Has the Fed Kept Inflation in Check?

Panzner answers no:

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Inflation has accellerated since the 1929 crash . . .

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  1. Jordan commented on Jan 16

    Yeah….they are supposed to maintain a “stable currency.” So much for that thought. The accelerating inflation of the past 30 years (in the form of money printing and defecits) is due to show its consequences in the near future.

  2. B commented on Jan 16

    Don’t we all love inflation! Especially those who have benefitted from the corresponding asset appreciation. Oh well, about the only benefit of inflation although it really is “perceived” instead of true gains. I’d say it’s time to get ready for some more inflation. Likely some larger than expected doses. Unless the Fed craters the economy and demand for oil/commodities along with it (likely the only way we’ll see any abating in the CRB), we inevitably will see higher rates, higher inflation and continued tightening regardelss of whether they pause soon or not.

    I’m more convinced than ever that we are repeating the 1970s in concept with a weak dollar, commodity driven boom. Whether we see an end result that is similar or rates that get as heady as before depends on whether the Federales truly have the stuff to get a handle on the problem. I wonder if there is truly any way the Fed can “do the right thing”. It appears this may be the best of two unpleasant options…..higher inflation or tanking a tenuously balanced set of dislocations called the economy.

    I’m no gold bug and hindsight is 20/20 but I wish I would have bought some glittering pixie dust in 2002.

  3. Idaho_Spud commented on Jan 16

    Next year in hindsight, you might wish you had bought some pixie dust *right now*.

  4. Fred commented on Jan 16

    Any wonder why the savings rate is low? A penny saved is a penny burned.

  5. D. commented on Jan 16

    A good case for the pessimists.

    This chart proves that the optimists are wrong!

    Obviously, the Fed needs to interfere because there are always things going wrong.

  6. B commented on Jan 16

    I don’t think I’ll be too upset for not buying gold right here. Many things including Bank for International Settlements data is telling me this is a blow off top in gold. We are also seeing a noticable change in the big money’s sentiment to be less bullish. Fibs are also telling me we may be just about done.

    The only thing that would change my mind and make me a buyer here would be a financial crisis so severe that our way of life would be threatened. That is too gloom and doom and I just don’t see that outside of the bell curve scenario coming to pass. Those investors who are too bullish get killed by believing trends last forever and those who are too bearish never make any money because they are convinced the next crisis is always around the corner and never take risk at the time they should.

  7. Idaho_Spud commented on Jan 17

    I’m not a gold bug… far from it. OTOH, a little hedging seems to make a great deal of sense.

    There are massive imbalances that need to be worked out of the system. Nobody knows if Mr. Bernanke is adroit enough to do it. He seems to think he is, which is scary in itself.

    He may very well find himself needing to raise interest rates, but unable to because of the very real lack of economic resiliency of the US consumer – whom we all know accounts for 70% of US GDP. A stagflationary scenario is definitely a possibility, which is bullish for gold, but will make for a difficult period for equities and bonds.

    Any investment that derives value from consumer discretionary spending in 2006 has quite a bit of risk, IMHO. Ditto investments in holders of MBS and other consumer debt.

  8. On the other hand… commented on Jan 17

    You know the biggest problem with blogs is that their authors seem incapable of not blogging. I agree with what seems to be the general thesis of Mr. Ritholtz, that there are big risks in our economy right now and that those risks are being underweighted. But some of these graphs are just silly. Is the point with this one that things were much better when we had periods of massive deflation intermingled with periods of inflation? Anyone else notice that the “upswings” correlate with the great depression of the 1930s, the even worse depression of the 1870s… Boy, those were the days!

  9. B commented on Jan 17

    That is why I’ve posted on here that if there is any bubble correlations, and the NAS post 2000 correlated quite clearly with the post 1929 crash on an overlaid chart, that we could expect some signficant market advances in the next few years. But, I think we need to reset before that happens. And, that is not inconsistent with anything I’ve seen posted on this blog except by those who are permanently bearish because they think negative trends last forever just like bulls think positive trends last forever.

    I agree that markets are most bullish when long term sentiment stinks. And it stinks right now. But, short term sentiment is too bullish and we are at a historical inflection point in economic cycles that usually causes temporary weakness in equities. So, a good guess is a temporary fix to the sentiment that scares the living bejesus out of the bulls and retail investors followed by another bull run.

    The fly in the ointment is how will the global housing situation and commodity prices resolve themselves. If they are hurting us, what are they doing to people in the developing world that have an average income of 1/100th of ours. That could really create an uncool situation for global growth.

  10. JSchreiber commented on Jan 17

    When I look at Barry’s original chart, it sure looks to me like there’s a trend that lasts forever. The 100 years of declining purchasing power of the dollar is forever enough as far as I’m concerned. I expect it to continue for the rest of my life. If a trillion dollars or so, currently held in asian central banks, enter the real economy things could really get ugly. As in the early 30’s and 80’s, gold and the DOW could approach parity.

  11. apav commented on Jan 17

    The graph needs to be logrithmic to be able to make any sense of it. The Keynesian bargain is for average mild inflation in return for general stability. So the fact that it has been monotonic since the Great Depression is good. Now it’s argueable that Greenspan has overplayed the monetary support for the economy and thereby misplayed the “bargain” and maybe doing so again. I’ve read that the Fed reversed and started pushing up liquidity again in December. Is that true? What’s the best timely source for US and Global liquidity numbers?

  12. Lord commented on Jan 17

    Yes, a log scale would be good. I would say they have done a fairly decent job since the 1980s in comparison to earlier times.

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