Buffett & Bernanke have opposite takes on inflation

[rose-colored-coolaid]

http://money.cnn.com/2008/06/25/news/ne ... tm?cnn=yes

Seems to me that if literally everyone in the country says we have inflation problems, and if Buffett says we have inflation problems...

Well, how credible is Bernanke in the face of that?

[WestSideBilly]

Standard operating procedure: Repeat something frequently and loudly and people will start to believe it - at the least, the person saying it will.

The BLS' CPI is a nice tool to maintain that illusion (delusion). Eliminate all the things that are inflating rapidly and hurting the average American, and reinforce to them that we're doing great.

[TJ_98370]

It truly amazes me that we have all of these smart, educated, successful people whose expertise is in the realm of economics and they cannot agree as to something as basic as whether the economy is in a deflationary or inflationary mode.

[rose-colored-coolaid]

[TJ_98370]

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RCC - except for maybe endians, which I do not understand, all of your examples are value judgements and / or preferences due to subjective interpretation.

Inflation and deflation have hard definitions, right? Observation and measurement should lead one to clearly determine whether the economy is under deflationary or inflationary (or neither) influences. Why is there a debate?

[jon]

Oh, the best part of the endian debate is where the word came from:

http://en.wikipedia.org/wiki/Lilliput_and_Blefuscu

As for deflation, we currently have deflationary behavior for RE and inflation for everything else. Trying to fix one makes the other worse.

[TJ_98370]

Jon - that's really funny! Do you really believe that story to be the source of the word "endian"?

So, you're saying that we can have inflation and deflation at the same time.

[sniglet]

As I've mentioned on other threads I definitely fall into the deflationist camp, and fully expect commodity prices to collapse as the global recession picks up steam in the next couple years. Just like so many people were convinced there really was demand for all those homes being built back in 2005, I believe that there is a lot of whishful thinking going on about the perpetual demand (and supply limitations) in the commodity space.

That said, I wouldn't exactly say I fall into the "Bernanke" camp. In fact, the whole question about what the Fed "thinks" is completely beside the point. The Fed will follow T-bill rates, regardless of what the individual governors think. The recent Fed decision to stay pat on rates was simply following the treasuries market which has weakened up a bit in the weeks leading up to the Fed meeting.

If T-bills rally (and yields fall), then we can expect to see the Fed cutting rates even more. It's as simple as that. What the Fed "wants" has nothing to do with it.

[jon]

That's widely regarded as the origin to endian, and sounds quite reasonable to me.

If you read an article about the state of the mortgage industry from a year ago to a few months ago, you hear a steady drumbeat of a lack of capital and liquidity, with people unable to get financing and prices falling as a result. That caused the Fed in December to allow the banks to count seemingly anything with a price tag as collateral to get hard currency. By then inventory had piled up all over, and with prices falling, still no one wants to buy. That is the classic problem with deflation. It seems to me the credit crisis would be over, if only they could get prices to stop falling to prevent further losses to banks. Problem is how to do that without generating more federal debt.

Meanwhile, everyone has seen what has been happening to the prices of everything else.

As for whether general deflation will come, that is totally different that if there is deflation now. There have been people warning of impending general deflation for years. Time will tell. I don't think the upcoming recession will be any different or worse than the ones we get every few years.

[Alan]

[TJ_98370]

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Okay. This is what I'm getting from this thread:

The economy is the sum of all of it's parts. The "experts" all have their own perspective and they call it as they see it. Mr. Buffet says we have inflation because of his perspective (he specifically mentions oil and steel), and Mr. Bernanke says we are experiencing "relative price changes", whatever that may mean.

Robroy started a thread based on Mr. Minyanville's view on this subject that is interesting:

Minyanville article:


Personally, I believe Mr. John Q. Public (myself included) become confused because the "experts" quoted in the MSM are referencing specific segments of the economy when claiming inflation / deflation and they are being incorrectly interpreted as making comments about the general, overall economy. Am I pretty close to the truth?
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[rose-colored-coolaid]

[lamont]