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Thursday, September 18, 2014

wait for it!


WAIT FOR IT!

Yes, we have inflation.  We’ve had it for a hundred years ever since the Federal Reserve Bank took over the country.  Inflation is money growth.  Money growth is debt growth.  And debt growth is income growth.  Whether for a bank profiting off interest, as with that debt  or a government profiting off income growth from money growth.  The US Revolution was largely paid for by hyperinflating the currency ( the Continental, giving rise to the phrase “not worth a Continental” ).  The Confederate States fought a war with hyperinflation at the time Lincoln was introducing Greenbacks ( which weren’t worth spit but surprisingly were redeemed after the war.  When I use the term, I imply all the worthlessness of its predecessor without any of the same hopes for a happy ending ).  Inflation is so normal that we accept it pretty much unquestionably.  So, yes, we are seeing an increase in inflation today.  But not all inflation is the same and you can’t confuse them.  There is currency printing, credit creation and shortages.  There might be more, and I’m sure the terms differ, but it has been a few decades since I gloried in the minutiae of economics and I prefer the layman’s simplified version anymore.  It keeps the discussion from bogging down.  Currency creation is diluting the supply of the money.  You take two Monopoly games and combine the money from them ( keeping everything else the same as one game’s supply ).  You now have twice the money for the same supplies.  Prices will get bid upwards.

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Credit creation is the banks offering more debt.  Typically in our system, the banks use fractional reserve banking where they are required to hold X number of currency units for every Y number of loans.  As time went on, X shrunk allowing more loans to be created.  Shortage induced price inflation is when an item is scarce and the price is bid up as a form of rationing.  Today, there is currency creation in the form of “quantitative easing”.  The official rate is around eight percent or so but you have to be leery of that admitted number plus whatever fiction they are using as GDP.  Credit creation pretty much saw a freeze after the 2008 meltdown, and most credit in whatever form is staying in the banking system to keep the derivatives market from implosion.  These two inflation forms don’t explain a lot of our price increases.  But shortage pricing does.  Take away houses, with the artificial shortage caused by houses being taken off the market as emptied, and shortages can explain a lot of prices.  Colleges keep enrollments up through a propaganda campaign and through catering to the status conscience ( status DOES pay off in increased future income, but for a shrinking minority ).  Too many students in a fixed seat environment, with an artificially scarce status allotment, prices go up.

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Health care costs are in large part a casualty of the insurance industry.  Both because some doctors are scared away after malpractice costs and its insurance make profit impossible and because there are no longer all that many corporations offering medical insurance and hence no longer fighting to lower costs ( this was pre-ObammyCare.  Too soon to tell the new effects ).  And food cost increases are easy.  All the available acreage is now pretty much under cultivation ( any new land, say in the former jungles in South America, is pretty much consumed by Chinese growth demand ) and combined with that, the Green Revolution rise in per acre output are NOT increasing any longer.  Rising population is seeing lack of output growth, shrinking water tables and glacier shrinking, input cost increases and widespread infertility due to past overproduction.  Not to mention the cost of petroleum ( artificial fertilizer might be in large part using “nearly free waste byproduct” natural gas near oil production, but the cost of transporting the finished product has risen ) impacting everything everywhere.  Those small but persistent price increases are largely the work of shortages.  You ain’t seen nothing yet for inflation.  Wait for it!

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14 comments:

  1. Try to imagine a poker game.

    You and four of your friends decide on a friendly game one evening. Sitting down at the table, you decide on nickel stakes, but nobody has any nickels. Everyone has dollars.

    So, upon finding a box of paper-clips, it is agreed that they will serve as tokens in the game. Each paper-clip will represent a nickel.

    Everyone buys in for a dollar. Each person receives twenty paper-clips.

    The game starts. Round & round it goes. Everyone has had a good time, and it's time to cash out. The paper-clips are gathered, whereupon it is now discovered that someone has sneaked ten paper-clips onto the table during the game. There are now 110 paper-clips representing five dollars.

    Question: what has happened to the value of each paper-clip?

    That is inflation, ladies and gentlemen. It is only the beginning.

    This problem becomes enormous once you take those tokens out into a market and try to buy something with them.

    If you extended this dynamic throughout a national economy, what would naturally happen is that because the supply of tokens has outstripped the supply of goods for which they can be traded, those market goods will now compete -- through higher prices -- in order to gain more of them.

    This is necessary -- it is a natural law which cannot be repealed -- in order to attempt to keep the value of market goods denominated in these tokens.

    Burn this into your minds. Realize that whenever you hear someone describing inflation to you as a rise in prices, they are not telling you the truth. Whether they're lying or simply ignorant, what you must understand is that none of it is true.

    And if you don't know the facts, then you will have no way of knowing what this rotten government is doing to you right now.

    ReplyDelete
    Replies
    1. I think even a lot of preppers are going to be surprised at the next bail-in, bank holiday or false flag attack.

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  2. According to the federal reserves economists, the bigger threat to our economy is DEFLATION, which of course, means INFLATION is right around the corner.

    ReplyDelete
    Replies
    1. Just listening to non-FED economists, supposedly independents, deflation. HOW? In what economy have shortages of food and energy ever led to lowering prices? I love Ure, but he's got a screw loose over that one.

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    2. Well, prices for unnecessary toys will decline- at least for the used ones, as everyone has to sell theirs to afford another weeks worth of food.

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    3. That day hasn't come close-nobody thinks their boy toys are worth less than retail.

      Delete
  3. re: The Politicians having stock in the company making the Ebola suit.

    Of course they do, but....I think any real survivor would be keeping an eye on the Ebola situation.

    YKW
    MM

    ReplyDelete
    Replies
    1. It is scary, granted, but without convincing conjecture that this is weaponized I can't imagine the pathogen survives all that well here in north America.

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    2. The economically devastating Spanish flu killed about 2-5% of the infected - granted mostly the young adults- but if ebola hits at 1/5th its current death rate, it would kill @10% double the Spanish flu.
      Yes they have some sort of vaccine that looks like it probably works, but it is an very complex one, and rolling it out ahead of a plague may be very problematic.

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    3. My issue is, does a tropical disease pose a threat here? Even if it starts in Miami and Houston, can it survive in drier climes? Plus, winter is going to be a natural brake.

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    4. Let's see how this dog hunts......

      Pretend that Ebola can't survive OUTDOORS in the cold. Ebola continues to spread in Africa, spreading to one country after another. The smart rich ones get the F*** OUT, AWAY! Some of them are infected. Eventually Ebola arrives in the U.S. Some infected person lives in Wisc., Minn. Michigan or Nevada. Its cold now and people are spending more time INDOORS. Outside surfaces won't support Ebola. DOESN'T MATTER! The carriers are still spreading it at movie theaters, schools and workplaces.

      Look at the F***ed up way its being handled over THERE.
      One guy paid $4.25 for his girl friend to leave a QUARANTINED area, $6.00 for himself.

      They will never tell us about it being here, if they did lots of people would stop making MONEY.

      Delete
    5. I'm still having a hard time on a tropical disease spreading. They stay tropical for a reason. Unless weaponized of course. Agree on Not telling us.

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  4. Fuk the *economy*, describe why deflation would be bad for me?

    As far as I can tell, inflation prices me out of the market but deflation at least allows me to stay in the game a little longer.

    ReplyDelete
    Replies
    1. There is nothing wrong with deflation-employment issue aside. Which is why we ain't lucky enough to see it. Deflation was mostly during a gold supply growth period, then an oil supply growth period. Think we'll see that now?

      Delete

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