"America's economic policy mix is a threat to the world"

[agamemnus]

For wiggin and aggie. Commodity inflation:

http://www.econbrowser.com/archives/...y_infla_2.html

*Strokes moustache*

Here, for example:
http://finance.fortune.cnn.com/2010/...ar-debasement/

Ha, nice try. You almost had me, there. It's a trade-weighed index... Well, we're buying more cheap goods from China than before, and fewer goods from Europe (edit: RELATIVELY), so obviously it wouldn't fall as much.

Source?

I'm saying that the overall effect of a flood of cheap goods from another country is to lower the CPI (versus those cheap goods NOT coming in), even if commodity prices increase (otherwise, why buy those goods?). I don't see why you are asking me for a source for this...

*yawns* We want inflation, it's the hyperinflation that's the problem.

Or deflation, as you were saying. But I don't think we have deflation.

So? Doesn't have anything to do with Fed policy.

I'm saying that the Fed has to look at both the CPI and the entirety of the economic situation.

Uh, not true. Deficits increased steadily from 1991 or so to 7.4% of GDP in 2000. Regardless, I recognize that Japan and the US are hardly similar, but they're a lot more similar than the US and, say, Greece.

Hmm, not sure. What's this, then? http://www.tradingeconomics.com/Econ...spx?Symbol=JPY

In the long run, with trade like this, we are harmed. It immediately exports jobs overseas. That's fine, as long as the benefits of trade diffuses into the economy and creates even more jobs, but does it?

This is the same argument made about immigrants taking our jobs. It's simply wrong. This is not a zero sum game.

That's not my point... My point is that trade does not benefit everyone in the economy equally if the wealth does not diffuse through.

Let's just forget the debt problems created by maintaining a constant country deficit... Given the shrinking middle class (ie: more and more people falling below the mean income) as a percentage of the population, and continually falling income mobility since the late 1980s or so... what conclusion can we draw from these figures...?

Those numbers are disputed. See my earlier thread about this.

O? Which one?

What does structural unemployment have to do with China?

The trade deficit!! AAAAAAAAAAAARHHHHHHHGGGKIGY&N(G^&*VD%^VD^&VW$%BExw v5erase7f8e4t <---- I make my passwords like this... in a fit of indescribable insanity!

[wiggin]

Ha, nice try. You almost had me, there. It's a trade-weighed index... Well, we're buying more cheap goods from China than before, and fewer goods from Europe, so obviously it wouldn't fall as much.

I specifically said it was a trade-weighted valuation, you asked for a source, I gave one.

I'm saying that the overall effect of a flood of cheap goods from another country is to lower the CPI (versus those cheap goods NOT coming in), even if commodity prices increase (otherwise, why buy those goods?). I don't see why you are asking me for a source for this...

It's hardly that simple. This seems to be the problem with most of your reasoning.

Or deflation, as you were saying. But I don't think we have deflation.

Not yet, but inflation expectations took a serious blow this spring/summer until QE2 was hinted at in the September Fed meeting. Too low expectations (even if technically positive) can lead to a deflationary spiral.

I'm saying that the Fed has to look at both the CPI and the entirety of the economic situation.

The entirety of the economic situation is that the risks of deflation far outweigh the risks of inflation right now, and the Fed's tools to deal with inflation are a lot better than their available tools to deal with deflation. So, better to err on the side of caution. Trust me, if we get into serious deflation things will be far worse for consumers than they are today.

Hmm, not sure. What's this, then? http://www.tradingeconomics.com/Econ...spx?Symbol=JPY

Sorry, I thought you meant fiscal deficits, not trade deficits. Yes, in general Japan is a trade surplus country, but that has little bearing on its deflationary impact (in fact, deflation really screwed over Japanese exporters). Regardless, I think we can agree that deflation would be a Bad Thing.

O? Which one?

http://www.theworldforgotten.com/showthread.php?t=1190

The trade deficit!! AAAAAAAAAAAARHHHHHHHGGGKIGY&N(G^&*VD%^VD^&VW$%BExw v5erase7f8e4t <---- I make my passwords like this... in a fit of indescribable insanity!

That's not a structural problem IMO; structural unemployment is normally seen as a skill mismatch.



Anyways, I think we're talking past each other. All I wanted to say from the beginning is that QE2, like QE1, is a fairly reasonable monetary policy to deal with unprecedented levels of deleveraging in the economy that had a significant contractionary impact. Inflation is simply not a major concern right now, as evidenced both by market inflation expectations and current inflation measures (as well as the effects of QE1 on a number of indicators of the cash supply). When inflation and economic activity pick up again, the Fed can easily contract the money supply to keep inflation in check. *shrugs* You can argue that the Fed should be doing something else, but I think they're doing their job as mandated by Congress.

[agamemnus]

I see.

Whenever the Fed does a reverse course on anything, it makes markets jittery, however.

In terms of structural unemployment, I do agree that normally a skill mismatch is what it is. Just think about this, though. India and China each have a population of 1.2/1.4 or so billion people, and hundreds of millions in each country now have a skill set in technical/research and business fields. Up until before 2007 (when housing prices stopped rising), these are the fields that all the professors, and all the textbooks, and all the TV programs, and all the reporters, and all the King's men, have said would make the US competitive in the world: the US would buy cheap goods in return for services, research innovation, business leadership, and very complex items such as planes.

And it did happen, but of course much of the cheap goods were also financed by the Chinese drive to industrialize. (the yuan peg) Now that so many people are unemployed -- and not just those who have a high school education, but across the board -- and many European and Asian markets have almost fully recovered, how are we getting any of these jobs back? They don't need us anymore. The structural problem is that we do not have enough capital invested, not that we don't have enough infrastructure invested.

In my state, Massachusetts, we have many great, clean and efficient stores and malls. Our highway system is excellent, and the local roads are decent enough (though very bad in some places). We have good water, electricity, and cable services. We have many of the best universities in the country, and in the world. Our education system is one of the best in the country. We are one of the thinnest and healthiest people in the country.

However, our political, economic, and social system is a mess.

Even with low housing values, developers are now converting pristine woodland in the north into unattractive, expensive, and (often) vacant house lots, devoid of trees. They are building right next to major highways. (who would want to live there?) In short, our urban planning laws are weak and encourage terrible planning (see the 2010 Question 2 about housing permits, which failed miserably).

Our big high-tech industries, pharma and software, are stagnating and failing because of lack of money availability in the economy. Our urban cities are crumbling because of a political culture of corruption and irresponsibility, the poor's belief in the right to handouts, and stagnant police funding despite tax increases and stimulus funding.

We have a 6.25% sales tax rate, while New Hampshire to the north has 0% -- no one smart buys TVs, expensive furniture, fridges, or computers in this state. Our political discourse is very weak, with all our representative slots going to Democrats in the last election. We are paying more and more for social welfare to people (many here illegally and who can't speak English) who just get by in crappy apartments and have tons of babies.

Even though we are one of the thinnest and healthiest people in the country, many of us are fat or obese slobs.


So... yes, nice rant Aga, but what about the structural unemployment you were going to talk about? Well, the structural unemployment problem is still a skill mismatch. We all want to work in business/marketing pharma research, software, or engineering firms since that is what our top world-renowned universities actually teach, but no one is hiring. Instead, there are plenty of openings in the bloated (and soon to be bloated even more) all-encompassing "health care industry", but low supply -- the bubble of 2015. There's also a huge demand for life-force batteries in China, but just not enough people here willing to do it. We should just import people from Mars; I'm sure they're willing to work the long life-force battery hours for ridiculously low wages.