Krugman says there is Very Low Inflation as he Defends Bernanke

[bobbyw24]

It’s not as if the Fed is doing anything radical. It’s true that the Fed normally conducts monetary policy by buying short-term U.S. government debt, whereas now, under the unhelpful name of “quantitative easing,” it’s buying longer-term debt. (Buying more short-term debt is pointless because the interest rate on that debt is near zero.) But Ben Bernanke, the Fed chairman, had it right when he protested that this is “just monetary policy.” The Fed is trying to reduce interest rates, as it always does when unemployment is high and inflation is low.

And inflation is indeed low. Core inflation — a measure that excludes volatile food and energy prices, and is widely considered a better gauge of underlying trends than the headline number — is running at just 0.6 percent, the lowest level ever recorded. Meanwhile, unemployment is almost 10 percent, and long-term unemployment is worse than it has been since the Great Depression.

http://www.nytimes.com/2010/11/19/opinion/19krugman.html?_r=2&ref=opinion

[cubical]

"The Fed is trying to reduce interest rates"

How low do they have to get before Krugman is happy? Besides, if banks aren't lending, it doesn't matter.

[isrow]

Yeah right. The starbucks coffee I'm drinking is .08 more expensive than yesterday, that is a 4% increase.

[Seraphim]

From here on until the time humans do not exist:

Anyone who uses the words "core inflation" as a means of dissecting economic reality should be socially cast out for at least a year.

How about REAL inflation- you know? The type that includes food and energy- two UBER important parts of existence.

:rolleyes:

[Freshwater]

Food and Energy are generally excluded because those are much more volatile regardless of the circumstances. Looking at the TIPS spread numbers shows markets that are clearly not anticipating inflation, and the TIPS spread is a way more useful indicator than commodity prices which are responding to international conditions, not just American ones.

Worrying about inflation now is silly. The fed Volcker and beyond (and most central banks in the world really) has been highly effective at keeping inflation low and manageable, and they even have a new tool to fight it should it arise (interest on reserves).

[teacherone]

TIPS sold at negative yields dude... where ya been?

4.5 Year TIPS Auction Closes At -0.55%, First Ever Negative Yield (http://www.ronpaulforums.com/showthread.php?t=265793)

[johnny.rebel]

Food and Energy are generally excluded because those are much more volatile regardless of the circumstances. Looking at the TIPS spread numbers shows markets that are clearly not anticipating inflation, and the TIPS spread is a way more useful indicator than commodity prices which are responding to international conditions, not just American ones.

Worrying about inflation now is silly. The fed Volcker and beyond (and most central banks in the world really) has been highly effective at keeping inflation low and manageable, and they even have a new tool to fight it should it arise (interest on reserves).

Silly huh? When you look at inflation, what do you see? I doesn't look low.
http://inflationdata.com/inflation/Inflation/Cumulative_Inflation_by_Decade.asp

[Freshwater]

TIPS sold at negative yields dude... where ya been?

4.5 Year TIPS Auction Closes At -0.55%, First Ever Negative Yield (http://www.ronpaulforums.com/showthread.php?t=265793)

It's the spread between TIPS and non-indexed treasuries that act as a market prediction of inflation, not the TIPS yield itself. The spread was still below 2%.

[jon_perez]

Apparently, Nixon was responsible for that "core" inflation versus "headline" inflation bull$hit.

"Hedonic" adjustments are even WORSE BS. Now the problem is the Fed uses these broken, dysfunctional measurements (let's not even get started on the equally dishonest and deceptive unemployment rate calculation) to guide their monetary policy.

We're living in "1984".

[MyLibertyStuff]

Apparently, Nixon was responsible for that "core" inflation versus "headline" inflation bull$hit.

"Hedonic" adjustments are even WORSE BS. Now the problem is the Fed uses these broken, dysfunctional measurements (let's not even get started on the equally dishonest and deceptive unemployment rate calculation) to guide their monetary policy.

We're living in "1984".

Absolutely. Moving quickly towards Brave New World.

[legion]

Yeah right. The starbucks coffee I'm drinking is .08 more expensive than yesterday, that is a 4% increase.

Yeah, and new cars are discounted so heavily they sell for as much as a used car model. If you look around you can find deals for 20% off invoice. Which is a more reliable indicator of the value of money: your coffee or a new car?

[Rancher]

Yeah, and new cars are discounted so heavily they sell for as much as a used car model. If you look around you can find deals for 20% off invoice. Which is a more reliable indicator of the value of money: your coffee or a new car?
Car prices are valid price indicators? Aren't the taxpayers subsidizing automakers?

[TheHumblePhysicist]

Krugman says there is no inflation, but he doesn't say why not. Isn't inflation to be expected when you print billions of dollars?

The way I understand it: the new money is in the banks. The banks aren't lending, so we aren't getting any inflation. But doesn't this mean that the second the banks start lending, a massive inflation shitstorm will hit the fan? Doesn't this mean that a recovery cannot occur?

[hugolp]

Krugman says there is no inflation, but he doesn't say why not. Isn't inflation to be expected when you print billions of dollars?

The way I understand it: the new money is in the banks. The banks aren't lending, so we aren't getting any inflation. But doesn't this mean that the second the banks start lending, a massive inflation shitstorm will hit the fan? Doesn't this mean that a recovery cannot occur?

Its never going to happen. Banks are never going to lend money again. And the price of commodities are never going to affect consumer goods, specially food prices. If people do not have money to buy food and die, demand for food goes down and prices can not go up. See! the system works! (its ironic obviously, in case it was not clear enough).

[jon_perez]

So maybe getting rid of the Fed is going to be quite difficult. But can't we revert CPI and unemployment measures to the older common sense ones??

Economists should petition for this... these new deceptive measures actually have a *HUGE* effect on monetary policy. For instance, Bernanke (and Krugman Keynesian Klown) would have a much harder time defending QE if the CPI were not separated into "core" vs. "headline" and they get to cherry pick which one to use to defend their own agendas.

In this case the Fed wants to keep the zombie banks alive with cheap money and claim that this is not inducing inflation by dishonestly using "core" inflation numbers. In another scenario they might use "headline" inflation numbers to claim the need for higher interest rates... Sigh...

[hugolp]

So maybe getting rid of the Fed is going to be quite difficult. But can't we revert CPI and unemployment measures to the older common sense ones??

Economists should petition for this... these new deceptive measures actually have a *HUGE* effect on monetary policy. For instance, Bernanke (and Krugman Keynesian Klown) would have a much harder time defending QE if the CPI were not separated into "core" vs. "headline" and they get to cherry pick which one to use to defend their own agendas.

In this case the Fed wants to keep the zombie banks alive with cheap money and claim that this is not inducing inflation by dishonestly using "core" inflation numbers. In another scenario they might use "headline" inflation numbers to claim the need for higher interest rates... Sigh...

You are right demanding a better CPI mesure.

The thing is that they are not completely wrong saying that QE2 is not inmediately inflationary. The problem is in 6 months to 1 year. Banks are not going to lock the reserves for ever. And the industries from emerging markets are starting to raise prices because of commoditiy prices speculation that happenend because of QE1 and QE2. But in the short term we are seeing some mild deflationary presure again.

What this people say then is that Bernanke will be able to pull back. But its not possible. But their objective is to get people to go along until its too late.