Buffett & Bernanke have opposite takes on inflation
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?
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?
Comments
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.
Why, I can name dozens of other binary decisions which really smart people cannot agree upon.
Should we drill ANWR? When is a fetus a person? Is it legal to shoot your neighbors burglars? Are professional sports teams valuable enough to a community to spend millions on arenas? Who should be president?
They don't even have to be hard problems. We can't even agree when the decision doesn't matter so long as one (and only one) decision is made. Which endian should computer architectures use? HD-DVD or BluRay? Should we eat mexican or chinese tonight?
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?
Deflation
Inflation
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.
So, you're saying that we can have inflation and deflation at the same time.
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.
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.
Observations have error. Especially indirect observations.
Suppose I show you a weighted coin. If you flip it, one side comes up more often than the other. You don't know which side it prefers or how much more often that side comes up.
I flip the coin three times: HHT. Can you guess with much certainty which side is preferred?
I could repeat this experiment with another person and I might get TTT. That person would disagree with you.
If I showed it to enough people, then the percent of people who believe the correct answer would predict the correct bias. There are bound to be some very smart and authoritative people who would be wrong in that crowd.
Buffet & Bernanke have different view of the economy. They have different models used to interpret their observations. Their respective models have served them well in the past so they keep using them. Still, one of them is obviously wrong. You might think you can tell which one it is, but you might be wrong too.
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: Robroy, Deflation
Minyanville article:
Understanding Inflation and Deflation
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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He's got it pretty much right on. Endian in computing is how the byte order is arranged. Consider the decimal number 10. Read left to right it is ten, but read right to left it is one. It's arbitrary which way you go, and as such the debate over little endian and big endian was named after a similar and equally arbitrary debate in Gulliver's Travels.
As for my choice of examples, I picked subjective ones because they came to mind. But perhaps some more fitting examples are "what causes (or how do we stop) ____ medical condition (fill in the blank with your favorite disease)", "what is the optimal energy policy", or does free trade/running a deficit/government bailouts help or hurt the economy?"
In essence, some decisions are may have right answers which we can't determine. They may even have answers that are easy to validate, but it is simply too computationally intensive to compute. I suspect that with enough time, complete enough records, and reasonable estimation algorithms for consumer/business sentiment you could probably design an algorithm that calculated exactly what inflation was across the board and how it would affect a typical citizen. But the inputs are too hard for us right now, and it might take far longer to run than the timeframe in which we need an answer.
Look at home prices. Look at car prices (particularly when you adjust for the deflationary forces of 'incentives'). Look at the stock market. Those are all major deflationary forces.
Look at commodity prices and look at the sinking dollar and those are inflationary forces.
So do we have inflation, deflation, or both?