Saturday, 30 August 2008

Say hello to the inflators

There are people today screaming for inflation. They are desperate for higher prices. They are hiding their nefarious desires behind the ludicrous claim that the UK and US economies are deflating.

Here is a good example of an inflator - Jim Cramer. In this clip, he puts forward the claim that the US is deflating right now.

What is Cramer's argument? It seems to go something like this; if we take out commodity prices from the US CPI and replace it with house prices, then the CPI is actually falling. Therefore, the US is deflating and on the edge of a 1930s depression.

Is this true? Certainly house prices are falling. The non-commodity part of the CPI, which loosely corresponds to the PCE index, is not falling. In fact, it is rising. So are input prices, output prices, the GDP deflator and import prices. In fact, the only two prices that are falling right now are house and equity prices. So much for deflation.

The argument is obviously foolish. However, if we stretched the argument back to 2002-06, it must follow that the US was inflating. Back then, house prices were going up at double digit rates. So were equity prices. I don't recall Cramer raving about inflation back then.

He also launches a vicious and largely incoherent attack on the Fed. When it comes to practical policy advice, he substitutes his incoherence with silence. What should the Fed do? Jim has no idea.

The simple fact is that Cramer and his banker mates want inflation. They believe that higher prices will help out their insolvent customers, who took out loans that they can not now pay back. The losers will be savers. Since the bankers sit in the middle and make their money taking a margin, inflation will stabilise their balance sheets and allow them to keep on making money.

So, for people like Cramer, this deflation argument is really useful. However, it is a Trojan horse for inflation. It is a useful intellectual instrument in hands of self=serving self-interested bankers.

Make no mistake, inflation is the real problem. How do we know this? Because the money supply and inflation data tells us so.


VADO said...

cramer is a bozo. Remember his outburst last year when the crisis first hit.

Anonymous said...

this explains a bit

by the way a typo in para 4
The argument is obviously foolish. However, it we stret
should be

The argument is obviously foolish. However, if we stret

QG said...


That's a great hatchet job you've done on Cramer. I don't think I'll ever be able to look at him on one his video clips the same way again. You are clearly the wrong person to upset ...

P.S. Do you think Professor Blanchflower's arguments for cutting UK rates are similarly related or I am turning into a conspiracy nut?

Anonymous said...

Blanchflower is a dangerous individual: he wants to bail out his mates who are in bid doo doo with major debtage. But don't fall for it: it will make savers poor and destroy our economy in the long run. We need to build real wealth, encourage saving. I work with poor people around the world and the one thing that sorts out their problems and brings stability to their lives is savings. Being dependent on charity, the state or hyperinflationary, nutbar economies, do not help people.

Anonymous said...

What is cramer on? The Fed cut rates to 2 percent. What does he want? Zero interest rates. There is inflation in the US. Prices are really going up, and he is lashing out at the fed, yakking on about deflation.

A very sinister video.

cramerhater said...

Cramerquotes -

"Overlook oil, overlook grains, take out the prices we can't control, just focus on what people own."

"Dick has been wrong the whole time."

"I am staring at the abyss."

"It is all commodity inflation"

JCM said...

Cramer has a weird definition of conservative.

Actually, he sounds like a socialist.

Anonymous said...

Cramer is, and always has been, a dick!

real estate supplies said...

What happens when our overlords in Congress, the White House and the Federal Reserve destroy the economy and ruin millions of lives? They get invited to cocktail parties and news shows, and are treated with respect and dignity by the public.

What happens when some poor schlemiel gets caught with several ounces of dope for his own use and hasn’t harmed anyone? He goes to prison.

Have we lost all sense of proportionality and justice?

Sorry, but please allow me one more emotional outburst: What kind of mind control has taken place to keep Americans from thinking about throwing their overlords in prison?