money value between 2002 and 2008

[hipmatt]

The inflation that we are seeing is mainly in commodities that are in limited supply. Food and energy, plus other utilities, health care, and education. Homes are not in this category. Trying to talk yourself or someone else into buying a home at todays prices due to inflation doesn’t work.

In 2002 (or earlier) there were much less homes per capita in the usa than in 2008. The increase in supply alone over the years is enough to cause for a dramatic decline in home values. The other factors I won’t get into. Rents are a much better indicator of inflation than the volatile and highly inflated past and current home values.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[Fearful]

Regarding core versus headline inflation, again, I think the rationale was to remove the volatility that food and energy prices presented.

The theory is that expectations of inflation tend to be self reinforcing – that is, expecting inflation leads people to spend earlier, increasing the money velocity, which increases the money supply, creating inflation. Therefore, if people are not expecting “core” spending categories to increase in price, they will not create inflation in those categories. Therefore, since the “core” inflation was generally more stable, it reduced people’s inflation expectations and thus created less inflation.

From a simple perspective, however, excluding a category of spending doesn’t make sense, because excluding a category of spending, even a volatile one, misstates the inflation of the remainder of the categories – if a certain money supply is being increasingly directed toward rising energy costs, then the prices of the remainder of the categories ought to go down. More money spent on gas means less money available for household furnishings, so higher gas prices ought to lead to lower household furnishings prices.

Note that expectations of deflation are also self perpetuating. Expecting prices to fall discourages spending, reduces money velocity, and so shrinks the money supply.

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[robson]

Good analysis. The theory of self reinforcing inflation expectations makes sense. However, many economic theories don’t work well when put into reality due to faulty assumptions. Is there any study that has shown that this reporting method slows inflation after including food and energy?

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Fearful]

I don’t know. I didn’t make up the theory; I think I read it in something published by a FRB governor.

It’s a little eerie to think just how little control the central bank has over the money supply. Even if the bank was solely responsible for money creation, e.g. by printing only currency, they could do nothing about people taking that currency and stuffing it under mattresses – effectively taking it out of the supply.

[Author]

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