Quote from: Aristotle on June 23, 2011, 04:52:05 PM

Quote from: hugolp on June 23, 2011, 09:41:16 AM

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.

Why are you lumping Krugman and the Fed together? Krugman works for the NYT, and he regularly disagrees with the Fed's policies (he thinks the Fed hasn't been worrying enough about jobs lately).

I lump them together because Krugman is a Fed apologist. He might disagree here and there with some of their policies, but he wants and defends a central bank system. He is an apologist of the system.

Btw, price inflation does not create sustainable jobs. Its not something the Fed can do.

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I have not been able to find Krugman saying commodity prices would not effect consumer prices.

There you go: http://krugman.blogs.nytimes.com/2010/12/27/commodity-prices-and-inflation/

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I, personally, have a lot of respect for Krugman. He warned of the dot-com bubble, housing crisis, federal deficit when the economy was doing ok, etc...

Actually, he didnt call the housing crisis. Krugman always writes one thing and a couple of week later he writes the contrary. When the time comes he chooses one as proof he is right. Check this video @ 2:55 (http://www.youtube.com/watch?v=MnekzRuu8wo) Krugman says that he does not know if there is going to be a recession or not, in December 2007, when we were less than a year from the crash. How is that calling the housing crisis? He didnt. In some of his writtings he said there could be a crisis and in some others he said that maybe not. So when the housing crisis arrive he said: Hey! I called it. Its how he works.

Btw, Krugman also said after the dotcom bubble that the USA needed lower interest rates and more investment in housing... How did that work? I dont understand why he is getting away when he is guilty of helping create the housing bubble.

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His biggest argument is that government should spend during recessions, and save during normal times to smooth everything out and keep things stable.

The problem is this is nonsense. Its long to explian so if you are interested we can go in more detail into this only.

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Now, I don't agree with the system we have (basing economies on debt is crazy), but as far as working with the system we have, Krugman makes a lot of sense.

No.

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Quote from: hugolp on June 23, 2011, 09:41:16 AM

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.

Taiwan has been going through a lot of deflation. Prices have still increased.

This does not answer my argument. Taiwan is so small that its monetary policies do not have influence over a commodity market. But I have to admit that I dont follow Taiwan monetary policies with detail so I really dont know what they are doing. Anyway, its not important.

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Quote from: hugolp on June 23, 2011, 09:41:16 AM

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.

The starting date chosen is "conveniently" right at a peak before a fall-off in oil prices, and the end date right before a rally. This makes me believe the source was being dishonest. But, anyways, oil is very volatile; you have to look at overall trends, and not just a couple points in time.

The dates are not chosen conveniently. He is just showing the period choosed by the Fed to reduce its balance. Its not David Rosenberg choosing the dates, so there can be no dishonesty on his part. He is just saying that when the Fed was easing the price of petrol was going up. When the Fed stopped easing and contracted the balance sheet, the price of petrol started going down. Finally when the Fed started easing again the price of petrol started going up again.

This is not random.

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Yes, you may have a point there. But that's not the same thing as monetary inflation.

Depending on the monetary aggregate you choose, but its just a matter of definitions and its not important here.

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Oil, silver, gold, etc... are extremely noisy (volatile). They go up and down all the time. These markets are casinos for the rich. However, the overall long-term trends should, in theory, reflect real world conditions. If you look at the chart of oil prices over the last few years, you'll see that the peaks and valleys like the one presented above are very common, and not out of the ordinary at all.

Yes, they are volatile and you can add some populism, still it does not explain why they went up when the Fed was easing, went down when stopped and went up again when the Fed started to ease again. You can decide to ignore the empircial correlation but then you wont understand what is going on.

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Not sure if you can chalk everything up to monetary policies; just seems like an easy way out. Economies are complex systems, and monetary policies are just one component. The oil shocks in the 70s were caused by decreased domestic production and discovery coupled with rising demand. If you're not familiar with the concept, you may want to read up on Peak Oil: http://en.wikipedia.org/wiki/Peak_oil

I know the history. And I am not denying that there were some disruptions on the supply due to conflicts (that is what I meant by geopolitical events) but there was no peak oil (and I dont deny that we might get some day to peak oil or that we might be close, its just that we werent at peak oil back then). But the USA had been manipulating the price of gold since the 40's even before Bretton Wood, and finally it could not respond to its obligations and Nixon defaulted. This was expected since Bretton Woods was flawed. But the point is that the rise in the price of gold meant heavy price inflation for the USA. The arabs said publicy at the begginning fo the 70's that they would peg the price of oil to the price of gold, and so it happen. The USA government tried to blame them and said they were a cartel, but it is completely understandable that the arabs wanted something that they deemed worthy in exchange for their most precious resource and refused to accept a currency that the USA government could print "at will". Then you have Nixon asking the then chairman Burns to print more to create a mini-bubble to win the election and it was the perfect storm: Stagflation.