Definition of Disinflation By Tim McMahon To fully understand disinflation we need to first understand inflation. The reasons this is trickier than it first appears is because the word inflation is actually used in two different contexts. The most common usage of the word inflation means rising prices. Commonly "consumer prices" so when you go to the gas station or the grocery store and the things you buy cost more than last month (or when it is really bad even more than last week) this is more precisely defined as "price inflation". The second meaning of the word inflation is actually the original meaning. And that is an increase in the money supply that causes "price … [Read more...]
Is the United States Bankrupt?
"This is a job for the printing press." Hyperinflation here we come By Jon Herring There are so many headwinds and cross currents in the market today, it is all but impossible to predict what will happen in the short term. There is too much volatility and noise. So, it pays to keep your eyes on the horizon, focused on the long term and the biggest trends. Today, I want to tell about the biggest of all possible financial trends: the eventual bankruptcy of the United States government. Or should I say the existing bankruptcy of the U.S. government? The United States government is facing an impending fiscal crisis. Former Comptroller General David Walker calls it a “cancer … [Read more...]
Will the $800 Billion Bailout Cause Massive Inflation?
Last month I said that the simulated M3 measure of the money supply was indicating that deflation was in the works. See M3 is Back and Predicting Deflation. So how will a massive injection of almost $1 Trillion dollars affect the money supply? If you have read any of the articles on inflation on this site you will realize that the primary cause of price inflation is monetary inflation. In other words, if the government cranks up the printing presses the price of almost everything goes up. For more information see What is Inflation? and Inflation Cause and Effects. So you would think that it is only obvious that a massive injection of money like the recent $800 Billion bailout … [Read more...]
Why would Gold fall during an Investment Crisis?
Editor's Note-- In the article Is Gold really a good Inflation Hedge? I said, Gold is actually a "crisis hedge." So it should be performing extremely well with all the uncertainty in the markets right now. In this article Andrew Gordon explains how gold is currently in limited supply and demand is booming due to the crisis and what is currently affecting the price. -- Tim McMahon, editor Has Gold Lost its Investment Luster? By Andrew Gordon Gold dropped from $915 to $859 on Friday [October 10, 2008]. That’s not supposed to happen while the market is crashing. What’s going on? … [Read more...]
Bailout Equals HyperInflation?
Editor's Note- In this article Olivier Garret, CEO of The Casey Report shows us the massive extent of the bailout compared to every major Government expenditure from the Revolutionary War and the Louisiana Purchase to the Iraq War in inflation adjusted terms and the results are pretty scary. Based on the magnitude of the bailout expenditures it appears Hyperinflation is already baked into the cake. You thought WWII and Iraq were expensive? You "ain't seen nothin' yet. The current bailout is larger than all the major government expenditures since the revolutionary war combined.And lest you think that is because the bailout is comparing inflated dollars against more valuable (and thus smaller … [Read more...]
Inflation Moderate? Who Does The Fed Think They Are Fooling?
By Charles Delvalle Just when you thought reality was setting in at the Fed, you get reminded how silly that idea really is. I say that because lately the Fed has been talking about how bad inflation is, and how they need to be ‘vigilant’ so that inflation expectations don’t deteriorate. If you talk to anyone on the street, I bet they have noticed that prices are higher for just about everything. I don’t know about you, but I sure think that inflation expectations are already pretty bad. So, you would think they’d be really hawkish about inflation at the meeting. Maybe that’ll happen at another meeting, because it sure didn’t happen at the one on Wednesday. … [Read more...]
Cheaper Fuel (Gas) Prices Ahead
By Andrew Gordon The stimulus package has come and gone. And retail sales are once again feeling the pinch. So, should the government put together a second package for exhausted consumers? After all, if the government can afford to throw $300 billion at Freddie and Fannie, certainly the government can spend another $145 billion to boost spending going into the holidays, right? But with gas prices going down, maybe we don’t need another stimulus package. I was asked yesterday by CNBC if lower gas prices would help spending and boost the economy. I said it wouldn’t help much. A quick look at the numbers might suggest otherwise. After all, every penny increase for a gallon of gas … [Read more...]
Inflation and Recession Chart
How does Inflation and recession correlate? Current Commentary Does high inflation correspond with a recession? Or does high inflation precede a recession? This chart shows the historical average Annual Inflation rate (red line) compared to the time periods where the country was in recession (blue shaded areas). Since 1914 there have been eight recessions. Three lasted for a single year, (in 1953, 1957 and again in 1990). The longest recession was actually the "Great Depression" which lasted ten years from 1929 to 1939. … [Read more...]
Inflation vs Consumer Price Index – Do you know the difference?
Many people are confused by the difference between Inflation and the Consumer Price Index. The Consumer Price Index is as its name implies an index, or “a number used to measure change”. The Consumer Price Index (CPI-U) The government chose an arbitrary date to be the base year and set that equal to 100. Currently that date is 1984. (Or more accurately the average of the years 1982-1984) previously the base year was 1967 (they change the base year every once in a while so you don't notice that there has been over 2000% inflation since the start). See Cumulative Inflation Since 1913. Every month the Bureau of Labor Statistics (BLS) surveys prices around the country for a basket of … [Read more...]
What Causes Inflation?
Inflation Cause and Effect I often receive letters from students, that demonstrate a fuzzy understanding of inflation and its causes. Unfortunately, I often get the same type letters from teachers and business people too! It seems that people often confuse the cause of inflation with the effect of inflation and unfortunately the dictionary isn't much help. As you can see in my article What is the Real Definition of Inflation? the modern definition of inflation is "A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money..." In other words according to this definition inflation is things getting more expensive. But that is … [Read more...]
