portal page on INFLATION – updates here
Inflation – what is it ?
Milton Friedman told us: “Inflation is always and everywhere a monetary phenomenon”. But is it? QE-forever seems to suggest this can’t be right. Freedman’s inflation has been in trouble. But has it? So what is inflation? As ever, nearly all depends on what you mean and how you count it.
And how you disaggregate your aggregates:
“In practice, ” writes Jalil Totonchi, “it is not always easy to decompose the observed inflation into its monetary, demand-pull, cost-push and structural components. The process is dynamic, and the shocks to prices are mixed. Furthermore, inflation itself may also cause future inflation. … This paper, mainly attempts to review and analyse the competing and complementary theories of inflation. The theoretical survey in this research work yielded a six-blocked schematization of origins of inflation; monetary shocks, Demand side, supply-side (or real) shocks, structural and political factors (or the role of institutions). It appeared that inflation is the net result of sophisticated dynamic interactions of these six groups of explanatory factors. That is to say, inflation is always and everywhere a macroeconomic and institutional phenomenon .” read or download article here
“Macroeconomic and institutional phenomenon?” Sounds like economist lingo for power and positioning, a particularly potent part of which would be the issuance of new money, including credit money.
“Following the 2008 financial crisis,” writes David Barmes “inflation hawks predicted that Quantitative Easing (QE) measures would turn high-income economies into the next victims of hyperinflation. Yet despite central bankers’ best efforts, the past decade has seen inflation remaining consistently below the 2% inflation target. The false predictions were based on misconceptions originating in the debunked theory of monetarism, the core of which Milton Friedman famously captured in the claim that inflation is “always and everywhere a monetary phenomenon”.
In reality, inflation is far more frequently a political rather than a monetary phenomenon, resulting from distributive conflicts, oil price hikes, and political crises in the most extreme cases. Further, price changes often vary across different sectors of the economy, driven by their own particular factors rather than a single policy pushing all prices in the same direction at the same time. Monetary policy alone has little control over the price of goods and services, and in most cases increased government spending generates increased output rather than inflation.” read whole article at positivemoney.org
Friedman no. Friedman yes. Apparently it depends a lot on how you define the long term. And monetarism.
In other words Friedman could have been right for the wrong reasons.
“In the end Milton Friedman is right,” argue Jonathan Nitzan and Shimshon Bichler, ” but only in part. Inflation is always and everywhere a monetary phenomenon; but it is also always and everywhere a redistributional phenomenon.”
In other words if you accept money=power, then inflation=monetary may well be the long term truth beyond all the short- to medium-term fixing, shocking, pulling, pushing and mixing playing out in the power-games over positions and valuations. Which also means it’s a bit of a ceteris paribus tautology. This how Blair Fix puts it:
…”Back to inflation. Milton Friedman (1994) proclaimed inflation “is always and everywhere a monetary phenomenon”. His slogan is a tautology since anything to do with prices automatically has to do with money. The actual science lies in what Friedman omitted. The reality is that inflation is always differential: Some companies raise prices faster than others. That means inflation is always and everywhere a restructuring of the social order. It is a boon for some firms, but a bust for others. This is the inescapable conclusion reached by Jonathan Nitzan (1992) after an exhaustive look at the US data. Far more than just a “monetary phenomenon”, then, the inflation rate signals instability in the social order. That instability ,it seems, translates into capitalists’ fears about the future. When the price system is more unstable, capitalists discount present income more steeply.”… RWE 97 p86 Blair Fix 2021
inflation posts and pages
inflation articles – updated 10/2022
economist.com 10-2022 What next? A special report on the world economy – Inflation
ft.com 18-9-2022 What we keep getting wrong about inflation by Tim Harford
theguardian.com 20-8-2022 ‘I am not blaming anyone’: Estonians shrug off 23% inflation -by Daniel Boffey
Those in Europe’s inflation hotspot remain calm about rising prices, but a lack of government intervention could fuel further increases – and discontent … The latest figures, published on Thursday, showed that Estonia has an annual inflation rate of an astounding 23.2% – the highest in the eurozone, vastly outpacing the average of 8.9%. …
…Jacob Kirkegaard, a senior fellow at the Peterson Institute For International Economics, says the latest inflation figures show that the more interventionist governments, such as the French, with the lowest annual inflation rate in the eurozone at 6.8%, and the Italians (8.4%), have done best in shielding their voters from the inflationary pressures.
“The underlying issue is that the Estonians haven’t done very much,” Kirkegaard says. “The French have been largely insulated because of the nuclear production and they haven’t had nearly the same pass through. This is unlikely to last because if you look at the forward energy pricing in France, it is higher than most of the rest of the Europe as the fear is that the river levels are so low that they will have to take the nuclear plants off the grid because they will not have the water to cool them.
“But the government has done quite a lot. They have nationalised EDF [the country’s largest energy company] fully and it will do what the government wants. They have also raised public benefits to low-wage people by up to 10% to basically try to mitigate the cost of living for low-income groups.”
The link between lower inflation rates and intervention should not be lost on Boris Johnson’s successor in the UK, Kirkegaard suggests. According to data released by the Office for National Statistics this week, consumer price inflation in Britain jumped to 10.1% in July, the highest since February 1982, making it the first major economy to see price growth hit double digits. …”…
economist.com 20-8-2022 Does unemployment really have to rise to bring down inflation? The search for labour-market slack
icjb.com pdf 2022 Finding a Role for Slack in Real-Time Inflation Forecasting – N. Kundan Kishora, Evan F. Koenigb
ifo-institut/youtube 7-2022 Ukraine-Krieg: Inflation und die Folgen für die Konjunktur und den Wirtschaftsstandort Deutschland – von Clemens Fuest
>inflation/ theories/political econ
heise.de 7-2022 Warum die Inflation ein gefährliches politisches Machtspiel offenbart – von Yanis Varoufakis
fortune.com 9-6-2022 Larry Summers claims he can prove inflation is way closer to the 1970s than people think—and that a deep recession may be the only way to end it – By Tristan Bove
“Last year, months before the Federal Reserve began raising interest rates to combat inflation, former Treasury Secretary Larry Summers warned that inflation was already a problem, and would get a lot worse in 2022.
His predictions were accurate, with inflation now sitting at a nearly 40-year high of 8.3%. But now Summers is doubling down, cautioning that inflation may be worse than official numbers show, and that a massive economic contraction may be needed to rein in prices.
In a new paper published by the National Bureau of Economic Research, a nonprofit and nonpartisan economic research organization, Summers and his coauthors claim to have devised a new methodology to analyze inflation that they say is more accurate than the consumer price index (CPI), the most widely used yardstick. And what it finds is that taming today’s inflation might require a much more aggressive Federal Reserve. …
… It isn’t the first time the CPI has come under fire from critics, who have in the past argued that the index tends to underestimate real inflation rates. The Bureau of Labor Statistics, which calculates the monthly CPI, measures the annual change in prices among over 200 categories of commonly purchased goods and services. But the authors argue that this approach can lead to a misrepresentation of the data, as flaws in past inflation measurement methodologies led to inaccurate readings.
The paper argues that prior to 1983, the CPI did not correctly account for consumer spending on housing, including both the final home purchase value and the value of mortgage rates spread out over 30 years. The pre-1983 index included both home purchase prices and the total outlay of mortgage payments, despite mortgages being paid out gradually over several years.
“Including both led to a larger share of housing in the consumption basket,” the authors wrote. This metric was in use between 1953 and 1983, when the Bureau of Labor Statistics “stripped away the investment aspect of housing” and changed the CPI to “isolate owner-occupiers’ consumption of residential services.”
The authors wrote that the way housing spending was measured pre-1983 was “without conceptual foundation,” and that the methodology “resulted in a substantial upward bias in the CPI.”
Summers and colleagues argue that this caused inflation measures before 1983 to look “artificially high at the beginning of the tightening cycle,” and to recede “artificially fast.”
According to Summers’ methodology, today’s inflation rate is dangerously close to that of another period of economic distress in U.S. history: the early 1980s. In 1980, the official inflation rate was 13.6%, although Summers’ index puts it at 9.1% when the alleged problem with housing spending is removed.
If Summers is right, his index would have huge implications for how far the Federal Reserve may have to go to fix inflation. It could mean that the Fed would have to resort to the same extreme means employed by the central bank to tame inflation in the 1980s under former Chairman Paul Volcker.
In 1980, Volcker authorized an increase in interest rates to the tune of 20% to combat inflation, which plunged the economy into a severe recession that lasted until 1982 in the U.S. At the time, this was the worst economic downturn since the Great Depression. Indeed, the unemployment rate reached 10.8% in 1982, a high that wouldn’t be surpassed until the pandemic-fueled recession hit businesses in 2020.
Despite the recession that ensued, Volcker’s policy was seen as a win for advocates of an aggressive Federal Reserve and hawkish monetary policy in times of high inflation. But if Summers is right, it would mean that inflation may be significantly less responsive to monetary tightening than first believed, and that the current Fed administration under Chairman Jerome Powell may have to be even more aggressive to get results, despite the recession risks.
The Fed has been progressively raising interest rates since March in a bid to slow down the economy. And while last month’s inflation rate was slightly below its 8.5% peak in April, some economists, including Summers, believe prices will stay high for a while. ”
>gg posts on Larry Summers
taxresearch.org.uk 20-5-2022 Inflation will go away – because it always does – and in the meantime here’s how to deal with it – by Richard Murphy
One of the arguments that Danny Blanchflower and I are making in our two person opposition to the prevailing establishment thinking on inflation is that the inflation we are now suffering will go away.
We don’t say that this is because of anything the Bank of England, the Fed or European Central Bank might do, most especially when they are getting almost everything wrong right now. We say it simply because it always does. That is an argument that, unlike the irrational claim of central bankers that increasing the price of money stops other inflationary pressures, is backed by data. The data in question comes from the Bank of England but is best presented by the St Louis Federal Reserve Bank, who have a great website when it comes to data. …”…
forbes.com 6-2021 Some Things About “Inflation” That We Learned Along The Way – by Nathan Lewis
“Over the years, we’ve learned a number of new things about “inflation.” Since this topic is becoming rather pertinent today, it would be good to go over some of them. Unfortunately, many today still hold odd notions, popular in the 1950s or 1960s, which aren’t really so. Before 1970, people didn’t have that much experience with floating currencies. Since 1970, we’ve had a lot. The term “inflation” means different things to different people. …” … read article below
think-beyondtheobvious.com / Inflation – 2022 – Die Auswirkungen der Corona-Pandemie treiben die Inflationsrate. Schulden, Verbraucherpreise und Geldmenge wachsen global. Der deflationäre Druck von Globalisierung und technischem Fortschritt lässt nach. Inflation wird mittelfristig zum Problem! by Daniel Stelter
Introduction: Will inflation persist? One line of thought says no: This inflation came from a one-time fiscal blowout. That “stimulus” being over, inflation should stop. In fiscal language, we had a one-time big deficit, that people do not expect to be repaid by future surpluses. That gives rise to a one-time price-level increase, paying for the deficit by inflating away some debt, but then it’s over.
There are many objections to this argument: We still have persistent deficits, and the entitlement deluge is coming. Or, maybe our inflation comes from something else.
Here, I analyze one simple point. Suppose we do, in fact, have a one-time large deficit. How much do sticky prices and policy responses draw a one-time deficit shock out to a long-lasting inflation? The answer is, quite a bit. (This post is an extension of “Fiscal Inflation,” which documents the size and nature of the fiscal shock to inflation, and talks through the frictionless model.) …”…
…”…The two camps agree that rising wages are the real threat, their disagreement focusing only on whether it is prudent to act before or after they start picking up. They agree also that, to fight inflation, the supply of money and credit must be dealt with in a two-step sequence: central banks must first stop creating new money and only then raise interest rates. The two camps are dangerously wrong on both counts. First, wage inflation should be welcomed, not treated like public enemy number one. Second, it is precisely when interest rates are rising that central banks should continue to create money. Except this time, they should press it into the service of green investments and social welfare. …”…
economist.com 5-3-2022 War and sanctions means higher inflation– But not necessarily higher interest rates
…”…In other words, investors are betting that today’s inflation, even once exacerbated by the war in Ukraine, will be temporary—and that over the long term interest rates are likely to be a bit lower than on past projections. But that hardly means markets are sanguine. In recent years some scholars have argued that low long-term real interest rates reflect in part the impulse to hoard safe assets as tail risks—rare but highly costly events—grow more likely. After two years of a pandemic and with war raging in Europe, that thesis has never seemed so apposite.”
economist.com 19-2-2022 Workers have the most to lose from a wage-price spiral As prices rise, real wages are falling
timeshighereducation.com 3-2-2022 Rising inflation will ramp up stratification in higher education – As the value of public funding diminishes , success will depend on ability to boost other sources of income – by Anton Muscatelli
forbes.com 10-2-2022 Why Is Inflation So High? Taylor Tepper
The high rate of inflation in January was driven by big gains in food, electricity and shelter, according to the Bureau of Labor Statistics (BLS), putting further pressure on the bottom lines of average Americans.
Energy prices grew yet again, with total prices jumping 0.9% from December—while the 12-month gains are still an astounding 27%. Gasoline prices dropped 0.8% in the month, but are still 40% higher than a year ago, while fuel oil rose 9.5% in January alone.
The numbers dovetail with a recent survey by Fidelity’s eMoney Advisor, which found that the high cost of gas prices were the number one concern for Americans, followed by being able to pay bills and inflation overall. “There’s definitely a lot of financial anxiety,” said Celeste Revelli, a director of financial planning at eMoney Advisor. “It’s difficult to know how long this inflationary moment will last.” Certain items contributed mightily to these historic gains, as any driver can attest. Prices of used vehicles are up nearly 41% compared to 12 months prior, food is 7% higher. Shelter costs have risen by 4.4% during the same period. When you strip out volatile food and energy prices—so-called core CPI inflation—the picture, while somewhat brighter, still shows price gains not seen in almost forty years. That figure jibes with the Fed’s preferred inflation gauge–core Personal Consumption Expenditures (PCE)–which gained 6.1% in December compared to the year prior. Both findings are well above the Fed’s 2% target. … Some economists have pointed to the fact that measurements of longer term inflation, such as the 10-year breakeven rate, show prices will moderate back to more normal levels due to the Fed hiking rates to get prices more under control. Unfortunately that does little to aid struggling Americans. … There’s a decent chance inflation comes down on its own. Consumers may continue to shift their spending from goods to services (like restaurants and vacations) as Omicron cases fall. At the same time, year-over-year price comparison will soon reflect the large surge that began last spring. This is the reverse of the “base effects” argument that Powell referenced last year. Whenever prices start looking more normal, though, won’t be soon enough for those struggling to make ends meet.”
ft.com/ 2-2022 Why Inflation is Hard to Measure – by Tim Harford
econlib.org 1-2-2022 Selgin is right, but it’s an endless battle – In a recent tweet, George Selgin pushes back against the view that the Fed creates asset price bubbles that persist for more than a decade. But then why do these theories keep finding support? By Scott Sumner
>BUBBLES, COGNITIVE ILLUSIONS, FED POLICY
theatlantic.com 2-2-2022 The Rise of Greenflation – Extreme weather and energy uncertainty are already sending prices soaring. By Robinson Meyer
…”…Some of the biggest causes of today’s inflation do not seem related to the sudden surfeit of dollars. The surge in dollars can’t explain why gas prices are so high or why coffee prices are spiking. Something else is going on. For years, scientists and economists have warned that climate change could cause massive shortages of major commodities, such as wine, chocolate, and cereals. Financial regulators have cautioned against a “disorderly transition,” in which the world commits only haphazardly to leaving fossil fuels, so it does not invest enough in their zero-carbon replacements. In an economy as prosperous and powerful as America’s, those problems are likely to show up—at least at first—not as empty grocery shelves or bankrupt gas stations but as price increases…”…
theguardian.com 28-1-2022 Boots, shoes and the real inflation rate felt by Britain’s poorest people – Readers on the ‘Sam Vimes “Boots” theory of socioeconomic unfairness’ about how price rises disproportionally affect those who are worst off
theguardian.com 26-1-2022 Terry Pratchett estate backs Jack Monroe’s idea for ‘Vimes Boots’ poverty index – Campaigner has used the idea drawn from Discworld novels to register the disproportionate effect price rises have on the lower paid – by Alison Flood
maroonmacro.substack.com/ 27-1-2022 Does the Federal Reserve’s Quantitative Easing Really “Print Money”? And Does it Drive Inflation in the Real Economy?
socialeurope.eu 27-1-2022 Inflation: raising rates is not the answer – As inflation has re-emerged, so have calls for general monetary tightening. Wiser counsel should prevail – by Jens van’t Klooster, Hielke van Doorslaer
theguardian.com/ 23-1-2022 Fears grow that US action on inflation will trigger debt crisis – Poor country repayments to creditors are running at highest level in two decades – Larry Elliot
…”Heidi Chow, the executive director of Jubilee Debt Campaign, said: “The debt crisis has already stripped countries of the resources needed to tackle the climate emergency and the continued disruption from Covid, while rising interest rates threaten to sink countries in even more debt.”…”…
theguardian.com 20-1-2022 Blame Covid: why UK inflation is at its highest for 30 years – After three decades of stability the virus has done for the cost of living what wars did in the past – by Larry Elliott
…”Economists such as Bootle (The Death of Inflation) came to see the 1970s and 80s as the exception rather than the rule. Historically, periods of high inflation have tended to be during wars, when governments run the economy as hot as needed to ensure national survival and ignore the risks of overheating. The first real sustained inflationary pressure in the UK after the Napoleonic wars came when the first world war broke out. According to the Bank of England, a basket of goods costing £10 in the year of the Battle of Waterloo would have cost just £7.72 at the time of the assassination at Sarajevo. In the intervening period, inflation averaged -0.3% a year. … it has been clear for a while that it would take something exceptional for inflation to make a comeback. Something that would throw a spoke in the wheels of globalisation, make governments keener on self-sufficiency and persuade central banks of the need to embark on massive stimulus projects. Something like a global pandemic, for example.”
theguardian.com 12-1-2022 Highest US inflation in 40 years signals end of ultra-cheap money – Analysis: the Fed and other central banks have to raise interest rates, but they’d be advised to do it slowly – US inflation at 7% for first time since 1982: live updates – by Larry Elliott
makronom.de 17/12//2021 Wie real ist das Schreckgespenst der „Lohn-Preis-Spirale“? – Die Angst vor einer Lohn-Preis-Spirale treibt momentan viele Volkswirte um. Reichen die jüngsten Tarifabschlüsse aus, um eine solche in Gang zu setzen? Eine Analyse von Stefan Sell.
“Derzeit ist nicht nur in den ökonomischen Debatten mal wieder viel die Rede vom Schreckgespenst der „Lohn-Preis-Spirale“ – einer Entwicklung, bei der die Löhne aufgrund hoher Inflation stark steigen und so die Preisentwicklung weiter anfachen. Dafür braucht es also zweierlei: erstens eine hohe Inflation – die wir momentan haben. Und zweitens starke Lohnerhöhungen – wie sieht es an dieser Front aus?…”…
theguardian.com/ 16/12/2021 Bank of England raises interest rates to 0.25% – Inflation spike prompts MPC to vote for increase despite fears for UK economy from surge in Omicron cases by Richard Partington
economist.com 12-2021 Has the pandemic shown inflation to be a fiscal phenomenon? A decade of QE did not cause much inflation. Fiscal stimulus has sent it soaring
…”Yet believing in the impotence of QE compared with fiscal stimulus is in fact consistent with monetarism—if you expand the definition of money. Distinguishing the electronic money created by central banks from debt securities issued by governments is increasingly difficult. This is partly because when interest rates are close to zero, they are closer substitutes. It is also because most central banks now pay interest on the electronic money they create. Even if rates were to rise, so-called “interest on reserves” would still leave electronic money looking a bit like public debt.
The reverse is also true. Investors value government debt, especially America’s, for its liquidity, meaning they are willing to hold it at a lower interest rate than other investments—much like the public is willing to accept a low yield on bank deposits. As a result “it seems more accurate to view the national debt less as a form of debt and more as a form of money in circulation,” wrote David Andolfatto of the Federal Reserve Bank of St Louis in December 2020. He also warned Americans to “prepare themselves for a temporary burst of inflation” in light of the one-off increase in national debt during the pandemic. If money and debt are substitutes, just swapping one for another, as qe does, might provide little stimulus, consistent with the experience of the 2010s. But expanding their combined supply can be powerfully inflationary.
The logical extreme of this argument is known as the “fiscal theory of the price level”, created in the early 1990s (and in the process of being refreshed: John Cochrane of Stanford University has written a 637-page book on the subject). This says that the outstanding stock of government money and debt is a bit like the shares of a company. Its value—ie, how much it can buy—adjusts to reflect future fiscal policy. Should the government be insufficiently committed to running surpluses to repay its debts, the public will be like shareholders expecting a dilution. The result is inflation.
Explaining today’s high inflation does not require you to go that far, though. It is enough to look at recent deficits, rather than to peer into the future. Yet it is striking that economists like Mr Andolfatto who focused on the supply of government liabilities foresaw today’s predicament while most central bankers, whose eyes were fixed firmly on labour markets as a gauge of inflationary pressure, did not. The past decade has shown that when interest rates fall to zero, it takes more than just qe to escape a low-inflation world. Still, Friedmanism lives on. …”
economist.com 12/2021 will-the-world-economy-return-to-normal-in-2022
FT.COM 10/12/2021 US inflation hits fastest annual pace since 1982
thisismoney.co.uk 5/12/2021 As rising costs put huge pressure on our household budgets, is YOUR inflation rate three times higher than 4.2% official figure?For example, if you pay a lot for travel, that will push up your inflation rate – The cost of many core household bills has risen significantly By Edmund Tirbutt
economicsfromthetopdown.com 11/2021 The Truth About Inflation – by Blair Fix
“Inflation is always and everywhere a phenomenon of structural change” Jonathan Nitzan
…”Milton Friedman has been dead for more than a decade, but his ghost still haunts us. In the 1960s, Friedman declared that inflation is ‘always and everywhere a monetary phenomenon’ — a problem of printing too much money. Since then, whenever inflation rears its head, you can count on someone to reanimate Friedman’s ghost and blame the government for spending too much. If only inflation were so simple…”… more
ft.com/ 11/2021 Inflation always punishes America’s left
theguardian.com 1/12/2021 Inflation in eurozone soars to 4.9% – highest since euro was introduced – Some investors accuse European Central Bank to allow inflation to run out of control
news.sky.com 2/12/2021 The world’s most powerful central banker gives the Bank of England cover to raise rates – if the Bank of England was reluctant to be the first major economy to raise interest rates, Fed chair Jay Powell has handed UK policymakers an open goal. by Ian King
…”… insistence on the spike in inflation being merely temporary has un-nerved investors on a regular basis this year. Tuesday evening, though, brought a sign that at least one key policymaker is beginning to look on inflation as more ingrained. Jay Powell, chairman of the Fed, told US Congress: “It’s probably a good time to retire that word (transitory)” … The world’s most important central banker insisted he still expected inflation to fall next year as supply and demand imbalances created by the pandemic and its aftermath continue to unwind. But he pointed out that higher energy costs, rising wages and increased rents could all keep inflation in early 2022 higher than might have been expected. He went on: “It now appears that factors pushing inflation upward will linger into next year.” His comments were accompanied by a signal the Fed may now start unwinding its asset purchases – Quantitative Easing in the jargon – more rapidly than previously indicated…”…
theguardian.com 26/11/2021 How world’s major economies are dealing with spectre of inflation – As demand returns since initial pandemic slump, central banks need to balance recovery and rising costs by Dominic Rushe, Phillip Inman, Jennifer Rankin, Kim Willsher, Peter Hannam, Justin McCurry and Martin Farrer
“The world’s major central banks are scratching their heads over how to deal with the rising cost of living. Raising interest rates now could deal a blow to the post-pandemic recovery. Wait too long, and inflation may spiral out of control.
United States : If there is one word that keeps the Federal Reserve’s chair, Jerome Powell, awake at night, it is “transitory”. By many measures the US economy has roared back from the pandemic recession. … Fear, stoked by political expediency on the part of Republicans and, no doubt, by the astronomic inflation in media coverage of inflation, has US consumers worried. US consumer confidence plunged to a 10-year low in November. The Fed’s main tool for damping inflation is raising interest rates. It is a blunt instrument and one Powell has been wary of using. The dilemma is clear…
United Kingdom :The Bank of England is expected to become the first major central bank to raise interest rates when officials meet next month. Many City analysts believe that the jump in inflation to 4.2% in October – the highest level for a decade – will force policymakers to increase the base rate from 0.1% to 0.25% ahead of another rise in February to 0.5%. …
European Union : As traders bet on an interest rate hike from the Bank of England and US Federal Reserve, the European Central Bank (ECB) has been sending a clear message: don’t count on the same move from Frankfurt. …
Australia The Reserve Bank of Australia, the country’s central bank, seems to be relying on “Australian exceptionalism” to avoid lifting its official cash rate from the record low 0.1% before 2024…
Japan Japan is a notable exception … (the pioneer of ultra-easy monetary policy … the interest rate has been at minus 0.1% since 2016 ) … is struggling to end decades of deflation and stagnation and looks unlikely to reach its inflation target of 2% any time soon. Japan’s emergence as the sole Keynesian in the room was underlined when the country’s new prime minister, Fumio Kishida, unveiled a record stimulus package worth about ¥56tn ($490bn) on 19 November…
China : Some inflation drivers and global supply chain problems can be traced directly to China. … The country’s annual inflation rate rose to 1.5% in October, up from 0.7% in September, the highest for 13 months. This was driven by by food and fuel costs. More alarmingly, factory gate prices soared 13.5%, the fastest rate for 26 years, mainly because of energy costs… But the People’s Bank of China has more pressing problems to deal with – including a wobbling property sector…
mishtalk.com 24/11/2021 How Bad are Inflation Models, Expectations, and Forecasts vs Reality? -“Inflation models are worse than useless. They make central banks complacent.” by Mish
theguardian.com 23/11/2021 Central banks have ‘King Canute’ theory of inflation, says former governor
Mervyn King questions theory that ‘inflation will remain low because we say it will’ by Larry Elliott
…”In a strong attack on how policymakers around the world have reacted to the Covid-19 crisis, Lord King accused them of relying too heavily on models that showed inflation always coming back to its target whatever the level of interest rates…”…
danablankenhorn.com 11/2021 Technology Can Whip Inflation Now
“Bankers, reporters, and politicians are all focused on inflation right now. Markets know better. It’s true prices are rising. Wages are rising, too. Working conditions are even improving. I fail to see a problem here. But just as some prices rise, other prices fall…”…
ft.com 20/11/2021 Top Fed official opens door to faster ‘taper’ of bond-buying programme
ft.com 20/11/2021 Learning to live with Inflation? by Chris Giles
dw.com/de/ 15/11/2021 Inflation: Banken fordern Reaktion der EZB Die Teuerung steigt und steigt – doch Europas Währungshüter machen bislang keine Anstalten gegenzusteuern. Heizt die EZB mit billigem Geld die Inflation sogar an? Bankenvertreter haben eine klare Meinung.
theguardian.com 15/11/2021 Bank of England governor ‘very uneasy’ about rising inflation – Prospect of pre-Christmas interest rates rise looms larger after Andrew Bailey comments
businessinsider.com 12/11/2021 The Fed’s inflation call is one of the worst the central bank has ever made and rising prices cannot be dismissed as transitory, Mohamed El-Erian says
theguardian.com 6/11/2021 Skimpflation’: frustration as US firms skimp on service as prices rise by Edward Helmore –
“As labor shortages and supply chain problems bite, consumers have a growing sense they’re getting less for their money – “Flight cancelled”; “service temporarily suspended”; “not currently available”; “longer than normal wait times”: these are the messages that confront US consumers daily as the economy struggles to find a post pandemic footing. Now the phenomenon has a name: “skimpflation”.
It’s a simple in concept – struggling with shortages of workers and goods, companies are skimping on what they offer consumers while, in many cases, charging the same price or more for that service. But skimpflation may have profound consequences, and may even go some way to account for the rising tide consumer of dissatisfaction seen in increasing air rage incidents and even the Biden administration’s plummeting poll numbers.Skimpflation is everywhere…”…
linkedin.com 5/11/2021 Could inflation be good? by Stephen Dover
“The story around inflation has not changed in the last month. Prices and wages continue to rise strongly. Core inflation rose at a 3.6% rate in September, matching its top rate since 1991. Wages are rising 4.6% compared to a year ago. Five-year ahead inflation expectations (as measured by Treasury Inflation Protected Securities) have edged up to nearly 3.0%, their highest levels since 2005. And (headline) goods and services inflation readings are now running at similar clips; 5.9% and 6.4%, respectively. The narrative has consistently been that persistent inflation would be a big economic problem. Central banks would slam on the brakes. Economies would totter and stocks markets might crash…”…
thewhyaxis.substack.com 5/11/2021 Ugh fine let’s talk about milk And inflation, and shoddy reporting by Christopher Ingraham
reuters.com 25/10/2021 Investors ‘play chicken’ with Bank of Canada as inflation soars By Fergal Smith
…”… “Worldwide, markets are playing chicken with central bankers, betting that policymakers will follow the Bank of England in capitulating to hotter-than-expected inflation rates,” said Karl Schamotta, chief market strategist at Cambridge Global Payment. …”…
ft.com/stream/EU inflation 7/10/2021 ECB minutes reveal concerns over eurozone inflation forecasts – Some policymakers had pushed for a bigger cut in asset purchases at central bank’s September meeting
exponentialinvestor.com/kitwinder 5/10/21 Three reasons why inflation’s here to stayhttps://www.exponentialinvestor.com/article/three-reasons-why-inflations-here-to-stay/embed/#?secret=ebpHViIRNo
telegraph.co.uk/ 3/10/2021 Britain’s inflation surge threatens to eclipse US and eurozone’s – Prices could spiral for longer than predicted, warns ex-IMF chief economist Raghuram Rajan , amid squeeze on disposable incomes By Tom Rees
ecb.europa.eu/de 13/9/2021 Neue Narrative über die Geldpolitik: das Gespenst der Inflation – Rede von Isabel Schnabel
…”In meinem Vortrag möchte ich näher auf diese Inflationsängste eingehen. Ich werde zunächst erläutern, wie die aktuelle Entwicklung der Verbraucherpreise vor dem Hintergrund einer langen Phase sehr niedriger Inflation zu bewerten ist und warum sich die Inflation im Euroraum, und auch in Deutschland, voraussichtlich im kommenden Jahr wieder spürbar abschwächen dürfte. Eine verfrühte Straffung der Geldpolitik in Reaktion auf einen vorübergehenden Inflationsanstieg wäre Gift für den derzeitigen Aufschwung und würde gerade denen noch mehr schaden, die auch unter dem jetzigen Inflationsanstieg leiden. Schließlich werde ich erklären, warum der derzeit beobachtete Anstieg der Inflation eigentlich eine gute Nachricht ist. Denn er gibt berechtigten Anlass zu der Hoffnung, dass die derzeitige Ausrichtung der Fiskal- und Geldpolitik im Euroraum nach vielen Jahren endlich den Weg aus dem Niedrigzinsumfeld ebnen kann.”…
ecb.europa.eu/en 13/9/2021 New narratives on monetary policy – the spectre of inflation Speech by Isabel Schnabel
…”In my remarks today, I would like to address these inflation fears. I will start by providing an assessment of recent developments in consumer prices against the backdrop of the long phase of very low inflation and explain why inflation in the euro area, and also in Germany, is likely to ease noticeably next year. A premature monetary policy tightening in response to a temporary rise in inflation would choke the recovery and be most harmful to those who are already suffering from the current spike in inflation. Finally, I will explain why the higher inflation we are seeing now may actually be positive news. There are good reasons to assume that the current constellation of fiscal and monetary policy in the euro area may finally chart the path out of the low interest rate environment.”…
barrons.com 9/2021 Scott Sumner’s Testament to Original Thinking By George Selgin
…”It’s been over a dozen years since Scott Sumner launched TheMoneyIllusion, his now-famous macroeconomics blog. … For Sumner, the sharp decline in both spending and output was no coincidence. Nor was it inevitable. Instead, it was a matter of cause-and-effect: Output shrank because people were buying less. To his way of thinking, this meant that, despite record-low interest rates, monetary policy had been too tight. The only way out was to somehow get spending back up again.
Ideally, Sumner argued, the Federal Reserve should have taken steps months earlier to keep nominal GDP growing at a steady clip—say, 4.5% annually. That would have allowed for a 2% long-run inflation rate, the Fed’s official target, and an average real GDP growth rate of 2.5 percent. This and similar recipes now go by the name of “NGDP targeting.” …
Sumner’s way of thinking had grown into a movement dubbed “Market Monetarism.” The moniker has stuck; but it isn’t all that felicitous. Though Sumner was himself a University of Chicago PhD, most Chicago-school Monetarists were, and are still, convinced that inflation is the best indicator of the stance of monetary policy. If prices rise too quickly, monetary policy must be too loose. If they rise too slowly or fall, it’s too tight. …
In some ways, indeed, Market Monetarists have more in common with Keynesians, who consider “aggregate demand”—their name for total spending—to be the crucial determinant of real output. But there’s a far-from-trivial difference here as well: Whereas Market Monetarists consider it sufficient for spending to grow at a rate consistent with a long-run inflation rate near 2%, many Keynesians believe that more spending, and correspondingly higher inflation, would mean still less unemployment. That Market Monetarism is in fact something of a compromise between old-fashioned Monetarism and Keynesianism may explain why it became so popular so quickly.
… But while a blog offering so sensible a compromise, and written with such elan, was perhaps bound to succeed at a time crying out for some macroeconomic stock-taking, the blog’s archived posts are hardly ideal for reaching a new set of readers. Hence Sumner’s eagerly anticipated book, also called The Money Illusion. …
The intertwined agendas of The Money Illusion may also limit its appeal as a text for classroom use. Yet, were I still teaching monetary economics, I wouldn’t hesitate to assign it, not as a textbook, but as the testament of one of today’s most original monetary economists. For The Money Illusion is capable of teaching them something no textbook ever will, namely, the importance of thinking for oneself.”… source: firstname.lastname@example.org
moneyweek.com/ 6/8/2021 Inflation is here to stay: it’s time to protect your portfolio – Unlike in 2008, widespread money printing and government spending are pushing up prices. Central banks can’t raise interest rates because the world can’t afford it, says John Stepek. Here’s what happens next by: John Stepek
telegraph.co.uk 8/2021 We are Heading for Inflation Crisis – Whatever the furlough scheme achieved at the height of the pandemic, it has become a horrible distortion for the labour market.
telegraph.co.uk 7/8/2021 freight-centre-storm-threatens-entire-global-economy/
ft.com 29/7/2021 German inflation has surged to its highest level for over a decade and likely to stir debate about the eurozone’s ultra-loose monetary policy.
zew.de 29/7/2021 EW-Ökonom Friedrich Heinemann zur Inflationszahl – „Der Staat ist der große Inflationsgewinner“
…„Die Sichtweise, dass die aktuelle Inflation von Kurzfristfaktoren getrieben wird, ist einerseits richtig, sie greift aber dennoch zu kurz. Es stimmt zwar, dass ein außergewöhnlich starker Anstieg der Importpreise und Sonderfaktoren der Pandemie die Inflation nach oben treiben. Dennoch ist überhaupt nicht sicher, dass diese kurzfristige Inflation genauso schnell verschwindet wie sie gekommen ist. Es sind drei Faktoren, die für eine reale Gefahr eines dauerhaften Inflationsanstiegs sprechen. Erstens sind die steigenden Preise für Importe nicht unbedingt vorübergehend, weil die Lohnkosten in China und anderen Schwellenländern stark und stetig ansteigen. Zweitens dürfte der empfindliche Kaufkraftverlust, den Arbeitnehmerinnen und Arbeitnehmer in Deutschland durch diese Inflation erleiden, Folgen für die nächsten Lohnverhandlungen haben und den Lohndruck erhöhen. Und drittens schwindet derzeit das Vertrauen, dass die Europäische Zentralbank eine dauerhafte Inflationsdynamik wirklich entschieden bekämpfen wird. Zu sehr sind die hoch verschuldeten Eurostaaten von den Anleihekäufen und den Nullzinsen abhängig geworden. Vieles spricht dafür, dass wir uns auf einen längeren Abschied von der Ära sehr niedriger Inflationsraten einstellen sollten.“…
faz.net/aktuell/wirtschaft 23/7/2021 jens-weidmann-inflationsraten-richtung-5-prozent
voxeu.org/article/carbon-taxation-and-inflation 7/2021 Carbon taxation and inflation: Evidence from Europe and Canada by Maximilian Konradt, Beatrice Weder di Mauro 29 July 2021
Model-based studies on the effect of carbon taxation point to sizeable inflationary effects. This column uses evidence from Canada and Europe over the past three decades to show that carbon taxes changed relative prices but did not increase the overall price level. Instead, they were slightly deflationary …
vox.com/ 21/07/2021 Don’t worry about inflation Why fears of the return of 1970s-style inflation are overblown. By Dylan Matthews
For those of us not alive then and who have never lived through a period of debilitating inflation, the fears voiced by baby boomer economists like Larry Summers and Olivier Blanchard that massive price increases could be coming might ring hollow. But their worry, which many economists share, reflects a real history. The Great Inflation, which began in the late 1960s and finally ebbed in the early ’80s, was a genuine calamity that worsened living standards for years.
Understanding the warning that figures like Summers and Blanchard are issuing is important. But equally important is understanding the key differences between what happened in the 1970s and what’s happening today. Summers, Blanchard, and many mainstream economists have internalized a story about the 1970s Great Inflation, and inflationary phenomena more generally, that informs their outlook. …
The standard story of the Great Inflation of the 1960s and ’70s
Using the Fed’s preferred measure of inflation, we can see that prices began to rise, year over year, more rapidly starting around the mid-1960s.
They fluctuated a bit after a brief recession in 1970, but then surged to great heights, first in 1974-’75 and then at the end of the 1970s. After Volcker’s appointment in 1979, inflation peaked and then plummeted rapidly. It has never exceeded 4 percent on an annual basis again.
The popular story of the Great Inflation holds that it was the result of a chain of policy decisions starting with the budget policies of President Lyndon B. Johnson, particularly the war in Vietnam. …
But the conventional story only posits Vietnam as the proximate cause. The truest cause has something to do with a trade-off economists dub the “Phillips curve” (named after economist A.W. Phillips).
Essentially, as Brad DeLong argued in his excellent history of the Great Inflation, policymakers in the 1960s thought they could just move leftward on the Phillips curve, to a point with higher inflation and lower unemployment, without much pain.
But they were wrong. Pushing unemployment too low, the story goes, risks not just higher inflation (as the Phillips curve suggests) but accelerating inflation: inflation that grows higher and higher without stopping. …https://gaiageld.com/misunderstanding-the-phillips-curve/embed/#?secret=tGbLWkNPLh#?secret=lKVf6EVMKe
What if inflation is not about the price of everything, but the prices of a few specific things?
But there’s another major weakness in the conventional story of the 1970s inflation — it doesn’t take some incredibly significant world events around that time very seriously. And if you take those into account, contemporary fears about a return to ’70s-style inflation start to wane.
The 1973 oil embargo, in which Saudi Arabia and allied Arab nations blocked oil exports to the US and some of its allies in retaliation for supporting Israel in the Yom Kippur War, is little more than a side note in the inflation expectations story. Some, like former Fed Chair Ben Bernanke in his earlier academic work with Gertler and Mark Watson, go so far as to argue the embargo mostly mattered because of the Fed’s response to it, which was to sharply raise interest rates (though not as much as Volcker would later on).
But that claim seems unrealistically dismissive of the effects of a brute fact: The price of gas nearly quadrupled between October 1973 and January 1974. …
A supply-side story for 1970s inflation has markedly different policy implications than the “Volcker shock” of high interest rates meant to shrink the economy. In the counterfactual, instead of shrinking demand and spending so as to meet the lower supply of the period, the government could have actively tried to increase the supply of those scarce goods, as economists like then-American Economic Association president and future Nobelist Lawrence Klein argued in 1978. That could have taken the form of attempts to boost crop yields, or encourage US domestic oil production.
We’ll never know if that would have worked, but it’s a compelling and — in my view — persuasive alternative to the story we’ve been told for decades. …
What this revised story of the Great Inflation means for policy in 2021
In the context of 2021, this alternate story implies that Federal Reserve Chair Jerome Powell should not be considering slowing down the economy as a blunt tool to keep prices down. Instead, the federal government should be intervening in specific areas to keep specific types of prices that are rising rapidly from further accelerating.
As my colleagues Emily Stewart and Rani Molla have noted, the biggest price increases affecting “core” non-gas or food inflation in recent months have come from new and used cars and air travel. The Biden Council of Economic Advisers estimates that at least 60 percent of inflation in June was due to car prices alone, and a big chunk of the rest came from services like air travel increasing in price as everyone rushes back to travel post-pandemic.”
www.cer.eu 20/7/2021 EUROPE SHOULDN’T WORRY ABOUT INFLATION – The fear of inflation is stalking Europe again. Policy-makers are right to be relaxed. by Christian Odendahl
” Inflation is no near-extinct tortoise that suddenly reappears unprompted. Nor is it a short-term fluctuation in the prices of certain goods and services during a disruptive pandemic. Inflation is a general rise in the level of prices in response to underlying economic forces such as employment, growth, the economic expectations of people, and policy-makers’ actions. For central bankers, inflation is a useful thermometer for the economy: if it is too low, it points to a cool economy that has unused capital or labour that can be put to use; if it is too high, it shows that demand is higher than capacity, which drives up prices too fast. A steady and predictable inflation of 2 per cent is ideal for Europe.
Europe’s problem over the last decade has been a cool economy: too little inflation pointed to an economy that was running below its potential. Policy-makers seemed unable (though mostly, just unwilling) to generate enough demand to bring the European economy back to its potential, and inflation back to a healthy 2 per cent. As Europe is exiting the pandemic, it is crucial that policy-makers do not choke off the economic recovery out of a misplaced fear of inflation. …” … read or download PDF here
telegraph.co.uk 20/7/2012 Markets fear inflation much more than the delta variant – If central banks don’t lance the QE boil now they probably never will, risking soaring inflation that takes the world back to the 1970s by Ambrose Evans-Pritchard
moneyweek.com 9/7/2021 How a bubble in bitcoin could lead to hyperinflation – Libertarians hope that cryptocurrencies will undermine central bank control of monetary policy. They should be careful what they wish for, warns author and analyst Bernard Connolly. by Bernard Connolly
express.co.uk 1/7/2021 UK inflation is now expected to hit 3 percent this year, above the Bank of England’s target of 2 percent, and yet interest rates are still being kept at near zero. It is criminal to ignore such rapidly rising prices that will make older generations suffer while City fat cats get rich on historically low rates.
By TIM NEWARK
… The catastrophic result of this extended period of absurdly low interest rates was to see investors taking their money out of banks and pouring it into other assets, principally property. That meant the average house price has rocketed over the last decade putting home-ownership beyond many young people. …
The only winners from inflation are wealthy investors whose property portfolios have swollen in value thanks to low borrowing costs and, of course, government. Having borrowed billions of pounds to battle Covid-19, politicians across the Western world would welcome a dose of inflation to whittle away at their national debts.
As the rich get richer, it’s the more humble, older generations who will pay the price.
fitchratings.com 28/6/2021 Prolonged, Elevated Inflation a Risk for U.S. Bank Credit, U.S. Banks: Implications from Higher Inflation
Fitch Ratings-New York-28 June 2021: The credit risks to U.S. banks from a transitory increase in inflation are limited, but deflation or significant, prolonged inflation could pose higher relative risks to the banking industry and has historically corresponded with relatively weaker earnings and higher loan losses, Fitch Ratings says.
Inflation below 4% is expected to have limited impact on banks; however, prolonged inflation would result in longer-term negative implications for banks. Inflationary environments can cause financing conditions to tighten, which could increase borrowing costs for some marginal borrowers and ultimately impact bank credit quality and loan growth.
thetimes.co.uk 27/6/2021 As inflation jumps, the Bank of England risks falling behind the curve by David Smith – It may not have been obvious to everybody but the decision of the Bank of England’s monetary policy committee (MPC) on Thursday lunchtime was actually quite a bold one. When I say decision, I should say non-decision. The committee stuck with its previous policy. Why bold? Nobody expected the risk-averse MPC to contemplate an increase in official interest rates from the current all-time low of a mere 0.1 per cent, though some would have liked to have seen it, or at least a signal that it could happen before long.
thetimes.co.uk/ 26/6/2021 american-inflation-hits-30-year-high-as-economy-recovers-from-pandemic
theguardian.com/ 25/6/2021 bank-of-england-andy-haldane-uk-inflation-risk-us
telegraph.co.uk/ 14/6/2021/ Inflation doves are taking a huge risk with global economy – The Federal Reserve allowed US inflation to get out of control 50 years ago – and it could be making the same mistake once again
themoscowtimes.com 11/6/2021 Russia Raises Interest Rates Again as Inflation Persists – Central Bank hikes rates to 5.5% and says inflation will remain elevated for at least another 12 months.
think.ing.com 10/6/2021 Fed under pressure as US inflation climbs James Knightley
Yet another big upside surprise for US inflation casts further doubt on the Fed’s claim that this is all “transitory” and monetary policy can be left ultra-loose for the next three years. We expect to hear a shift in the Fed’s language over the late summer In this article:
- Inflation at 13 year high
- Probably at a peak, but the decline will be slow
- Demand will continue to exceed supply
- Rising costs, rising corporate pricing power, rising wages equals more persistent inflation
- Watch housing costs in coming months
- Risks of earlier rate rises
To maintain the inflation, a cooling of inflation was needed – That is one of those Alice in Wonderland-like statements, like the one I’ve got tattooed on my left forearm: “Contrary-wise, what is it wouldn’t be and what it wouldn’t be it would, you see?”
To maintain inflationary policy, as per various talking Fed (egg) heads, the hysterical run up in inflationary expectations and fears had to be tamped down. And so, Google users have indeed eased their neuroses right along with a recent tamping of inflationary hysteria.
ineteconomics.org 5/2021 Slack in the Economy, Not Inflation, Should Be Bigger Worry – By Claudia Fontanari, Antonella Palumbo, Chiara
Despite fear-mongering about the latest Consumer Price Index, unemployment remains elevated and stimulus is needed to prevent a collapse in demand
With US consumer prices rising at 4.2% on an annual basis in April, the fears of those who have recently been predicting a sharp rise in inflation seem finally to have come true. Shortages of some commodities and some types of labor are fueling the debate about the possibility that inflation has come back to stay, making its way into expectations and forcing the Federal Reserve to change soon its current very expansive monetary stance.”
… “… ever since the Eighties, central banks have seen their main role as bearing down on inflation from above to stop it getting out of control. But after the long and difficult recovery from the 2008 global financial crisis, they’ve turned that on its head. Their main aim now is to prevent economies getting trapped in a cycle of low inflation and low growth, where rock-bottom interest rates have less and less power to boost economies when recession hits.
This new revolution has gone furthest in the US though, and as usual in economics we’re all following in their wake. The US central bank — the Federal Reserve — is now saying they want to see inflation higher than their two per cent target. They actively want to run the economy hot in order to get as many people as possible into work, and they’ve said they won’t start to raise interest rates to cool things down until they’ve actually seen higher inflation for some time — “waiting to see the whites of its eyes” as the phrase goes. So is that happening already? No. What we’re seeing at the moment isn’t really inflation, it’s just prices adjusting to the lifting of restrictions. That might sound odd — after all, what is inflation if not prices adjusting? But actually they’re very different things. …
Nobody thinks that used car prices are going to go on rising by 10 per cent every month. That’s what real inflation would look like — if our expectations for the future started to factor in repeated price increases in the goods and services we buy year after year. …
Most likely the policy revolution will keep our economies growing rapidly and creating more good jobs without letting our expectations for future inflation get out of control. If so, then, that trial we’re all part of will be judged a success and the Bank of England and Treasury will breathe a sigh of relief. If not then the side effects could be painful.”
ecb.europa.eu 24/6/ 2021 Avoiding a self-fulfilling low-inflation trap By Sebastian Schmidt
A low-inflation trap is a situation where both actual and expected inflation are firmly below the central bank’s target and nominal interest rates are close to or at their lower bound. The concept is often used to characterise Japan’s quarter-century of very low, and often negative, inflation. More recently, persistent inflation shortfalls across the industrialised world have raised concerns that other jurisdictions, too, may be on the verge of getting caught in a Japanese-style low-inflation trap. Our new research shows how fiscal policy can help guard economies against this fate.
telegraph.co.uk 24/5/2021 Serious inflation is coming and the time to start addressing it is now – Andy Haldane, the Bank’s chief economist, is on the money when he warns the genie is escaping the bottle by Liam Halligan
youtube 5/2021 Monetary policy shocks and inflation inequalityhttps://www.youtube.com/embed/3gM8lPhO8qo?version=3&rel=1&showsearch=0&showinfo=1&iv_load_policy=1&fs=1&hl=en-US&autohide=2&wmode=transparent
reuters.com 17/5/2021 Wall St weighed down by inflation jitters by Medha Singh, Sruthi Shankar
Technology stocks pulled Wall Street’s main indexes lower on Monday, as signs of inflationary pressures building up in the economy kept investors worried about monetary policy tightening.
economist.com 15/5/2021 Jump scare? – Consumer-price inflation in America jumps up to 4.2% – Shortages and bottlenecks imply more price rises will follow. But will they last?
As America’s economy bounces back from the pandemic, aided by trillions of dollars of fiscal stimulus, the main question on investors’ minds is if and when inflation will take off. … Take the surge in demand and strained supply together, and you get to higher prices. … Assured of sustained demand, other companies may also begin to pass on higher costs to customers. … In order for it to stay high, such price rises will need to keep repeating, pushing up wages in turn. But the present phase could reasonably be regarded as temporary, as suppliers adjust to shifting consumer tastes. …The combination of a generous Treasury, a tolerant Fed and a reopening economy puts America in uncharted territory. Brace yourself for more inflation scares in the coming months.
standard.co.uk 6/5/2021 Is inflation coming back? Warren Buffett and the return of the ‘inflation nutters’ – Is looming inflation a real worry? Our Senior City Correspondent argues not by Simon English
… “What of the nutters? A view here from a senior City figure who didn’t want to be named, presumably because so many of his colleagues qualify: “Most of the warnings on inflation come from people who learned their economics in the 1980s and have been wrong ever since. Price/ wage spirals happened when unionised workers were a third of the UK labour force – and local markets had pricing power. The steady erosion of worker rights and Amazon have made this a distant memory – apart from amongst some grey-haired economists. There is also the inconvenient truth that if inflation does get too hot, governments and central banks aren’t short of tools to take the heat out of the economy. This automatic dampener gives confidence to Janet Yellen and Rishi Sunak that they are on the right side of history.”
If the nutters are again proved wrong on all this, they’ll shut up, right? Wouldn’t bet on it.”
ukuncensored.com 5/5/2021 How do investors invest in the fight against climate change while protecting themselves from inflation? by Kit Winder
…”Linking to the transition, the central banks are pumping money out of the biggest hose we’ve ever seen. For the last decade, it’s been simply filling the reservoirs – going on to bank’s balance sheets, and filtering into financial assets (which have obediently inflated). Now, governments are taking control of that monetary hose. And where are they directing it? Towards the climate crisis. This is an unstoppable force meeting an immovable object. The biggest monetary hose of all time meets the most absorbent sponge ever. The huge economic demands of the transition could counterbalance or even mitigate some of the inflation. …” …
“Listen, every client call I’m on including the one I just finished … is talking about overheating,” the chief investment officer of global fixed income at the world’s largest money manager said on “Halftime Report.”
economist.com 17/3/2021 The Fed should explain how it will respond to rising inflation – The Fed’s “average inflation targeting” regime remains too vague
The Fed is rightly unworried by cosmetically higher inflation that reflects what happened a year ago. Yet the central bank does have an inflation problem that will trouble it when the economic recovery produces sustained price pressures. A new monetary-policy framework it adopted in August dictates that it should push inflation temporarily higher than its target after recessions, to make up lost ground. The problem is that nobody knows by how much or for how long it wants inflation to overshoot after the pandemic. With the risks of an inflationary episode greater than they have been in years, the ambiguity is an unfortunate additional source of uncertainty.
economist.com 13/3/2021 In the spring of 2020 American consumer prices fell for three consecutive months as the pandemic struck. Rents collapsed, hotel rooms went empty and oil prices turned negative. All sudden spurts of deflation or inflation make the news twice: first when they happen and then a year later, when they distort comparisons that look back 12 months. Sure enough on April 13th statisticians announced that consumer prices in March were fully 2.6% higher than a year earlier, up from 1.7% in February. The increase in headline inflation was the biggest since November 2009, when similar “base effects” were in play after the global financial crisis.
telegraph.co.uk 9/4/2021 Monetarists fear inflation spiral as BoE stokes economic boom Monetary Policy Committee appears to double down on quantitative easing to prevent double-dip recession, but may have over-egged the pudding by Ambrose Evans-Pritchard
kitco.com 6/4/2021 Steve Hanke, professor of Applied Economics of Johns Hopkins University, said that this change reflects a change in attitude from the world’s largest central bank on the importance of looking at money supply. “Chairman Powell has very explicitly claimed that money doesn’t matter in recent testimony. He’s basically said that money and the measurement of money doesn’t really matter because it’s unrelated to inflation,” Hanke said.
These money supply series have been published since the 1970s, and the fact that the Fed has changed the publishing frequency on M1 and M2 money supply from weekly to monthly demonstrates a change in worldviews, Hanke said. “In principle, they don’t think [this data] is important. They want to deep-six the monetarists, basically and push them off to the sidelines. They want to bury Milton Friedman once and for all and be done with it, and their preference would probably to not report any monetary statistics,” he said.
moneyweek.com 6/4/2021 Inflationary pressure is building across the globe. But is it here to stay? – As a rise in demand meets a squeeze in supply, shipping costs climb and labour shortages bite, everything is getting more expensive. John Stepek asks if it’s a temporary bottleneck, or a real turning point in the rise of inflation.
coindesk.com 4/2021 Central bank digital currencies could potentially facilitate powerful, directed “money drops” and raise inflation expectations, according to a March 31 report by Bank of America. by Damanick Dantes
ineteconomics.org 2/2021 Mainstream Economists Have Been Using a Misleading Inflation Model for 60 Years By Lance Taylor and Nelson Henrique Barbosa Filho
… “Specifically, consider three points made by Krugman. First, expectations matter, but not necessarily because of rational expectations. People may be forward-looking in more conventional and social ways, meaning that they react to the perceived stance of monetary policy against inflation. Too soft and high inflation tends to persist and indexation to grow, as indicated by Structuralist analysts of Latin America and the US experience with Arthur Burns at the Fed. Too hard and inflation tends to revert more quickly to mean, with non-negligible short-run costs, income losses, and rising unemployment, as indicated by the US after the Volcker shock. The Lucas fantasy of costless disinflation from credible commitments in an ergodic world of rational agents was decisively falsified long ago.
Second, as mentioned by Krugman, import prices are also important for US inflation. The oil shocks showed it in the 1970s and, despite the recent reduction in the US dependence on fuel imports, the correlation and two-way causation between US consumer-price and import-price inflation remained strong in the last 30 years. Growing manufacturing imports from Asia and the strong dollar diplomacy of the US Fed and Treasury have also been structural determinants of US inflation.
Third, and here is our main divergence with Krugman’s view, the labor share of income may be more important than the rate of unemployment as a driver of US inflation, especially in the period of “wage repression” (Taylor with Ömer, 2020, essentially a longer run extension of our inflation discussion) that started in the late 1970s.
More formally, the labor share may be an independent determinant of inflation. It can explain why, even at low rates of unemployment, prices do not accelerate as one would have expected from the US experience in the 1950s and 1960s. Our econometric results indicate that, based on the data from 1991 up to 2019 (pre-Covid), a one percentage point reduction in the labor share of net domestic income (GDP excluding capital consumption) reduced US consumer inflation by 0.2 points for a constant rate of unemployment and import-price inflation.
What if the rate of employment and import-price inflation change? Our results from almost a theoretical vector error correction modeling continue to show a strong response of US inflation to both import and wage costs since the 1990s. In contrast, the linkage with employment is weaker and often has the “wrong” sign. For practical purposes, the results mean that, for the Fed to meet its inflation target, it would be necessary to let real wages grow faster than labor productivity for some years, undoing the wage repression of the last decades. Biden’s $15 minimum-wage proposal is a correct step in that direction.
Finally, and back to the academic world, despite the intuitive logic and accounting “macrofoundations” of the Structuralist analysis of inflation, such was the prestige of Samuelson and Solow’s misinterpretation of the Phillips Curve that it became the canonical story about US inflation until today, the American Phillips curve. It is about time to expand the analysis, in the ways Krugman points out and beyond, otherwise mainstream economics runs the risk of pursuing a phantom curve for another six decades.
scmp.com 1/4/2021 Coronavirus recovery: why stimulus-driven inflation is not the biggest threat to markets – by Nicholas Spiro
Worries about an inflation shock are way overdone, particularly given the scale and severity of the damage wrought by the pandemic – Markets should be more concerned about the ability of governments to control the pandemic and respond forcefully enough to minimise long-term scarring
“Another week, another sign that government bond markets are becoming increasingly concerned about the return of a long-dormant foe: inflation. …”
coindesk 5/4/2021 There’s More to Inflation Than the Money Supply – The printer may be going “brrrrr” but increasing the money supply doesn’t necessarily lead to inflation, writes EY’s blockchain leader. by Paul Brody
“In a prior column, I argued it’s a myth that America is headed towards catastrophic hyperinflation. I got a lot of angry messages on Twitter about this, and nearly all of them (that weren’t obscene) cited quantitative easing (QE), where central banks buy financial assets to increase the money supply.
The money supply has indeed grown significantly and the U.S. is about to embark on a historic experiment in combining very loose monetary policy with a big fiscal stimulus. This may seem like pouring gasoline on a fire, but there are four good reasons to think it might work out very well. … The money supply may be much bigger but the velocity of money dropped dramatically at the start of the pandemic and is recovering slowly. The velocity of money is just how fast money moves between parties. Simply put, no matter how much money exists in an economy, if nobody spends it, the economy is actually very small. …”
ecb.europa.eu 1/4/2021 Inflation dynamics during a pandemic Blog post by Philip R. Lane
Previewing the main messages, my assessment is that the volatility of inflation during 2020-2021 can be largely attributed to the nature of the pandemic shock: the increase in inflation during 2021 can be best interpreted as the unwinding of disinflationary forces that took hold in 2020 and does not constitute the basis for a sustained shift in inflation dynamics. The medium-term outlook for inflation remains subdued and closing the gap to our inflation aim will set the agenda ….”
cnbc.com 31/3/2021 Euro zone inflation continued to surge in March reuters
Inflation in the 19 countries sharing the euro accelerated to 1.3% in March from 0.9% a month earlier. The ECB had already predicted the surge, warning that inflation may even exceed its target by the close of the year. Underlying inflation, more closely watched by the ECB in its policy deliberations, actually slowed in March.
realvision.com 29/3/2021 LACY HUNT: BONDS, GROWTH, AND JOBS IN A “DISINFLATIONARY STEW” by acy Hunt and Danielle DiMartino Booth
With inflationary concerns weighing upon bonds, how should investors think about the future of yields and their key drivers such as growth, employment, and monetary and fiscal policy? … Lacy Hunt … argues that a growth in money supply does not necessarily create inflation if the velocity of money is low since the extra money supply remains trapped in the financial system. Booth and Hunt consider the acceleration of secular changes such as reliance upon technology, which increases productivity and is therefore a disinflationary pressure. – Key learnings: Hunt and Booth argue that the recent rise in U.S. Treasury yields doesn’t take into account vital structural changes such as the decline in the velocity of money and in the marginal revenue product of debt. As such, it is possible that the inflationary fears that have recently rattled the U.S. Treasury market are overblown.
investorschronicle.co.uk 24/3/2021 The consumer price index has drifted lower and the promise of inflation has yet to materialise
sciencedirect.com 04/2021 Revisiting speculative hyperinflations in monetary models by Maurice Obstfeld Kenneth Rogoff
This paper revisits the debate on ruling out speculative hyperinflations in monetary models. Although apparently a narrow issue, studying these extreme economies turns out to be quite illuminating in understanding the fundamentals of price level determination. It is also relevant in evaluating the broader claims that advocates of the fiscal theory of the price level have made. In Obstfeld and Rogoff (1983, 1986) we show that in pure fiat money models with rational expectations, where the government gives no backing whatsoever to currency, there is in fact no reasonable way to rule out speculative hyperinflations where the value of money goes to zero, even if the money supply itself is exogenous and constant. Such perverse equilibria are ruled out, however, if the government provides even a very small real backing to the currency – a fiscal mechanism, but one that comes into play only as a backstop. Indeed that backing does not have to be certain. Cochrane (2011, 2019), however, argues that this result is wrong, and that fractional currency backing is a Maginot line that is insufficient to rule out hyperinflation. We show here why, in fact, his analysis involves a subtle change in model specification that adds a distinct monetary fragility to our model. Our baseline analysis uses a canonical money-in-the-utility-function setup due to Brock (1974, 1975), but following Wallace (1981), we show the same results go through in an overlapping-generations model of money.
zeit.de/ 20/3/2021 Olivier Blanchard – “Seid vorbereitet!” Olivier Blanchard – Joe Bidens Konjunkturpaket könnte die Inflation in den USA stark anheizen, warnt MIT-Ökonom Olivier Blanchard. Europa müsse dagegen aufpassen, nicht abgehängt zu werden. Interview: Marcus Gatzke und Mark Schieritz – Ausschnitte:
Blanchard : “Die Schlüsselfrage ist: Wie groß ist die Nachfragelücke, die sich durch die Krise aufgetan hat, weil die Haushalte weniger Geld ausgegeben und die Unternehmen weniger investiert haben? Dazu gibt es derzeit verschiedene Schätzungen mit unterschiedlichen Ergebnissen, über die man lange diskutieren kann. Ich halte es aber für nicht plausibel, dass sie größer als 1.000 Milliarden Dollar ist.
Meine Befürchtung ist, dass die Wirtschaft zu heiß läuft: Die Arbeitslosigkeit geht so stark zurück, dass es nicht mehr genug Arbeitskräfte gibt, die bereit sind, eine Stelle anzunehmen. Dann steigen die Löhne, die Unternehmen müssen die Preise ihrer Waren anheben, um die höheren Lohnkosten aufzufangen, und im Ergebnis zieht die Inflation an. Dann muss die Notenbank Federal Reserve mit höheren Zinsen reagieren.
Wir haben ein solches Ausmaß an Überhitzung einfach noch nicht gesehen. Der Zusammenhang zwischen Inflationsrate und Arbeitslosenquote – die sogenannte Phillipskurve – ist historisch betrachtet nicht sehr stabil. Ich befasse mich seit sehr vielen Jahren mit diesem Thema. Immer, wenn man das Gefühl hatte, man hat ihn erfasst, passiert irgendetwas und man muss wieder von vorn anfangen.
In den letzten 20 Jahren wiederum reagierte die Inflation kaum auf einen Rückgang der Arbeitslosigkeit und die Inflationserwartungen änderten sich auch nicht. Es wäre aber falsch, daraus zu schließen, dass das für immer und ewig so bleiben muss, wenn die Wirtschaft richtig heiß läuft.
Entscheidend wird sein, wie die Leute reagieren, wenn die Preise nun wegen der zusätzlichen Ausgaben schneller steigen. Es ist möglich, dass sie entspannt bleiben und sich sagen: Wir haben jetzt zwar eine etwas höhere Inflation, aber das geht bald wieder vorbei. Dann ist alles gut. Es ist aber auch möglich, dass sie höhere Löhne fordern, um den Verlust an Kaufkraft auszugleichen. Dann droht eine Spirale aus höheren Löhnen und höheren Preisen. …
Es sind vor allem Ältere, die einen Anstieg der Inflation fürchten. Leute aus meiner Generation. …
ZEIT: Ist nicht das Problem, dass die europäischen Staaten bereits überschuldet und ihre Handlungsfähigkeit damit eingeschränkt ist?
B: Das sehe ich anders.
B: Die Zinsen sind sehr niedrig und sie werden für einen langen Zeitraum sehr niedrig sein. Das bedeutet: Obwohl das Schuldenniveau hoch ist, können sich die europäischen Länder die Zinszahlungen leisten und damit eine Explosion der Schulden vermeiden. Daran würde sich auch nichts ändern, wenn die Regierungen neue Hilfspakete auflegen und für ein oder zwei Jahre höhere Etatdefizite in Kauf nehmen müssten. ….
B: Ich glaube nicht, dass wir in irgendeinem Eurostaat ein akutes Schuldenproblem haben. …
ZEIT: Was passiert eigentlich, wenn wir diese Pandemie nicht in den Griff bekommen? …
B … Das wäre mit dauerhaften ökonomischen Einbußen verbunden, aber es wäre nicht das Ende der Welt. Die Unternehmen werden sich anpassen. Das Leben würde weitergehen. …”
bloomberg.com 20/03/2021 Wall Street Pros From Goldman to JPMorgan on New Inflation Era By Anchalee Worrachate
Goldman touts commodities, JPMorgan Asset prefers real assets, Pimco pushes back on price fear as the market debate heats up
It’s the invisible force rocking Wall Street: An inflation revival for the post-lockdown era that could change everything in the world of cross-asset investing. As America’s dalliance with run-it-hot economics sends market-derived price expectations to the highest in more than a decade, Bloomberg solicited the views of top money managers on their make-or-break hedging strategies ahead. One takeaway: The economics of trading from stocks and real estate to interest rates would be turned upside down if projections of runaway prices are to be believed. Yet there are clear divisions. Goldman Sachs Group Inc. says commodities have proven their mettle over a century while JPMorgan Asset Management is skeptical — preferring to hide in alternative assets like infrastructure. Pimco, meanwhile, warns the market’s inflation obsession is misplaced
investorschronicle.co.uk 19/3/2021 Could inflation soon reach 10 per cent? Inflation expectations are rising. They might have to rise a lot more by Alex Newman
irishtimes.com 19/3/2021 Are the terrible twins of inflation and higher interest rates on the way back? by Cliff Taylor – Leo Varadkar raises issue and bonds edge higher
bloomberg.com 18/3/2021 Nowhere to Hide From Inflation Fears as Commodities Join Rout By Kim Chipman – Growth concerns, strong dollar halt this year’s rally – Crude oil tumbles 7%, coffee falls most in two months
bloomberg.com 18/3/2021 Dalio Says Inflation Heightens Risk of an Earlier Fed Rate Hike By Katherine Burton –
Bridgewater founder says U.S. spending more than it’s earning – Dalio’s Pure Alpha II fund lost 1% this year
cnbc.com 18/3/2021 ECB will not react to inflation ‘blips,’ Lagarde says by Silvia Amaro – headline inflation figures released in January showed inflation at 0.9% year-on-year, the highest level in almost 12 months – In addition, core inflation, which removes volatile items such as energy and food prices, reached 1.4% year-on-year in January from 0.2% in December – After its latest policy meeting, last week, the central bank said that its bond purchases will increase “significantly” in the next quarter.
moneyweek.com/ 12/3/2021 The European Central Bank fumbles its way towards yield curve control by John Stepek
The EU’s economic recovery is faltering, but its bond yields keep rising. That makes things tricky for the European Central Bank, says John Stepek. Here, he looks at how central banks are shifting the goalposts, and what it means for you.
Econbrowser 17/3/2021 CPI: Growth Rate vs. Level – Headline CPI inflation is up. But the level matters. Notice that even with the acceleration in headline inflation (CPI-all) to
4.7% 4.3% month-on-month annualized (or 1.7% year-on-year), the CPI is still below where it would have been had CPI trended upwards at the rate it did over the five years preceding the pandemic (1.8%).
FinancialTimes 15/3/2021 Why the UK inflation risk after lockdown is hard to assess
thisismoney.co.uk 13/3/2021 Watch out as inflation erupts with oil, copper and shipping costs all rising in recent times
By Hamish McRae – Inflation never goes away. It just sits there, lurking and growling in the background until it has a chance to burst out again. In the past couple of months those growls have become louder. You cannot hear them yet in the official inflation numbers, which show consumer prices up only 0.9 per cent year-on-year here in the UK and 1.7 per cent in the US. But look at what is in the pipeline.
TheEconomist 3/3/2021 Why people are worried about the bond-equity relationship – “Buried in the quant argot is a fear of a return to 1970s-style inflation – Take the idea of correlation, the co-movement of two or more variables. Such relationships vary with the period over which they are measured. The direction can shift. Things quickly become confusing. Yet the quant argot is useful when considering perhaps the biggest fear stalking financial markets: a sustained rise in inflation that would be bad for both equities and bonds. A quant might describe this as a flip in the bond-equity correlation from negative to positive. That is none too elegant, though. A better choice is a term used in geopolitics as well as econometrics: regime change.” read Buttonwood article at TheEconomist
nathantankus.substack.com 9/3/2021″… been thinking about … inflation. … It turned out that those supply chain disruptions were less dire than many feared- but disconcertingly because workplaces tended to not close and let employees bear the burden in the form of illness and death. … (inflation) is also a topic I’ve long been interested in, so I was excited to explore it with Joe Weisenthal in an interview for his weekday newsletter. … Inflation measures like the CPI remain mild. Yet it’s clear that there is a lot of stress happening to global supply chains. During the recent earnings season, retailers talked a lot about delays and shipping logjams hampering their business. And if you read through the latest ISM Manufacturing report — although it was strong — basically every comment from a company was about how much of a mess the supply chain is. This raises an interesting question. Why don’t more companies just raise prices to balance out supply and demand, rather than allowing backlogs and shortages to emerge? To answer the question, I conducted an email interview with Nathan Tankus, the author of the must-read newsletter Notes On The Crisis. Nathan’s work is grounded in MMT, heterodox thought, and does a great job of explaining why prices don’t just automatically balance out supply and demand like the textbooks would say.
econofact.org What’s the Problem with Low Inflation? 2017 By Michael Klein
Die Inflation ist tot – und das sind die neuen Spielregeln für unser Geld 22.12.2020 Thomas Straubhaar
Führt das Agieren der Zentralbanken zur Geldentwertung? WELT-Gastautor Thomas Straubhaar sieht dafür momentan keine Anzeichen
Die Furcht vor Preissteigerung ist ein Dauerbrenner. … Es könne gar nicht anders sein, als dass die „Whatever it takes“-Rhetorik der Zentralbanken und die enorm aufgeblähten Geldmengen früher oder später zu steigenden Preisen führen müssten, heißt es. Die Wirklichkeit allerdings hat bisher alle Inflationserwartungen widerlegt. … Ob sich Geschichte wiederholt, wird sich zeigen. Aber aus heutiger Sicht gibt es dafür keine Anzeichen – zumindest momentan nicht. … Erkennbar wird lediglich, dass die alten Theorien nicht mehr taugen, um verlässliche Inflationsprognosen zu machen. Es bestätigt sich die geistes- und sozialwissenschaftliche Weisheit, dass jede Theorie ihre Zeit hat, in der sie verlässlich erklären und voraussagen kann, was in der Praxis vorgeht. …
Der Monetarismus, der die dominante geldpolitische Ideologie der vergangenen Jahrzehnte prägte, hat seine Voraussagekraft komplett verloren. Sein Credo lautete: Wenn Zentralbanken heute zu viele neue Geldnoten säen, werden sie morgen Inflation ernten. Seit Dekaden pochen Monetaristen mantraartig auf diese Logik. … Seit Jahren liegen sie damit falsch.
Thomas Straubhaar ist Professor für Volkswirtschaftslehre, insbesondere internationale Wirtschaftsbeziehungen, an der Universität Hamburg
ecb.europa.eu 5/2020 International inflation co-movements by Philip R. Lane “In my remarks today, I will discuss some analytical issues in understanding the drivers of international inflation co-movements. In particular, I will examine the individual contributions of common shocks, structural change and the evolution of monetary policy regimes to the observed high correlation of inflation across countries. At the same time, I will caution that correlated inflation paths are not inevitable. Some underlying forces may contribute to divergent inflation outcomes in the years to come.”
bloomberg.com 24/2/2021 New Zealand Government Forces Central Bank to Include Housing In Rate Setting By Matthew Brockett
bkls.govopub/btn 2013 Owners’ equivalent rent and the Consumer Price Index: 30 years and counting by Frank Ptacek and Darren A. Rippy
The objective of the Consumer Price Index (CPI) is to measure the change in expenditures required to maintain a given standard of living. For expenditures on houses, this leads to a measurement objective that focuses on the shelter services provided by a house over a period of time. A house is a capital asset that provides a flow of services over a substantial period of time, not a one-time consumption item.
piie.com 2/2021 In defense of concerns over the $1.9 trillion relief plan Olivier Blanchard (PIIE)
Those economists (like myself) who agree with Treasury Secretary Janet Yellen about the need to “go big” on a protection and stimulus package, but who have misgivings about the size of the Biden administration’s $1.9 trillion coronavirus relief plan, are getting criticized as overly concerned about overheating and inflation. A healthy debate has erupted. This blog post addresses three main issues in that debate and explains why I am concerned: first, the size of the output gap—i.e., the gap between actual and potential output in the economy; second, the size of the multipliers—i.e., the likely effects from the stimulus; and third, how much inflation an overheating economy may generate.
bloomberg.com 09/02/2021 History Tells Us to Worry About Inflation Macroeconomics always has its fads: The latest is embracing public debt and not worrying about inflation. But fashions change very quickly. By Ferdinando Giugliano
… “It’s true that a focus on using monetary policy to focus on “employment” for example is an invitation to use the Bank’s interest-rate manipulation for political ends. But the claim that central banks have been great at using their control over paper currency to “fight inflation” these last few decades should be seen for the illusion it really is: one need only look at the asset-price inflation in housing (both here and worldwide) and in stock markets (both here and worldwide) to understand what the last decade of historically-low interest rates has done to destroy genuine price and capital formation.
And we should also understand the “role of the average” in measuring the success of their present inflation target — meaning that averages are not always descriptive: two diners, two steak dinners , for example … but if one diner eats both, our a”average”leaves us blind. So it is today, with the more government-laden parts of economies heading for the price stratosphere … the “average” price inflation targeted by central banks being made to look good by the incredible performance of the less-constrained sectors.
…”This is really the real story of the last few decades, explains Deutsche Bank’s Jim Reid, who “contends that the fiat currency system ‘is inherently unstable and prone to high inflation’.” High price-inflation that has been effectively hidden in plain sight by the rapidly-falling prices generated
by China’s rapid economic emergence in the 1970s, and [by] an explosion in the global working-age population, [which] have allowed inflation to be controlled externally.
But that period is also historically unprecedented, he points out. And that period is now coming to an end.
Reid’s basic contention is this: The dominance of the fiat currency system since Richard Nixon decoupled gold from the dollar in 1971 “is inherently unstable and prone to high inflation,” and an offsetting disinflationary shock that kept it afloat since 1980 is now slowly reversing.
If that’s the case, Reid says the fiat currency system — a term which describes any currency whose value is backed by the government that issued it, rather than by a commodity like gold or silver — could be “seriously tested” over the next decade.
Disinflationary forces The basis of Reid’s argument is that China’s rapid economic emergence in the 1970s, and an explosion in the global working-age population, has allowed inflation to be controlled externally, because a boost in labour supply during a period of globalisation naturally suppressed wages. Externally-controlled inflation means policy-makers and central banks can respond with familiar tools: More leverage, loose policy, and extensive money-printing. “It’s not usually this easy as inflation would have normally increased with such stimulus and credit creation,” says Reid. In fact, “it could be argued that this external disinflation shock has perhaps ‘saved’ fiat currencies.”
An end to the demographic super-cycle If this theory is correct, Reid says, then “any reversals in this demographic super cycle could spell problems for the fiat currency system.” Under that scenario, inflation would pick up externally as the working-age population stopped rising and labour pricing power returned, as demand rose and supply shortened. Reid continues:
“Central banks and governments which have ‘dined out’ on the 35 year secular, structural decline in inflation are not able to prevent it rising as raising interest rates to suitable levels would risk serious economic contraction given the huge debt burden economies face. As such they are forced to prioritise low interest rates and nominal growth over inflation control which could herald in the beginning of the end of the global fiat currency system that begun with the abandonment of Bretton Woods back in 1971.”
After fiat currency Eventually, Reid says, “it’s possible that inflation becomes more and more uncontrollable and the era of fiat currencies looks vulnerable as people lose faith in paper money.”
I think Reid’s basic premise is unarguable. What then for the Reserve Bank Act’s central illusion?”…
mishtalk.com expert analysis of US inflation
mishtalk.com 1/2021 How are Gold and Money Supply Related? M1 and M2 Money Supply numbers are surging. Will gold follow?
mishtalk.com 5/2020 The Problem is Not Deflation, It’s Attempts to Prevent It (the problem with CPI (not) measuring inflation)
bloomberg/2021-01-09/ The Inflation Debate That’s Roiling U.S. Markets Faces 2021 Test By Ben Holland, Katia Dmitrieva, and Christopher Condon
“They’re still in the minority, but investors and economists who think America is in for a bout of inflation — perhaps a serious one — start the year with some fresh ammunition for their arguments. Vaccines hold out the prospect of an end to pandemic restrictions that could bring consumers roaring back. It’s what economists call pent-up demand –- a label that applies quite literally right now. The incoming Biden administration will likely prop up household spending with more financial aid, after Senate elections this month gave Democrats a majority. And in the background, the dollar has been weakening and commodity prices rising steadily for months.All this has pushed bond-market measures of expected inflation higher. The so-called breakeven rate on 10-year Treasuries climbed above 2% this past week to the highest in more than two years.Still, the predominant view among economists -– including, crucially, at the Federal Reserve –- is that it will be years before the U.S. has to worry about inflation.
Data due on Wednesday is expected to show that consumer prices increased 1.3% in 2020. With costs rising for producers, almost everyone forecasts a higher rate this year. But even by the end of 2022, the Fed’s preferred measure won’t exceed its 2% target, according to economist surveys. And Fed officials say they want to see inflation stay above that level for a while before they’ll raise interest rates.Inflation skeptics point to job markets still depressed by the virus, deeper trends in demographics and technology that keep prices down, and the risk that politicians will cut off support for the economy too early — as they’ve done in the recent past.”
recision.files PDF 1974 Dying of Money: Lessons of the Great German and American Inflations by Jens O. Parsson
“From this point, however, the paths of Germany and the other nations diverged. The others, including the United States, stopped their deficit financing and began to take their accumulated economic medicine by way of an acute recession in 1920 and 1921.
Their prices fell steeply from the 1920 level. Germany alone continued to inflate and to store up not only the price of the war but also the price of a new boom which it then commenced enjoying. Germany’s remarkable prosperity was the envy of the other leading countries, including the victors, who were in serious economic difficulties at the time.
Prices in Germany temporarily stabilized and remained rock-steady during fifteen months in 1920 and 1921, and there was therefore no surface inflation at all, but at the same time the government began again to pump out deficit expenditure, business credit, and money at a renewed rate. Germany’s money supply doubled again during this period of stable prices.
It was this time, when Germany was sublimely unconscious of the fiscal monsters in its closet, which was undoubtedly the turning of the tide toward the inflationary smash. The catastrophe of 1923 was begotten not in 1923 or at any time after the inflation began to mount, but in the relatively good times of 1920 and 1921.”
amazon blurb :
The cover motif is a piece of old German money. It is a Reichsbanknote issued on August 22, 1923 for one hundred million marks. Nine years earlier, that many marks would have been about 5 percent of all the German marks in the world, worth 23 million American dollars. On the day it was issued, it was worth about twenty dollars. Three months later, it was worth only a few thousandths of an American cent. The process by which this occurs is known as inflation.A few years before, in 1920 and 1921, Germany had enjoyed a remarkable prosperity envied by the rest of the world. Prices were steady, business was humming, everyone was working, the stock market was skyrocketing. The Germans were swimming in easy money. Within the year, they were drowning in it. Until it was all over, no one seemed to notice any connection between the earlier false boom and the later inflationary bust.In this book, Jens O. Parsson performs the neat trick of transforming the dry economic subject of inflation into a white-knuckles kind of blood-chiller. He begins with a freewheeling account of the spectacular inflation that all but destroyed Germany in 1923, taking it apart to find out both what made it tick and what made it finally end. He goes on to look at the American inflation that was steadily gaining force after 1962. In terms clear and fascinating enough for any layman, but with technical validity enough for any economist, he applies the lessons gleaned from the German inflation to find that too much about the American inflation was the same, lacking only the inexorable further deterioration that time would bring. The book concludes by charting out all the possible future prognoses for the American inflation, none easy but some much less catastrophic than others.Mr. Parsson brings much new light to bear on this subject. He lays on the line in tough, spare language exactly how and why the American inflation was caused, exactly who was responsible for causing it, exactly who unjustly benefited and who suffered from the inflation, exactly why the government could not permit the inflation to stop or even to cease growing worse, exactly who was going to pay the ultimate price, and exactly what would have to be done to avert the ultimate conclusion.This book packs a wallop. It is not for the timid, and it spares no tender sensibilities. The conclusions it reaches are shocking and are bound to provoke endless dispute. If they proved to approximate even remotely the correct analysis of the American inflation, hardly any American citizen could escape being the prey of inflation and no one could afford not to know where the inflation was taking him. In the economic daily lives of everyone, nothing will be the same after this book as it was before.
This Ain’t Your Daddy’s Inflation (1) – Steve Keen
After a long period of being low and even negative, inflation is now higher than it has been in almost 40 years. Though still well short of the twin peaks of 1975 and 1980, it is the fifth-highest rate recorded since the end of WWII, and it is still rising.
But it ain’t your Daddy’s inflation: what’s driving it is very different to what drove the inflation of the 1970s. Unfortunately, the 1970s experience changed economic theory for the worse, and that theory will guide how the Federal Reserve tries to tackle today’s inflation. It won’t end well. To explain why, I need to use a lot of figures (and a lot of words), so brace yourself.
Figure 1 shows the entire history of post-World War II inflation in the USA. There were four major peaks before today’s spike, with the first two driven by Wars (the end of WWII and its price controls, and the boom in commodity prices during the Korean War). The second two, in 1975 and 1980, created modern economic theory, because they appeared to overthrow the “Keynesian” argument that fiscal policy could control both inflation and unemployment.
“Keynesians” asserted that there was a tradeoff between inflation and unemployment: unemployment could be lowered by expansionary fiscal policy, but at the price of a higher rate of inflation. The “Keynesian” belief was that there was a negative relationship between inflation and unemployment: if inflation went up, then unemployment would go down. This was called the “Phillips Curve,” after the New Zealand engineer-turned-economist Bill Phillips, who wrote a famous empirical paper on inflation and unemployment called “The Relation between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957”.
The killer blow to “Keynesian” economics was the coincidence of rising inflation and rising unemployment between late 1973 and 1975. This was dubbed stagflation, and because this was impossible according to “Keynesian” theory, Milton Friedman’s Monetarism won an intellectual battle within economics, and supplanted “Keynesianism.”
Are you sick of the inverted commas around “Keynesian” yet? Good. They’re there to make the point that this wasn’t Keynes’s theory at all, but rather how it was caricatured by the anti-Keynesian economist Milton Friedman. Trusting Friedman’s explanation of Keynesian economics is like trusting the fox’s account of why the chickens in the henhouse died.
The true inheritor of Keynes’s mantle was the renegade economist Hyman Minsky (who was the chief inspiration for my work), and he argued that credit was the main factor behind the economy’s ups and downs. When people and firms are borrowing heavily, the economy will boom, and when they borrow less or repay debt, the economy slumps. The important link, in Minsky’s genuinely Keynesian economics, is between credit and unemployment, not between inflation and unemployment.
That’s obvious in the data: when credit (the annual change in private debt) is rising, unemployment falls; when credit is falling, unemployment rises. The real cause of the “stag” half of stagflation was the decline in demand as credit collapsed from 12 percent to 6 percent of GDP between September 1973 and 1976.
The “flation” bit came from two unrelated factors: the booming economy that preceded the crash of 1973, as credit doubled from 6 percent to 12 percent of GDP between 1971 and September 1973; and the Yom Kippur War, which occurred in October 1973.
It may be hard to believe from today’s perspective, but workers had both strong trade unions and substantial bargaining power in the 1960s. Unemployment fell below 4 percent in 1966 and remained there until early 1971. It rose substantially—from 3.5 percent in 1970 to 6 percent in 1971—but fell down to a low of 4 ¾ percent in late 1973, just after the credit bubble started to burst. Workers and unions had no way of knowing in advance that this was the end of the good times—unemployment did not fall below 4 percent again until a few months in 2000, and then again before and after the COVID-19 recession—so they continued to bargain for high wage rises, which employers passed on to consumers in price rises.
A second factor, which had never happened before, caused price rises well above the rate of wage growth: rising oil prices. Before 1973, oil prices were largely set by Big Oil: the western-owned oil companies that dominated oil drilling around the world, including in Arabian countries. They paid the oil-producing countries a pittance in royalties, and prices were low and stable—as is vividly obvious in Figure 5, where the price is a flat line between 1950 and 1973. The resentment at being paid low prices for their vital commodity motivated oil-producing countries to form OPEC (the Organization of Petroleum Exporting Countries) in 1960.
After the defeat of the Arab armies in the Yom Kippur War, OPEC launched an embargo on oil exports to the USA, which caused the oil price to increase by 250 percent, from $4.30 to $10 a barrel, in just one month.
The coincidence of rising prices and rising unemployment therefore does have a Keynesian explanation, and the capacity for private banks to create money and additional demand by making loans plays a crucial part in it. But this wasn’t part of Friedman’s thinking at all. To him, the government was the only creator of money in the economy, and—to caricature Friedman, though more accurately than he caricatured Keynes—inflation was caused by “too much money creating too few goods.”
Friedman argued that the economy had a tendency towards what he dubbed the Non-Accelerating-Inflation-Rate-of-Unemployment—or NAIRU for short. This was set by “real” factors—people’s willingness to undergo the disutility of work, in order to receive the utility of income (in the form of either wages or profits), where this utility was measured in their physical level of consumption and not money.
A rising money supply could, however, stimulate more work, by temporarily fooling people into believing that real demand was higher than it really was: if the amount of money rose faster than the economy grew, people would initially mistake this for a higher rate of real growth in demand. Friedman then used the idea of a short-term negative relationship between unemployment and inflation to assert that this lower level of unemployment would cause a higher level of inflation.
The higher inflation would then reduce real incomes to where they were before the excessive increase in the money supply occurred. People would then come to expect this higher level of inflation to persist, while the economy settled back into its full-employment equilibrium.
Therefore, the long run effect of trying to stimulate the economy by increasing the money supply would be to increase people’s “inflationary expectations,” while leaving the level of economic activity constant at its long run equilibrium level. If the government wanted to drive the unemployment rate below the natural rate, it would have to increase the money supply even faster: hence trying to keep the unemployment rate below the natural rate required an increasing rate of growth in the money supply, and caused not merely a higher rate of inflation, but an accelerating rate of inflation. This meant that what Friedman dubbed the Long Run Phillips Curve was vertical: the relationship between unemployment and the rate of inflation was a vertical line. The only desirable point on this curve from a social welfare point of view was where inflation was zero: this was the “Non-Accelerating-Inflation-Rate-of-Unemployment.”
And speaking of inflation, this post has now exceeded my word limit! So I’ll continue it in next week’s column.
This Ain’t Your Daddy’s Inflation (2) Steve Keen
In my first column in this series, I gave Hyman Minsky’s explanation of what caused the stagflation of the 1970s—a credit bubble bursting when the economy was absolutely at its peak caused the stagnation, while high wage and oil price rises caused the inflation. I finished with the essence of Milton Friedman’s very different explanation: that it was due to the government trying to push the unemployment rate below the natural rate by increasing the money supply too quickly.
I’ll go into Friedman’s argument in more detail here, not for its historical interest, but because an essential part of it—the concept of “inflationary expectations”—still plays a major role in how Central Banks think they can control the economy.
One key belief of Friedman’s was that the economy had a natural rate of unemployment, to which it would return after any shock. Another was people held money primarily to make transactions, so that the cash people held was proportional to the level of output.
If we identify the money in our hypothetical society with currency in the real world, then the quantity of currency the public chooses to hold is equal in value to about one-tenth of a year’s income, or about 5.2 weeks’ income. That is, the desired velocity is about ten per year.
Friedman treated the velocity of money as a constant, so if the amount of money rose, then so would the level of transactions. He imagined an economy with a constant population, and no technological progress, in which there were 1,000 $1 bills:
All money consists of strict fiat money, i.e., pieces of paper, each labeled “This is one dollar.” To begin with, there are a fixed number of pieces of paper, say, 1,000.
Given the 10 to 1 ratio between the money stock of $1,000, and the level of economic activity, this meant that, in equilibrium, GDP would be $10,000 per year. Then Friedman imagined an event that would disturb this equilibrium. Have you heard the phrase “helicopter money?” It made its first appearance in this paper: The Optimum Quantity of Money by Milton Friedman.
Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community.
This would increase the amount of money people held from 1/10th of a year’s income to 1/5th. Since people were now holding twice as much money as they wanted, they would attempt to get rid of the excess by spending more. This could cause a temporary increase in real activity as people interpreted the increase in money demand as an increase in real demand, but ultimately the economy would settle back into its long-run equilibrium. Prices would double, but there would be no change in real output or employment.
Friedman extrapolated this to a continuous increase in the money supply by imagining a continuous stream of helicopters.
Let us now complicate our example by supposing that the dropping of money, instead of being a unique, miraculous event, becomes a continuous process, which, perhaps after a lag, becomes fully anticipated by everyone. Money rains down from heaven at a rate which produces a steady increase in the quantity of per cent per year money, let us say, of 10 percent per year.
Friedman reasoned that this would result in prices rising at 10 per cent per year. The economy would be in long run equilibrium, with supply equal to demand in every market, but with rising prices—because of “inflationary expectations.” This was a crucial part of Friedman’s argument: prices weren’t rising because of demand exceeding supply, but because of inflationary expectations.
One natural question to ask about this final situation is, “What raises the price level, if at all points markets are cleared and real magnitudes are stable?” The answer is, “Because everyone confidently anticipates that prices will rise.”
In our example, prices rise, though markets are continuously cleared, because everybody knows that they will. All demand and supply curves in nominal terms rise at the rate of 10 percent per year, and so do the market-clearing prices.
The key to getting inflation down was therefore to reduce “inflationary expectations.” Inflation was occurring simply because people expected it, and put their prices up by that much every year—both the prices they charged for their own services, and the prices they were willing to pay for others.
That could be done simply by reversing the previous policy: reduce the rate of growth of the money supply. This would initially cause a small recession, but once people realized that only nominal—rather than real—demand had fallen, the economy would converge back to the equilibrium rate of growth with a lower level of inflationary expectations. Relatively painlessly, the economy could be restored to a low inflation environment.
This is the policy that Federal Reserve Chairman Paul Volcker put into motion in 1979. He put up the Federal Funds Rate to 20 percent in an attempt (to quote Volcker from the Fed’s minutes in his first meeting as chairman) to reduce inflationary expectations (pdf).
I do believe that we have to give some attention to whether we have the capability, within the narrow limits perhaps in which we can operate, of turning expectations and sentiment. I am thinking particularly on the inflationary side. [Can we] restore the feeling that inflation will decline over a period of time and that that’s a prime objective of ours?
Volcker’s actions did cause the rate of inflation to fall. However, this was not via a relatively painless fall in “inflationary expectations,” but by a savage recession, the deepest the USA had experienced since the Great Depression. Inflation fell from 15 percent at its peak to below 2 percent by 1987, but unemployment rose just as sharply, from under 6 percent when Volcker started to increase interest rates to almost 11 percent when inflation had fallen to just above 2 percent.
The economic collapse took the wind out of both wage rises, and the price of oil. Wage rises, which peaked at 11 percent per year in 1981, fell to 4 percent per year in 1983. Oil prices, which had risen from $15 to $40 a barrel in 1980, fell gradually to $30 in 1985 and then plunged to just $12 a barrel in 1986. In addition, the negative relationship between unemployment and inflation—the disappearance of which between 1973 and 1975 had played such a large role in getting Friedman’s theory accepted—was back.
To be continued…
Some Things About “Inflation” That We Learned Along The Way – by Nathan Lewis
Over the years, we’ve learned a number of new things about “inflation.” Since this topic is becoming rather pertinent today, it would be good to go over some of them. Unfortunately, many today still hold odd notions, popular in the 1950s or 1960s, which aren’t really so. Before 1970, people didn’t have that much experience with floating currencies. Since 1970, we’ve had a lot.
The term “inflation” means different things to different people. Ludwig von Mises once tried to establish a precise definition of “inflation,” focusing solely on monetary effects. But, this didn’t go very well. Instead, the term refers to a mishmash of confused concepts. Probably, not much can be done about this. Confused concepts are used by confused people. Since we don’t want to be confused, we should look into the different specific phenomenon referred to by the term “inflation.”
1) A change in the official CPI, or other similar measure of “price changes.” “Inflation” here is simply the +1% or +3% change in some price index. This is a measure, not a process. Prices may change for all number of reasons. Related to this is the idea that the “purchasing power” of a currency also changes, in inverse relation to such a price index; and this change in “purchasing power” is synonymous with a currency’s “value.” This is completely fallacious. When the price of oil, or the whole CPI, doubles, it may be due to a change in the value of the currency, or it may be due to a change in the value of oil, as measured in a currency of stable value. The length of a zucchini might go from “one foot” to “two feet” because the zucchini is actually twice as long as before, and the “foot” is unchanging, or because the length of the “foot” went from twelve inches to six, with no change in the zucchini. These are totally different.
2) Prices may change for a wide variety of nonmonetary reasons. Why did the zucchini grow twice as long, as measured in a “foot” of an unchanging twelve inches? Who knows. In practice, official CPI numbers tend to rise when an economy is growing. As it becomes wealthier, wages and prices for domestic services (restaurants, hotels, education, medical care) tend to rise. Property values and equity values tend to rise. Commodity prices tend to be stable, and prices for manufactured goods tend to decline. Overall, this is typically recorded as a rise in an official CPI number. This is one reason why central banks tend to have a slightly positive CPI target, such as +2.0% per year, which we have seen in the past in healthy growing economies, with no decline in currency value. In very high growth economies, we can see CPI rises of 5%-10% per year, solely from growth effects alone — as was common in Japan during the 1960s, or Hong Kong during the early 1990s. These price rises are entirely benign. Similarly, recession tends to depress prices, as unemployment rises, wages fall, and inventory is liquidated. Prices tend to rise in wartime, and fall in peacetime. Supply/demand issues in individual commodities introduce changes in prices. Thus, we should not assume that a “stable currency value” produces an unchanging CPI, or that changes in the CPI represent monetary effects, or that an unchanging CPI is even desirable.
3) Price changes may come about due to monetary effects. This is when the “foot” goes from twelve inches to six. This arises due to a change in currency value, which would be evident, for example, in the foreign exchange market. For example, if the price of oil is $20, and the Mexican peso’s foreign exchange rate goes from 3/dollar to 6/dollar (perhaps in the space of a year, as happened in 1995), then we should expect the price of oil in pesos to go from 60 pesos to 120 pesos. This happens pretty fast for internationally traded commodities like oil, or imported automobiles. We might then expect the wages of the Mexican worker to eventually double as well, in pesos, to reflect the halving of peso value, “all else being equal.” This process takes a lot longer, probably a number of years and perhaps over a decade, and since all else is never equal, it is not very precise. As these short-term (oil price) and longer-term (wages) adjustment processes take place, it produces an elevated CPI, perhaps rising about 10% per year for a number of years afterwards.
What is true of the Mexican peso is also true of the dollar or euro, but it is normally harder to notice the change. How could you tell if the value of the USD itself fell in half? Gold has always provided a good rough measure. Just as the “price of dollars in pesos” rose from 3 to 6, representing a halving of the peso’s value, so too a “rise in the price of gold” from $1000/oz. to $2000/oz. would represent a similar halving of dollar value, if gold served as a perfect measure of stable value. Even if we choose to ignore gold, nevertheless we must admit that the USD and EUR are floating fiat currencies, and their values could certainly fall in half. This would produce a price adjustment process, as markets for goods and services accommodated the new currency value over time, just as in the example of Mexico. This “price adjustment process” is the consequence of the change in value, which may have happened years earlier.
We will call these monetary effects “monetary inflation.”
“Monetary inflation” is a matter of value, not supply. It has been said that “inflation is too much money chasing too few goods.” But, there are many examples of currencies falling dramatically in value, with little or no change in the actual supply of currency. This happened in 1933, for example, when the U.S. dollar was devalued from $20.67/oz. of gold to $35/oz. of gold. It happened in 1931 in Britain. More recently, it happened in 1998 in Thailand, or 2009 in Russia. It is very common.
After 1933, the U.S. dollar’s value was held at $35/oz. of gold. However, the supply of dollars expanded enormously in 1934-1940 (+140%), and much more in 1940-1950 (+124%), ultimately increasing by 440% between 1934 and 1950 — with the dollar still at $35/oz. So, there was “inflation” and devaluation in 1933, without a change in supply; and then a very large change in supply, with no change in value.
From all this, you might naturally conclude that it should be a priority to stabilize the value of currencies. In fact, most of the countries in the world do this — typically, by tying the value of their domestic currencies to the dollar or euro. The U.S. and European countries used to have the same basic idea, by tying the value of their currencies to gold. The value of the U.S. dollar was (in principle) fixed at $20.67/oz. before 1933; and $35/oz. afterwards. A similar policy held for the British pound, German mark, French franc, Italian lira, Japanese yen, and other major or minor currencies.
Most prudent central banks today have a sort of shadowy reflection of this policy. Typically, they want the CPI to not do anything too strange. The Federal Reserve, for example, has a 2% CPI target. But, we have seen that changes in the CPI can come about for all manner of nonmonetary reasons, including healthy economic growth. Also, changes in the CPI from genuinely monetary causes (a change in currency value) can lag years and even decades behind the decline in monetary value (1995 peso devaluation, 1933 dollar devaluation) that caused the rise in nominal prices. This is even before considering that the CPI is a government-produced statistic that doesn’t really exist in the real world; and one whose calculation has been altered many times over the years, apparently to get it to produce a politically-acceptable result. It should be obvious why this doesn’t work very well.
You could argue that gold is not quite a perfect measure of Stable Value. But, it is one that the whole world used for many centuries, even into the prosperous 1960s, with no particular problems. Today, nobody has a better alternative, even in the form of a white paper, and certainly not a real-world system that has stood the test of time.