained at the aforementioned $65 billion/month.  Frankly, the only real change in standard operating procedure was to re-allocate half of the monthly $5 billion of equity ETF purchases to the smaller Topix index, given its ownership of the nation’s largest companies – i.e, the “the ultimate end game of communism” – was becoming too large.

However, what the “markets” are supposedly focusing more on – which given the fact that the Yen is higher than when the announcement was made, within 3% of its pre-Abenomics high, depicts yet another “failure on arrival” – is the fact that Japan appears to have eliminated its long-standing 2% “inflation target.”  Yep, just like the Fed will validate later today – given that the “core CPI” the Fed has supposedly been “targeting” has been above 2% for the past ten months – Japan decided to “move its inflation goalpost” as well.

In other words, it announced QE to infinity – in true Central-bank-speak, describing this sea change in policy, by simply saying “the monetary base may fluctuate to achieve yield curve control.”  Which anyone with half a brain knows is going on already, given that fiat currency, by definition, is a Ponzi scheme that must grow exponentially larger to survive.  Which sadly, always ends in hyperinflation, as evidenced by a thousand fiat currency failures throughout history, and not a single success.

To that end, as we shift to the Fed’s – potentially equally historic – statement a few hours hence, keep in mind that Janet Yellen’s first official act as Fed Chairman in February 2014 was to remove Bernanke’s 6.5% “unemployment rate threshold” for raising rates, instituted when QE3 was commenced in December 2012.  Moreover, just last month, right before Yellen’s, LOL, hawkish Jackson Hole speech, San Francisco Fed President John Williams published an official white paper, proposing the Fed should also remove its long-standing 2% inflation target (and institute negative interest rates), just as the Bank of Japan did today!

Yes, the BOJ, with the help of its relentless ETF buying, was able to push the Nikkei 2% higher today.  However, as noted above, the Yen is higher than before the decision was announced – having only fallen for a mere hour before reversing, to its highest point of the day as I write at 8:15 AM EST.  In response, Kuroda desperately attempted to jawbone the Yen lower at his post-decision press conference, by stating the BOJ “will not hesitate to ease policy further,” and “the commitment to overshoot inflation is aimed at boosting inflation expectations.”  However, it’s clearly failing miserably – as thus far, gold and silver have been the market’s best post-BOJ performers.  And FYI, gold priced in Yen, despite the Yen’s recent surge, is just 13% from its all-time high.

Well, that’s enough for now – as I get ready for the MAIN EVENT that is the Fed’s policy statement later today, at 2:00 PM EST – that is, if Deutsche Bank’s stock doesn’t dramatically collapse first.  To that end, NEVER before have I seen a Central bank – i.e, the Fed – so badly pinned down by its own rhetoric, in so strongly hinting of potential rate hikes this past month, amidst collapsing economic data; a collapsing Hillary Clinton campaign; and oh yeah, the collapsing stock price, to an all-time low, of the world’s “most systematically dangerous bank.”

All I can say is, that if the extraordinary political, economic, and monetary events taking place worldwide aren’t enough to cause you PROTECT YOURSELF now, I don’t know what more needs to occur.  And if your answer is “I need to see it collapse first,” you may well find that protecting yourself, is far more difficult, and costly, than you could have imagined.

CONTINUE READING –>

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20 thoughts on “Japan’s New Framework Of Hyperinflationary Failure

  1. “amidst collapsing economic data”.

    Such as?

    I know, I know – the old joke about “if you laid all the economists in the world in a straight line, they’d still point in all different directions”. 🙂

    But: while economic indicators are often a mixed bag, what are the multiple indicators that are so overwhelming that they overcome the generally positive news I’ve read?

    (I see general jobs-related news as promising, inflationary trends adequate, payroll information excellent, stock markets good, GDP reasonable… My personal concern, which is not often mentioned in data, is that business resources for small business are unreasonably constrained by excess competition. Which is not so much a contrary indicator, but an artificial barrier to overall growth.)

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    • “… stock markets good…”

      I would guess that understanding stocks is not an area that you have gotten into. So, a very brief look at one aspect.

      Businesses earn money (sometimes negative) and their stock sells at a price. One way to compare different companies is to look at the stock price against what the company earned per share. Earnings per share divided by price per share gives the Price to Earnings Multiple (PE Ratio). One company, priced at $10 a share, earning $1 per share, and a second company selling for $20 a share, and earning $2, both would have a PE Ratio of 10. By this one measure they are equally priced. (Obviously much more is important.)

      Stocks taken as a group (for example the S&P 500 stocks) go through ups and downs of the ratio over time. Since 1900, a PE Ratio of 7 is considered low, 14 is mid-range, 21 is fully priced, and 28 is bubble territory, where a severe downward move is to be expected. Today, the companies which make up the S&P 500 have had 5 (soon to be 6) quarters of falling earnings, however the PE Ratio is almost up to bubble territory.

      FED and CNBC cheerleaders may say the markets are in great shape, but I believe they are biased by having a horse in the race. Today’s stock markets are NOT good!

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      • Actually, my understanding of stock markets is very good. But – before I answer that.

        It’s a common Internet trope to ignore the gist of a position, and hyper-focus on some trivial distinction or difference within it. I listed a wide variety of positive indicators. Even if ONE of them were to be wrong, you wouldn’t discredit the larger point.

        Returning to stocks. I’m actually quite fluent in EPS, PE ratios and such. But it’s also worth noting that stocks have largely stopped being measured by value and such metrics, because stocks are not used in that old-fashioned way any longer.

        EPS and PE Ratio were more relevant when people bought and held stocks in order to receive earnings distributions and cashed their earnings checks. Back in those days, PE Ratio’s of 5-12 were considered a “buy” (if the stock was stable).

        Nowadays, stocks are trading cards – people buy not so much because of the EPS, but because they are bidding on the future price of the trading card. On the demand for it, not the dividend. This is clear when we look at quarterly earnings reports. Firms are punished for failing to reach quarterlies, or rewarded for exceeding them. Rarely, if ever, are they rewarded or punished because the EPS are too low. It’s targets now, not quarterly revenue.

        You can see that in the growth of Unicorn stocks, and so forth. From that perspective, market “sentiment” (bull, bear, net investment levels, volume) are more metrics of general economic sentiment in a narrow sector of the economy.

        From that perspective, while we see money exiting ETFs and high-end investment accounts, we generally see more money entering the stock market than leaving it. We don’t see many money managing firms leaving the market and holding cash (despite historic low inflation) nor moving to safety in bonds. It’s not an economic indicator of weakness – which was the part of the article I was objecting to.

        You’re using an antiquated measure of the health of the general stock market in an attempt to make your point. That’s why I don’t think you made a very good one. BUT: arguendo that you were right about the markets and that I am wrong about all of my prognostications of the market – you didn’t discredit my major point.

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  2. “… inflation is adequate…” May I understand from this that you think a little bit of inflation is a good thing?

    What good does inflation do other than depreciate the value of all the Dollars previously circulating? With Economic Growth through technology, etc, I would expect that prices would fall (as for computers, etc). So then, inflation costs everyone that inflation rate, plus it also costs everyone the loss of the increased purchasing power.

    Putting some numbers on it, a 2% inflation rate, plus purchasing power enhancement technological improvements being foregone of maybe 3%, means that everyone’s being cheated out of 5%! The Keynesians may think this is OK, but I (and the Austrian School) don’t.

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    • It is widely understood by practical economists and central bank authorities that a modest level of inflation is the best of the various pathways forward. I believe the Federal Reserve currently aims for 2%. It is certainly widely understood that deflation is perilous for an economy, and a zero-level of inflation doesn’t seem to allow any hedging against problems. Of course, the various other forms of higher inflation (hyperinflation, so-called stagflation) are their own problems.

      My betters understand this value better than I do. Other than the hedge above, I gather that there are benefits to inflation around fixed-priced contracts, growth and so forth, along with a close tie to capital returns, and as a motivator to prevent people from simply “placing cash in their mattress”: it goads towards investment and growth.

      But mostly: I’m satisfied by the Federal Reserves platform for two reasons. One is that they know a lot more than I do, and the other is that when they follow their targets: the economy seems to remain reasonably stable. If the price of stability is modest inflation, it’s a bargain worth making – or so it seems to me.

      I have no idea what you meant by “plus purchasing power enhancement technological improvements being foregone of maybe 3%”. Would you explain?

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  3. Generally speaking, it is not a good idea to get n opinion from somebody with a “horse in the race.” Keynesians fall into the don’t ask category. Since they benefit from stealing the value, of course they’ll support it.

    As for pp enhancement, here’s a short explanation. The best practice for making anything changes over time. For example, just as an adding machine was an improvement over pencil & paper calculations, calculators were even better, followed by a spreadsheet, etc. Keeping accounts 100 years ago took many more man-hours than today. Those saved hours lowered the cost of everything a business produced.

    Better ways of doing things (eg production line) and new materials also helped make things cheaper. All these innovations which lowered costs, when looked at from the other direction, worked to increase the value of the money in circulation. And, this actually has happened both over long stretches of time and over various product groups.

    When you read that the CPI is up 2%, that’s 2% above a zero change. But, since the natural order of Free Markets is to lower prices, the actual loss of purchasing power is more than the 2% – above the naturally lowered price level which should be expected.

    BTW, the FED and BLS don’t necessarily tell the truth. John Wiilams at http://www.ShadowStats.com has recalculated the CPI and the unemployment numbers to reflect the way they used to be calculated. The CPI, using the calculation methodology from 1980 actually shows prices today rising closer to 8% a year and the true unemployment rate well over 20%.

    There are lies, damned lies, and statistics. If they don’t like the headline number, they can change the way it’s calculated to make it look better. (Other agencies also screw around with numbers, like GISS with the historical climate temperature series – 5 revisions in 6 years and each time the apparent temperature uptrend is made to be larger.)

    I appreciate your acknowledgement that you aren’t trained in economics. Just be careful who you trust.

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    • “Keynesians fall into the don’t ask category. Since they benefit from stealing the value, of course they’ll support it.”

      That seems like a rather extraordinary statement. I’d cited the majority of economists and, of course, central bankers. It doesn’t seem to be straightforward to demonstrate that each and every one of them are corrupting their analysis because of personal benefit. What evidence suggests that?

      (Amusingly – your repeat goldbug reports. There is a long history of people with large holdings in gold trying to bid the price of that commodity skyward… yours is good advice: if a person profits from distorting their message, discount the message. It’s one of the reasons I tend to dig into everything.)

      But, by training, I’m a bit of logician and engineer. So, not only do I care about theory – but I care very specifically about what “works”. I’m happy to discard any particular theory towards one that passes basic tests: is it simpler, is it a better explanation than the existing theory, does it “work”.

      While portions of Maynard’s opus don’t seem to apply as well as he thought, there is a large body of practical evidence which suggests that Keynesian theories work – even at the margins. ZIRP, QE One and Two – all worked rather well. The Chinese economy also suggests that Keynesian theories work rather well.

      CPI… ah, CPI. It’s worth pointing out that (if I remember correctly – I lack the time to look it up this morning), the current version of the CPI was a product of Republican revisionism during the most recent Bush Administration (with soft and minor revisions since). But like most theoretic tools, my metric for approval is “does the new CPI better describe the state of our economy than the old one”. There was a lot of heated discussion when that major change was performed. It’s a reasonable metric. I, personally, think it would benefit from more revision.

      Sometimes things change to be worse. Sometimes, they change for the better. That includes metrical systems, and minds: I guess. 🙂

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  4. Central Banks (especially the FED): It might surprise you to learn that the FED is a private organization (not part of the government), which profits by lending out newly created Dollars. The FED’s balance sheet has gone up by almost $4 Trillion in the last 5 years or so. Most of those “out of thin air” Dollars have bought Treasuries at an average interest rate of 2+%, so they have conjured up almost $100 Billion of earnings from nothing. Yes, a small part of that is paid to the Treasury each year, but oh how much the banks which own the FED get for free.

    Gold and Silver must be mined (at a significant cost vs printing paper), and so they tend to be a very long term stores of value, while paper money constantly loses value (CPI). Yes the Metals go up & down versus paper, but over the long term the trend clearly is up. 100 years ago, a $20 Gold Piece (1 oz) could buy a good suit. Today a 1 oz (US Legal Tender) Gold Piece still can buy a good suit (and then some).

    The QEs worked only with respect to bailing out businesses whose managers had made stupid decisions (a handful of big banks and related companies). A strong case could be made that the QEs and continuing ZIRP have devastated the rest of the Economy. After a severe Recession, you would expect a strong rebound, but that hasn’t happened. Real GDP and Employment still are lower than the peak before the financial crisis struck, even though the numbers are higher than the trough.

    CPI revisions have been going on in earnest since 1980, when Reagan was elected. Yes, both Democrats and Republicans are guilty – I agree. Being a “Bi-Partisan” effort doesn’t excuse the manipulation. Why do I say manipulation? Because the adjustments always work to lower what the CPI would have shown. (Would it not be reasonable to assume that some adjustments would lower the reported rate, while other adjustments would raise it?)

    Where politicians benefit from “better” numbers, the numbers tend to follow obediently – as with the history of climate revisions. The lopsided adjustment trends ought to be a red flag advising caution.

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    • I know the history of the Federal Reserve. I know that it is unowned, and Federally chartered. I know that it is under Federal/Congressional oversight, and that it’s Board is appointed by the Federal government (President with Senate confirmation).

      I know that the various Federal Banks are similarly constructed. I know that their operating costs (including salaries) come from their operations, and that the balance of their income goes back to the US Government’s Treasury.

      I’m familiar with the operations of the various established Federal Reserve banks, to a limited degree. It is their job to control the currencies “out of thin air”. It’s been a long time since the US was on a reserve-based currency. For most of that time, the economy has been reasonably stable, and the Forex values of the dollar have been excellent. It’s a mind-game to claim that currency by fiat is bad. (The first chapter of Krugman’s Accidental Theorist has a nice example of why and how this works.)

      To the best of my knowledge (facts to the contrary appreciated), members of the Federal Reserve Board, and the Federal Reserve Banks, are not compensated based upon “income” or cash flow of the Reserve. It’s therefore a falsity to claim that they benefit from more or less income. (If they were, we’d have seen ZIRP decades ago.)

      You’d have to SHOW that the FedBank and FedReserve are the handmaidens of politicians. That would be hard to do. For the duration of the Obama Administration, the goals of the administration and the Federal Reserve have been aligned, mostly. But before that time, and soon to come, they diverge. And the Federal Reserve always does what it thinks is best. (Trivia Question: how many members of the Federal Reserve Board were Republican appointees versus Democratic appointees – whose political will would they do, if they were doing political dirty work?)

      I also understand how commodities work – but comparing them to a men’s suit of clothes is fictitious. The cost structure of materials and labor of a suit made in 1916 is not the same as one made today. If you had a bespoke suit made in the US today, it would cost far more than the value of one ounce of gold… Gold’s value has fluctuated greatly, as demand floats and as the supply changes (such as when central banks unloaded gold, versus now when some 3rd world banks are buying.)

      CPI has largely smoothly increased over the previous 100 years, although the rate of change rose somewhat during the Reagan years. https://fred.stlouisfed.org/series/CPIAUCSL
      Paper money also has a smooth curve of value, but as we discussed – it is subject to inflation. That’s part of its “charm”, as that acts as a goad against hording cash. (Remember, economies are not measured by assets, but by movement of value in cash or barter.) There is no reason to think that CPI would have to rise because of adjustments.

      Anyone who claims that ZIRP and the QE programs are devastating our economy, is frankly talking fiction. ZIRP arose, and the various other programs such as QE arose, because the US economy was pushed into a uniquely bad recession. Largely because of failure to regulate speculators. To speak otherwise is folly, because it is highly counterfactual.

      We do agree about businesses and stupid decisions. But in fact those decisions were “smart”, given the ground game. Short term compensation, no long term liability, no personal skin in the game, and IBGYBG (along with a failure to regulate). Have you read Bailout Nation? I recommend it. The US Government could have acted to retard that speculation, but failed to do so. (Thank’s Clinton and Bush-II). Sarbox is a good step in the right direction, but it too fails to manage systemic risk.

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  5. LOL, you prove my point! PEs are not important until the stock markets crash, as they did for Tulips in the 1600s. So, in that respect, we’ll have to see whether Momentum (greater fool) or Value is the stronger long term market force.

    Yes, I have not addressed all the items you’ve mentioned well enough, but yes I have talked about GDP, Employment, CPI, & Stocks. From my perspective, the numbers are NOT positive, but time will tell.

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    • Tulip Mania was not an American problem. Nor is it particularly relevant today. Although the irony of you quoting commodity trading and speculation is high… when you seem to also prefer gold speculation and trading. Stock market crashes into the future are also likely to be based upon speculation (because, as I indicated and you did not, stock values are based upon perceived demand, not actual value). Also, algorithmic trading and complex front-running behaviors will certainly play a part in both crashes and in reduced perceived demand.

      The problem with the numbers you cited for things like GDP, Employment, CPI and so forth – was that the trends and current numbers are not harbingers of trouble. They are in historic safe ranges, but largely positive. The premise of the article was “things are about to fall part, and this is why”.

      Things may be about to fall apart, but those reasons weren’t it. Or, perhaps, they won’t fall apart.

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      • Yes, Tulip Mania wasn’t American. But, 1929 and 2000 were. My expectation is that value matters, with history being a decent indicator of value for stocks’ PE Ratios. BTW, I see that 2nd quarter state tax receipts are down (you cited continued collections growth as a positive). I guess that, since the interpretation of the numbers appears to be in the eye of the beholder, we’ll have to see what happens.

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      • We do have to wait and see.

        My point on the stock market is that the traditional means of evaluating a bubble (PE, EPS) are passe. There are other means available now. Those who I trust to read the market, suggest that it is heated but not at a bubble. I’m not sure I agree – but I do not disagree enough to liquidate those stocks that I hold. There are not enough indications that it is time for a flight to safety.

        On longer trend, state income taxes are only down slightly – to understand why, we’d also need to dig into whether states have lowered tax rates (and so forth). When you aggregate 50 disparate areas, there are a lot of details to read into.

        https://fred.stlouisfed.org/series/B245RC1Q027SBEA

        Federal rates are doing rather well

        https://fred.stlouisfed.org/series/B234RC1A027NBEA

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  6. Wow! I see that we are worlds apart not only on capitalism vs socialism but also on the basic interpretation/understanding of what the numbers mean.

    Your words relating to suits supports my ideas that CPI should fall over time. That the value of 1 oz of Gold today has gone up in what it can buy (vs the paper Dollar being worth about 2 cents) also confirms what I think.

    We likely are too far apart for either of us to convince the other, so since you (working) have more time available than I (retired), I’ll be limiting (but not eliminating) my replies.

    Thanks for reading. (And remember, most of my posts were written by others, even though I thought them of interest.)

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    • We’re probably not so far apart on capitalism versus socialism.

      I like capitalism, and I like aspects of socialism. They coincided very well for decades in the US, during some of our best years of stability and growth. These days, similarly constructed Democratic Socialist nations are some of our most successful allies and trading partners. (What I wouldn’t give for the lifestyle of a resident of Norway, Sweden, etcetera… Less so for France, perhaps.)

      I like what works. It’s hard to beat what works.

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  7. Capitalism’s Free Markets can withstand a lot of the negatives from socialism. But, as the long arm of the government has encroached more and more, trend growth in GDP has fallen to just a percent or two from 4+% 100-150 years ago.

    The US benefited from playing catch up vs the rest of the world (which may have boosted our growth) early on, but then became the leader. But, that’s not enough to explain the sharp fall off. Things still are being invented and practices still are improving. On the other side, current GDP numbers are bogus since the CPI is grossly under-reported. Using CPI the way it used to be calculated in 1980, the US has been in recession for a generation.

    BTW, a mix of capitalism and socialism is like being a little pregnant. While government at any moment may not control the whole Economy, once you let the foot in the door, more and more control falls to the bureaucrat – eg ObamaCare and the healthcare industry.

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    • “But that’s not enough to explain the sharp fall off”.

      So – you are attempting to suggest that, over the course of 100-150 years, the only relevant thing that changed was the degree of regulatory intervention?

      I’m concerned that you actually believe that.

      Consider that the US Economy is one of the most dynamic in the world, and then riddle me this.

      Under the Bush II administration, regulations were massively cut, and what remained were significantly unenforced. Markets responded instantly. 7.5 years later, we had the biggest crash since 1929.

      During the 8 years of Clinton and Obama, regulations were largely enforced, and in some cases increased (and in a few others, reduced). Markets prospered, jobs grew, and most every economic metric of prosperity increased.

      How does that square with your observation?

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  8. I think you may be assuming that I give a bye to Republican socialism. Both sides of the aisle have given us more regulations, more stupid wars, and more monetary & market manipulations.

    BTW, I look at regulation very broadly, so I consider the FED’s actions as a kind of regulation.

    Economies don’t go straight up (or down). Instead, they mender between booms and busts. There were recessions during the 1800s, even though they were called Panics. Part of what has changed since thee FED was created is that the swings have been wider in both directions.

    However, economic growth can be observed over longer periods than individual booms & busts, and the record shows significantly larger growth as you go back in time. Also keep in mind that, with the increased manipulation of the price increase numbers, GDP has looked better than it actually is. Using info from http://www.ShadowStats.com we’ve been in recession (negative growth) for a generation or more.

    “But, why would they lie?!!” To make it look like we haven’t been in recession for a generation or more.

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    • “Part of what has changed since thee FED was created is that the swings have been wider in both directions”

      I’d love to see supporting documentation for that – preferably peer reviewed and not strictly partisan.

      “To make it look like we haven’t been in recession for a generation or more” – I think I prefer to believe my lying eyes on that one. A generational recession seems to be against all observed facts.

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  9. I know you think serial adjustments are a good idea, even if they always reduce the bad news. If that weren’t true, I’d refer you to http://www.ShadowStats,com where you could see what the CPI, as calculated in 1980 would have looked like.

    Remember, the nominal GDP is made “real” by subtracting out price increases. If the increases are lowballed, then the resultant GDP is overstated. An 8% CPI vs 2% as adjusted indicates that, just maybe, the GDP numbers are overstated by 6%, which definitely puts us still within the last recession.

    But you don’t believe that our government would ever do such a thing, so once again, let’s agree to disagree.

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