Wednesday, February 12, 2014

The Mish theory of inflation can be confusing

His complaints about losses from government. Would make government inflationary. He also accuses the Fed of being inflationary. But the inflation is masked from the consumer. Who does he claim for the masking? I say the fed is disinflationary to the consumer. Bubbles are mostly caused by liquid markets removing Fed deflation. Does the Fed enable government caused inflation? Government owns the fed. But the volatility caused by the Fed pales compared volatility of government. Price changes up are government caused unplanned losses, mostly. The consumer adjusts, mostly as the fed deflates the short end and causes reduced returns on reserves. The consumer responds immediately with a bit of reduced purchases, lower prices, and reserve replacement, usually from the money markets or stocks.

Reduction in purchases is deflationary, but the consumer should adjust, yielding a small price decrease and slightly lowered goods flow to compensate for the inefficiency of translation, a low cost but significant.

Horribly unfair to low income houses who don't have efficient demand deposit returns. They hold cash mostly, returns on short term reserves hammered. They can price adjust, but no easy access to efficient money markets makes adjustment slow and painful.

The fraud is ongoing and increasingly deceptive making uncovered losses increase in volatility, not unplanned.

But we got it cornered, in my opinion, judged, juried, and hung.

The most harmful thing to the poor.

Please make this fix.
Illiquid benefits to replace liquid benefits. Making all benefits liquid in cash, first. Do it with neutrality, but do it. All benefits come in the government smart card and the card is contractually required to pay the quarterly inflation on cash.

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