Barnanke

[Rob]

Inflation

As this chart shows, your hugeness, even with food and energy taken out of the equation, we still have a level of inflation roughly equal to that of early 2000. That's what B..B..B..Benny and the Jets are worried about. There's too much currency floating around, and that's the bottom line, IMO.

[Jim Smith]

I see inflation as largely exogenous

The problem with this inflation is it's beyond the scope of the Fed....Demand for oil by China and India is not likely to be severly curtailed by a series of rate hikes.....$70 oil is quickly becoming the new floor.....You want lower oil, then the US dollar needs to appreciate big time....bill gross of pimco is expecting the US dollar to fall 20 to 25%....Arabs will want more dollars in return for their oil if this happens.

[mrmarket]

As this chart shows, your hugeness, even with food and energy taken out of the equation, we still have a level of inflation roughly equal to that of early 2000. That's what B..B..B..Benny and the Jets are worried about. There's too much currency floating around, and that's the bottom line, IMO.

Rob...re-evaluate your position. You cannot extract energy from the CPI indicices. It permeates through EVERYTHING we consume. It contributes to inflation even if the "geniuses" say that they extract it from the basket of goods. It is inextractable.

And Jim Smith is correct....since the dollar is in the tank, our goods are in demand by other economies, which also contributes to inflation. Putting the brakes on our economy is the most ridiculous thing that Bermanke can do at this time.

Mark my words. If he continues this, he will CRUSH KILL and DESTROY the market. Meanwhile he will fantasize that Maria Bartiromo thinks he is hot because he is so powerful. What a dork.

[Rob]

Just My Opinion

You cannot extract energy from the CPI indicices. It permeates through EVERYTHING we consume.

I don't disagree with that in the long run. In fact, if you examine closely the trends of that chart, it becomes evident that fluctuations in the CPI including food/energy serve as fairly good leading indicators of the CPI minus food/energy. In the short run, however, it is very possible—and useful—to examine the two independently.

And Jim Smith is correct....since the dollar is in the tank, our goods are in demand by other economies, which also contributes to inflation.

If the dollar is in the tank already, allowing further inflation sends the dollar even deeper into the tank. And the strength of the US dollar is one of the Fed's top drawer priorities.

If there's any silver lining to the dark cloud of increasing oil prices, it is the fact that it will provide the stimulus to develop practical, alternative energy sources and/or the technology for much greater efficiency in the consumption of fossil fuels.

I think the Fed is justified in at least one more hike of 25 basis points, and I also think the market has already factored it in. It's not going to strangle the economy, and it will help the dollar.

[mrmarket]

I don't disagree with that in the long run. In fact, if you examine closely the trends of that chart, it becomes evident that fluctuations in the CPI including food/energy serve as fairly good leading indicators of the CPI minus food/energy. In the short run, however, it is very possible—and useful—to examine the two independently.

I think you miss my point. My point is that there is no such thing as "CPI minus food/energy". Think of everything you bought this week. Presumably most of this stuff is counted in the CPI index.

Now, of all of the goods or services you purchased this week, what percent of the items/services have an energy cost built into its production?

[Rob]

I think you miss my point. My point is that there is no such thing as "CPI minus food/energy". Think of everything you bought this week. Presumably most of this stuff is counted in the CPI index.

Now, of all of the goods or services you purchased this week, what percent of the items/services have an energy cost built into its production?

100%. I don't miss your point at all. But if oil doubles in price in the next week, it will will take many weeks—even months—for that increase to factor into the "unrealted" goods and services.

[mrmarket]

100%. I don't miss your point at all. But if oil doubles in price in the next week, it will will take many weeks—even months—for that increase to factor into the "unrealted" goods and services.

Correct..this is what is causing the CPI to creep up, in effect reducing the spending power of consumers, which will slow down the economy anyway.

So why does the Fed want to increase rates? Stupid if you ask me.

[Rob]

Correct..this is what is causing the CPI to creep up, in effect reducing the spending power of consumers, which will slow down the economy anyway.

So why does the Fed want to increase rates? Stupid if you ask me.

I understand that sentiment, and even agree with it to a point. I still think the primary reason for the hike is to help stave off the dollar's declining value.

Another piece of the complicated puzzle is that the average consumer over the past four quarters has spent more than he's earned, as this chart from the Bureau of Economic Analysis shows:

Naturally, a portion of that is due to the dramatic rise in oil prices, but not all of it. When people don't save, banks have to borrow from the Fed, which infuses more cash into the economy. And the greater the supply, the lesser the per-unit value. It's a vicious cycle. Kicking the interest rate up a notch will stimulate more saving, and while that may take a little steam out of economic growth, it doesn't mean it will come to a screeching halt. It's a very tough balancing act. Meanwhile, corporations are flush with money, and that's the basis for the belief that cap-ex is going to fuel the next leg of economic growth.

I'm not pretending to understand perfectly how all these factors mesh and interact, but at least I think I have a cursory idea about a few of the biggies.

[diogenes]

And the strength of the US dollar is one of the Fed's top drawer priorities.

Rob- While I think you can take the above quote two ways, I will assume that you mean that the USD will be strong relative to other currencies.

However, I think that Hank Paulson has been brought in to lower the dollar slowly in order to let China et al exit their positions slowly without inducing a macroeconomic shock in the world currency markets.

[IIC]

When Supply is higher than demand...Prices will decrease...Period!!!

Prices should go up until the demand subsides...That's capitalism...Period!!!

The Interest Rates should go up until people won't borrow anymore...Period!!!

[Rob]

That sounds good, Doug, (that second statement especially) but experience has shown that it doesn't work that way. For example, the rate of inflation in Hungary in July 1946 was 41,900,000,000,000,000%!

[IIC]

That sounds good, Doug, (that second statement especially) but experience has shown that it doesn't work that way. For example, the rate of inflation in Hungary in July 1946 was 41,900,000,000,000,000%!

Interesting site...Now I'm thinkin' about grabbin' all the rocks in my front yard and headin' for YAP...BTW...Where is Yap???

[Rob]

Interesting site...Now I'm thinkin' about grabbin' all the rocks in my front yard and headin' for YAP...BTW...Where is Yap???

LOL! I don't know exactly where Yap is off the top of my head, but I think it's one of those Islands near Papua New Guinea or Indonesia or someplace.

[IIC]

LOL! I don't know exactly where Yap is off the top of my head, but I think it's one of those Islands near Papua New Guinea or Indonesia or someplace.

OK...I'll send 'ya a postcard: http://www.visityap.org/

I'll be hanging out at the Blue Lagoon Apartments...Can't beat the price:

http://visit-fsm.org/yap/accommodation.html

[Rob]

Those two bedroom rentals go for $500/mo. I wonder how many rocks that is.