His and others like him continued hawkish talk tightened financial conditions a great deal which in of itself is a rate hike. The risk of going too early is asymmetric and their insistence of a hike in '15 seems disingenuous to me. They are basically saying that market based inflation expectations are total bunk and that they are more than "reasonably confident" that we get back to 2% even though wage growth is far below what Yellen considers normal (3% - 4%). Fischer (Bibi's arm) hiked too early when he was head of the Israeli Central Bank. What is the harm in letting things go to a boil inflation wise? Inflation can be tamed by higher rates which is an easier situation to deal with than hiking off of 0 and then going right back to it. Which is what we are probably looking at.

I (Machiavelli) think we are in much greater danger of deflation than inflation. We know how to deal with inflation. Once that devaluation spiral hits it's a bear to shake off.

Just my 2 cents.

Only negative to an interest rate hike now would be a further strengthened dollar.

(10-02-2015 10:16 AM)VA49er Wrote:  Only negative to an interest rate hike now would be a further strengthened dollar.

Annnnnnnnnd /thread.

I'd like to know where the deflation is. Outside of gas and aging electronics every-day consumers just aren't seeing it.

Clothing?

My Wal Mart has khaki's that look identical to Dockers. Totally knocked off dockers for 9.99. The Docker's used to cost me 45 +. I don't think our economy has come to grips with that. OxFord shirts. Used to cost me 50+ are now less than 20. Beside Eggs. Food is cheaper too.

(10-05-2015 06:34 AM)EigenEagle Wrote:  I'd like to know where the deflation is. Outside of gas and aging electronics every-day consumers just aren't seeing it.

And gas was a bubble anyway. Take the $0.99 per gallon in the early 2000s and before, and it is still way too expensive when adjusted for inflation.

(10-02-2015 10:16 AM)VA49er Wrote:  Only negative to an interest rate hike now would be a further strengthened dollar.

A stronger dollar relative to other world currencies is not the same as deflation. If U.S. had 10% annual inflation while the rest of the world had 20% inflation, the news would call the U.S. dollar "stronger", but that would only be stronger relative to the other currencies doing even worse.

(10-05-2015 08:15 AM)miko33 Wrote:  

(10-02-2015 10:16 AM)VA49er Wrote:  Only negative to an interest rate hike now would be a further strengthened dollar.

A stronger dollar relative to other world currencies is not the same as deflation. If U.S. had 10% annual inflation while the rest of the world had 20% inflation, the news would call the U.S. dollar "stronger", but that would only be stronger relative to the other currencies doing even worse.

I never said it was. Actually, I don't think deflation is an issue at all. I was just thinking of an interest rate would make gobal investors flock to the US and thus hurt exports, etc which could in turn further hamper the US economy. Having said that, a quarter rate hike shouldn't even do that.

(10-05-2015 08:18 AM)VA49er Wrote:  

(10-05-2015 08:15 AM)miko33 Wrote:  

(10-02-2015 10:16 AM)VA49er Wrote:  Only negative to an interest rate hike now would be a further strengthened dollar.

A stronger dollar relative to other world currencies is not the same as deflation. If U.S. had 10% annual inflation while the rest of the world had 20% inflation, the news would call the U.S. dollar "stronger", but that would only be stronger relative to the other currencies doing even worse.

I never said it was. Actually, I don't think deflation is an issue at all. I was just thinking of an interest rate would make gobal investors flock to the US and thus hurt exports, etc which could in turn further hamper the US economy. Having said that, a quarter rate hike shouldn't even do that.

OK. Consider the comments FYI then in a general sense. A lot of people get the terms deficit and debt confused when talking about the U.S. budget in addition to purchasing power of the U.S. dollar within the U.S. over time vs. relative strength when compared to other currencies.

Regarding inflation, it's not as easy to gauge as you may think. Take telephone service for an example. No doubt people will talk about how it was cheaper back in the day for telephone than it is today. However, bear in mind that while smartphones are undoubtedly more expensive, how much would someone from the 50's thru the 80's have paid for the ability to go on your phone to make phone calls, receive messages, map your destination with step by step directions, pay bills, watch movies and TV, etc. etc? Compare apples to apples, and a land line today is a fraction of the cost of a landline 20 or 30 years ago when long distance is factored in. I get that someone already mentioned "except for aging technology"... C'mon, seriously. That's EXACTLY how you need to evaluate inflation though. You cannot move the goal posts and cry inflation when the product today delivers way more than the closest comparable product of yesterday. Personal computers are almost identically priced to the models available in the 80s, where the lower level ones used your color TV as the monitor and had 16 to 64 bit RAM while the ones that cost a couple of thousand of dollars were marginally better than a commodore 64.

(10-05-2015 07:22 AM)Machiavelli Wrote:  Clothing?

My Wal Mart has khaki's that look identical to Dockers. Totally knocked off dockers for 9.99. The Docker's used to cost me 45 +. I don't think our economy has come to grips with that. OxFord shirts. Used to cost me 50+ are now less than 20. Beside Eggs. Food is cheaper too.

Your khakis are actually a bad example since there is no true deflation in price. Had the original Dockers dropped to $9.99, then you might have had a better argument, although it may still not have been true deflation. Regarding the Walmart product, this is a substitute for Dockers and therefore the price is independently set and wouldn't qualify as deflated. To be true deflation, comparable products have to have their prices drop outside of market forces. As another example, if Dockers lowers their price to gain market share, that isn't technically deflation.

As an aside, I wonder why someone who stridently argues for unions is shopping at Walmart and buying khakis made in Thailand by a 14 year old earning $0.12 an hour. Well I do know why; individual decisions outweigh group welfare. But that's for another thread.

Quote:I (Machiavelli) think we are in much greater danger of deflation than inflation. We know how to deal with inflation. Once that devaluation spiral hits it's a bear to shake off.

Have you ever considered writing your posts in third person? You know like:
"Machiavelli thinks we are in much...."

(10-05-2015 08:31 AM)miko33 Wrote:  Regarding inflation, it's not as easy to gauge as you may think. Take telephone service for an example. No doubt people will talk about how it was cheaper back in the day for telephone than it is today. I get that someone already mentioned "except for aging technology"... C'mon, seriously. That's EXACTLY how you need to evaluate inflation though. You cannot move the goal posts and cry inflation when the product today delivers way more than the closest comparable product of yesterday.

As we argued in another recent thread, this discussion also applies to standard of living.

Regarding the Walmart product, this is a substitute for Dockers and therefore the price is independently set and wouldn't qualify as deflated. To be true deflation, comparable products have to have their prices drop outside of market forces. As another example, if Dockers lowers their price to gain market share, that isn't technically deflation.

I was curious so I typed in Dockers best cost.

http://costcocouple.com/dockers-iron-free-khaki-pant/

24.99. Now is that the internet? Is that losing market share? I don't know. All I do know is that Dockers used to cost me 45 plus. I can now get Dockers for 24.99. I think that's because Wal Mart has knocked of Dockers and sell them between 10-14 dollars.

Machiavelli thinks we are in a deflationary spiral. I really do. I don't think the fed has a clue on how to get a handle on it either.

(10-05-2015 10:11 AM)Machiavelli Wrote:  Machiavelli thinks we are in a deflationary spiral. I really do. I don't think the fed has a clue on how to get a handle on it either.

You'd be surprised.

(10-05-2015 09:59 AM)Machiavelli Wrote:  Regarding the Walmart product, this is a substitute for Dockers and therefore the price is independently set and wouldn't qualify as deflated. To be true deflation, comparable products have to have their prices drop outside of market forces. As another example, if Dockers lowers their price to gain market share, that isn't technically deflation.

I was curious so I typed in Dockers best cost.

http://costcocouple.com/dockers-iron-free-khaki-pant/

24.99. Now is that the internet? Is that losing market share? I don't know. All I do know is that Dockers used to cost me 45 plus. I can now get Dockers for 24.99. I think that's because Wal Mart has knocked of Dockers and sell them between 10-14 dollars.

There are a number of factors that need to be considered before you assume deflation is occurring. Consider your Docker's example. I would argue that the Docker's you bought were priced higher because the Docker's brand had a lot more equity back then due to uniqueness. As more companies jumped into this product line - like Hagar for example - the less pricing power the Docker's had. So there is a product lifecycle to consider there too. Even though Dockers are a pants just like a pair of Levi's, the Levi brand appears to be significantly stronger overall. I still believe Levi's command a hefty price relative to other brands in the neighborhood of $35 - $50 per pair. There are still cheaper substitutes around, but people still are willing to pay more for the Levi's.

My thoughts above are only for the demand side. There is also the issue with the supply side - or where the productivity gains can result in price drops that have nothing to do with the classic inflation/deflation situations due to demand. In many cases, the productivity gains result in decreased prices but it can also result in goods that are flat or have small incremental or even moderate price hikes but in turn deliver benefits far beyond the price increases. Smart phones of today vs the land line phones of the 80s and 90s are big examples of that - where a smartphone costs 2 to 3 times the cost of landline phone bought in the 80s (more expensive than land lines phones today we need to note) but the productivity gains yield way more benefits than the cost increases.