Comments on: Now we know what the strong dollar policy is http://sovereignspeculator.com/2008/08/15/now-we-know-what-the-strong-dollar-policy-is/ Thoughts on the markets and the decline of the west Mon, 20 Dec 2010 22:34:50 +0000 http://wordpress.org/?v=2.6 By: Mike http://sovereignspeculator.com/2008/08/15/now-we-know-what-the-strong-dollar-policy-is/#comment-72 Mike Fri, 15 Aug 2008 22:00:01 +0000 http://sovereignspeculator.com/?p=372#comment-72 Those government numbers are a bad way to measure inflation, but the bias is not all one-way. For instance, they reported gas prices up last month over June, when they were really down, because of their seasonal adjustment. And I don't think they have factored in the fall in housing costs, just like they damped down the effect of the rise in housing. Nor do they use the real prices people are paying for new and used cars this year. But the worst thing about using CPI as the main inflation gauge is that price movements are just the result of inflation or deflation. They are a lagging indicator. But I have to disagree that you can have inflation and deflation at the same time. Of course you can have some prices going up while others come down, but the net change money and credit across the economy is either positive or negative. I don't think there can be much dispute that the sum of money and credit is contracting fast, due to the pace of credit destruction. So because money and credit are deflating, whatever increased spending that results from higher food or fuel prices is more than offset by cutbacks in housing and discretionary outlays. Those government numbers are a bad way to measure inflation, but the bias is not all one-way. For instance, they reported gas prices up last month over June, when they were really down, because of their seasonal adjustment. And I don’t think they have factored in the fall in housing costs, just like they damped down the effect of the rise in housing. Nor do they use the real prices people are paying for new and used cars this year.

But the worst thing about using CPI as the main inflation gauge is that price movements are just the result of inflation or deflation. They are a lagging indicator.

But I have to disagree that you can have inflation and deflation at the same time. Of course you can have some prices going up while others come down, but the net change money and credit across the economy is either positive or negative. I don’t think there can be much dispute that the sum of money and credit is contracting fast, due to the pace of credit destruction.

So because money and credit are deflating, whatever increased spending that results from higher food or fuel prices is more than offset by cutbacks in housing and discretionary outlays.

]]> By: hcrosby http://sovereignspeculator.com/2008/08/15/now-we-know-what-the-strong-dollar-policy-is/#comment-69 hcrosby Fri, 15 Aug 2008 20:09:21 +0000 http://sovereignspeculator.com/?p=372#comment-69 Since the government's own wildly understated figures showed inflation at a 17 year high earlier this week, who knows? I think the worst of all worlds may be possible in this cycle, that is, inflation AND deflation. How is that possible? Rapidly collapsing asset values for stocks, bonds, real estate, and some commodities, while at the sime time we have rapidly rising prices for food, medicine, electricity and the other essentials of life. Since the government’s own wildly understated figures showed inflation at a 17 year high earlier this week, who knows?

I think the worst of all worlds may be possible in this cycle, that is, inflation AND deflation. How is that possible? Rapidly collapsing asset values for stocks, bonds, real estate, and some commodities, while at the sime time we have rapidly rising prices for food, medicine, electricity and the other essentials of life.

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