Greetings, and welcome to the World Affairs Board!
The World Affairs Board is the premier forum for the discussion of the pressing geopolitical issues of our time. Topics include military and defense developments, international terrorism, insurgency & COIN doctrine, international security and policing, weapons proliferation, and military technological development.
Our membership includes many from military, defense, academic, and government backgrounds with expert knowledge on a wide range of topics. Registration is fast, simple and absolutely free so why not register a World Affairs Board account and join our community today?
Hey, there is nothing wrong with those cars although the Pacer is an acquired taste. I'd be more than happy to add a Roadrunner 4 spd and a Ranchero to my current collection and drive them.
And, there's absolutely no qualitative difference between a 1975 Roadrunner and a 2015 Mustang, right?
One's a mirror-image substitute for the other, right?
Go on, pull the other one.
And, there's absolutely no qualitative difference between a 1975 Roadrunner and a 2015 Mustang, right?
One's a mirror-image substitute for the other, right?
Go on, pull the other one.
Well anyone who knew cars would say the 1968-69 Roadrunner. The problem with the 2015 Mustang is that it is completely controlled by a computer and software. I can't work on them. Qualitative there is no difference once I get my hands on the older car and work my magic they are trouble free. Personally I will never buy a new car again and use my '04, '91 and '79 as my daily drivers while my '73, '68, '68, '67, and '65 will stay my fun cars. Simple mechanics, great colors and great character.
Now if you don't know where the oil goes then it would be best to go new.
Well anyone who knew cars would say the 1968-69 Roadrunner. The problem with the 2015 Mustang is that it is completely controlled by a computer and software. I can't work on them. Qualitative there is no difference once I get my hands on the older car and work my magic they are trouble free. Personally I will never buy a new car again and use my '04, '91 and '79 as my daily drivers while my '73, '68, '68, '67, and '65 will stay my fun cars. Simple mechanics, great colors and great character.
Now if you don't know where the oil goes then it would be best to go new.
Well, that makes my point.
In the "services" category one finds motor vehicle repair.
So, unless you're going to argue that a mid-1970s mechanic is a perfect substitute for a mid-2010s mechanic, the understanding of why, and how, price indicies must be updated regularly is only going to deepen and broaden.
Any specific measure of inflation is more academic masturbation because of the broad composition of goods and services....particularly over the course of decades or centuries.
Scott Sumner sums it up pretty well:
Steven, Around 1970 my dad bought a calculator that did plus/minus/times/divide for $300. It was viewed as a luxury home computer. Indeed the most luxurious home computer you could buy at the time . Recently I paid almost $2000 for a iMac. Luxurious home computers have sharply increased in price. Sound absurd? That’s why I keep claiming that inflation is a meaningless concept. No one knows what the hell it is supposed to be measuring.
In earlier posts I’ve made an argument (similar to Vivian’s and almost the opposite of my previous post)–that if you use a sort of “pleasure” criterion, then price inflation is roughly equal to wage inflation, and living standards haven’t risen at all. Thus people used to get great pleasure from crummy black and white TVs, but now someone with that TV set would be miserable, thinking about the great big flat panel HDTV his neighbor has. He’d feel poor. If economists really believe the CPI is supposed to measure a constant utility level, then for all we know there might have been no real wage gains in the past 100 years. Who’s to say if people are happier than 100 years ago? All of these concepts are so slippery that I’m very skeptical of the notion that there is any “true” rate of inflation.
Not that inflation isn't useful as a concept, it's just impossible to figure out the number. The most relevant numbers would be cost-of-living increases in the private sector, but I'm guessing a lot of the big ones are already tied to government numbers, which is just measuring the measurement (totally meaningless).
We all have our own tastes in spending anyways. The only things, IMO, worth paying a premium for:
-Walkable, safe neighborhood
-Good schools
-Cheese
-Steak
-Disney World
-Beer
-Whiskey
-Some clothing items
"The great questions of the day will not be settled by means of speeches and majority decisions but by iron and blood"-Otto Von Bismarck
OK this is national data how does this apply to tbm3fan reference to the SF Bay Area? I believe he is referring to stuff like this http://www.mercurynews.com/2017/04/2...ed-low-income/ complete with HUD data. California has 22% of the nations homeless Democrat or Republican doesn't matter this is a very real problem, that will effect generations.
Just because Scott Sumner finds it provocative to claim that no one knows what inflation is doesn’t make it true. Just ask that mom shopping at the store. She knows what inflation is.
Back to the point: How’s that iMac similar to a 1970 HP calculator? Both will do certain calculations, but the iMac will also send the results to the call center in India. It's like comparing BBQ sauce to Apples.
Ever heard of a chain-type price index? It takes into account the price change from Year 1 to Year 2, and the change from Year 2 to Year 3, and so forth, until you come to the most recent period. The only flaw is substitution: because of the more frequent measurement of price changes, substitutions are captured more quickly, which may slightly overstate inflation.
Inflation is not “impossible to figure out.” If you slice it finely enough, yes, it gets very difficult to juxtapose the cab driver's cost of car care from the plumbers cost of wrenches (both being necessary for the person to work). But, that’s not what we use inflation data for, nor what it is designed to show.
You pay a premium for walk able, safe neighborhoods in the price / rent of your accommodation. Schools are largely a combination of location and tax base, so again, you’re paying for it and it can be measured. The rest of your list are already in the CPI.
= = = = =
Dazed,
I’m a macroeconomist, so I rarely look at (US) sub-national data. It tends to be slowly released and easily skewered by things such as grocery shopping or working out-of-area.
going back to the Kansas discussion, this morning the Kansas Republican-held legislature ended the...smashing success...of Brownback's conservative tax reform experiment by overriding his veto.
meanwhile Laffer and Moore, not content with the wreckage of the Kansas economy, are now pushing for similar policies to be enacted on a national scale.
In 2012, Brownback pushed through aggressive tax cuts very similar to what Trump wants Congress to do. The state increased the standard deduction and lowered taxes on corporations, individuals, and owner-operated businesses. Like Trump, Brownback insisted that the cuts would unleash so much economic growth that the government would make up the lost revenue. The cuts were supposed to give the economy “a shot of adrenaline,” as Brownback put it at the time.
Instead, the Kansas economy tanked. For two years in a row, the state’s credit rating has been downgraded because of its budget problems. Job creation and economic growth is far below the national average. The state is facing a budget shortfall of about $889 million in the next two years.
How did this happen? According to economists, one major factor was that Brownback’s plan eliminated taxes on owner-operated businesses, known as pass-throughs. Brownback promised this would kick-start economic growth by encouraging business owners to reinvest the extra money and expand their businesses.
Instead — according to new research from economists at the University of South Carolina, Indiana University, and the US Treasury Department — it led to serious tax avoidance.
...
Moderate Republican lawmakers in Kansas are now in open rebellion, scrambling to find ways to roll back the tax cuts as the state looks for ways to balance its budget.
In recent years, lawmakers raised sales taxes and cigarette taxes to help balance the budget — a move that places a larger burden on low-income families. They also slightly reduced the tax deduction people can claim for mortgage interest and property tax payments. But even those moves weren’t enough to fill the state’s budget hole.
The budget crisis has collided with a long-running battle over public school funding. The state’s public schools are shouldering the burden of the state’s budget crisis, with $44.5 million cut from public education in 2015 alone.
There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
The world economy is steaming into uncharted and potentially hazardous waters. At some point in the coming months, very likely in September, America’s central bank, the Federal Reserve, will begin to shrink its balance sheet. That may sound like an obscure and highly technical undertaking, interesting only to monetary wonks. But it is likely to have far-reaching consequences that will be felt especially keenly in Asia.
To understand what Fed chair Janet Yellen is proposing to do and why, it is necessary to go back to the darkest days of the 2008 financial crisis. Faced with mounting debt defaults, a financial system that had seized up completely, and an economy rapidly grinding to a halt, the Fed pulled out all the stops to prevent the US sliding irretrievably into deflation.
Of all economic evils, chronic deflation is the one central bankers fear most. Imagine a widget maker that borrowed money during the boom times to invest in a new factory. As demand dries up and prices fall, the company has to sell more and more widgets to service its debts. But as prices fall, buyers defer their purchases, so widgets become ever harder to sell. Sooner or later the company defaults and goes out of business.
The Federal Reserve fears becoming politicised. Photo: AFP
Of course, the widget maker’s workers lose their jobs. That makes it tough for them to pay off their own mortgages and car loans. In turn they and legions of others default, as consumption collapses and the economy slumps into a self-perpetuating downward spiral.
Desperate to avert a depression to compare with the 1930s, the Fed began to print money in an all-out attempt to keep the US economy afloat on a sea of liquidity. The way it did this was to buy both US Treasury bonds and mortgage-backed debt from America’s banks, creating new money to do so. Over the next six years the Fed bought more than US$3 trillion in bonds in three successive rounds of so-called “quantitative easing”.
As Janet Yellen’s Federal Reserve prepares to tighten its belt, the world is poised to feel the squeeze
The Fed stopped making new purchases in 2014. But as the bonds it holds have matured, it has used the proceeds to buy more. As a result, three years after the end of quantitative easing, it still has assets of US$4.5 trillion sitting on its balance sheet, compared with less than US$1 trillion before the crisis. And offsetting those assets, on the liability side of its balance sheet is all the money it printed to buy them.
Almost 10 years after the crisis, the Fed judges that its efforts to avert deflation have been successful. True, by the Fed’s own preferred measure, US inflation is well below the Fed’s target rate of 2 per cent. But price pressures are beginning to emerge. As a result, in effect the Fed has declared its mission accomplished and is planning to shrink its balance sheet once again by ceasing to reinvest the proceeds when the bonds it holds mature.
Yellen is trying to draw down an approach that was used in the darkest days of the 2008 financial crisis. Photo: AP
There are several reasons why the Fed wants to do this. With a smaller balance sheet, it will have a greater ability to respond when the next crisis hits. And by cutting its assets, it will reduce the distortions created in financial markets by the sheer size of its holding. But the real reason the Fed wants to shrink its balance sheet is that it fears becoming increasingly politicised.
In theory, the Fed acts independently of the US government. But as a massive buyer and holder of US Treasury debt, in recent years the Fed has become an important player in the US administration’s fiscal policy. To make it less vulnerable to future political interference, Fed officials badly want to run down their stash of US Treasury debt.
No one knows what will happen when they start, for the simple reason that no big central bank has ever set out to shrink its balance sheet before. For the most part economists and financiers are keeping their fingers crossed that the impact on financial markets and the economy will be small.
Their optimism might be justified. After all, the global economy is much more resilient now than it was just a few years ago, and the Fed isn’t proposing to shrink all the way back to its pre-crisis size.
Nevertheless, it does appear likely that some of the effects of its initial balance sheet expansion will go into reverse. When Treasury bonds mature, the US government issues more bonds in order to raise the cash it needs to repay the holders of the original debt. With the Fed reducing its reinvestments, the Treasury will have to sell more and more bonds to private investors. That suggests the interest rate it pays on its bonds – their yield – will have to rise.
So just as the Fed’s balance sheet expansion suppressed long-term US dollar interest rates, its impending balance sheet contraction looks likely to push long-term US dollar interest rates higher.
That will have big implications for Asia. One of the effects of the Fed’s initial money printing was to trigger a flood of US dollar liquidity into Asia as financial investors sought higher yields than they could earn in the US. Much of that liquidity found its way to Asian corporations, which proved eager borrowers. A good deal made its way into Hong Kong, where the local monetary base grew fivefold, exactly in line with the expansion in the Fed’s balance sheet.
Will the Fed’s shrinking balance sheet have a big knock-on effect in Hong Kong? Photo: Sam Tsang
Will the Fed’s shrinking balance sheet have a big knock-on effect in Hong Kong? Photo: Sam Tsang
With the Fed now poised to shrink itself again, and with Treasury yields likely to head higher, it makes sense that the tide of liquidity should begin to recede from Asian shores. This implies Asian companies will face higher US dollar financing costs just as some US$200 billion of its US dollar debt is about to mature.
And in Hong Kong it implies that the money which flowed into the city’s financial system when the Fed first fired up its printing presses will begin to flow out again. That will make local financing harder and more expensive to come by. With Hong Kong property prices at such lofty heights, that’s a daunting prospect.
Just as the big run-up in the local property market coincided with the era of low US interest rates and Fed balance sheet bloat, so the next property market slump could coincide with the impending period of higher US interest rates and Fed balance sheet contraction. ■
Tom Holland isn’t a bad business journalist (full disclosure: I’ve known him for 15-20 years), but he does have a tendency for the dramatic.
Day in, day out, year after year, the world economy “is steaming into uncharted and potentially hazardous waters.”
It’s called “the future.”
Totally uncharted.
Potentially hazardous.
In the week of Nov 18, 2015, the Fed’s total assets were 0.13% lower than a year earlier. That’s the effective start of the Fed’s deleveraging. See: https://fred.stlouisfed.org/series/WALCL#0
The Fed’s reserve balances with banks is off about 30% from its peak. Much more important, financial institutions borrowings from the Fed this year are averaging 99.9894% less than a t the peak of the crisis. See: https://fred.stlouisfed.org/series/BORROW, and yes, that is 98 years worth of monthly data showing very clearly how “something broke” in 2007-10.
Here’s the pattern of maturities that needs to be monitored:
So, is he right about the impact on Asia, e.g., the outflow to come for Hong Kong?
And which of those lines on the chart represents deleveraging?
JAD_333,
The impact on Asia is and always has been the impact on OECD demand.
If Europe, the US, Japan and other rich customers aren’t in a buying mood, Asia feels a sharp pain just below the belt buckle.
The three-line graph isn’t about deleveraging.
It’s about when T-bill rollover gets uncomfortable, and what the signs are that the Fed sees it and takes action.
In this millennia, it’s also about interest rate levels:
Any debt addict that isn’t filling his boots with cheapest-in-history money is not looking out for his (country’s) best interests.
ugh, these are the debates of the relative yester-year now.
yet another debt ceiling deadline coming up. while Mnuchin wants a clean increase, Mulvaney is talking about using this as leverage to cut government spending once more.
There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
Revised data for the US economy, 2014-17, indicate faster growth than previously thought.
Real GDP rose a total of 7.3% from Q-1 2014 to Q-1 2017, rather than the 7.1% previously recorded. Other indicators:
Private consumption: now +9.8%, vs. +9.2%
Capital investment: now +9.2%, vs. +9.4%
Government consumption: now +2.5%, vs. +2.7%
Domestic demand: now +9.2%, vs. +8.8%.
In the second quarter of 2017, the economy expanded 2.08%, the fifth straight increase in the pace of growth and the 30th straight quarter of positive growth (dating back to Q-1 2010).
Private consumption grew 2.6%, down from 2.9% in Q-1 (both Year-on-Year).
Capital investment: +2.9%, up from 1.7% in Q-1.
Domestic demand: now +2.4%, vs. +2.1%.
it's pretty funny to me how suddenly the job reports are no longer "phony"...:-)
There is a cult of ignorance in the United States, and there has always been. The strain of anti-intellectualism has been a constant thread winding its way through our political and cultural life, nurtured by the false notion that democracy means that "My ignorance is just as good as your knowledge."- Isaac Asimov
Tweet
Comment