Tuesday, September 13, 2016

Did The FED Just Signal Wage and Price Controls?

A FED governor gave a speech which is as appalling as anything Caligula ever said, but the difference is today few people would object.   Does this paragraph in a FED speech represent the way back to full circle, where this false economy started?  Nixon going off he gold standard (lite) and wage and price controls?  Are we back to the future, wage and price controls?

Mish of course covers the speech well, but he missed something I spotted.
A second alternative would be to replace the inflation target with a flexible price-level or nominal GDP target, where the central bank targets a steadily growing level of prices or nominal GDP, rather than the rate of inflation.
How?  It is a horrible idea at any rate, but how would they target steadily growing prices?  Pause for a moment and let the wave of nausea pass, as yet another blithe insult to you, where the hegemon's minion can openly ponder how to harm you and your family, with impunity, on behalf of the 1%. Recovered a bit?  OK.  Now, specifically how would they cause you this harm?

Would they order retailers to raise prices 4%, and then wholesalers, manufacturers, etc?  Nixon ordered business NOT to raise prices back in 1971 in a positive interest rate, inflation regime, so is the reverse to order business to raise prices the corollary in a negative interest rate, deflation regime?  (And raising prices does not make inflation).

Wait, there are mark-ups and margins to maintain in relation to each stage of production.  So say in housewares the margin is 50%, and the retailer reprices a $1.00 item to $1.04, does the wholesaler raise his price from 50 cents to 52 cents (4%)?    I'd love to hear what the plan is, and then consider it.

Mish does say this, with which I part company:
It’s asset deflation not CPI deflation that central banks ought to fear. Even the BIS agrees with that statement.
There will be no economic recovery without asset deflation commensurate with bubble inflation, with a regression to the mean for full effect.  If the BIS agrees, then Mish ought to disagree. The real estate boom, that asset class, must go bust.  Million dollar houses need to return to their 1998 $200,000 price for there to be an economic recovery.  And then lower to draw in buyers, for the tax man will leave the properties on the books at a million, and collect taxes as 6% as though nothing changed.  The home will have $60,000 tax bill, when $12,000 would be correct at the marked-to-market valuation.  The house thus must drop in price to amortize the unchanging "6%" tax rate, or the buyer won't pick it up.

But but but....  that would wipe out countless Americans.  Well, it would restore the economy to an organically sound foundation.  Those who assess theor accumulations in ex-nihilo credit tallies would certainly find their pensions, paycheck, properties, marked-to-market, are not worth much.  but that would just reveal how much they depended on a warfare/welfare chimerical economy.

And then stocks need to get marked to market.  And pensions.  And medicine, and every other inflated class.

We all love a system that works for us. All policies harm one side and reward another.  The hegemon thrives on the class warfare, could care less about which policy is regnant.  Even if either is being wiped out at any given time, all love a system at which they can win (but a Charlie Sheen kind of "winning".)

Anyone with a  pizza oven will do well, in spite of the fact that pizza prices would be dropping too.  but the difference is the tomatoes, flour, cheese prices would be dropping as well, and the pizza parlor would be dropping prices slower than his costs were dropping.  So he'd be getting wealthier as his prices were dropping.  This is how a free market works anyway.  Wealth is redistributed widely, those who work serving others earn best, and communities become more creative as the pizza man invests in other small businesses and  united as the pizza man extends credit to people in a jam.  It was only 40 years ago that the USA was this way.  Problem is most of productive USA has no idea there is an alternative and the way to it is through massive deflation.

Start your own business, fire up a pizza oven, if that is your thing.  Make sure it is on wheels, not bolted down, so it is your property, not a fixture that becomes legally the landlords.

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