Arkady
President
Republicans like to hype inflation for several reasons:
1) They don't want the Fed to do its job to address high unemployment by loosening money supply (which would help Obama), so they need people freaked out about inflation, even at a time when it's been at historical lows.
2). Inflation hurts old-money types (with trust funds stuck with fixed annuities), and those people fund the conservative movement. So, conservatives want super-low inflation or even deflation, even if a little more inflation would help the economy (by punishing those who leave their money dormant, rather than investing it).
3). Inflation hurts the banks (the real cost of your fixed-rate debt declines if there's inflation, which lowers the real value of the bank's note on that debt). So, again, they'd prefer deflation, even if a little more inflation would be better for the economy (by helping to decrease real consumer debt).
4). Inflation fears inspire dislike of deficits, and Republicans can use that sentiment to get people to sour on domestic spending by government.
But, are they right to think (or to at least say they think) high inflation is coming? Nobody knows for sure. But the market thinks they're dead wrong. The market thinks we'll have near-record-low inflation for decades to come.
Read these:
http://www.obliviousinvestor.com/tips-vs-nominal-treasury-bonds/
http://www.treasury.gov/resource-ce...es/TextView.aspx?data=realyieldYear&year=2012
The first explains how the spread between yields on TIPS and nominal Treasuries is dictated by market expectations about inflation. If you expect X% average inflation over the next Y years, you will demand at least X% higher yield on a non-inflation-protected Y year Treasury than on a Y year TIPS (which gets adjusted up by the actual rate of inflation).
The second link shows the current gap in yields between the two types of otherwise-identical investments (and thus shows roughly what the typical treasury investor thinks the inflation average will be over each time period).
What this tells us is that investors think inflation will be nearly zero for decades. The free market could be wrong about that, of course. But it shows that the number of people GENUINELY concerned about inflation is very low (or they'd bid down the yield on TIPS and stop buying nominal Treasuries until their yields rose considerably).
The vast majority of those talking up the inflation threat don't really think it's a serious threat. They just want the rubes to think it is, for purely political reasons.
1) They don't want the Fed to do its job to address high unemployment by loosening money supply (which would help Obama), so they need people freaked out about inflation, even at a time when it's been at historical lows.
2). Inflation hurts old-money types (with trust funds stuck with fixed annuities), and those people fund the conservative movement. So, conservatives want super-low inflation or even deflation, even if a little more inflation would help the economy (by punishing those who leave their money dormant, rather than investing it).
3). Inflation hurts the banks (the real cost of your fixed-rate debt declines if there's inflation, which lowers the real value of the bank's note on that debt). So, again, they'd prefer deflation, even if a little more inflation would be better for the economy (by helping to decrease real consumer debt).
4). Inflation fears inspire dislike of deficits, and Republicans can use that sentiment to get people to sour on domestic spending by government.
But, are they right to think (or to at least say they think) high inflation is coming? Nobody knows for sure. But the market thinks they're dead wrong. The market thinks we'll have near-record-low inflation for decades to come.
Read these:
http://www.obliviousinvestor.com/tips-vs-nominal-treasury-bonds/
http://www.treasury.gov/resource-ce...es/TextView.aspx?data=realyieldYear&year=2012
The first explains how the spread between yields on TIPS and nominal Treasuries is dictated by market expectations about inflation. If you expect X% average inflation over the next Y years, you will demand at least X% higher yield on a non-inflation-protected Y year Treasury than on a Y year TIPS (which gets adjusted up by the actual rate of inflation).
The second link shows the current gap in yields between the two types of otherwise-identical investments (and thus shows roughly what the typical treasury investor thinks the inflation average will be over each time period).
What this tells us is that investors think inflation will be nearly zero for decades. The free market could be wrong about that, of course. But it shows that the number of people GENUINELY concerned about inflation is very low (or they'd bid down the yield on TIPS and stop buying nominal Treasuries until their yields rose considerably).
The vast majority of those talking up the inflation threat don't really think it's a serious threat. They just want the rubes to think it is, for purely political reasons.
