Inflation: Where Does the Buck Stop?

On ABC Lateline yesterday evening (25/7/07), the Prime Minister sought to offload any blame for the ugly inflation figures in the June quarter (up 0.9% for the quarter and 2.7% over the year in underlying terms) by pointing out that his government (unlike State Governments) has been running budget surpluses for some years. So it can’t be his fault.

With national productive resources fully stretched and rising by only 3% per annum, any increase in real national spending public and private of more than 3% has two inevitable effects a blow-out in the current account deficit (CAD) and upward pressure on profit margins and wages.

In the five years to 2005-6, public spending (State and Commonwealth) increased by about 30% in nominal terms (I don’t know what exactly it was in real terms but very probably more than 3%). According to the Australian Bureau of Statistics (5512.0), the increase in Commonwealth Government spending over this period was, if anything, slightly higher (at 33%) than the increase in State Government spending (27%).

It is true, as Howard says, that despite the big increase in his Governments spending, the Commonwealth was able to run a budget surplus while the States have been less successful at it. But the reason is simple: the Commonwealth has been getting a lions share of the huge increases in revenue stemming from the resources boom. Costello needed only a small portion of that revenue bonanza to run a budget surplus. The rest he spent or handed out in tax cuts!

The States also enjoyed a revenue surge but on a much smaller scale: faced with an infrastructure crisis, they spent it all and a little more – but at least much of it was for productive purposes which should reduce bottlenecks and increase supply in the future.

At the same time as governments have been stepping up their spending, the private sector has been beefing up its own spending. Some of it has been for investment but a lot of it has been for consumption. This was facilitated by generous tax cuts in 2003, 2004, 2005 and 2006 (with more in prospect).

Since the Commonwealth Government has principal responsibility for economic management, it is fair to ask if current inflationary pressures are not, in good part, due to it spending too much, mostly on the wrong things, and giving too much away in tax cuts in recent years.

Other factors may also be driving inflation e.g. rising prices of petrol and fruit and vegetables, while not affecting the underlying rate, may impact indirectly on it. But fiscal policy must take its share of the blame.

Note: Comments on this thread have been disabled. Love, your friendly local oppressive administrator.

This entry was posted in Economics and public policy. Bookmark the permalink.
58 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Jc
Jc
14 years ago

Fred:

If inflation was caused by tax cuts you why want to explain those “surplus” dollars were created in the fist place?

Inflation is a monetary issue, period. Tax cuts have nothing to do with it. the government is simply returning the money it received to the proper owners through a tax cut.

That’s the trouble of (since the 70’s) definition of inflation. Changes in relative prices is somehow supposed to reflect the rate of inflation. So if energy prices go up because of demand in Asia, or fruit and veg prces go up because of the drought this is somehow inflation and thefore may be incumbent on the RBA to raise interest rates. This is what gets us into trouble.

Inflation is caused by too money printed by the central bank. I am at a loss to figure how fiscal policy increases the money supply (M3).

steve
steve
14 years ago

Isn’t the next current account deficit going to be a beauty with the dollar at it’s current level.

I still think that the RBA will come under intense pressure from the Federal Government not to lift rates in a fortnight but can’t see how a rise can be resisted if another set of CPI numbers like yesterday’s materializes in the next quarter.

I’m surprised that the Business Council and Minerals Council haven’t been bitching about the strength of the dollar. It would be a daily ritual if Labor was in office and producing these sort of numbers.

steve
steve
14 years ago

How’s this for good old fashioned ministerial responsibility. He’s really going to have to do better than this after 11 years of blathering about being an economic wonderboy.

http://www.theaustralian.news.com.au/story/0,25197,22138301-11949,00.html

Jc
Jc
14 years ago

Steve

A decent economic analyst group International Bank Credit Analyst by subscription has fair value for the Aussie dollar at around 1.2. They argue that’s it’s the best period of our terms of trade since the 70’s. Firms like Rio recently said that they cannot dig stuff out of the ground fast enough to satisfy demand around the world. So out C/a isn’t necessarily a problem and will only be a problem once it becomes a problem. Lie down and enjoy it from the external side of the economy for a while at least. China has actually upgraded their growth prospects to close 12% in 08 confounding people once again. It’s accelerating

There may be some hiccups along the way but Chip Goodyear former CEO of BHP thinks we’re on a 20 year commodity cycle.

A rise interest rates actually indicates economic strength in terms of the way the RBA is behaving these days. They’re lagging and not trying to cut growth by trying to lead in into a recession.
The worlds major centrel banks are the biggest load of wusses these days. There are no hairy chests around the CB’s since the 90’s recesssion.

steve
steve
14 years ago

Thanks for that JC. Wish I had confidence in this view of the world.

Brendan Halfweeg
Brendan Halfweeg
14 years ago

Yes, the definition of inflation that relates the price of goods to their cost in dollars is not the same as monetary stability. All prices measure is the relative value of goods or services in exchangeable currency. If their were 100 units of a a product, and each unit was valued the same by absolutely everyone, and there where 100 units of currency available to exchange them for, they’d each be worth 1 unit = $1. If you increase the number of currency units available to 120 and all things being equal, the value of the unit in dollars would increase to $1.20. Since demand and supply haven’t changed, the “inflation” is entirely due to the increase in money supply.

For instance, if the price of analogue mobile phones were included in the CPI in 1997, but by 1998, analogue mobiles were useless and had no demand, would it make sense to show a deflation in the price of an analogue mobile phone brick to zero in the inflation figures? Changes in supply are not easily reflected in CPI measures. You may as compare the cost of a horse drawn cart to the price of a Commodore.

Blame the central bank for printing bank notes and banks for having faith in the economy and pushing fraction reserve credit out the door.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

If John Howard says it’s not his fault, that’s good enough for me.

Fyodor
14 years ago

Blame the central bank for printing bank notes and banks for having faith in the economy and pushing fraction reserve credit out the door.

Don’t be such a tease, Brendan.

Please, do tell us more about this “fraction reserve credit”.

Patrick
Patrick
14 years ago

I admit that I am most likely the least economically literate commenter here. So, indulge me if you will.

What is the corollary of accepting that tax cuts raise inflation ? I understand you to say that the inflationary effect comes from increasing consumption, which, unsophisticatedly, I would have expected that to cause three primary effects:
the cost of most goods to fall,
the cost of most goods purchased to be higher,
imports to increase, partially offsetting resources USD inputs, and
the cost of housing to rise.

Is that correct? Would less tax cuts and more infrastructure spending (and presumably associated debt funding) cause the following?
the cost of most goods to stay constant or fall by less,
oil consumption to increase with no associated decrease in cost, andvastly more foreign borrowings, partially offsetting resources USD inputs?

Jc
Jc
14 years ago

Nice to see you back since your recent hiatus, Fyodor. Is fractional reserve now some sort of dog whistle?

Brendan, don’t answer him unless your prepared for a 2356 comment thread.

Fyodor
14 years ago

I haven’t been on hiatus, JC. You’re just not very observant.

You can answer for Brendan if you like – it takes two to tango.

Alternatively, you could explain why double-digit M3 growth hasn’t accelerated inflation. You failed to produce your homework the last gorillion times I asked you, and “the Bird ate my homework” excuse wears a little thin.

Go on. Surprise me.

Jc
Jc
14 years ago

Fyodor
Ok, but before we start on that line, Fyds, can you at least tell us if you believe in Fred’s thesis that tax cuts support inflation. Simple yes or no will do. And give me a little time to get back into the swing of things because if it’s going to be a marathon I have to do some gym work before hand.

Bring Back CL's blog
Bring Back CL's blog
14 years ago

Money supply is meaningless if the demand for money isn’t stable and it ain’t!

Jc
Jc
14 years ago

“Alternatively, you could explain why double-digit M3 growth hasnt accelerated inflation”

Your defintion of course is the CPI, right? That’s the index that suggests there is inflation if the price of fresh food goes up as a result of the drought. Is that the one?

Inflation of course has nothing to do with the price of hard assets rising as a result of currency debasement through a huge increase in the money supply (M3). Is that right too?

Jc
Jc
14 years ago

“Money supply is meaningless if the demand for money isnt stable and it aint!”

Explain please Homer?

I don’t want to speak for my good friend Fyds, but I’m not sure he wants you on his side with this comment, Homes if it is where I think you leading this posse….. like over the cliff on a moonless night.

Bring Back CL's blog
Bring Back CL's blog
14 years ago

what is to explain JC.
It is the question that is asked in almost every textbook in first year economics.

Friedman , Johnson et al all assumed a stable demand for money function. If it isn’t stable then you really cannot say what will happen to money supply effects

Jc
Jc
14 years ago

Why did Friedman want to control the supply of money through quantitive measures, Homer? How can the demand for money ever be stable?

Fyodor
14 years ago

Now, now, JC. You’re already running away with yourself, after one simple question. You don’t usually reach for the bluster and evasion so early.

It looks bad, JC – like you’ve already conceded the point. Which doesn’t surprise because you’ve lost this argument so many times before. But you’re nothing if not a slow learner.

Let me restate the question you find so difficult to answer: if M3 growth causes inflation, where is the inflation? N.B. measures of inflation you pull out of your fundament don’t count.

Take your time. As you said, you’re going to need it.

Jc
Jc
14 years ago

if M3 growth causes inflation, where is the inflation?

How about financial asset and hard asset prices, Fyodor. I recall you conceeded on this reluctantly once or did you have a change of mind again? Wasn’t it Mark Hill that finally took you to the trough on this one?

You see I never once believed you were a money isn’t neutral guy when all the hard evidence proved otherwise. Hey, but that’s in the old days.

Jc
Jc
14 years ago

Now answer my question, fyodor, that you seem to be “running away”
from.

I’ll repeat it for you:

“Ok, but before we start on that line, Fyds, can you at least tell us if you believe in Freds thesis that tax cuts support inflation. Simple yes or no will do.”

Fyodor
14 years ago

How about financial asset and hard asset prices, Fyodor. I recall you conceeded on this reluctantly once or did you have a change of mind again? Wasnt it Mark Hill that finally took you to the trough on this one?

Conceded what, pray tell? Repeating the same evasive bluster does not answer the question, JC, and I’ve already cautioned you to use an accepted measure of inflation. Of course, you and I both know you were never going to answer the question, because you can’t.

Not all financial and hard assets are rising (looked at residential property recently?), and if M3 growth alone is inflationary as you claim it should be affecting ALL assets, goods and services, not just the items you cite selectively. It doesn’t, so your theory’s falsified. Quelle surprise.

Ok, but before we start on that line, Fyds, can you at least tell us if you believe in Freds thesis that tax cuts support inflation. Simple yes or no will do.

In this instance? Nope. I reckon he’s over-egging the story.

jc
jc
14 years ago

Not all financial and hard assets are rising (looked at residential property recently?), and if M3 growth alone is inflationary as you claim it should be affecting ALL assets, goods and services, not just the items you cite selectively.

Oh really? Like does that mean that if the food bill in the CPI is going up, presto inflation is rising?

We have already been through this with you on numerous occassions. Inflation to some extent causes a credit mispricing issue. It does not have to reflect in every single asset market as you suggest. That’s just wrong headed nonsense.

However I would suggest you take a look at the movement in the ASX and house and land prices around the country. But just because the outer suburban areas of Sydney haven’t been affected doesn’t mean a thing. There has been a relentless concerted push up in all those sectors.

Fyodor
14 years ago

Oh really? Like does that mean that if the food bill in the CPI is going up, presto inflation is rising?

You tell me. You’re the one cherry-picking the data.

We have already been through this with you on numerous occassions. Inflation to some extent causes a credit mispricing issue. It does not have to reflect in every single asset market as you suggest. Thats just wrong headed nonsense.

Jaysus. Just when I think you can’t beat my already low expectations, you fling out another pearler.

Inflation is the broad-based depreciation of the value of money relative to other goods. That’s the definition. Now, get this straight: it’s either broad-based or it’s not inflation. BHP’s share price rising because it’s making more money does not mean inflation is out of control. Nor does falling house prices in Sydney mean we’re in the grip of deflation.

That’s WHY your argument is bunk and that’s WHY we look at broad-based measures like the good old CPI you loathe so much yet can’t better – because the price movements of individual goods don’t bear any necessary relation to inflation.

I would have thought this was simple enough for even you to understand, but you’re a source of constant wonder.

However I would suggest you take a look at the movement in the ASX and house and land prices around the country. But just because the outer suburban areas of Sydney havent been affected doesnt mean a thing. There has been a relentless concerted push up in all those sectors.

Like I said, stop cherry-picking the data: house prices in aggregate aren’t moving much, and the rise in equity values is not an inflationary phenomenon if there are good fundamental reasons for the rise in value. If you don’t believe me, I suggest you sell your share portfolio immediately.

Honestly, you’re clutching at straws now. The sad thing is you’re ALWAYS reduced to this condition. It’s just taken less time than usual on this occasion.

jc
jc
14 years ago

Fyodor

We have been through this before and you were left standing skinny and naked in the gutter. I notice your tactics changed. Still it’s the lies , distortions an inuendo.

Exhibit one:

Why did I ever mention BHP going up is an example of inflation. Care to point to it?

Read what i said:

“I would suggest you take a look at the movement in the ASX and house and land prices around the country”

You still sticking with the BHP story?

I’m obviously talking about a broad movements in almost ever sector of the finacial markets and hard assets and you turn this into a BHP story. It’s been a relentles push up. Financed by what exactly, the hot smelly air that come from your backside whenever you argue on blogs? No its financed by record amnounts of consumer and now corporate debt, which is why inflationary impulses show up as a credit mispricing issue. Don’t even suggest you haven’t been told this before. You ignore this becasue you still can’t get out of Jurasic Park.

CPI is not a good meausure of inflation. it’s a crock. I don’t know why you continue to hold that line of thinking seeing it was turned into atoms by everyone at the thread of doom.

Inflation is a increase in the general price level which doesn’t exclude asset prices.

Anyways, you’re obviously spoiling for an argument and quite frankly i’m more than a little tired of going through this with you again.

You’re also derailing the thread as usual. Remember how you boasted about this at this very site?

Bring Back CL's blog
Bring Back CL's blog
14 years ago

as Churchill might have said the CPI is a bad definition but all the rest are worse.

jc
jc
14 years ago

“Like I said, stop cherry-picking the data:”

I forgot to mention this one catching my eye. Not only haven’t I cheery picked but I used easy to understand language like financial and hard asset prices which is the opposite of cherry picking.

Every broad measure including your precious CPI is has now moved up (despite a rising surrency) and you still cling to this idea that it is only the prices of good and services that measure inflation.

look at you, you escaped from the bath tub and on the street without your clothes like the skinny little kid you are. Again.

jc
jc
14 years ago

“as Churchill might have said the CPI is a bad definition but all the rest are worse.”

Ok Chamberlain, so tell us, would you raise interest rates if the price of imported oil shoots up and causes the index to move above the RBA target despite the fact that price increase is causing a disinflationary impact on the economy and consumers.

You and your beautiful assistant Ms Fyodor Wells are trying to pull that bird out of the hat. Trouble is we all noticed the bird was hidden in her corset.

Fyodor
14 years ago

Anyways, youre obviously spoiling for an argument and quite frankly im more than a little tired of going through this with you again.

Oh no! Please don’t go: you have so many more arguments to lose!

You started the argument, fella. Don’t blame me if your wingnut theories don’t hold water.

Coupla parting shots, seeing as you’re bailing, yet again:

1. BHP’s an example of an ASX-listed company, doofus. If you want to demonstrate that the entire ASX200 has been puffed up by inflation which somehow sidestepped the property market, go right ahead and prove it. I won’t hold my breath.

2. If you have a better inflation measure than CPI, produce like it you didn’t last time. Again, I won’t hold my breath.

3. Who’s derailing the thread? We’re debating inflation, which is the subject of the thread, clueless.

4. Of course you cherry-picked: you focused only on those goods that have gone up in price, not the ones that falsified your theory. That’s called cherry-picking.

Try to learn something from this embarassment, JC. I want to see some evidence of homework next time – I’d hate to think you actually enjoy headbutting a brick wall.

Brendan Halfweeg
Brendan Halfweeg
14 years ago

Fyodor, I have no idea what you’re talking about, and I’m not interested in buying into any long running dispute you have with JC or Bird. Any monetary system will, if given the freedom, have an element of banks holding less hard currency than they hold in deposits. I don’t have a problem with the concept of fractional reserve banking, I understand that it can have an inflationary impact, particularly when assets are over-priced by artificial scarcity, like housing for instance (Sydney’s western suburbs notwithstanding). If this money is chasing assets whose supply isn’t growing as fast as the credit, inflation will occur.

However supply and credit growth issues also have to be balanced against real value growth, such as the desirability of inner-city suburbs increasing because of the opportunity cost of commute times and infrastructure access. After all, something is only worth as much as someone else is willing to pay for it. How much of the housing boom you put against the credit boom and how much you put it against real demand growth is a debatable point, but fractional reserve banking does contribute to asset inflation.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
14 years ago

Cherries went up. I like cherries however and so I still buy them. I’ve got just enough M3 to keep buying.

Fyodor
14 years ago

…fractional reserve banking does contribute to asset inflation.

Show, don’t tell.

Your argument thus far is that if housing is already over-priced, pushing up house prices by buying more is inflation. That’s not true, regardless of whether there is fractional reserve or not. It’s simply an increase in the value of property relative to other goods due to investor preferences.

Try harder.

jc
jc
14 years ago

“Coupla parting shots, seeing as youre bailing, yet again:”

O schucks, she asked me out for a date! How can i refuse?

“1. BHPs an example of an ASX-listed company, doofus. If you want to demonstrate that the entire ASX200 has been puffed up by inflation which somehow sidestepped the property market, go right ahead and prove it. I wont hold my breath.”

I didn’t. I said financial and hard assets, Fella. You missed it. BHP is but one element of the index which to a certain degree has has also been influenced by Chinese inflation.

“2. If you have a better inflation measure than CPI, produce like it you didnt last time. Again, I wont hold my breath.”

Yea I have. Express the quantity of money allowed to roam free as an increase each year and stick with that.

“3. Whos derailing the thread? Were debating inflation, which is the subject of the thread, clueless.”

No it isn’t. Fred’s talking down the Feds for running a surplus while ignoring the states for running an equal amount of deficits and he’s suggesting its the Fed’s fault for the CPI hitting the target of the RBB’s concerns. Wake up, madam.

“4. Of course you cherry-picked: you focused only on those goods that have gone up in price, not the ones that falsified your theory. Thats called cherry-picking.”

Have you lost it. I mentioned financial and hard asset prices in broad terms. you were the one that tried to introduce that BHP curve ball to confuse people.

( by the way, nice quotations marks Fyodor, who taught you how to get those).

jc
jc
14 years ago

don’t worry, you will nick… as they continue printing money at 10% a year.

Fyodor obviously doesn’t know what’s been happening to the price of imported cherries like you, Homerstan and I do.

Brendan Halfweeg
Brendan Halfweeg
14 years ago

Fyodor,

It is rather simple really. Housing (or any assets, goods and services) supply can only slowly increase and demand will always equal supply. If credit increases the money supply faster than the rate of increase in the supply of assets, goods and services, then the increase in the money supply will be part of the cause of price increases. This must be balanced, as you say, against individual preference when looking at any one particular asset. Fractional reserve has a contribution to devaluing of hard currency, but it is not as important as the printing presses at the RBA.

CPI is a poor measure of inflation as it looks at the value of goods and services that have high variability in supply that can misrepresent the real devaluing of currency. By not including longer term asset prices, CPI figures skew towards short term thinking of inflation.

jc
jc
14 years ago

Brendan
We’ve trid to get it through to her, but you need a jackhammer. Madam doesn’t get it.

Fyodor
14 years ago

O schucks, she asked me out for a date! How can i refuse?

You tell me. You’re the one who said, “…quite frankly im more than a little tired of going through this with you again.” Tired and emotional, that’s you in a nutshell.

I didnt. I said financial and hard assets, Fella. You missed it. BHP is but one element of the index which to a certain degree has has also been influenced by Chinese inflation.

Again, senility sinking in. You said, “I would suggest you take a look at the movement in the ASX.” When challenged to demonstrate that the movement in the ASX (index? Details aren’t your strong suit) you flunked yet again. Don’t blame me if you can’t follow your own argument.

Yea I have. Express the quantity of money allowed to roam free as an increase each year and stick with that.

Except the quantity of money isn’t inflation. It’s just the quantity of money. Inflation measures PRICES. That is, the cost of goods relative to money. You’re making a profoundly stupid mistake in confusing stocks with ratios. Can’t say I’m surprised, however.

No it isnt. Freds talking down the Feds for running a surplus while ignoring the states for running an equal amount of deficits and hes suggesting its the Feds fault for the CPI hitting the target of the RBBs concerns. Wake up, madam.

Here’s a hint, Big Mary: the title of the post is: “Inflation: Where does the buck stop?” Now, are you seriously suggesting that the topic of this thread is NOT inflation? If so, please explain, ‘cos I reckon this one’s gonna be a doozy.

Have you lost it. I mentioned financial and hard asset prices in broad terms. you were the one that tried to introduce that BHP curve ball to confuse people.

No, you focused on only some “financial and hard asset prices”, e.g. ASX indices, and ignored others, e.g. residential property. Your theory has no logical consistency because you CHERRY-PICK the data. Blustering away on this point won’t change that fact.

( by the way, nice quotations marks Fyodor, who taught you how to get those).

I did my homework. You should try it. In fact, I seem to remember someone expressly showing you how to insert quotations and you still can’t master it. Says it all, really.

Fyodor
14 years ago

It is rather simple really. Housing (or any assets, goods and services) supply can only slowly increase and demand will always equal supply. If credit increases the money supply faster than the rate of increase in the supply of assets, goods and services, then the increase in the money supply will be part of the cause of price increases.

4/10

Not quite that simple, really. An increase in the stock of money relative to all other goods will increase prices, assuming there is no effect on velocity and money demand, but that’s not the example you gave. You only spoke about housing, which is a discrete asset class. Moreover, you’re implying that the presence of fractional reserve banking somehow increases credit exogenously, without proving it. Look up “money multiplier” and have another crack at it.

This must be balanced, as you say, against individual preference when looking at any one particular asset. Fractional reserve has a contribution to devaluing of hard currency, but it is not as important as the printing presses at the RBA.

How? HOW does fractional reserve devalue hard currency? You’re simply making unsubstantiated assertions. You might as well tell me your favourite colour for what that’s worth.

CPI is a poor measure of inflation as it looks at the value of goods and services that have high variability in supply that can misrepresent the real devaluing of currency. By not including longer term asset prices, CPI figures skew towards short term thinking of inflation.

I’ll repeat my earlier request to JC: if you can produce a measure of inflation that is better than CPI, go right ahead. Making banal statements like “it should include long-term asset prices” doesn’t cut it, I’m afraid, as wiser heads than yours have been unable to overcome the inherent problems with including asset values, i.e. the weighting of consumption items versus capital items, accommodating changes in asset values due to real, fundamental causes, etc.

As is obvious from JC’s laboured waffle, whining about the deficiencies of CPI doesn’t produce a better alternative. Either produce a better measure, or quit whining.

jc
jc
14 years ago

Love the cut and pasting, Fyodor. It’s always been your strong suit. And the quotations are to die for.

“When challenged to demonstrate that the movement in the ASX (index? Details arent your strong suit) you flunked yet again. Dont blame me if you cant follow your own argument.”

Challenged? You mean that you don’t understand that the ASX means the ASX 200? Don’t blame me for your ignorance. Nice attempt at humor too. BHP is not the ASX, you doofus.

I’ll ignore the other bits because it doesn’t amount to much anyway.

“No, you focused on only some financial and hard asset prices, e.g. ASX indices, and ignored others, e.g. residential property. Your theory has no logical consistency because you CHERRY-PICK the data. Blustering away on this point wont change that fact.”

I’ll repeat, by every measure there has been asset price inflation whether it is financial assets and hard assets. Ignoring this is silly.

“Either produce a better measure, or quit whining.”

Says you. The master whiner.

I have already told you that we don’t need an index to stabilize monetary policy. What we need is for the central bank to stop producing more dollars than what is needed to allow for economic growth. Targeting the quantity of money stock is the only way to produce a stable monetary regime.

We have been through this before many times, you were made to look silly and now you’re starting this all over again on Fred’s thread.

I’m sure Fred would agree me, don’t you Fred?

—————————–

Fred, you realize don’t you that you just opened up a can of worms and fyodor is the first one out of the can.

Graeme Bird
Graeme Bird
14 years ago

Surpluses do not decrease aggregate demand.

Deficits do not reduce aggregate demand.

Anyone who says they do is lying or a fool.

No case in history can be found where monetary-policy and fiscal policy were (in line with Keynesian theory) “working against eachother” where MONETARY POLICY DID NOT “WIN”.

I put these things in inverted commas simply because fiscal policy is irrelevant to aggregate demand.

The failure to recognise this is an acid test to analytical incompetence in economics.

Graeme Bird
Graeme Bird
14 years ago

Fyodor you total idiot. Still lying about these things after all this time.

Graeme Bird
Graeme Bird
14 years ago

“Inflation is the broad-based depreciation of the value of money relative to other goods.”

No it isn’t. Its the expansion in the supply of money by any substantial amount.

Graeme Bird
Graeme Bird
14 years ago

When we are dealing with Keynesians we are dealing with morons so stupid they think that they can create money and its not going to lead to price rises.

It ALWAYS leads to price rises and there are more price rises out there then just CONSUMER PRICES.

You don’t know where the extra spending will go to but it will virtually always go to areas where there are other reasons for price rises and obviously so. Because the areas that were due for a price rise, when money is being created, these places will get spending momentum as people perceive that the prices are on the way up.

But then a lunatic like Fyodor will turn around. In denial of the fact that creating-money will lead to price rises, like some sort of retard, he will turn around and say… oh ho ho… the house prices were due for a rise anyhow????

What can you do when you are dealing with this level of stupidity?

Fyodor
14 years ago

Love the cut and pasting, Fyodor. Its always been your strong suit. And the quotations are to die for.

I thought you’d like them – they’re what you wrote, despite your ridiculous denials. Makes lying problematic, doesn’t it? Not that you’ve ever been shy of publicly humiliating yourself.

Challenged? You mean that you dont understand that the ASX means the ASX 200? Dont blame me for your ignorance. Nice attempt at humor too. BHP is not the ASX, you doofus.

The ASX is the market, clown. It’s quite obvious I assumed you meant the ASX 200 given I referred to it here. It’s equally obvious I was using BHP as an example of an ASX-listed stock, and equally obvious you’ve failed to demonstrate that the appreciation of the ASX whateveryouwanttochoose is driven by inflation and not fundamentals. We all know why: you got nuthin’.

Ill ignore the other bits because it doesnt amount to much anyway.

Apart from handing your decrepit arse to you on a plate. Ignore away – it won’t change the facts.

Ill repeat, by every measure there has been asset price inflation whether it is financial assets and hard assets. Ignoring this is silly.

Except for the examples I cited, where hard assets have NOT been appreciating or where the appreciation is supported by fundamental causes. But those would be more of those inconvenient facts that get in the way of your clueless delusions, right?

I have already told you that we dont need an index to stabilize monetary policy. What we need is for the central bank to stop producing more dollars than what is needed to allow for economic growth. Targeting the quantity of money stock is the only way to produce a stable monetary regime.

So you’re not willing to prove there’s inflation, but apparently you’re the only person in the world who can accurately predict how much money is “needed for economic growth”? Remind me again why you aren’t running monetary policy? Oh, that’s right: you’re a delusional crank who can’t argue his way out of a wet paper bag. No change there, then.

We have been through this before many times, you were made to look silly and now youre starting this all over again on Freds thread.

Oh, look in the mirror, clown. You started the argument, and you’re the one with egg on his face. You’re losing on all the same points you did last time.

Im sure Fred would agree me, dont you Fred?

Fred, you realize dont you that you just opened up a can of worms and fyodor is the first one out of the can.

Fred, this is the signal that JC’s out of puff and wants you to help him out. The old dear has no ticker and has a tendency to whinge to the ref when under pressure.

Fyodor
14 years ago

Only four comments in a row, turkey? You’ve gone soft.

Perhaps if you ask him nicely JC could help you work yourself up into a decent, basting lather.

Graeme Bird
Graeme Bird
14 years ago

You’re an idiot Fyodor.

Write about something you understand. Now you haven’t repealed the facts of economics. You’ve just idiotically focused only on GDP and consumer prices.

Nowhere do you have evidence that prices (all prices dopey, not just consumer prices) don’t rise in accordance with the quantity theory. Yet because you are a liar and a fool…… on and on and on you go in total denial.

Graeme Bird
Graeme Bird
14 years ago

You haven’t made a valid argument anywhere in this thread Fyodor.

Now Fred asked a question. And the answer is that inflation lies in money creation and money creation alone. Inflation IS IN FACT money creation and substantial money creation always and everywhere leads to more spending. More spending but not (for the love of stupid people everywhere) necessarily enough more spending ON CONSUMER PRICES to cause their price to rise.

You haven’t made an argument against that Fyodor. Not on this thread and not anywhere else.

Adrien
14 years ago

Only four comments in a row, turkey? Youve gone soft.

He’s been tamed by Jason Soon. Sort of.

jc
jc
14 years ago

I thought youd like them – theyre what you wrote, despite your ridiculous denials. Makes lying problematic, doesnt it? Not that youve ever been shy of publicly humiliating yourself.

Of course I like them. Theyre new and refreshing giving your comments the Gucci look about it like when Tom Ford took over the brand, but too bad about the substance though.

————————————-
The ASX is the market, clown. Its quite obvious I assumed you meant the ASX 200 given I referred to it here. Its equally obvious I was using BHP as an example of an ASX-listed stock, and equally obvious youve failed to demonstrate that the appreciation of the ASX whateveryouwanttochoose is driven by inflation and not fundamentals.

Fyds, you presented BHP as evidence that just because one stock goes up is not evidence of monetary misalignment. It isnt, I agree. However thats not what I suggested, was it? I have only referred to asset price inflation, which you seem to discount by wrongly inferring that because the outer Sydney burbs have flat lined that in itself is evidence there is no such thing as asset price inflation.

“Folks Sydney if the Sydney outta burbs aren’t going up like everywhere else there’s no real estate boom”.

You need to look at the asset markets in entirety, Fyds, like I have been saying all along.
—————————————

part from handing your decrepit arse to you on a plate. Ignore away – it wont change the facts.

As though I have tried to change facts, Fyds. Youre the one who implies M3 growth of around 400% since 1994 has had a neutral effect on prices in the economy. But you were always a money isnt neutral kinda guy, werent you? Like hell you were.
————————————–

except for the examples I cited, where hard assets have NOT been appreciating or where the appreciation is supported by fundamental causes. But those would be more of those inconvenient facts that get in the way of your clueless delusions, right?

As though there has to be uniformity. Thats like suggesting if CPI doesnt always go up uniformly there isnt consumer price inflation. What an astonishing extension of a claim to make.
————————————–

So youre not willing to prove theres inflation, but apparently youre the only person in the world who can accurately predict how much money is needed for economic growth? Remind me again why you arent running monetary policy? Oh, thats right: youre a delusional crank who cant argue his way out of a wet paper bag. No change there, then.

And you think the RBA cranks have a valid reason to inject about 10% a year because they know better. Want to explain why we need so much injection? Explain away Dumphy. Tell us kids why you think we need so much?
————————————
Oh, look in the mirror, clown. You started the argument, and youre the one with egg on his face. Youre losing on all the same points you did last time.

Im not claiming to be winning or losing anything, Fyds all Im doing is presenting why the current system is a problem. I recall that last time you had the famous economist Nabakov on your side telling us monetary policy (or was it labour markets) was a Ying and Yang thang. You still agree with his thesis?
————————————

Fred, this is the signal that JCs out of puff and wants you to help him out. The old dear has no ticker and has a tendency to whinge to the ref when under pressure.

Fred, dont believe him. I wasnt whining. All I was doing was explaining the worms seem to crawl out the tin when the word inflation is mentioned. Fyds was the first one out.

I must admit that the definition of inflation offered by the bird is about the most elegant I’ve ever seen.

“Its the expansion in the supply of money by any substantial amount.”

To which of course you will reply :

abuse….. more abuse abuse……. more abuse……quotations marks….. abuse..

“no it isn’t, it’s………..balabbbbllalalalalal CPI”.

What part did you play in Jurasic Park, Fyds.

Adrien
14 years ago

I’m beginning to wonder whether economics is a science, a branch of practical philosophy or a cult.

Don’t tell me, I’m having great fun figuring it out for myself.

jc
jc
14 years ago

For some of us it’s a science, Adrien. Some others it’s a cult because you need to have a lot of blind conviction that the CPI is the one true measure of inflation.