The Written Peace:
Open Forum of May 17, 2005
The daunting task for economists working on ways to torture data is not in coming up with theoretical reasons for making adjustments; and it is not difficult to do the alterations of raw data in such a way that something like inflation at the consumer and producer levels looks much tamer than it really is. The difficulty comes when the actual economy—the place where people work, consume, and plan for the future—turns sour. Although the mainstream media has been more than helpful during the Bush Administration in securing the people from many problematic results of neo-conservative policies, a recession is somewhat difficult to hide. It is not, however, impossible to do so.
The Analysis posted just below explained what causes some recessions and how people can tell that one has a good chance of coming in spite of what the Administration and the media say. The idea has gained some popularity that the world is now somehow so different that old rules don't apply: a government can run massive federal budget deficits without consequence, macroeconomic business cycles don't happen anymore, and deep recessions cannot occur. Readers of that Analysis might have learned a little economics, and with that knowledge, they have some tools by which they can judge for themselves if the world is now really so different that the old-fashioned body of knowledge about how economies work can be set aside.
But readers must keep in mind that neo-conservative economists bear one unmistakeable belief of their predecessors, the Classical economists: so long as the economy is on a long-term growth path, the short-term—with its recessions, depressions, unemployment and attendant human suffering—does not matter. It just doesn't.
The neo-conservative radicals should hope that their new world has truly come, a world where only the very long term has sway in public policy. If they are wrong—if what happens tomorrow, next month, or in the coming few years really does finally matter to people—then those neo-conservatives will learn something important when their gallows are built.
The hangman does not wait for the long run.
Write what you have to say upon anything worthy or unworthy of comment: at The Dark Wraith Forums Hotel and All-Night Diner, just about everything is interesting to someone.
The Dark Wraith flips on the OPEN sign.
Published 5/17/2005 02:49:00 AM
<< 57 Comments Total
Good day, Dark Wraith...
Perceptions are quite different when viewed from the standpoint of individuals versus classical economists. Principally, the attitudes of a population will only lower their expectations for major events such as wars, terror attacks, and other major sociological events. However, I would venture that the American people have a rather low tolerance for changes that affect day-to-day living. Regardless of the GDP-, CPI-, and PPI-numbers the media throws at the populous, when Joe Consumer goes to checkout at the grocery store and realizes that he is consistently paying an extra thirty or forty dollars, he will indeed take notice.
Expectations are funny things: an administration can only delay the inevitable market downturn so many times with rhetoric before someone cries foul loud enough that the media outlets start running stories. While an economic correction would be one thing, it is probably going to be more than a little hiccup - it may be much more. I suppose this is what happens when an economy has been burning hot for over a decade and people expect things to be handed to them.
Mr. Non-Descript holds on to his own expectations....
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Good Morning Dark Wraith,
There is a very inspiring article by Bill Moyers Here about freedom of the press, and PBS
Good morning, SB Gypsy.
Bill Moyers has been a constant and consistent voice of reason for a long time, and his essays will surely someday become part of the media counter-legacy to what is now happening. There are, of course, others in the media who are, and have been, speaking out. Walter Cronkite comes to mind.
What amazes me is how many aren't. Surely, just about everyone in the legitimate press knows what's going on. I wonder if, after the Bush Administration has become repudiated or otherwise retired, all kinds of journalists will come forward with their own analyses and horror stories about what happened in our age. I doubt if that will happen, considering the staggering atrocities that came on the watch of the Reagan Administration—principally in its first term—about which hardly anyone knows or cares, these days.
However, in the unlikely event that legions of media types one day tell the public what was really going on in these first years of the 21st Century, I think I shall set those accounts, true and honest as they might be, aside: when adversity passes, the howl from former cowards just annoys me.
The Dark Wraith will reserve his time for the soldiers who stood tall in the time of darkness.
Good morning, Mr. Non-Descript.
It is those expectations that drive economies in the short run, and expectations can even defy reason.
But only for so long. That having been said, a difficult part of the story in real-world economics is how "real" wages and salaries—compensation for the labor and human capital factors of production—could have what has become a long-term, secular bias downward.
That's almost Malthusian; and it troubles me deeply to even so much as say in jest that Malthusian dynamics might be a legitimate explanation.
What appears to be happening is that wages are "sticky" beyond what even the Keynesian economists would have suggested. Think about it: the key with using monetary policy in a Keynesian world has to do with the short-run inability of the aggregate price level to rise. Remember the "equation of exhange":
MxV = PxQ,
where M is the quantity of money, V is the velocity of money (which is assumed to be relatively constant for any scenario of reasonably short duration), P is the aggregate price level, and Q is the real output of the economy. The Keynesian trick—not exactly a good idea, but available as a policy tool, nonetheless—would be to increase the money supply, M, on the left side of the equation of exchange, knowing that wages and prices are "sticky" in the short run, which means they could not react right away to keep the equation in balance. Thus, the only way the economy can maintain the rigid physical property of having the equation of exchange remain an equation would be for real output, Q, on the right side to go up by as much as M went up on the left side. Now, the Classical economists, who care only about the long run, point out that the aggregate price level will sooner or later react fully, and all of that increase in real output, Q, will be replaced by mere inflation. Thus, from the equation of exchange:
MxV = PxQ,
and in the short run,
if M↑ then Q↑...
but in the long run, the economy's participants figure out that the extra money they've seen wasn't backed by anything real, so
Q↓ and P↑.
That rise in the aggregate price level is, of course, by definition what we in common parlance call inflation. Most important is that, as the government pulls the stunt of over-printing money too aggressively and for too long, the economy's participants get wise to the trick, and they begin to expect too much money to be printed. Hence, real output, Q, stops going up at all when M goes up; all that happens is the aggregate price level reacts just about immediately. Worse, even when the Fed stops overprinting the money, the market expectations will keep pushing P up for at least a little while, meaning that, to maintain the balance of the equation of exchange, real output, Q, would have to go down so that MxV would stay equal to PxQ as P kept rising even though M was actually falling because the Fed finally found religion but nobody believed it.
Now, Mr. Non-Descript, back to the puzzle about wages and salaries over a very long period of time not fully reacting to those cycles of the Fed over-printing money. In other words, a major part of what makes up the aggregate price level, P, does not fully react, even in the long run.
If we are not to throw the equation of exchange out the window, what must that mean? There are a couple of possibilities, and each has quite interesting consequences on what the economic world is really like.
The Dark Wraith is interested in whether Mr. Non-Descript or anyone else would care to lay out the possible explanations and what each indicates about the real world.
[And if you folks get a handle on what you read above, you've pretty much grasped about a full third of a macroeconomics course.]
Unfortunately, I'm one of those people probably aiding the currently administration in its economic deceit because I'm so stupid when it comes to actually understanding economics. Until today, I didn't know there was such as word as macroeconomics. Geez.... I was born right-brained, I'm afraid.
Good Morning, Dark Wraith.
Okay, I'll give it a shot. You said we want to keep the equation of exchange intact, so:
MxV=PxQ
If over the long run wages and salaries (P), are not reacting to increases in the supply of money (M), then if we are to keep the equation balanced there are only two possibilities.
1) The increase in the money supply (M) has a long term positive effect on the real output of the economy (Q). So the effects of the increase in the money supply are split between P&Q, which means that P cannot increase to the full extent that M did if the equation is to remain balanced.
In plain english, this means that increases in the money supply will in the long term serve to stimulate production and increase wages, but that wages will not keep pace with inflation over time.
2) Over the long run, the velocity of money (V) must decrease as the supply of money (M) increases. No idea what V actually represents, though, so I can't comment on what this means in real terms.
Mr. Shakes gets back to his boring job.
A question from the Dark Wraith's Econ 101 final exam:
What is the velocity of money?
A. The rate at which money leaves your pocket due to bloated government spending.
B. The rate at which your credit card debit increase as your credit limit is increased.
C. The rate that a dealer removes your bet from the craps table.
D. That rate at which The Wraith spends money when Spam goes on sale.
Open forum... you did say it was open forum...and since it is an open forum, could you tell me whether you're married or not?
This is a subject of interest to me:)
My head is spinning. Damn you for making me take an interest in the economy!! Damn you all to hell!!! (he screams like Heston at the end of POTA)
My head hurts...but I will give something a try.
I think one problem with the "equation of exchange" (MxV = PxQ) may be that it does not account for the variable g, or greed.
As corporations strive more and mover to increase their bottom line to please their shareholders and earn their bonuses based on quarterly performance, they realize they can pay their employess less and less. In extreme cases where things get tight they realize they can always raid the pension fund.
And if their employees do not want to work for less they can force them to retire early and go recruit new graduates.
If the new graduates don't want to work for less then the corporations can hire illegal immigrants to work for cheap and do the jobs "Americans just dont want to do".
All this increases the bottom line while maintaining stagnation in relation to real earnings.
Thus the equation (if I knew one darn thing about economics) may be something like:
MxVxg =k(QxP)
g = greed
k = the rate of the constant decline of real earning power among American Workers.
Thus as MxVxg increases, QxP decreases while the rate k increases and accelerates.
Don't forget the Sheeple Index. This is often erroneously assumed to be a constant with a value of 1.0, and as a result, is rarely included in the equation.
Unfortunately this mathematical casualness allows the variable greed to remain unchanged, when in fact it may be moderated or exacerbated by real events. In rare cases the index declines due to worker strikes, etc. Typically though, the index increases as a result of workers continuing to accept subpar wages, etc., thereby magnifying the greed variable.
Ah, things heated up around here this morning in my absence. I must go to administer yet another final exam, then I shall return for more replies.
Let me start with you, Mr. Shakes. You hit the nail on the head with respect to possiblilities that could be causing some odd, gray world between the Keynesian short run and the Classical long run.
What we have going on is some kind of persistent, intermediate result: excessive increases in the money supply cause real output to increase in the short run without much of a reaction in the aggregate price level; however, unlike the Classical model might indicate, the aggregate price level doesn't seem to be absorbing all of the excess dollars in the long run.
But is real output actually staying above what would otherwise be long-run equilibrium?
Before we deal with that, let me get everyone caught up with a simple numbers example of how the equation of exchange works. I might not get this entire post written before I have to go to class, but I'll get it started with some preliminaries, then I'll pick it back up later this afternoon or early this evening when I can get back to a computer.
Here we go.
Remember that the equation of exchange states that
MxV = PxQ,
where M is the money supply,
and V is a measure of the velocity of money,
and P is the aggregate price level,
and Q is the real output of the economy.
Note that Q is real output: that means real things; whereas PxQ is so-called nominal output: merely a dollar-value description of the real things that are represented by Q. To emphasize this point, suppose that Mr. Goat wants three dogs for dinner. Now, the dogs are real things; hence, Q=3. But suppose Left NeoCon Crusher sells him the dogs for $5.00 each. That means the nominal value of the dogs is $15.00 (that is, PxQ, or $5.00x3). Mr. Goat doesn't actually eat $15.00; he eats three real dogs! The $15.00 is just a measuring device, but no more.
Keep this in mind: nominal values (represented by PxQ) are not the same as what really happens (which is represented only by the plain old Q).
By the way, as a side note, that "aggregate price level" variable, P, is a currency vector: take the price of each good or service in the economy, and multiply it by the amount of that good or service available; add all of these up, and you have the PxQ. Obviously, this would be an almost impossible task because of the literally millions and millions of goods and services, so we would use some kind of sampling procedure for real-world purposes, very much like using the Dow Jones Industrial Average of 30 large corporations' stock prices, or the S&P 500, or the NASDAQ Composite index, to measure the overall behavior of the entire stock market.
To summarize, then, the equation of exchange says that, at any given moment in time, the amount of money in an economy times how many transactions that money can be used for in that moment must equal the total, nominal value of all the goods and services that have engaged transaction in an economy.
Notice that this makes the equation of exchange not some mysterious, debatable theory. Instead, the equation of exchange is one of those "DUH!" things.
So, if the money supply is $50 and that money is turned over 3 times in a year, that means the economy must have realized $150 of transactions: MxV.
But that must also mean that the total, money-denominated, nominal value of the goods and services that realized transaction must have been the same $150: PxQ.
Okay, now let's get down to a real numericla example...
OH MY GAWD ALMIGHTY! I'VE GOT TO GIVE A FINAL IN FIVE MINUTES!!!!!!!!!!!!
The Dark Wraith blasts out the door.
A cliff-hanger! I was just starting to get it! Looking forward to the rest. I wish I had a pint in front of me, this is good pub talk.
Everybody! Keep it down! My students are taking a final exam right now, and I'm trying to watch them and type here on the computer at the same time.
Left Behind Child! No helping them with the problems, either! It looks like they're doing okay on their own... I think... I hope.
Yikes! Someone just looked up because my typing got too loud.
Everybody: HUSH. And tell Mr. Goat not to come barreling into the room belching.
The Dark Wraith gets back to walking around, scowling over the students' shoulders.
Mr. Dark Wraith Sir...
My Pet Goat Keeps trying to look over my shoulder and cheat off my exam....
Noooo problem.
Professor Wraith fetches the Goat-a-Taser.
Oh come on you Necon tattletale; I was only checking out how many answers you were getting wrong.
Dear gods, I have been overun by rampant anti-chpicers who don't believe in birth control. I am looking for sanity, at least what passes for sanity in my world.
Ahh, economics, I feel better all ready. And then sb gypsy gives me a link to my favorite journalist ever. Thanx.
My Pet Goat:
I only started putting down the wrong answers AFTER I noticed you cheating off my exam..
Awright, you guys, back to the equation of exchange example. Now that I have a can of Spam, sliced thin and fried to crispy black, in my system, and now that I have a huge cup of coffee sitting right here beside me, I'm ready to do the wild thing.
(And to Old White Lady, considering that my idea of "the wild thing" is writing about economics, your question should be answered.)
Here is the equation of exchange, once again:
MxV = PxQ,
where M is the money supply,
and V is a measure of the velocity of money,
and P is the aggregate price level,
and Q is the real output of the economy.
We'll do a quick, simple scenario to kick this off.
Suppose that the money supply is $100; and that hundred bucks can flip twice during the period under consideration so V=2.
This means that the money will be used for $100x2, or $200, worth of transactions during the period. That's MxV.
Now, let's assume that there's one product being produced in the economy, and it costs $4.00 for each one of them. That means 50 of them were sold because we already know that $200 of transactions (MxV) occurred.
Hence, the real output (the tangible, honest-to-goodness stuff) of the economy is Q=50, and the nominal output, PxQ (the dollar value placed on the stuff) is $200.
So to start, we have an economy where
M x V = P x Q, or
$100 x 2 = $4 x 50.
Now, let's say a politician wants to jump-start real output. The Keynesians would say that this could be done (although it's not a particularly good idea) by increasing the supply of money. Well, it would seem like all this would do is water down the value of the existing hundred dollars, which would mean that prices would simply rise in dollar terms since each dollar is worth less. But the Keynesians would disagree for two reasons: first, as long as the central bank kept it a secret for a while that more money had been printed, no one would know that the money in the economy had been watered down; and second, prices of many things simply can't react instantaneously. Keynesians describe wages and prices as "sticky" in the short run, and this has a lot to do with forward contracting.
Think about it. If you know that your salary has suddenly lost, say, 20% of its purchasing power, can you just walk into your boss's office and say, "I want 20% more, and I want it right now"? No, you can't. Even though some prices can react with blazing speed, many cannot; and this is true for suppliers' price reaction ability, as well: once producers have agreed to deliver their goods at a specific price, for many (but not for all), it's pretty hard to pull a fast one and say, "Oh, we think dollars have suddenly become worth 20% less than when we offered our buyers this stuff, so now we want to amend the contract to get a price that's 20% higher than what we negotiated."
It is primarily because of these "forward contract" aspects of large, complex economies that the Keynesians argue that, in the short run, wages and prices are sticky. Notice, by the way, that wages are really sticky: how often do we see an increase in the minimum wage, for example?
Okay, we've made a policy decision to increase the money supply by, let's say, $20, and we know that prices cannot react immediately.
Now, we have M equal to $120 and V still equal to two, so the economy is now going to do $120x2, or $240, worth of business. We have, then, the left side (MxV) of the equation of exchange equal to $240; so now we need to look at the right side (PxQ) of the equation to see what's going to happen over there to keep the equation in balance.
Okay, we know that PxQ has to equal the $240 on the left side. Remember that the price of the goods is $4.00, and the price can't react to the change that's happened on the left. That means $4.00xQ (on the right side) has to equal $240 (from the left side), and the only way that can be the case is if Q=60.
Well, spank me, Jesus! Real output of the economy jumped, at least in the short run, from 50 units to 60 units, just because we printed some money and nobody knows it's phony, yet, and even if everybody knew it was, prices can't swing upward because forward contracts prevent that from happening.
That's the Keynesian, short-run scenario, and that's what has happened with the Bush Administration and a whole host of Administrations before it: extra money got printed, and real output was tricked into rising.
Ah, but here's where the Classical economists come into play. They say that the long-run result will come, and prices will unstick. (A radical breed of economists, known as "Rational Expectationists," say that prices never get tricked, even in the short-run.) The Classical economists will say that MxV now equals $120x2, or $240, but that happened only because phony money got printed. Hence, once prices and wages get unstuck (if they were ever really stuck in the first place), prices will rise because the real, honest-to-goodness potential for full-employment-of-resources output never left 50 units. Those extra $20 did nothing but water down the value of the $100 that were already out there. Hence, in the long run, the MxV, which is the $120x2 on the left side of the equation of exchange equals PxQ on the right side of the equation of exchange, but the Q, which had gone up to 60, finally returns to 50. But that means, in the long run,
$240=Px50,
so P has to equal (if I'm doing the algebra correctly in my head) $4.80.
In other words, in the long run, the aggregate price level went from its original value of $4.00 to a final value of $4.80; and by definition, an increase in the aggregate price level is what we call inflation!
Whew. Aren't we glad that's over with?
"Oh, but wait," say the politicians. "That was a cool trick: the central bank caused real output to jump for a while. Yeah, we know it finally settled back down to where it was before, but... but... could we see that trick again? After all, our leadership, our fiscal policies, our tax cuts, our wars, our raging budget deficits, our general talk about feeling good about America just don't seem to be doing very much. How about printing some more phony money to make the economy jump just one more time, Mr. Fed Chairman? Please, please, PUH-LEEEZE? After all, we're Republicans, and everyone knows we're the good guys, the honest folks, the financial conservatives, the... the... GODLY people."
And so, the money supply is increased, again.
And again.
And again.
And the Dark Wraith just smiles because, eventually, the long-run becomes the short run as expectations of inflation just get right in synch with the Fed's over-supplying of money, and prices begin to rocket upward even when the Fed finally says, "No more," to the craven and irresponsible Republican.
Cool! I like that answer:)
If I wasn't so sick of school, I'd take your class sir. Fascinating stuff. Thanks. For every action an oppposite and equal reaction. It's always beautiful to watch.
i have wondered for years now about the long term effect of the govmint changing the input of the various indeces of the economy. the morning news. on npr no less, would give the inflation index "minus the volatile sectors of food and energy." odin forbid we should include food and heat. can the govmint paper over the effect of the increase in fuel prices?did i imagine that sometimes housing was also excluded?
what do i know? i've been expecting the whole smoke and mirrors economy to implode for years. i am amazed that interest rates are still as low as they are.
what, dark wraith, is your view of the curve of rising interest rates? how soon? how steep?
oh yeah---great analysis! thanks.
Good evening, Dead Pirate Roberts.
Don't get me started on the housing price issue in the inflation indices. A few years back, the government economists took the price of housing out of the monthly consumer price index, and their reasoning was so deceptively simplistic that everyone thought they did a good thing. The economists who pulled that stunt should have been taken out and shot with a Tabasco sauce paint gun enema.
And that whole thing about how Alan Greenspan favors the "core" CPI—the one that excludes the "volatile" food and energy sectors—just sends me up the wall. Mr. Greenspan might not be very concerned about how nourishment, heat, and shelter prices affect his lifestyle, but I'd wager that a whole lot of common folks really care about the up and down swings in those sectors. And what's really maddening is that food and energy are the types of goods and services where the inflation is likely to show up first precisely because they're the sectors where prices are the least "sticky," to use the Keynesian terminology.
Now, as far as interest rates go, stay tuned. I've been tracking the yield curve more diligently than usual, recently, and the thing is starting to really worry me because it's moving almost consciously toward what we call an "inverted" configuration, and inverted yield curves have preceded some hard recessions in recent history. I don't want to make a big thing of it until I see it keep heading in this direction for a little while longer. If it doesn't start re-establishing a more normal shape, I plan to put up an article exhibiting the recent movements of the yield curve, explaining what a yield curve is and what it means, and giving a summary of the historical relationship between inverted yield curves and recessions.
As I said, though, I'm enough of an alarmist and pessimist as it is. If I start howling in a post about an inverted yield curve, I would prefer to see the drift toward it persist somewhat longer.
The Dark Wraith doesn't want to sound like Chicken Little, y'know.
Good evening, Left Behind Child.
I have this weird fantasy of walking into a classroom one day and seeing you, Lowly Red Stater, and NeoCon Crusher all there.
That would be interesting, especially because my classes are already full of discussions and questions that make them seem sometimes like hard-core seminars. You folks would just crank up the heat even more.
I should point out that, the last time the head of the department observed my class, the day's discussion ranged from Marxist economics to AIDS to age of first sexual intercourse to Malthusian equilibrium to trade theory. The review written based upon that one day of observation said something about macroeconomics and maybe sticking to a textbook lecture more closely.
The good news is that, after one observation session, I don't have to worry about another one until a new department chairman takes over.
The Dark Wraith never has to worry about a review observer showing up more than once.
Good Evening, Dark Wraith.
Fascinating stuff. I was wondering: is there an inverse relationship between the value of the constant V and the probability of a recession? As I understand it, recessions are caused when the money flowing through the system becomes "stuck", either because consumers get scared and stop buying stuff or because producers get scared and stop making stuff. It wouldn't be a huge jump, then, to assume that there is a relationship between V and the positive or negative sentiment of the various protagonists in an economy.
Now, as I think about how this ties into the question at hand, it occurs to me that once people get wise to the fact their government is running amok with the printing presses, that their sentiment about the future of the economy is likely to take a turn for the worse, as the fear of inflation kicks in. If there is a relationship between sentiment and V, then in this situation V would decrease, which would in turn help balance the equation of exchange, and also ensure that the increase in M does not translate fully into increases in P&Q.
More importantly, for all us poor working schlubs, the reduction in the value of V, and the slowing of the flow of money around the economy it represents, is a harbringer of recession.
I may well be getting carried away, but damn it, Wraith, I love that frickin' equation. Thanks, once again, for the brain food.
Good evening, Mr. Shakes.
What you are describing is closely related to what Keynesian economists call a "liquidity trap."
You see, in the depths of a recession, the Federal Reserve can help out by starting to push more money into the economy. Theoretically, when the supply of anything goes up, its price should go down. Remember that the price of money is interest rates; so by the Fed pumping money into the economy, interest rates should start to fall, and this should cause three things to happen:
1) lower interest rates ought to give households a disincentive to save money, which means they must do the alternative with it, which is spend;
2) lower interest rates should spur borrowing by businesses for investment in new plant and equipment, and it should spur borrowing by households for big-ticket purchases; and
3) lower interest rates should make the dollar weaker against other currencies, thereby making our exports cheaper in foreign markets, which should stimulate business activity in the exports-producing industries of our economy.
Ah, but here's the liquidity trap: sometimes, interest rates get so low that they lose their effect on an economy. Essentially, the demand for cash in hand to spend right away (as opposed to putting the money into interest-bearing deposits at a bank) no longer gets any stronger as interest rates fall.
This is where your hypothesis about the velocity parameter, V, comes into play. People become so defensive in their cash management that they don't put their money in the bank because they want more of it in hand "just in case..." but they don't spend the money they have in hand because they're afraid that spending it today might cause them real problems if things turn even worse tomorrow.
This means that the velocity "constant" is no longer constant; instead, it's dropping; therefore, M can be going up, but because V is falling, the MxV side of the equation is going nowhere. That means the other side of the equation, the PxQ side, has no reason to react. Most importantly for purposes of short-run economic stimulus, the real output component, Q, of the right side of the equation of exchange doesn't have to go up.
The catastophe in this scenario happens during the recovery, when it finally occurs. Suddenly, the velocity parameter begins to re-assume its normal value. But the Fed has been pumping money into the economy at a powerful rate for months, trying to overcome the liquidity trap (or not believing that there is such a thing). Now the economy has a massive overhang of dollars and a normal velocity of money, so the MxV side of the economy skyrockets.
This means the PxQ side of the economy has to skyrocket, as well, to keep the equation in balance. What happens? The economy gathers steam rapidly, but real output can't go up fast enough, so the aggregate price level rockets upward much faster than it normally would because all of that money is causing aggregate demand for goods and services to pound through the supply side of the market, but the supply side can't react fast enough, so suppliers start jacking up prices in response to the powerful and unexpected demand for everything on the shelves.
With the price level accelerating rapidly, the Fed has to switch gears almost overnight, knowing as it does that it has created a huge overhang of money that it must now reign in. The Fed contracts the money supply to stop the gathering storm of inflation, and interest rates shoot upward, partly because the supply of money is withering, and partly because lenders are quickly impounding a heavy inflation premium into interest rates they're charging borrowers.
Overnight, the nascent expansion of the economy turns right around into the second half of what is known as a "double-dip recession"!
Have we ever seen one of these animals? Ask Reagan and Bush the Elder.
Oh, that's right: Reagan's dead and Bush the Elder doesn't say much about politics these days.
Well, don't just take my word for it: we'll do a séance some night and call on the spirit of Ronald Wilson Reagan to come and speak to us. And don't worry; now that he's dead, what harm can he do?
Other than scare the crap out of us, that is.
The Dark Wraith keeps the Ectoplasm Wipes handy.
Still open forum, I see:)
This woman
is trying to plan her campaign to win The Dark Wraith's heart.
Since locations are long distance/online, the planning phase is not going so well.
Any suggestions (good one's, please) would be appreciated. Suggestions can be emailed to Old White Lady.
Thank you....
Stupid Email link didn't work... i2digress at aol dot com is the address for (helpful) suggestions. Thanks again:)
The Assoc.Press brand of bee-ess on the CPI can be found here: http://tinyurl.com/ad4dx
I would still like to know how greed factors into all of this as well as the apparent lack of real wage growth.....
Is it out of range of this discussion?
Good Afternoon Dark Wraith,
thank you for so much to mull about, even as you finish up the most busy part of your year!
In other words, in the long run, the aggregate price level went from its original value of $4.00 to a final value of $4.80; and by definition, an increase in the aggregate price level is what we call inflation!
ok, but if the $20 that the fed printed were used as a business loan or line of credit to buy the materials to make more product, when factory workers are sitting idle and being paid to clean machines...would that prevent the inflation?? is that why my world civics teacher in HS said that the wartime economy is a boom economy??
I'm going home now to make dinner, and come up with another new recepie for spam. Not being pessamistic, I just like spam.
really - I've always liked spam, even when my mom made it into hash.
Good afternoon, Dark Wraith.
Thank you, sir, for the elucidation. Hopefully, a seance with President Reagan will not prove necessary!
Okay, I'm probably going out on a limb here; though perhaps not, given that you have identified yourself as a Master Mason, and that you obviously have a penchant for obscure history, so here goes.
Do you see any similarites between the goals and methods of the Bavarian Illuminati and the NeoCons? There just seem to be so many curious parallels.
Yes, I am a nut.
Mr. Shakes hurrdily replaces his tinfoil hat.
Hi you all...
Just wanted to share this with you, you might find it interesting:
http://storewars.org/flash/index.html
Have fun... :)
Good evening, Mr. Shakes.
I go to some lengths to avoid conspiracy theories here at The Dark Wraith Forums.
Freemasons can be dismissed readily and reasonably as conspiracy theorists. More damning, though, is that they are and have for a very long time been, themselves, grist for the mill of all manner of conspiracy theories.
That's just fine by me. As long as people believe in nonsense like The DaVinci Code and National Treasure, Freemasonry can be about its business, silly as it is, without fear of being "known" or "understood" by those who are not deeply involved as practicing, speculative members of the brotherhood.
After all, we're just a fraternal organization. Nothing more.
Now that I have disabused you of all interest in what Freemasons might think or know about neo-conservatism and its roots, I must encourage you not to think that there is some connection between the Bavarian Illuminati and the modern Neo-Conservatives.
That's just plain conspiracy theory.
Gracious.
As always, the Dark Wraith wishes you and everyone well, Mr. Shakes.
Mr Shakes,
As far as getting a straight answer out of the Wraith on this subject, I really think it's a hopeless cause and we ought to "throw in the trowel".
Good evening, SB Gypsy.
The wartime economy is a boom economy because, almost always, the central banks of the warring nations print money like it was going out of style. Remember the equation of exchange:
MxV = PxQ.
During a war, a nation's central bank prints money to finance the build-up and re-tooling of the industrial base. Price controls are even sometimes put into effect to make absolutely certain that the aggregate price level, P, on the right side of the equation cannot react to the rapidly rising money supply, M, on the left side of the equation. As long as the velocity parameter, V, stays relatively constant, M going up on the right will force real output, Q, on the left to go up in step.
That's the "boom economy" about which your high school civics teacher was talking.
Unfortunately, the piper must be paid at some point, and this usually happens after the war is over: the real output level, Q, starts to go back to its normal level (this is the recession that often follows the completion of a war), and the aggregate price level rises to take its place in keeping the equation in balance (remember that the overhang of currency that has been building throughout the war is still floating around). This rise in the aggregate price level is the inflation that is often seen after a war. A great case in point is the roar of inflation that happened after World War II.
Ah, but the worst part is this: all of those suckers who patriotically bought war bonds during the conflict are sitting there waiting to collect the face value and interest after the war. But inflation is roaring, which means that the face value of those bonds is becoming worth less and less with each month that the inflation continues to gallop.
And because the central bank is contracting the money supply to get the inflation under control, real interest rates are rising, which makes those old war bonds, with their fixed, lower interest rates worth even less! And not only that, interest rates will be even higher after the war because, not only is the central bank driving them up by contracting the money supply, but market interest rates are skyrocketing because an expected inflation premium is being built into current interest rates, as well.
That means the people who bought those war bonds during the heat of war's patriotic fervor will end up with next to nothing if they wait to cash them in at their maturity, and they'll get next to nothing if they try to unload them before they mature. In other words, SB Gypsy, instead of lending their country money for a war effort, they actually gave their country money for that war effort. Essentially, then, they got suckered into paying a voluntary war tax.
And whom do you think does the vast majority of purchasing of war bonds during a conflict? No, it's not the wealthy and the well-connected; it's the average, knuckle-head Joe and Mary Patriots, waving their flags, saying, "God bless our nation above all others."
The Dark Wraith just shakes his head at how it all works.
Good evening, Peter of Lone Tree.
If you think for one minute that I shall rejoin that low and vile pun with anything other than total and utter derision, you're sadly, sadly mistaken.
'Throw in the trowel,' my old, scrawny, white, conspiratorial, Blue Lodge, Order of the Knife and Fork ass.
The Dark Wraith demotes Peter of Lone Tree back to Fellow Craft.
Good morning, Peter of Lone Tree.
You really think so? Not even if I were to "level with him" about my Masonic past?
Fork ass Mr. Wraith? I'm mortarfied at such name calling. That's no way to build a foundation if you want to bond with your bloggers.
Dark Wraith,
You're a Freemason? What degree are you?
I am surprised your fellow members would let you run such a website...
Isn't there a bake sale at the rotary club you should be preparing for? And don't forget, the Lion's Club are holding their bi-annual hot dog eating contest.
All for charity ofcourse.....No conspiracy there.
My Pet Goat
That was HIS ass that he was describing, not yours. lol
Neoconcrusher,
You asked Dark Wraith, "What degree are you"?
If case he declines to answer, I would assume he has at least a B.S. degree.
Cripe, I've inadvertently started an ass discussion, here.
The Dark Wraith cracks the whip.
And to you, Peter of Lone Tree, considering that I'm a wraith, degrees can be a touchy subject, what with that rather unattainable 98.6 degree reading that appears to be so easy for the living.
The Dark Wraith cranks up the heating pad.
Good morning, all.
Wow. This thread is really fraying. I must apologize to all concerned for being the one who started it!
Mr. Shakes heads for the hills, leaving only cans of spam in his wake.
PeterofLoneTree,
there are 33 known degrees of freemasonry....
Here are the first 3
http://ntsaneorg.tripod.com/mason/degrees.htm
and supposedly the 33rd
http://www.conspiracyarchive.com/NWO/33rd_Initiation.htm
All the degrees are supposed to be well guarded secrets...
Hmmmm Dark Wraith are you hiding something? Don't tell me the Kiwanas is having another bake sale this weekend....
No, but there are stories of Knights Templar ghosts sneaking up on young bloggers to scare the crap out of them, NeoCon Crusher.
The Dark Wraith does not, however, encourage such other-worldly sport.
hard to scare a fellow member ;)
Who's seaking up on who now?
Its a small NeoCon world after all...
Dark Wraith, a ass discussion? What about adding some boobies?
(I really thought this was a joke but it seems it is for real... well, but isn't the US a big joke nowadays? I apologize to the sane ones over there...)
Good evening, Joseph.
My God, if Gannon is at that shindig, too, can you imagine the pictures that could be taken?
I wonder what the evangelical cult leaders are going to think about Mr. Bush going to that event.
Suddenly, the Dark Wraith has an inspiration for some mischief next month.
And by the way, Joseph, it would appear that the Blogosphere is coming to bear on the blossoming porn queen scandal. Pam has put up a post over at the Big Brass Blog that's sure to get at least a few comments.
The only annoying thing is that, after years of Karl Rove doing his truly venal work largely in the shadows, it looks like a starlette from the world of pornography is going to be the one who drags him out into the limelight for everyone to see.
Oh, well. Anything to get people to take a good look at a man who doesn't like to have people look at him.
The Dark Wraith will take righteous indignation wherever he can find it.
DW, I especially enjoy this part of the article: "...but I think I can convince him that a little girl-on-girl action now and then isn’t so bad!". I end up laughing a lot because I tend to think that she is going to, or try to, have some action with Rove... wicked mind of mine... with Gannon on the crowd I suppose Bushie would also have some fun... O:)
It's just that it makes me feel so... so... ready for a moral awakening.
Dear Lord, it's enough to turn me into a Southern Baptist.
The Dark Wraith prepares to burn the heathen Republicans at the stake.
[Good Heavens! I just got an e-mail from Satan telling me not to even DREAM of dispatching the Republicans down to his place.]
Somehow or other, I just can't see Rove caring much about that particular kind of "action".
Guy-on-guy is what I suspect causes him to sit up and take notice (strictly when no one's able to see him do so, of course).
- oddjob