Comments on: What Inflation? This Inflation! http://www.economicnoise.com/2009/11/25/what-inflation-this-inflation/ Economics, Finance and Politics Through The Prism of Classical Liberalism Thu, 09 Feb 2012 01:47:38 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Monty Pelerin http://www.economicnoise.com/2009/11/25/what-inflation-this-inflation/comment-page-1/#comment-128 Monty Pelerin Thu, 26 Nov 2009 12:57:00 +0000 http://www.economicnoise.com/?p=6878#comment-128 I would tend to agree with you, although do not trust the CPI numbers. It is difficult/impossible to develop and index that measures price change under the best of conditions. If the attempt becomes politicized, then you have bias on top of error. See John Williams at www.shadowstats.com for his take on CPI, GDP, etc. Regarding your point about stock market performance, a drop in the Dow seems likely, although "markets can stay irrational longer than you can say solvent" (paraphrasing J.M. Keynes). In a hyperinflation, markets tend to rise. I believe Zimbabwe market performance vastly exceeded the rest of the world in their hyperinflation. However, I also do not believe it kept pace with inflation. I would tend to agree with you, although do not trust the CPI numbers. It is difficult/impossible to develop and index that measures price change under the best of conditions. If the attempt becomes politicized, then you have bias on top of error. See John Williams at http://www.shadowstats.com for his take on CPI, GDP, etc.

Regarding your point about stock market performance, a drop in the Dow seems likely, although “markets can stay irrational longer than you can say solvent” (paraphrasing J.M. Keynes). In a hyperinflation, markets tend to rise. I believe Zimbabwe market performance vastly exceeded the rest of the world in their hyperinflation. However, I also do not believe it kept pace with inflation.

]]> By: Jonathan Finegold Catalán http://www.economicnoise.com/2009/11/25/what-inflation-this-inflation/comment-page-1/#comment-121 Jonathan Finegold Catalán Wed, 25 Nov 2009 20:57:12 +0000 http://www.economicnoise.com/?p=6878#comment-121 My friend is active in the stock market, and he told me the other day, "The period of bull market rally has been unusually long and strong." He didn't apply macroeconomic theory to his observation (and, he is not an Austrian), but to me that is a clear signal that the stock market's bull rally is entirely the work of monetary inflation (especially when it comes to the rise in the price of bonds [such as t-bills] and then the rise in commodities). Although, change in CPI was negative and now is only increasing marginally. Once CPI begins to rise more dramatically, there will probably be a drop off in the rise in price of stocks. To be fair, I am not entirely read on the effect of easy credit on the stock market, other than psychological effects (and the effects of low interest rates versus high interest rates). My friend is active in the stock market, and he told me the other day, “The period of bull market rally has been unusually long and strong.” He didn’t apply macroeconomic theory to his observation (and, he is not an Austrian), but to me that is a clear signal that the stock market’s bull rally is entirely the work of monetary inflation (especially when it comes to the rise in the price of bonds [such as t-bills] and then the rise in commodities). Although, change in CPI was negative and now is only increasing marginally. Once CPI begins to rise more dramatically, there will probably be a drop off in the rise in price of stocks.

To be fair, I am not entirely read on the effect of easy credit on the stock market, other than psychological effects (and the effects of low interest rates versus high interest rates).

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