Is a US economic implosion (aka Greece) inevitable?

[Chirios]

Erm... but wasn't there a decade long War on Terror from 2000-today? Wouldn't that justify higher taxes too?

No. The War on Terror wasn't an official declaration of war, the Afghanistan and Iraq wars were against two nations that were significantly weaker than Germany was during WW2, and finally, the Afghanistan and Iraq wars cost a fuckload less than WW2 did.

That is just a technical definition. The point is that the War on Terror cost money just like any other war.

No it isn't just a technical definition. There is a significant difference between what happened in WW2 and what happened in Iraq and Afghanistan.

So if you are so fucking smart and knowledgeable, why don't you enlighten me on how the US will survive in the future when the debt to GDP ratio is 150-200%. What will happen to the US economy then? How will it be different from now? If it doesn't collapse or implode like Greece, what will happen instead?

If America's GDP get's to that high a level then it will probably become like Japan, and have a few decades of stagnation whilst still being one of the highest economies in the world.

Fine... outsourced MOST of our jobs. Just look at the manufacturing industry in WW2 compared to today. Majority of it has gone to China.

Again, America was at war in WW2.

Based on the track record of Congress since 2008 this is unlikely. Our civilian employment rate (note: not unemployment rate cause those stats are fudgy) have remained at 50%-ish since 2008. It was 60%-ish before the crash. There has been ZERO improvement to the US economy for almost 4 years now. Which is why I said I do not share your optimism.

Lmfao. No, the US unemplyoment rate is nowhere near 50%. If that was true the US would have a worse employment rate than South Africa.

[Starglider]

If America's GDP get's to that high a level then it will probably become like Japan

It is sad that you have been slamming AndroAsc for over-generalising and ignoring structural detail and then pull this whopper out.

a) Japan started the lost decade with the world's largest trade surplus and consistantly ran large surpluses up to the present. The US has the world's largest trade deficit which has been constantly growing for the last thirty years.
b) Japan has a very high domestic savings rate (~15%), supporting massive government bond issuance. The US has one of the lowest savings rates in the world (~4%) and invests a smaller portion in government debt. As a result the US is heavily dependent on monetisation and foreign purchasers to issue USTs at the current rate.
c) The Japanese are statistically the healthiest country on earth, despite spending just $2729 per-capita. The US spends $7538 per capita on health care (figures from 2008: rising quickly since then) but does much worse on almost every measure of outcomes.
d) The US has vastly higher crime and incarceration rates; it is by far and away the world leader in people imprisoned per capita.

on the plus side
e) The US has considerably better demographics than Japan, fertility rate is 2.05 vs 1.39 and there is more immigration, but it is still facing a massive increase in the dependent to worker ratio.
f) The US contains the world's largest financial hub, New York, and several significant secondary hubs

The key differences are;
g) The US issues the world's reserve currency (60.7% of all FX reserves - the euro is approx 26%), wheras JPY is a bit player comparable to the GBP, CHY etc.
h) Japan spends 0.9% of GDP on a small military with no global influence. The US spends 4.7% of GDP on the world's largest military with many foreign commitments

Combined these gives the US massive license to monetise and export the resulting inflation, run a huge trade deficit and get preferential treatment for various aspects of international trade. However both the reserve currency status and the financial industry dominance can be quickly lost; USD has already declined by approx 10% as a share of FX reserves in the last ten years, more as a share of trade volume. The benefits of having a huge military will be dimminshed if serious challengers emerge, although the costs are not likely to fall much due to politicial committments at home and abroad.

[KrauserKrauser]

Will there be an economic implosion like Greece? No, we have different tools available and have alot more wiggle room being the world's reserve currency, but doesn't mean that we will be so forever.

I do so love when Keynesians trumpet that a debt problem can be solved with more debt.

Got too much debt due to massive capital mis-allocation? Get more and monetize it so that you can avoid paying the higher interest rates that markets demand! Make sure to completely keep the market out of determining where the money should be allocated by keeping interest rates super duper low and allowing the status quo to be maintained at all points. Wouldn't want market forces to force people to re-evaluate their allocation decisions.

Monetization creates inflation? Who cares! You have the world's reserve currency so you can print to your heart's desire and the inflation will largely be exported! Your news networks will get great ratings when all those filthy towel heads murder each other because the price of grain is rising at 10% per year.

Inflation is a tax on the poor? Who cares, iPads and TVs are getting cheaper! Inflation is controlled! Food costs and Gas prices are up 10% YoY? Who cares! Food and Energy aren't part of inflation, didn't you know. Just because we need it to survive and operate doesn't matter because..... Dancing with the Top Chef Kardashians! Sure your paycheck hasn't changed in 4 years while your expenses have grown almost 25%, just put it all on teh credit card so it looks like the economy is recovering! Can't you feel your confidence growing again?

Exporting inflation destabilizes the rest of the planet and increases strife and reduces the likelihood that you will remain the world's reserve currency? Who cares because in Keynes' view "in the end we're all dead"

What exactly would happen if the US lost world reserve currency status? The inability to export inflation alone would cause QE to reverse course and start harming the domestic economy so direct monetization would have alot more bad press. If direct monetization is out then the treasury would have to pay the non-manipulated higher rates that the markets would demand, which would up servicing costs and feed on itself for an inflationary spiral. Yowza, the idea of the US losing reserve status would keep me up at night if I were a Fed Chairman. But that would likely happen after my tenure so as per the Greenspan doctrine, fuck those fuckers, commence the bubble blowing!

We resemble Greece more than we do Japan with our massive trade deficits, low saving rates, inefficient government with exponentially increasing costs and a complete dependence on the rest of the world being able to support our monetization of the debt. "Becoming Japan" will likely be one of our better case scenarios in the long run.

In 2011 we had 2% GDP growth but grew the debt by 10%. 2012 is projected to be about the same. How exactly is this sustainable again?

We already lost AAA, will likely get downgraded to AA after the next debt ceiling raise at the end of the year and that rating is only going to go down. We can publically finance the debt like Japan so we will either have to inflate out of it via monetization or pay market rates which we won't be able to afford unless we have another Internet revolution (Fusion power! Maybe aliens will buy our debt! Unicorns! Pixie dust!)

Japan will not be able to service their debts if their interest rates rise above 3% as per their own Finance minister and MATH. They just ran their first trade deficit in decades. If they continue to run trade deficits, you will get to see what 200% debt to GDP does to a country and maybe the Keynesian "Debt can be fixed with more debt" myth will be put to rest and we can move towards a more balanced understanding with regards to debt accumulation, etc.

Booms and busts and Japan is going to be one hell of a bust if they continue to generate trade deficits.

Have extra fun when considering that peak oil has come and at current rates of growth alot of the net oil exporters will be largely diminished or eliminated due to domestic energy useage. But who cares, we'll use our massively less efficient alternative energy sources to make up the difference*excluding nuclear because ewwwwwwwwww FukushimaThreeMileIslandChernobylNIMBY!

[UnderAGreySky]

I do so love when Keynesians trumpet that a debt problem can be solved with more debt.

I do love it when people like you reduce the entire argument about deficit spending, aggregate demand, velocity of money, fiscal multipliers and alleviating social issues like unemployment and dissuasion from work to a "solve debt with more debt" punchline.

We resemble Greece more than we do Japan with our massive trade deficits, low saving rates, inefficient government with exponentially increasing costs and a complete dependence on the rest of the world being able to support our monetization of the debt. "Becoming Japan" will likely be one of our better case scenarios in the long run.

And this shows you haven't read the thread at all, except for the one post before yours.

[KrauserKrauser]

Keynesian approach to a downturn is acquire long term debt to support a short term recovery to eventually pay of the long term debt.

It works, in normal circumstances, as long as there is growth. It would have worked in 2000 if we had had a non-crazy Fed Chairman that didn't allow another bubble to form right after the first one. It may have even worked if we didn't have a dual increase spending and reduce taxes President that listened to all the wrong people as the bubble was forming. Debt velocity reached exponential levels and now the bill has come due. Instead of paying it, we are making the children pay for it, or more accurately, me (As a peak earner in the next 20 years or so) because the people that created this debt will be dead by the time the bill comes due.

So we get more debt to try and boost the economy. But there are headwinds. Energy will likely never be as cheap as it has been in the past (barring fusion, super tech, etc) so growth will be limited, cheap oil is out and any economic conversion is going to require more debt to perform. Whatever energy source we choose (barring Nuclear because that is appearantly too icky for the world) the efficiency will be much lower than an oil based economy, therefore growth will be slower and more expensive to acquire. If growth is slower then you are in a race with your debts to keep up. You can monetize it, as we are doing now, to inflate your way out but your creditors aren't stupid, they aren't going to voluntarily get scammed so you can pay your debts.

There will be consequences to debt monetization and increased debt loads. Loss of reserve currency status is a likely one as the world will not accept exported inflation forever, people aren't that masochistic. Loss of reserve currency status is, well, if nothing else a game changer for US monetary policy.

Or do you think that the world will be willing to accept endless devaluation of the reserve currency while energy is becoming harder (requires more labor and energy, you know real things, not in fiat money terms) and more capital intensive to acquire than it has in the past?

It's a confidence game that the Fed is running. Can we con the rest of the world to accept our exported inflation long enough to manage the debt? I am betting No, in the long run at least. And mean reversion is going to be a bitch.

[UnderAGreySky]

What devaluation are you talking about? One of the problems with the dollar is that (from an American view) it has NOT devalued over the crisis and hence it has been harder for American manufacturing to be more competitive on the international scene. It's worse here in the UK where the pound fell post-crisis and exports led the recovery; but since Europe went nuts the pound is very high and companies like mine are hurting.

[Starglider]

Keynesian approach to a downturn is acquire long term debt to support a short term recovery to eventually pay of the long term debt.

Ah, but the ultra-Keynesians have declared that there is no such thing as a solvency crisis, only liquidity crises (a line many here will faithfully parrot ad infinitum). So it's ok to create many trillions of dollars and euros out of thin air as 'long term liquidity', with no timeline for (or to be honest, expectation of) ever withdrawing that liquidity from the market. The Federal Reserve and ECB pinkie-swear that this is not monetisation, and of course only conspiracy nuts would question the word of a central bank.

But there are headwinds. Energy will likely never be as cheap as it has been in the past (barring fusion, super tech, etc) so growth will be limited, cheap oil is out and any economic conversion is going to require more debt to perform.

No, no, no, that is so 2008. This is 2012, SDN has decided that peak oil doesn't exist or at least doesn't matter and only kooky right-wing doomers claim otherwise.

[KrauserKrauser]

Lol Peak oil is now a kooky right wing issue? I thought only the crazy liberals were warning about peak oil. How the times change I guess.

How can you.say there is no devaluation? The Fed has printed up trillions of new.dollars. That is by definition devaluation. The only.reason we don't have runaway inflation from ZIRP for eternuty is the balance sheet recession/depression we are currently.experiencing. The banks won't loan anything out due to being insolvent zombie institutions that should have been decapitated.years ago. They weren't because we have a bunch of technocrat keynesiam stooges.in power and a nation too.stupid to understand the.long term implications of the policies we are adopting.

I am.past the.doomerism that Chris.Martenson and.Zero Hedge first put me.on but they are going.to be right to a.large degree in the future. If we.continue.to.devalue.the.dollar to.inflate away the debt the world will reject the dollar as the world.reserve currency. That has massive negative.implications for the country but will likely be a gtadual change. The GBP used to be the reserve currency, it is no longer fir many reasons. Given the reckless policies being undertaken.in the US I see the dollar.sharing the.ssamr fate.

Sorry for the typos and.periods, typing a phone sucks.

[AndroAsc]

Hmm... while I do have a better understanding of how using debt to repay debt may not necessary lead to a debt spiral, I think the arguments posed only hold valid if the real interest rate returns are negative. I can understand that raising taxes and cutting entitlements would cause another recession and hurt the economy, but I would argue that is only a short-term perspective. If we were to look over the long term, say the next 50 years, I don't see how debt-on-debt is a permanent solution. Consider the 2 examples:

1) US continues its existing monetary policy, borrowing money from the Fed to pay down its debt. Debt to GDP ratio skyrockets past 150%, economy does not recover, EMPLOYMENT rate remains at 58% vs the usual rate of 62% pre-2008 (for the dicks who can't read this is EMPLOYMENT not UNemployment I am referring to). Eventually the international community will lose faith in the US govt ability to repay its debt, which will be a motion lobbied by China/Russia who are trying to undermine US economic's interest. Consequently the US will lose its status as the reserve currency, the USD will deevaluate into peso dollars and it will be worthless. Sure, it would make our exports competitive (assuming we had any manufacturing industry left by that time), but buying resources like oil be expensive, which may lead to hyperinflation. Is this what we want?

2) US implements austerity measures and the economy undergoes another recession for the next decade. So employment rates drops even more, but within the next 10 years the debt is repaid and we are running a surplus. Confidence in the US economy returns and people start spending and investing again, and the US finally emerges out of recession with a strong economy.

I also remember reading that there was a similar situation in the mid-1990s for the Canadian and US govt about their entitlement programs (SS and medicare and the Canadian equivalents). The US govt in its usual fiscally irresponsible manner decided to shelf it indefinitely even up till today. Canada took steps to reduce entitlement to make them more fiscally sustainable. Fast forward 20 years later till today, the Canadian economy is doing much better than the US (and also considering they do not have reserve currency status and do not have unlimited money printing power). Let's not forget that there is no looming fiscal crisis for the Canadians from projected entitlement spending which is looming in the next few decades for the US.

In my opinion using debt to repay debt seems to be nothing but a short-sighted argument. It is still delaying the inevitable. Eventually somebody is going to call the bluff and Americans will suffer. So maybe those who think that this debt-on-debt solution is the way to go could clarify how they plan to ensure the fiscal survivability for the US in the next century or so? If you ask me, I think Congress has the mentality of wanting to eat their cake and have it to (like many Americans who live paycheck to paycheck and rack up debts). Sometimes, it is necessary to take the bitter pill and suffer, because it will allow us to emerge out from the ashes in a stronger financial position.

[UnderAGreySky]

"The Fed has printed up trillions of new.dollars. That is by definition devaluation. "

Bzzzt. Wrong. Something is devalued only if it requires more of it to trade for stuff than previously required. The Fed's printing of money has done jack-all to inflation. A dollar buys you fifty rupees today as opposed to 40 before the crisis, nearly the same Yuan as it did and you get many more Euros for your dollars now than before the crisis.

Now I'm not saying there isn't any inflation; but commodity-driven inflation which is happening worldwide is not the fault of the US Fed printing money. The Fed *tripled* the monetary base in the crisis. Lets see what it did to inflation...

[UnderAGreySky]

Oh and this is how year-on-year inflation looks like since the 80s. It's not even as bad today as it was in the mid-2000s, let alone the pre-Volcker days.

[UnderAGreySky]

2) US implements austerity measures and the economy undergoes another recession for the next decade. So employment rates drops even more, but within the next 10 years the debt is repaid and we are running a surplus. Confidence in the US economy returns and people start spending and investing again, and the US finally emerges out of recession with a strong economy.

Have you noticed what Greece, Portugal, Ireland, Spain and Italy have tried to do over the last three years? How many of these are close to running a surplus now? How many are actively worse?

[Terralthra]

1) US continues its existing monetary policy, borrowing money from the Fed to pay down its debt. Debt to GDP ratio skyrockets past 150%, economy does not recover, EMPLOYMENT rate remains at 58% vs the usual rate of 62% pre-2008 (for the dicks who can't read this is EMPLOYMENT not UNemployment I am referring to). Eventually the international community will lose faith in the US govt ability to repay its debt, which will be a motion lobbied by China/Russia who are trying to undermine US economic's interest. Consequently the US will lose its status as the reserve currency, the USD will deevaluate into peso dollars and it will be worthless. Sure, it would make our exports competitive (assuming we had any manufacturing industry left by that time), but buying resources like oil be expensive, which may lead to hyperinflation. Is this what we want?

The Federal Government doesn't "borrow money from the Federal Reserve to pay debts." When it runs a deficit, it sells Treasury Bills to a variety of buyers. The Fed is among many institutions that purchases these, including private investors and countries. When we say you don't know what you're talking about, it's shit like this.

2) US implements austerity measures and the economy undergoes another recession for the next decade. So employment rates drops even more, but within the next 10 years the debt is repaid and we are running a surplus. Confidence in the US economy returns and people start spending and investing again, and the US finally emerges out of recession with a strong economy.

You have literally no clue what you're talking about. The current Federal yearly deficit is on the order of a trillion dollars. The gross national debt is around 15 trillion dollars. To pay that off in ten years would require us to cut our Federal spending from ~3.5 trillion (vs. 2.5 trillion in revenues) to ~1 trillion. Your "austerity measures" involve budget cuts of roughly 70% across the board. Do you have any clue what that means?

That's 1.5+ million people unemployed, instantly, just from the civilian employees, and another 1.1 million or so from the military. Social Security would drop from 760 billion to 200 billion, leaving hundreds of thousands, if not millions, of seniors destitute. Medicare would go from 485 billion to 100 billion, leaving the same seniors that are now starving also without any medical care. Medicaid and S-CHIP would also be gutted, meaning there are a bunch of poor children and mothers without medical care of any kind, but hey, if you don't care about old people, I guess young people don't matter much to you either.

All of these are actually very conservative estimates, since another 612 billion of the federal budget is debt servicing, which I can only assume you wouldn't cut. So everything else would have to be cut by something more like 80% to match your "10 years to debt-free" pipe dream.

Of course, with ~2.5 million more unemployed people, there may be some economic problems right there. The fact that many unemployed people looking for work would have their unemployment cut off, as well as seniors, poor mothers, and their children would also be without any significant income or assistance with medical care would slice demand for medical care and food, so the health care and food service/preparation industries would have to lay off employees as well. These employees would also have no unemployment insurance benefits, despite paying into the system, because austerity!

Do I need to keep going? Are you still of the opinion that "austerity programs" are the solution?

[Simon_Jester]

But there are headwinds. Energy will likely never be as cheap as it has been in the past (barring fusion, super tech, etc) so growth will be limited, cheap oil is out and any economic conversion is going to require more debt to perform.

No, no, no, that is so 2008. This is 2012, SDN has decided that peak oil doesn't exist or at least doesn't matter and only kooky right-wing doomers claim otherwise.

I get that you enjoy being satiric about everything and nothing in particular. I get the whole "demolish the straw liberal/socialist/whatever" motive. I can understand the delight in being so obviously smart compared to all the self-proclaimed smart people, so that everything they think and say becomes a transparent mockery. I get the pleasure one has in telling people how they're hopelessly outmaneuvered by this group of master manipulators that one has now aligned himself with.

But what I really don't get is how you arrived at the underlined passage from, well, anything in the real world.

Sarcasm is one thing. Lying about people's opinions is another.

Hmm... while I do have a better understanding of how using debt to repay debt may not necessary lead to a debt spiral, I think the arguments posed only hold valid if the real interest rate returns are negative.

Inflation can take care of that. There are a lot of ways to cause inflation, for better and for worse. I'm not saying it's better that way- but it's not exactly hard to touch off an inflationary spiral.

Part of me thinks inflationary policies will become more common in 10 or 20 years when the average middle-aged voter is someone born in the 1980s or 1990s, who now realizes that he has nothing in the bank and no real prospects of getting anything. If you have no durable property (capital, real estate) to be devalued by inflation, and the only real asset you have is the remaining profitable years of your working life, you may have a lot to lose from the inflation. But it's tempting to think you have less to lose than someone with lots of money saved up.

In a country where (for example) the average young adult is expected to take out piles of student loans to get a college degree just to be slightly employable, the idea of inflating the currency will get more popular as those student loans get harder to pay off.

I'm not saying that's a good thing either. I just won't be surprised if it happens.

In my opinion using debt to repay debt seems to be nothing but a short-sighted argument. It is still delaying the inevitable.

You keep fixating on "debt to repay debt." Repaying debt was never the point- you take out a loan to accomplish some task, to build something or buy something, not just to make interest payments. The interest on the US's national debt is still manageable, it's not like it's a majority of the budget, and if we ever really cared about ability to make interest payments we really could raise taxes by the small amount required to make it happen.

As long as you can make interest payments, the mere fact that you are in debt is not the end of the world, and you are not "using debt to repay debt."

You may be running deficits for other reasons- say, "using debt to pay for children's education" or "using debts to pay for foreign wars" or "using debts to pay for highway construction" or "using debt to feed the unemployed." But whether things like that are sound or unsound is a totally different question.

Eventually somebody is going to call the bluff and Americans will suffer. So maybe those who think that this debt-on-debt solution is the way to go could clarify how they plan to ensure the fiscal survivability for the US in the next century or so? If you ask me, I think Congress has the mentality of wanting to eat their cake and have it to (like many Americans who live paycheck to paycheck and rack up debts). Sometimes, it is necessary to take the bitter pill and suffer, because it will allow us to emerge out from the ashes in a stronger financial position.

Think about how many cliches you're using- and consider how cliches can cause sloppy political thinking. How clearly do you understand your own proposal if the only way you can describe is by calling it a pill we must swallow so that it will burn things down so we can emerge from the ashes?

You seem to be grasping economics on a very primitive level here- not seeing any difference between households and governments. And you're using these worn-out cliches as code-words: "bitter pill" means "medicine you have to take even if you don't like it," as a substitute for sitting down and thinking "what is this thing I want us to take? Is it really good for us? Why?"

In other words, just because it's a bitter pill doesn't mean we should want to swallow it, or swallow it according to your prescription.

[Thanas]

No, no, no, that is so 2008. This is 2012, SDN has decided that peak oil doesn't exist or at least doesn't matter and only kooky right-wing doomers claim otherwise.

Citation required.

[J]

Why is the US not a household? For starters, it controls its own interest rates. The fed sets the rates on US gov't bonds, which are how the gov't accumulates debt, selling off bonds mostly to large banks who want low risk assets. This generally trickles down to all interest rates since this is the rate at which banks borrow, so it determines what they're willing to lend at.

The Fed does not set rates, it sets a target for rates which the market usually follows. Usually. The NY Fed has a rate lookup table, enter August 1st 2008 as the start date to January 1st 2009, check off the daily effective rate box and the target rate box, then bring up the chart and something interesting happens. You'll find the daily effective rate which is the actual interest rate set by the market leads the Fed's target rate by nearly a month at times. Unfortunately the data only goes back to 2000 so you can't see the action during the Volcker era when the effective rate led the target rate going the other way.

Now of course the Fed can always monetize its debts to hold the target rate, but that has issues of its own and the potential to go very wrong.

Next post, how this all relates to austerity, and why austerity is a self-defeating position, and why deficit spending actually improves your long term debt position while stuck in a liquidity trap.

Austerity works, case in point, Canada in the late 80's to mid 90's. Austerity works when a nation is actually serious about it and enacts the measures in time.

---

With regards to debt, and this also relates to low interest & borrowing rates, it gets fun. Businesses will tend to prefer debt financing to finance their activities as opposed to using capital formation & surplus from their business activities, and the same is true of starting up new businesses. Which leads to this.

[KrauserKrauser]

Why are saying that there is no inflation if some ount of fiatoney can buy the same amount of fiat money as before?

There is no.relative inflation in the currencies as they are all floating rate fiat garbage in a race to devalue to the bottom.

How does that argument stack up sgainst say the price of gold.or other precious metals?

Oh record.prices. Funny that.

[KrauserKrauser]

Also if.I recall correctly the inflation calculations have drastically.changed simce 1980 to.the point that we are comparing apples and.asteroids on that graph. I will attempt to to find some.documentation for this.

[Simon_Jester]

J, yes, "austerity works." But what's getting cut? What would disciplined austerity measures entail, in the US?

Common sense calls for a tiered system: you do some things first, and other things later. You cut the fat before the muscle, because once you start cutting into muscle, you're probably doing more harm than good.

I would think that sensible "austerity" in the US would include military budget reductions, tax increases on the rich, higher capital gains and estate taxes, means testing for social security, and some other candidates- I'm open to suggestion. But the point is to find the money to do things in places where we can afford to take a hit, without a lot of people getting hurt directly.

Instead, whenever anyone plugged into the circle of American austerity fans starts talking, they want cuts in infrastructure and education budgets, deregulation of industries, less food stamps, and so on. Which strikes me as exactly the opposite- those are cuts to the muscle and bone, where you're sacrificing people's survival, or several dollars of future growth, in exchange for one dollar of budget savings now.

And AndroAsc doesn't seem to have any idea about this question of priorities- he just wants to cut everything as deeply as possible to make the debt go away as fast as possible, damn the consequences. "Debt bad ugh" seems like the sum total of his reasoning.

If he can grow from there, fine, but he keeps insisting that he has the whole picture. If austerity works, fine. But austerity is worse than useless if it turns into nothing but a pretext for the right wing to do exactly what they've been doing to government for the past thirty years, only harder.

[Terralthra]

Why are saying that there is no inflation if some ount of fiatoney can buy the same amount of fiat money as before?

There is no.relative inflation in the currencies as they are all floating rate fiat garbage in a race to devalue to the bottom.

How does that argument stack up sgainst say the price of gold.or other precious metals?

Oh record.prices. Funny that.

Ridiculous. Yes, let's judge inflation by something that only a tiny fraction of the citizens using the money actually need or care about!

How about we use food and energy prices across the US? Perusing down the rows shows that food prices are on average up a bit for many staple grain and meat products, while mostly down for fruits and vegetables, compared to a year ago, while energy prices are more uniformly up on the order of 10% compared to December 2010.

[UnderAGreySky]

Austerity works, case in point, Canada in the late 80's to mid 90's. Austerity works when a nation is actually serious about it and enacts the measures in time.

From The Worthwhile Canadian

On the lessons to be learned from the elimination of the Canadian federal deficit in the 1990s

It would appear that there is a significant constituency in both the US and in Europe agitating for immediate efforts to reduce their respective governments' deficits, and some are pointing to the Canadian experience of the 1990s. If Canada could make the swift transition from decades of large and chronic deficits to being the poster child of fiscal rectitude with no apparent ill effects, then why can't everyone else?

The answer is that Europe and the US in 2010 is not Canada in 1995, in pretty much every way that matters.

1) Canada waited until the recession was over before embarking on an austerity program. Here is a graph of public and private sector employment in the 1990s

2) The austerity program was not painless. Much of the federal austerity program took the form of cuts to transfer payments to the provincial governments, who in turn were obliged to close hospitals and schools.

3) Canada is a small open economy whose currency could depreciate dramatically against its largest trading partner. And boy, did it ever. Exports were the biggest contributor to Canadian GDP growth during the 1990s.

If you're going to count on exports to sustain aggregate demand while your government cuts back, you have to figure out which foreign economy is supposed to absorb all that extra production. Canada's response to that question in 1995 was an expanding US economy that was ten times as large. It's hard to see what sort of answer US and European policy makers can come up with.

Nice charts there too.

[KrauserKrauser]

So, yes, exactly includinng food and energy we are seeing significantly higher inflation than the CPI is showimg. Energy up 10% in 14 months. Must mean the economy is smoking hot, oh wait.

Gold is just one commodity but to say that there is no inflation by comparing two fiiat currencies is disengenious at best. The Fed is printing dollars so anything priced in dollars, real things not fiat money, are going to be more.expensive unless the growth exceeds the print rate. Right now the print rate is far exceeding the growth rate and this will likely continue for the forseeable future.

Good thing we dont need energy for anything. Energy is just going to get more expensive as we move down the efficiency scale.

[Terralthra]

So, yes, exactly includinng food and energy we are seeing significantly higher inflation than the CPI is showimg. Energy up 10% in 14 months. Must mean the economy is smoking hot, oh wait.

Gold is just one commodity but to say that there is no inflation by comparing two fiiat currencies is disengenious at best. The Fed is printing dollars so anything priced in dollars, real things not fiat money, are going to be more.expensive unless the growth exceeds the print rate. Right now the print rate is far exceeding the growth rate and this will likely continue for the forseeable future.

Good thing we dont need energy for anything. Energy is just going to get more expensive as we move down the efficiency scale.

Dipshit, the CPI includes food and energy in the "basket." The CPI's aggregate inflation index is lower because housing costs continue to remain mostly flat, apparel, recreation, transportation, and medical care are increasing at slower rates, and information/communication costs are remaining flat or falling.

[KrauserKrauser]

Sorry, I am used to the Fed speak CPI that is normally ex-food and energy.

Still the calcs on CPI have changed drastically over time, still.trying to.find backup docs for.comparisons.

[Terralthra]

Sorry, I am used to the Fed speak CPI that is normally ex-food and energy.

Still the calcs on CPI have changed drastically over time, still.trying to.find backup docs for.comparisons.

The basket of goods is updated periodically to reflect the "average consumer" and their purchases. This is reasonable, and if anything, more accurate for rating "buying power" domestically. If they didn't change the basket, there would be no provision for cell phone or ISP service, e.g.