So are "they"(whoever they are) *wanting* inflation to be higher than it needs or should be?
And is this the same as our dollar "weakening"? I remember reading something about so and so, perhaps they, wanting the dollar to weaken, as a way of increasing their own wealth and power, and i thought well aint that some shit. In fact im pretty sure it was reading that that convinced me i needed to learn a little about economics. Which is why im here, but admittedly i havent gotten very far(i only recently realized i cant simply infer the meaning of many of the terms used, bc they often mean something very different than what i assumed lol). Youll have to forgive me these possibly stupid questions!
I don't know about the deficit, but the inflation numbers might be fine?
If the market consensus understands how the 'inflation target' works, then it's probably not a problem and the real 'inflation target' by your more rational definition would be 2.5 or 3%?
I don't believe that secret inflation targets are effective in the long run. Once the system becomes corrupt, there's no obvious stopping point. Why not 4%?
How the Fed asymmetrically handles their inflation target ain't exactly a secret. I guess you could say it's an informal target in practice, not a secret one?
I agree that actually targeting average inflation would be superior, insofar as it would approximate a level target
I just meant that as long as the market knows what to expect, even the current half-hearted implementation is ok? At least they didn't turn COVID into another Great Recession.
There may be some chance of a rate hike in April, or at some other point this year. No doubt there will be howling from some dogs, but it could be the only rational path for the Fed given their delinquency in 2025.
Inflation transfers value from cash holders to debtors. So from the old to the young. It is a way of imposing inheritance tax without the song and dance of collecting. Contra to that, running a government deficit transfers value from future tax payers (the young) to the current recipients of government handouts (fossil fuel companies, arms dealers, space exploration companies and old age pensioners) . Some of that is investment in the future (green initiatives, science, infrastructure and healthcare for the young) that could well return in excess of 6%, some is expenditure with no return (subsidises for billionaires tax breaks, healthcare for the old). Your point is valid that in the good times inflation should be lower and governments might save money (hello Norway), but this is noise in comparison with the overall value
That is true if the debtor is paying the breakeven inflation rate and then inflation stays constant. This hypothetical debtor then sighs a little relieved when inflation expectations rise - now their debt has lost value and the cash holders value is diminished. Most debtors pay more than inflation - consequently inflation rising has more of a value effect on their future fixed debt repayments.
I don't believe that would work. If NGDP growth became 6%, then nominal interest payments would rise and the deficit would increase to more than 6% of GDP.
And of course we'd have to assume no more recessions, wars and pandemics.
This is the foolishness of central planning for monetary policy. Is 2% the right number? 5%? -7.12345%? Just hubris - the Federal government should not be in this business.
In other posts I've argued that the economists and the public define inflation differently. Economists favor a measure that takes account of quality changes, which leads to the official data showing TV prices down about 99% since 1960. To the average person, TV prices have hardly changed at all since 1960. In 1960, people paid hundreds of dollars for a color TV, and today people pay hundreds of dollars for a color TV. By the public's definition, inflation is considerably higher than the official data shows, but that doesn't mean the official data is wrong--it's just that they are measuring entirely different things.
Nothing against the overall point you are making, though I got curious about your example. From what I can tell, it really does cost less in nominal USD to buy the cheapest colour TV today (about $US100), than the cheapest colour TV of 1960 (about $US400).
I guess that's different from the typical amount consumers actually choose to pay for TVs though.
Agreed, but I think most people think in terms of what the average person spends, not the cheapest model.
In any case, using government data that $400 TV is now $4. Which in a sense is true, as you can pick up a TV at the curb that someone has discarded (i.e. for free), which is better than the $400 TV of 1960.
BTW, I'm not trying to defend either view, as I think both views are very misleading. In my view, TV prices have fallen by more than the average person thinks they've fallen, but less than the US government thinks they've fallen.
So are "they"(whoever they are) *wanting* inflation to be higher than it needs or should be?
And is this the same as our dollar "weakening"? I remember reading something about so and so, perhaps they, wanting the dollar to weaken, as a way of increasing their own wealth and power, and i thought well aint that some shit. In fact im pretty sure it was reading that that convinced me i needed to learn a little about economics. Which is why im here, but admittedly i havent gotten very far(i only recently realized i cant simply infer the meaning of many of the terms used, bc they often mean something very different than what i assumed lol). Youll have to forgive me these possibly stupid questions!
If "they" means the administration then yes, they are pressuring the Fed to adopt a more expansionary policy, which would lead to higher inflation.
I don't know about the deficit, but the inflation numbers might be fine?
If the market consensus understands how the 'inflation target' works, then it's probably not a problem and the real 'inflation target' by your more rational definition would be 2.5 or 3%?
I don't believe that secret inflation targets are effective in the long run. Once the system becomes corrupt, there's no obvious stopping point. Why not 4%?
How the Fed asymmetrically handles their inflation target ain't exactly a secret. I guess you could say it's an informal target in practice, not a secret one?
I agree that actually targeting average inflation would be superior, insofar as it would approximate a level target
I just meant that as long as the market knows what to expect, even the current half-hearted implementation is ok? At least they didn't turn COVID into another Great Recession.
A non-barking dog:
https://stephenroach.substack.com/p/the-end-of-debate-in-china?r=b3&utm_medium=ios&triedRedirect=true
There may be some chance of a rate hike in April, or at some other point this year. No doubt there will be howling from some dogs, but it could be the only rational path for the Fed given their delinquency in 2025.
Instant classic
Thanks.
Inflation transfers value from cash holders to debtors. So from the old to the young. It is a way of imposing inheritance tax without the song and dance of collecting. Contra to that, running a government deficit transfers value from future tax payers (the young) to the current recipients of government handouts (fossil fuel companies, arms dealers, space exploration companies and old age pensioners) . Some of that is investment in the future (green initiatives, science, infrastructure and healthcare for the young) that could well return in excess of 6%, some is expenditure with no return (subsidises for billionaires tax breaks, healthcare for the old). Your point is valid that in the good times inflation should be lower and governments might save money (hello Norway), but this is noise in comparison with the overall value
transfers.
Expected inflation transfers no value to debtors.
That is true if the debtor is paying the breakeven inflation rate and then inflation stays constant. This hypothetical debtor then sighs a little relieved when inflation expectations rise - now their debt has lost value and the cash holders value is diminished. Most debtors pay more than inflation - consequently inflation rising has more of a value effect on their future fixed debt repayments.
6% deficit would be sustainable if your NGDP growth were 6%. Perhaps it is.
I don't believe that would work. If NGDP growth became 6%, then nominal interest payments would rise and the deficit would increase to more than 6% of GDP.
And of course we'd have to assume no more recessions, wars and pandemics.
What were the positive supply shocks in 2025?
Increased oil supply drove prices lower and productivity growth was strong.
This is the foolishness of central planning for monetary policy. Is 2% the right number? 5%? -7.12345%? Just hubris - the Federal government should not be in this business.
It's not central planning, but you are correct that inflation targeting is not a wise policy.
Balto or Togo?
The numbers are hard for people to accept.
In other posts I've argued that the economists and the public define inflation differently. Economists favor a measure that takes account of quality changes, which leads to the official data showing TV prices down about 99% since 1960. To the average person, TV prices have hardly changed at all since 1960. In 1960, people paid hundreds of dollars for a color TV, and today people pay hundreds of dollars for a color TV. By the public's definition, inflation is considerably higher than the official data shows, but that doesn't mean the official data is wrong--it's just that they are measuring entirely different things.
Nothing against the overall point you are making, though I got curious about your example. From what I can tell, it really does cost less in nominal USD to buy the cheapest colour TV today (about $US100), than the cheapest colour TV of 1960 (about $US400).
I guess that's different from the typical amount consumers actually choose to pay for TVs though.
Agreed, but I think most people think in terms of what the average person spends, not the cheapest model.
In any case, using government data that $400 TV is now $4. Which in a sense is true, as you can pick up a TV at the curb that someone has discarded (i.e. for free), which is better than the $400 TV of 1960.
BTW, I'm not trying to defend either view, as I think both views are very misleading. In my view, TV prices have fallen by more than the average person thinks they've fallen, but less than the US government thinks they've fallen.
And this whole necessity to make judgment calls about quality is another reason why NGDP targeting is simpler than inflation or price level targeting.