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  1. #1
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    Default Inflation: Lindsay Lohan vs the Fed

    It would appear that Lindsay Lohan has a more acute sense of the real economy than the Federal reserve.



    I agree with her observation.

    Discuss.

  2. #2
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    Blaming high gas prices on monetary policy is a tough sell. Although there has been an unprecedented increase in the monetary base over the last three years, nominal gross domestic product (aggregate and per capita) remains well below its previous trend. In the long run, the supply of base money determines the level of nominal gross domestic product, but monetary expenditures are more important in the short run. An increase in the demand for money (that is, a reduction in average monetary expenditures), will cause deflation unless the monetary authorities make offsetting additions to the supply of base money. The unprecedented increase in the monetary base was mirrored by an unprecedented increase in the demand for money. In fact, the Fed did not increase the monetary base enough, because nominal gross domestic product remains depressed.

    Whatever the reason for recent high food and gas prices, it is unlikely to be the Federal Reserve's current expansionary monetary policy, because the Fed simply is not doing expansionary monetary policy. Over the past three years, by allowing some of the increase in money demand to go unchecked, the Fed has been passively contractionary.
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    Quote Originally Posted by reason View Post
    Blaming high gas prices on monetary policy is a tough sell.
    In short purely a supply versus demand problem where the real economy is starved for cash to buy up undersupplied goods?

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    royal member Rasofy's Avatar
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    The Fed is creating artificial growth by printing money. It's a really really bad strategy. Unemployment decreases a bit and inflation rises a lot, along with the debt level. US will someday get to the point where no one wants their bonds, the overleveraged economy will lose it's artificial fuel. The current debt/gdp ratio is higher than it was in 1929:

    I'm guessing US and most of the world will face an economic dark age similar to the 1930s after they reach this point, and it doesn't seem very far.
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    Quote Originally Posted by reason View Post
    Blaming high gas prices on monetary policy is a tough sell. Although there has been an unprecedented increase in the monetary base over the last three years, nominal gross domestic product (aggregate and per capita) remains well below its previous trend. In the long run, the supply of base money determines the level of nominal gross domestic product, but monetary expenditures are more important in the short run. An increase in the demand for money (that is, a reduction in average monetary expenditures), will cause deflation unless the monetary authorities make offsetting additions to the supply of base money. The unprecedented increase in the monetary base was mirrored by an unprecedented increase in the demand for money. In fact, the Fed did not increase the monetary base enough, because nominal gross domestic product remains depressed.

    Whatever the reason for recent high food and gas prices, it is unlikely to be the Federal Reserve's current expansionary monetary policy, because the Fed simply is not doing expansionary monetary policy. Over the past three years, by allowing some of the increase in money demand to go unchecked, the Fed has been passively contractionary.
    Do you mean the value of the US dollar has been dramatically rising(against other fiat currencies of course), what about the value of commodities and precious metals(gold, silver)?
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    I've always suspected Lindsay Lohan was cool and smart, and now I know why.
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    Quote Originally Posted by InvisibleJim View Post
    In short purely a supply versus demand problem where the real economy is starved for cash to buy up undersupplied goods?
    No ... that isn't why food and gas prices have been rising. However, neither does expansionary monetary policy explain recent food and gas prices, because monetary policy has not been expansionary. It's easy to be fooled by the supply of base money and low interest rates, but they do not preclude a shortage of money.
    A criticism that can be brought against everything ought not to be brought against anything.

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    Quote Originally Posted by Robopop View Post
    Do you mean the value of the US dollar has been dramatically rising(against other fiat currencies of course), what about the value of commodities and precious metals(gold, silver)?
    Money demand is a demand to hold money, i.e. to increase averages money balances. Everyone holds some money as part of their total assets. An increase in money demand means a desire to increase money as a proportion of assets.
    A criticism that can be brought against everything ought not to be brought against anything.

  9. #9
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    Quote Originally Posted by reason View Post
    No ... that isn't why food and gas prices have been rising. However, neither does expansionary monetary policy explain recent food and gas prices, because monetary policy has not been expansionary. It's easy to be fooled by the supply of base money and low interest rates, but they do not preclude a shortage of money.
    Yes, I believed what you were saying were infact in opposition insofar that there was 'not enough money so you are seeing inflation'. That didn't seem to jive.

    It is easy to say 'there is too much demand therefore that is driving inflation' However one can argue that due to a glut of monetary supply you are underinvesting (interest rates low) therefore causing less supply than the market requires.

  10. #10
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    For gas, U.S using quite a bit of it. On the news, the war in Libya is "directly" affecting other oil and gas nations. In another news, America is crying that we aren't drilling in and around America enough to lower gas prices.

    For food, LOTS of food (like drinks and processed foods) contain some type of corn like High Fructose Corn Syrup or Corn Starch.
    Corn and Ethanol are competing. Farmers make more money selling Ethanol than they do selling corn as corn or as corn syrup/starch, so why not turn it into Ethanol instead?
    The gluten protein is dried and filtered to make a corn gluten- meals co-product and is highly sought after by poultry broiler operators as a feed ingredient. The steeping liquor produced is concentrated and dried with the fiber and sold as corn gluten feed to in the livestock industry. The heavy steep water is also sold as a feed ingredient and is used as an environmentally friendly alternative to salt in the winter months. The corn starch and remaining water can then be processed one of three ways: 1) fermented into ethanol, through a similar process as dry milling, 2) dried and sold as modified corn starch, or 3) made into corn syrup.
    You have the food industry and the ethanol industry competing for corn and you have a limit on oil. I dare you people to look at how many food items contain some type of corn in it whether it is the whole corn, corn syrup, or corn starch. You'll be amazed at how many food items in a supermarket contains some type of corn ingredient in it.

    There goes your answer.

    Increase in food prices and oil prices has been going on for years and this is besides the point that the feds are printing money.

    So I disagree with you and Lindsey Lohan's assumptions.

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