The Trillion Dollar Website (a story of quantitative easing)
tbwa.com
tbwa.com
The site was not a critique of quantitative easing. It is a commentary on the Zim government's attack on a newspaper that dared to criticize their fiscal policy (in this case a whole lot of printing money, or ... ahem quantitative easing).
The paper then fought back, using this effectively worthless money (available in huge quantities, and cheaper than paper), to front their guerrilla campaign.
Looking at the box of Zim dollars under my desk, you can see how the currency got steadily worse (physically), as the currency got steadily worse (economically). The last straw was the EU sanctions that then prevented the German company from exporting banknote 'paper' to Zimbabwe ... the notes after that were sad. Really sad.
Interestingly, at the height of the Zim crisis, a friend of mine in Germany sent me a couple of notes from the hyper inflation days in Germany (apparently, even now, there are still so many of those notes around that they are not worth much). The 1919 '50 mark' note feels like real money (quite oily too), while the 1923 '500 million mark' note, is just a plain paper bill, printed on one side, with just a bit of colour.
When the govt starts printing money on paper, instead of cotton, then you know you are in big trouble.
I suppose the point I was trying to make, was that while you can debate the similarities between the Zim situation and the Fed's quantitative easing, the site is really about the fight between one paper and the Mugabe government.
Incidentally, the Zim Dollar died a couple of years ago. The only currency you will find in widespread use, is the South African Rand, and the US Dollar.
It's just a matter of time.
btw, Core inflation rose 0.8% YoY. Zimbabwe here we come!!!
Running the presses as fast as possible is funding a kleptocracy through seignorage.
One makes me bemoan the necessity of the state, one makes me see that it is necessary. I can be a communist or a objectivist, but my continent's population (Europe) have made it clear that they'll still vote for a flavour of social democracy every time.
The official inflation numbers have all kinds of wonky adjustments in them. For one thing, food and energy are not included (because they are too "volatile" we are told), yet food and energy are the #1 expense for most American households. Also if something rises in price too fast, they use "substitution" (saying that people will buy something else instead of that) and therefore that products inflation is not included in the "official" number.
It's no different than the games they play with the unemployment numbers -- not including people who have been out of work longer than unemployment covers them, people who have accepted part-time work when they really wanted full-time work, so-called "discouraged" workers who have stopped looking, etc.
I don't know what products you buy, but I can tell you that where I am the price of milk, bread, and almost everything else I buy has gone up a helluva lot more than 0.8% per year in the last few years. The few products that haven't risen in price considerably, have gone to smaller product sizes/containers. Some products have done both.
Now, I'm doing just fine so inflation isn't much a burden to me -- yet. But for millions of Americans who are either low-income or worse on a fixed-income, it is a very big deal. Quoting the fed's own numbers about inflation to say everything is alright is like trusting the fox to guard the henhouse -- that is the true definition of a financially illiterate comment. Don't take their word for something as critical as this, research it yourself and use facts to support your position.
And admit to yourself that they have an inherent bias, a conflict of interest, to make things seem rosier than they are, because it allows them to sell public debt, treasury bonds and short-term T-bills, to fund our massive deficits. If they actually reported the truth of everything suckers around the world wouldn't be as likely to let us keep spending trillions more a year than we earn like a teenager who doesn't understand how credit cards work.
Call it fear-mongering if you like, I'd rather face the realities of our situation than stick my head in the sand. You have to admit you have a problem before you can address it.
"Don't take their word for something as critical as this, research it yourself and use facts to support your position."
I find this statement interesting because I don't see a single verifiable fact in this entire comment. Since you've already researched it yourself, perhaps you could fill us in on what the "real" inflation rate is?
There are problems with every metric (and unemployment and the CPI are no exception), but it's hard to argue that inflation is a major concern at this point. It's my non-expert impression that QE has had limited (good or bad) effect because we're still trying to reconcile all the value that has evaporated from the economy (in the form of asset/stock prices).
I'd be interested in seeing some pointers to metrics and/or commentary that support your concern.
> You are using the "official" inflation numbers.
Should I use the "unofficial" numbers?
> Do you really think they report it accurately, when so much depends on it -- not just confidence in the economy, but COLA adjustment for our massive social programs, etc. That is like asking an encyclopedia salesman if you should buy an encyclopedia.
You're right, a tremendous amount DOES depend on them and that's why the statistics are scrutinized heavily. If the Government was systematically underreporting inflation through the CPI then you'd hear about it outside of the conspiracy theory websites.
> The official inflation numbers have all kinds of wonky adjustments in them.
Of course they do. Inflation is a very complex thing to measure.
> For one thing, food and energy are not included (because they are too "volatile" we are told),
Food and energy are included in the "official" inflation numbers. It's called the CPI which is used by the Government for adjusting SSN payments, tax brackets, etc. Btw, the CPI is at 1.1% - very very low.
I quoted core inflation number which is used to estimate the rate of change in inflation.
> yet food and energy are the #1 expense for most American households.
Incorrect - Housing is.
> Also if something rises in price too fast, they use "substitution" (saying that people will buy something else instead of that) and therefore that products inflation is not included in the "official" number.
You should read a little bit more about how this works instead of just copying from a buy gold website.
> It's no different than the games they play with the unemployment numbers -- not including people who have been out of work longer than unemployment covers them, people who have accepted part-time work when they really wanted full-time work, so-called "discouraged" workers who have stopped looking, etc.
These numbers are all reported in the official statistics. It's all in the U-6 measurement which is released at the same time as the headline number, the U-3 measurement, that the news agencies pick up on.
> I don't know what products you buy, but I can tell you that where I am the price of milk, bread, and almost everything else I buy has gone up a helluva lot more than 0.8% per year in the last few years. The few products that haven't risen in price considerably, have gone to smaller product sizes/containers. Some products have done both.
Thanks for the anecdote - I'll stick to statistics thank you very much. And while food/energy prices have risen above the trend - housing has crashed 30% in the past few years. You can't just pick and choose which items to pay attention to.
> Now, I'm doing just fine so inflation isn't much a burden to me -- yet. But for millions of Americans who are either low-income or worse on a fixed-income, it is a very big deal.
What will help lower income Americans is a good economy. You cannot have a good economy with inflation running so low.
> Quoting the fed's own numbers about inflation to say everything is alright is like trusting the fox to guard the henhouse -- that is the true definition of a financially illiterate comment. Don't take their word for something as critical as this, research it yourself and use facts to support your position.
A lot of people inside and outside the Fed research inflation. This is just hysterical if you think it's a massive coverup.
> And admit to yourself that they have an inherent bias, a conflict of interest, to make things seem rosier than they are, because it allows them to sell public debt, treasury bonds and short-term T-bills, to fund our massive deficits.
Stop. This is the must illuminating of statements you made - You really don't understand how the financial system works. The Fed does not sell public debt: That would be The Treasury.
> If they actually reported the truth of everything suckers around the world wouldn't be as likely to let us keep spending trillions more a year than we earn like a teenager who doesn't understand how credit cards work.
People buy U.S. Government Debt because it's backed by the taxpayers of the largest economy of the world. That's about as safe of an investment as there is.
> Call it fear-mongering if you like, I'd rather face the realities of our situation than stick my head in the sand. You have to admit you have a problem before you can address it.
Again. Inflation at 1.1%. Core inflation at 0.8%. There isn't a problem with inflation.
You should consider all the numbers, including the way inflation used to be reported (see www.shadowstats.com).
> You're right, a tremendous amount DOES depend on them and that's why the statistics are scrutinized heavily. If the Government was systematically underreporting inflation through the CPI then you'd hear about it outside of the conspiracy theory websites.
I'm sure you think people like Jim Rogers, Peter Schiff, Congressman Ron Paul, and David Walker (former US comptroller and head of the GAO which does most of the intergovernmental analysis you mention) are all crazies just like me. No really, I am pretty sure you think that, so I won't bother to ask.
> Of course they do. Inflation is a very complex thing to measure.
That justifies adjustments (like seasonal, perfectly reasonable, which I did not mention), it does not justify wonky adjustments which hide inflation. As you said, only the headline numbers get reported by the mass media. It's all part of the confidence game. I'm not objecting to the confidence game, it has to be played especially considering our deficit situation, I'm only objecting to pretending the confidence game doesn't exist or doesn't have an effect on how the headline numbers are calculated.
> Incorrect - Housing is.
You're right, I was wrong on that. I was writing passionately and didn't check. It doesn't change my argument, though, even as the #2 expense food and energy inflation has a critical impact on how low-income families survive, or people on fixed incomes. No COLA for SS recipients 2 years in a row can really hurt if everything at the grocery store costs more. Maybe, with inflation so low as you claim, everyone's rents have gone down. I dunno, mine hasn't.
> You should read a little bit more about how this works instead of just copying from a buy gold website.
You should think a little bit more about how this works instead of just copying from Ben Bernanke's speeches. I suppose he is unbiased, though, and has no part in the confidence game.
> These numbers are all reported in the official statistics. It's all in the U-6 measurement which is released at the same time as the headline number, the U-3 measurement, that the news agencies pick up on.
Yeah, and you can still calculate growth of the money supply in the broadest terms (M-3) if you wanna do it yourself, the numbers are still there in the reports they just don't do the calculation for you anymore. People are not gonna do this, they are gonna watch CNBC and hear everybody but Peter Schiff say "everything's fine, don't worry about our deficits, don't worry about the fact that the largest creditor nation in the world has become the largest debtor nation, don't worry about the possibility of inflation from the necessity of monetizing the debt, I'm sure we can just tax everybody a little more or raise the retirement age and it'll be fine" -- and then think that Peter Schiff is the crazy one. (Just like me, I'm proud to say)
> Thanks for the anecdote - I'll stick to statistics thank you very much. And while food/energy prices have risen above the trend - housing has crashed 30% in the past few years. You can't just pick and choose which items to pay attention to.
Who's picking and choosing? Yeah, housing has really come down. That's great for the millions of people who can't buy a house now since thankfully the lending standards have become sane again.
> What will help lower income Americans is a good economy. You cannot have a good economy with inflation running so low.
If your economy depends on inflation, sure. If your government and your population are in massive debt, inflation is VERY necessary to a good economy. Unfortunately inflation hurts lower-income Americans the worst, because a larger percentage of their income is spent on necessities.
> A lot of people inside and outside the Fed research inflation. This is just hysterical if you think it's a massive coverup.
I don't think it's a massive coverup. And I don't think there is a problem with inflation, RIGHT NOW. I think there could be a big problem with inflation in the near future if we continue with massive deficits, and yeah I'm a little worried about it. It took from George Washington to Ronald Reagan to amass the first trillion in debt. It took from there to GWB to get to ten trillion. Now with Obama we are adding over a trillion a year. I shouldn't have to explain the power (and the danger) of compound interest to someone on HN.
> Stop. This is the must illuminating of statements you made - You really don't understand how the financial system works. The Fed does not sell public debt: That would be The Treasury.
I didn't say the Fed sold public debt. I apologize for the hanging antecedent -- I meant that they (the government, including the Fed) have a bias to make things seem rosier than they are because it allows them (the government, including the Treasury) to sell public debt. Don't deny that there is a confidence game going on, that the value of the dollar depends on people's confidence in its stability. Spending a couple trillion dollars a year more than you take in, and promising to spend tens of trillions in the coming decades to support people whose invested money you have already spent, is not conducive to stability.
> People buy U.S. Government Debt because it's backed by the taxpayers of the largest economy of the world. That's about as safe of an investment as there is.
An individual cannot survive spending more than he earns indefinitely. A business cannot survive spending more than it earns indefinitely. A government cannot survive spending more than it earns indefinitely, unless it can pull the wool over other countries's eyes indefinitely (China, Japan, the largest holders of US public debt) to allow it to happen.
I like this analogy by Peter Schiff: imagine each country is a person on a deserted island. Everyone's job is to gather food for the American to eat, and every night they have a banquet where they bring all the food and the American eats it. Now, you could say, America is vital to this island's economy! Without him, none of the others would have jobs. The truth is, without him, they could do something else, gather more food for themselves or maybe relax on the beach. It's a gross oversimplification but it gets the point across -- just because China holds trillions of our debt and doesn't want to see the value of its holdings go down as the dollar goes down, does not mean they will continue to buy more dollars indefinitely and throw bad money after good. They have already started to pare this back.
Copy and paste off a buy gold website? Hell, I could probably write one of those websites better than they could. I'm wayyyy deep into the crazy. "In times of universal deceit, telling the truth is a revolutionary act."
> Again. Inflation at 1.1%. Core inflation at 0.8%. There isn't a problem with inflation.
I don't have a problem with crack cocaine. I just crashed after my last high and slept for 48 hours straight. That's 48 hours I've been sober. I don't have a problem.
Inflation/borrowing allows politicians to give people things without paying for it, which gets them re-elected, unlike taxing which is politically unpopular. It's the perfect system. Spend whatever you want. Make a big deal about promising to be fiscally responsible in the future, but don't give it more than lip service. It won't be your problem when the consequences come knocking. Live on the high hog, it's a free ride, and all it costs you is mortgaging your grandchildren's future. How's that for some fear-mongering? Sadly it isn't especially far from the truth.
No, housing is.
ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/age.txt
games they play with the unemployment numbers -- not including people who have been out of work longer than unemployment covers them
Wrong. You are correct, however, that people with jobs are not treated as unemployed.
http://www.bls.gov/cps/cps_htgm.htm#unemployed
Furthermore, for a very long period (until 1996), inflation was overestimated by about 130 bps/year.
http://www.shadowstats.com/alternate_data/inflation-charts
I'd be interested to hear your take on this change.
Immediately what stands out at me here is his graph. I'd like to see the dataset, but it looks like he is claiming substantial inflation over the past 30 years. I'd guess that it averages out to about 8% a year. That would imply prices have increased over 10x from 1980 vs. 2.66x in the official BLS statistics. What seems more realistic to you?
Difference: 3.5 times .
--
Assuming this page is accurate (http://www.thepeoplehistory.com/80sfood.html),
Prices look about 4-8 times as much (look at the Pennsylvania 1981 prices) ... butter is $4/lb, bread is $2/loaf or more , etc.
I believe the standard response writ large upon Bernanke's beard would be something like "But but but the 2011 model has a navigation system and is expected to last an extra 5000 miles, so hedonics alone imputes an extra $30k in value above the 1980 model. No inflation! Run along."
This really isn't a constructive comment. It really possible to discuss different measures of inflation without sticking a general label on people who disagree with you and saying that they live in an alternate universe.
This opinion is very unpopular amongst the Keynesians/deflationists at HN, who prefer downvoting as a means of expressing disagreement.
You're trying to pick a fight with people who don't think baseless predictions tied to scenarios of doom have no place on HN by calling them names. That's why you're being downvoted.
ie, if you were to make a car with the build quality and features (am/fm radio, etc) of a 1980 Cadillac, but with modern engineering and assembly, it'd probably be significantly less than $46,280. Especially if they could expect to sell in 1980-level quantities rather than today's.
Please explain to me how agreeing with your fundamental observation, that QE2 has not yet sparked significant inflation, is financially illiterate.
I'm a fan of their use of the 'Rock Band' typeface on the Trillion Dollar notes.
When you have a 20 € bill, the European Central bank "owns you 20 €".
Since people have faith in the bank ability to pay its debt, everybody uses the note as money.
What does it mean for the central bank to owe me 20 euros? Specifically, what do I get when they pay me what I'm owed?
If the answer is 20 euros....
While dollars were originally tied to physical assets, I'm asking about what the central bank give me today for my 20 euros or dollars.
What you get is the stuff that you buy. Or more directly, what you get is buying power.
The person who claimed otherwise disagrees - he said that it was a payable debt.
> You get nothing directly, but that's not the point
Except that it is. If the answer is "nothing", than a 20 euro note is nothing more than confidence in competence of the financial system.
While you may not see any alternatives to said confidence, that doesn't mean that it is justified.
How much confidence do you have in them?
20 € bill = currency (debt in paper) 20 € on your account = money
Ah well, I'll try again post-coffee
Good thing?