Sunday, December 29, 2013

Bill McBride asks good questions 4-5

Bill's questions 4-5 are monetary in nature.  

4) Inflation: The Fed has made it clear they will tolerate a little more inflation, but currently the inflation rate is running well below the Fed's 2% target. Will the inflation rate rise in 2014?  Will too much inflation be a concern in 2014?

A: Trick questions all around.  Inflation is what the Fed says it is.  The idea that house prices and taxes are not part of inflation is absurd on the face.  The excuse for house prices is that they are assets.  Okay then, only count the non-asset contributions of housing costs.  The obvious reason is that the current system games the results favorably. 

5) Monetary Policy: It appears the Fed's current plan is to reduce their monthly asset purchases by about $10 billion at each FOMC meeting in 2014.  That would put the monthly purchases at close to zero in December 2014.  Will the Fed complete QE3 in 2014?   Or will the Fed continue to buy assets in 2015?

A: Interesting phrasing.  The Fed is poised to continue to provide stimulus for at least another year.  In a year the Fed will still own a three quarters of a trillion more than they do now.  That's just QE3.  As we have seen there are other tools in the burglar's bag.  More than $400 per family in the US QE3 alone.  I don't need to tell readers of EN that you aren't the average "family" with respect to this burden. And yet strangely despite this added debt burden our disposable personal income seems not to go down.

So, in summary.  Inflation will be what they say it is and the purchases will continue under current and different guises. 

7 comments:

Anonymous said...

Shifting data, shifting terminology, and shifting sands.
The average person doesn't stand a chance.
Sporkfed

Thomas Stone said...

The numbers being put out remind me of that old joke about why women are bad at math.
All our lives we have been told that "This" was 6 inches.

Rob Dawg said...

Metric makes me proud.

Anonymous said...

OT: Does anyone know what happened to JuvenalDelinquent/JackDawracy and mp? (I heard about Nova...)

Thomas Stone said...

MP is deceased, don't know about JD.

Rob Dawg said...

Yes, mp is gone. We are well past his expiration date.

JD was probably concerned that his online could be catching up with his del life and really backed of. Last I heard he was fine in the Southern Sierra area. Over the years he got better and better at morphing. The first few times I caught him within a few posts. By the time he was AMF I almost didn't catch on at all.

Anonymous said...

Thank you for the updates, guys.