Doing the math: what the FEDs 2% inflation goal and CPI fudging means for purchasing power

[Acala]

http://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p1.html

I know its from the devil, but here are some details.

So 20% of the entire private work force seems insignificant to you?

[ababba]

So 20% of the entire private work force seems insignificant to you?

20% is the percentage that have a defined benefit pension plan, not the percentage that relies largely on the defined benefit plan to survive. Most if not all have other assets like social security, stocks, bonds, family to help them etc. I would feel bad for those that have only a defined benefit plan if I believed inflation was really above 2%, which I don't.

[Acala]

20% is the percentage that have a defined benefit pension plan, not the percentage that relies largely on the defined benefit plan to survive. Most if not all have other assets like social security, stocks, bonds, family to help them etc. I would feel bad for those that have only a defined benefit plan if I believed inflation was really above 2%, which I don't.

It is easy to wave your hand at this problem and pretend it is no big deal. You might think differently when millions of old people lose the income they worked their whole lives for. Or maybe you won't. But don't think a few million hungry and angry people will not have something to say about it, your hand waving notwithstanding.

[ababba]

It is easy to wave your hand at this problem and pretend it is no big deal. You might think differently when millions of old people lose the income they worked their whole lives for. Or maybe you won't. But don't think a few million hungry and angry people will not have something to say about it, your hand waving notwithstanding.

I don't know, I thought maybe a group of libertarians might believe in personal responsibility. So if a group of people screws themselves over hardcore by denominating all their assets in nominal terms, well they should have known better. You act as if these people had no control over their own lives.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally, but that's not coming anytime soon.

[Steven Douglas]

I don't know, I thought maybe a group of libertarians might believe in personal responsibility.

Sounds trollishly reasonable to me.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally.

What target rate would you prefer, and why, specifically?

I would prefer a higher target rate as well - something with a doubling rate of, oh, say, every 3 to 6 months? My reason for that, of course, is so that the festering boil can be brought to head and lanced all the faster, but I'm curious about your reasons for wanting an increase in the value-dilution rate of the currency.

[Acala]

I don't know, I thought maybe a group of libertarians might believe in personal responsibility. So if a group of people screws themselves over hardcore by denominating all their assets in nominal terms, well they should have known better. You act as if these people had no control over their own lives.

But in all seriousness, I believe inflation is 2% and the Fed wants to keep inflation low. I would prefer a higher inflation target personally, but that's not coming anytime soon.

Oh man. So it isn't the fault of the self-appointed guardians of the currency (which people are forced to use) that the currency has lost most of its value, it is the fault of the idiots who saved their money!

[ababba]

Sounds trollishly reasonable to me.



What target rate would you prefer, and why, specifically?

I would prefer a higher target rate as well - something with a doubling rate of, oh, say, every 3 to 6 months? My reason for that, of course, is so that the festering boil can be brought to head and lanced all the faster, but I'm curious about your reasons for wanting an increase in the value-dilution rate of the currency.

4% would be better for a variety of reasons. Sticky wages, debt deflation and monetary policy flexibility near the zero lower bound.

[ababba]

Oh man. So it isn't the fault of the self-appointed guardians of the currency (which people are forced to use) that the currency has lost most of its value, it is the fault of the idiots who saved their money!

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Actually the funny thing is that we are talking about people which have all their assets in a defined benefit pension plan. Its funny because these people really don't exist, since they get indexed social security. Its also funny because these people, by definition, didn't actually save any money on their own. So instead I'm blaming the people that just thought, oh well my company will take care of everything, I don't need to think about my future and take my life into my own hands.

[Zippyjuan]

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Actually the funny thing is that we are talking about people which have all their assets in a defined benefit pension plan. Its funny because these people really don't exist, since they get indexed social security. Its also funny because these people, by definition, didn't actually save any money on their own. So instead I'm blaming the people that just thought, oh well my company will take care of everything, I don't need to think about my future and take my life into my own hands.

If everything is indexed to inflation it will only push inflation higher. One cannot always stay ahead of it. It is impossible to guarantee that any investment or hedging will always beat inflation. No matter what the rate of price inflation is, there will be some people who come out ahead and some who lose.

[Steven Douglas]

No, its the fault of people that denominated all their savings in assets that aren't hedged against inflation. But again, inflation is around 2%, so it doesn't matter that much.

Around 2%? Where did you get that number? Did the government tell you so?

I would be more inclined to stick with the BLS' broader, more "real world" straight reporting pre-1980-methodology-based estimates (just the straight-reporting facts, ma'am), as published by shadowstats, which would put inflation closer to 10% (and climbing), and not so "Hey, Piss In Your Face = Warm Rain!", as the current CPI-U does, with its constantly revised hedonics, quality adjustments and geometric weightings (which has ZIP, ZERO, NADA to to do with modelling human behavior).



Anyone who honestly believes that real price inflation due to monetary inflation is the 1.7% (COLA adjustment based on BLS data) is completely out of touch with reality, and living in a world of mental absurdities.

I think you have to operate from inside an unbelievably credulous vacuum to buy into think that price inflation (due to monetary inflation only) is really is "around 2%". But it doesn't matter. Here's the beauty (or ugliness, or reality) of it: Whatever the fundamentals are in terms of real numbers, these will all play out as mathematical certainties, REGARDLESS OF BELIEF.

So if price inflation really is "around 2%", as declared in the updated CPI-U Scriptures, that's a doubling rate of around 35 years. If true, then OOH LA LA, and yippee-kai-ay, that's great news for everyone! The Fed, Treasury and banks can probably milk that system for a good time to come.

IF, on the other hand, the rate of price inflation is closer to 10% now, and accelerating, as I believe it is, then we're talking about a doubling rate of around 7 years -- and decreasing.