[chenopodium]

More expensive things does not always mean "money inflation" (= more money).

In the case of PO it is possible that everything gets more expensive due to PO, salaries stay the same, yet the AMOUNT of money stays the SAME too.

It means that people will not be able to buy as much.
It means living standards drop.

This is not money inflation, and increasing interest rates is a problem in this case, as money supply is NOT really growing and so increasing interest rates makes the whole thing worse (even less money available ).

(this of course might *cause* salary increases which then fuels money inflation...)

[Micki]

$this->bbcode_second_pass_quote('chenopodium', 'M')ore expensive things does not always mean "money inflation" (= more money).

In the case of PO it is possible that everything gets more expensive due to PO, salaries stay the same, yet the AMOUNT of money stays the SAME too.

It means that people will not be able to buy as much.
It means living standards drop.

This is not money inflation, and increasing interest rates is a problem in this case, as money supply is NOT really growing and so increasing interest rates makes the whole thing worse (even less money available ).

(this of course might *cause* salary increases which then fuels money inflation...)

[Micki]

$this->bbcode_second_pass_quote('chenopodium', 'M')ore expensive things does not always mean "money inflation" (= more money).

In the case of PO it is possible that everything gets more expensive due to PO, salaries stay the same, yet the AMOUNT of money stays the SAME too.

It means that people will not be able to buy as much.
It means living standards drop.

This is not money inflation, and increasing interest rates is a problem in this case, as money supply is NOT really growing and so increasing interest rates makes the whole thing worse (even less money available ).

(this of course might *cause* salary increases which then fuels money inflation...)

[yesplease]

$this->bbcode_second_pass_quote('idiom', 'W')hat I mean is that people are not catching the idea that the Loaf of Bread today is NOT the same Loaf of bread as four years ago. It is harder to make it now than it was four years ago.

[kpeavey]

Doublespeak

[yesplease]

Ad hominem arguments sure are great! Can't expect any more from a doomcopian on this forum...

[Gerben]

I think people are confusing different types of "inflation" here. The isue people refer to when talking about inflation is price inflation. That means prices denominated in a currency go up. The cause can be that the goods become more scarce, or more money is available for a certain amount of goods.
The second thing is tyres and other stuff like that. Those generally tend to deflate by themselves. Inflation is a good thing there.
O and there is also inflation in the money supply. Joe Average couldn't care less about that. Not untill it affects prices.

[korosten]

re schoolbook example

Let's assume there was a country that had a constant population (say 1 million people), and a constant amount of coins (money), and a constant economy. (just to make it simpler to discuss it).

Do you agree that in this case, if the money supply does not increase, there is no inflation. Inflation is 0.

If PO makes all the goods more expensive (but we still have the same amount of coins), people will have to buy LESS of everyting - but still no inflation.

In this scenario, since there is no growth in it, interest rates would have to be 0 also otherwise nobody would afford to every pay back a loan!

In real life of course, we have a "growing economy", growing population etc, so we have to constantly increase the money supply in the same manner.

In this case, interest rates can be > 0 because the expectation is that as the economy grows, people can pay back the loan later.

However any additional increase in prices caused by PO is not money inflation and should not be fought via increased interest rates as it would harm the economy.

[idiom]

$this->bbcode_second_pass_quote('', 'r')e schoolbook example

[seldom_seen]

I think this is one of the most misunderstood issues around peak oil and our economic implosion.

Inflation by definition does not mean rising prices. Prices do not inflate, they go up. The increase in price can be attributed to more dollars chasing the same amount of goods (which is inflation). Or prices can go up because of an increase in demand or decrease in supply.

Under "normal" economic conditions, an increase in the supply of money can more or less stay in line with a growing economy. There is inflation but it doesn't really bother anyone too much. Underlying this is an increasing supply of energy that is required to feed the infinite growth machine.

Peak oil breaks this model over it's knee and flushes it down the toilet.

With peak oil the economy stalls out and oil becomes more scarce. Decreased supply of oil in relation to demand causes the prices to rise. Meanwhile the banking system starts to panic because the economy is grinding to a halt and debt obligations are unable to be met.

This creates a vicious death spiral where the increasing price of oil collides with the bankers who are pounding on the big red panic button that spits out freshly minted sheets of 100 dollar bills. Over and over and over.

We are burning the candle at both ends. One side inflation, the other depletion. This unfortunately doesn't have a happy ending. The banker's policy of monetizing all the bad debt is the only card they have. It's more a less a charade to keep up appearances until they have their island doomsteads readied.

[patience]

seldom seen,

That is a very clear, concise analysis of what I see going on! I gotta print that and hang it on the wall for my customers and friends to read.

[MrBill]

$this->bbcode_second_pass_quote('', 'H')ere you can see some of the differences and similarities between money supply, wholesale inflation (PPI), retail inflation (CPI) and imported inflation (caused by a weak currency). High domestic (real) interest rates (net of inflation) help support the currency (reduces imported inflation) and keeps secondary rounds of inflation (wage and price spiral) from taking hold.









Basically, the central bank can do nothing about external inflation or high prices caused by scarcity, but they can control domestic inflation. The worst case scenario is high prices from scarcity (PO), external inflation from excessive money supply growth abroad, and high imported inflation from a weak currency that leads to a wage and price spiral in the domestic economy.

[patience]

MrBill,

Well, we certainly have scarcity (of oil and to some degree food), and the US has, and is, diluting the currency. I dunno about the other one, but 2 out of 3 has been enough to choke the local economy here.

What bothers me is food commodity prices seem to be lagging the true cost of production, at least from the farmers' POV. That won't help the food situation any. Fertilizer, Seeds, crop chemicals, diesel, and gasoline prices have increased enough that farmers tell me they need $7 corn to do as well this year as they did with $3 corn last year.

A Reuters article yesterday (sorry, no link) said farmers are bidding up the price of used equipment because new stuff is so pricey, and is essentially made to order, that is, there is no inventory to speak of, so if you need a machine in a hurry, you can only get a used one. Just one more distortion of PO.

I'd look for shortages of a lot of things, as PO prices ramp up, due to high cost of production and inventory, plus whatever wrongheaded govt meddling, such as price controls, will cause.

So, if we get a big dose of US$ dilution from bank bailouts (Congress is debating a bill to give Paulson Carte Blanche), then that becomes the hammer that will beat us all to death, as the US economy spirals out of control, or just ceases to be. It won't matter then what caused the problem.

[jasonraymondson]

I remember a few months ago that Benny Boy stated that the fed would most likely raise the rate. But it is looking like we could be going from a period of inflation to a period of deflation/stagnation, so I must inquire as to what you think of the likelihood that the fed will change its stance given the cooling commodity prices and the general perceived notion that the economy is still continuing to slide south.

I am not saying it will happen, I am just saying that there is a strong likelihood given the past actions of this board in similar situations.

[firestarter]

IRX at 14.7 EFF at 2.0 The spread is going to lead to a rate cut if it holds. Remember, the Fed follows the debt markets, it doesn't lead.

[JoeW]

I don't think we'll see a further cut until we have an official GDP contraction. Then they'll cut rates just to make it look like they're doing something. Any further cuts will have little impact.

[PenultimateManStanding]

$this->bbcode_second_pass_quote('firestarter', ' ')Remember, the Fed follows the debt markets, it doesn't lead.

[deMolay]

Not a pleasant report. http://www.financialsense.com/editorials/mckillop/2009/0415.html

[Schmuto]

Gotta say, I hope it was a bad translation, because it was horribly written.

As for the content, I'm really not sure what their basis was.

[eastbay]

$this->bbcode_second_pass_quote('Schmuto', 'G')otta say, I hope it was a bad translation, because it was horribly written.

As for the content, I'm really not sure what their basis was.