Quote from: Aristotle on June 23, 2011, 09:29:11 AM

Well, when you take out certain commodities, notably oil and products that heavily depend on it, then inflation does indeed look low. So, monetary inflation is low. Another way to prove this is to look at all the other currencies of the world, and look at how much the prices of commodities have gone up in relation to their currencies. You will find that the price of these commodities have gone up in all currencies and countries. The price spikes are most likely due to supply, demand, and speculation on future supply and demand.

EDIT: Also, this does not explain why the Fed and Krugman said commodity prices would not affect consumer prices and called names to the people saying the contrary, while now admiting that commodity prices have indeed affected consumer prices.

You mean the rest of the currencies that central banks are also printing like crazy? Have you seen the balance sheet of the ECB? Bank of England? Any of the BRICS? Saying that commodities are going up in the rest of the currencies supporst the idea that its due to monetary causes.

But the best indicator is this:

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Last year, from April 23rd through to August 27th, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close.

Now over that interval ...

   S&P 500 sagged from 1,217 to 1,064.
   S&P 600 small caps fell from 394 to 330.
   The best performing equity sectors were telecom services, utilities, consumer staples, and health care. In other words the defensives. The worst performers were financials, tech, energy, and consumer discretionary.
   Baa spreads widened +56bps from 237bps to 296bps
   CRB futures dropped from 279 to 267.
   Oil went from $84.30 a barrel to $75.20.

Source.

So now there are two options:

1. The monetary expansion of the Fed is promoting speculation and inproductive consumption, that stops when the Fed stops injecting money (more like expectations, but lets simplify a bit).

2. The price of petrol is mainly affected by supply and demand, so on April 23rd a new petrol field was opened making the price go down, just to be closed on August 27th when prices stopped going down... Or maybe people stopped using the car between those dates as well.

Now you tell me which one you think is the correct one. The Fed propagandist are selling a story that is basically nonsense. There might be some changes in supply and demand, because there are always changes in supply and demand, but a big part of the price is due to the influence of monetary policy and the expectations it creates.

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Similar to the oil shocks we've had before.

The "so-called" oil shocks were in big part due to monetary policy mixed with geopolitical events that had a resonating effect due to the monetary policies of that time.