NO INFLATION ECONOMY---NOT GOOD

MYSTERY OF MISSING INFLATION

YELLEN CALLS LOW INFLATION A "MYSTERY"

I  read this week in the Guardian (UK) and CNN (Money System) that the Federal Reserve Bank will begin undoing the extraordinary steps it had taken to prop up the economy since the Great Recession.  Over the last ten years it soaked up about $5 trillion dollars in mortgage backed securities, and bank debt and reduced the interest rate that banks charge to each other --its 'benchmark' rate-- to zero.  . By these means it had hoped to stimulate the faltering economy. But now a decade later the economy--at least to some in Washington---seems to be on the mend. Recent accounts indicate that there has been modest growth in household spending, business investments and a lower rate of unemployment.  As a result, the FED under Chairman Yellen has raised the benchmark rate from zero to 1% and then more recently to 1.25%  And now, it has started unloading the security and debt investments from its so called "balance sheet" on to the open market  Selling off about $10 billion dollars each month.

But even though some aspects of the economy show signs of improvement, the rate of INFLATION remains low.  We have little inflation in this recent economy.  Ms Janet Yellen, chairman of the FED and one who is required by statute to keep inflation at about 2% has termed this fact a "mystery".

But to my mind it is no mystery.  The economy has no inflation because there is not enough money in the hands of middle and working class purchasers.  That is a major problem.

Why should we be concerned about inflation?  The word "inflation"  even sounds negative--like a bad disease.  Who would want it?  The fact is a thriving economy has it. Its lack means our economy is stilll in trouble.

Inflation is simply one of the best ways to measure the demand for goods and services and the vitality of an economy. That is why the officials who established  the FED made it a requirement to MAINTAIN INFLATION at 2%.    Inflation is one good measure of how much disposable cash is in the hands of consumers.  Inflation measures the demand for goods.  It is a force that bubbles up from the multitude of small transactions into profits and new investments and to an overall vibrantly growing economy.  When people have sufficient cash available they use it to purchase goods.  The sellers respond to this demand by raising prices to increase  income or to cover costs of the increase (new employers, new product, etc.) in demand.  As a result the prices of goods and services go up. That is inflation.  Ms Yellen is required by stature to keep inflation at 2%.  But she has not been successful in this important goal.  It's persistent low level she has termed a mystery.  

But inflation can only occur if consumers have sufficient disposable income.  So why is there so little  inflation today?

1- The Great Recession has left a great overhang of debt.  Many people still have bills to pay off and must use any spare cash to pay off debt rather than  purchase a new refrigerator or a stove or a new car.  As a consequence of this lack of demand the prices of those items have remained fairly constant.


2-  In the last several decades income inequality in the USA has increased drastically and presently the USA has  the highest inequality of income ratings world wide.  Out of 173 nations, the USA ranks sixth from the bottom in terms of income inequality.  That IS embarrassing and exceptional! .

In 2014 according to CBO,  87 percent of the  income distribution in the USA was garnered by the top 50% of the working population, while the bottom 50% took in only 13 percent of the total.  This value  has changed greatly for the worse since the 1970s  To put this figure  into into a time perspective, the CBO has calculated that if the USA had the same income distribution that it had in 1979  each family in the bottom 80% of the distribution would today have $11,000 more per year on average.  Think of how that amount of money would add to the economy and how it would generate inflation.

Vast amounts of wealth and Income in America are presently sequestered by those few at the very top income brackets.   An often repeated fact is that today the top 400 richest Americans have more wealth than  the bottom 61 percent of the population,  or more wealth than 151 million Americans living in 57 million households.  Thus the vast majority of people --those in the bottom 50%---are living in an economic environment where more than 50  out of every 100  dollars is NOT available to them--since those funds are nor circulating since they are held in the hands of the top 400.  They are playing the economy with only half the deck.  The concentration of wealth in the hands of so few is one of the major causes of a weak, stuttering, stumbling economy.   Imagine a big rock placed under the gas pedal of your vehicle. You can press the pedal down but the engine can never roar into life. It only staggers along.  That is how our economy is functioning with vast sums of income essentially sequestered in the very top income brackets.  This is a staggering, stumbling economy--- an economy with no inflation.

3- Out-sourcing of jobs overseas leaves too many of our citizens  with only lower paying jobs.  Good high paying middle-income jobs are scare in a nation which permits and even encourages  its companies to pack up its factories and mover them overseas. Located in Mexico and China these firms produce their  product cheaply and then package  them up and offer them for sale in the USA-as if they were produced HERE!.  Most of the profits from these transactions go to the small cadre of executives and investors--not to the multitudes of American workers--they might have in times past.  This injustice only exacerbates tine income inequality problem of above.


4- Our youth are burdened with trillions of dollars of debt as a result of their expensive educations. At the age when they should be making some of the major expenditures of their lives, getting married, purchasing a house, filling it with kids and furniture, these young people are instead living monastic lives in their parent's attics and basements, working perhaps but unable to save enough as they pay off their heavy college debts.

So there is no "mystery" as to why we have low inflation.  There is no inflation because there is not  enough money in the hands of the MANY.  Not enough disposable income for  consumers too create enough demand for producers to actually raise prices of those goods and in doing so  generate a vibrant, energetic economy...and the inflation which comes with it.

These above are the economic problems we face as a nation.  They are also sadly exacerbated by the fact that the American population is aging.  Older Americans are retiring..and they leave the work force.    And also by the fact that a vibrant technology is constantly creating new ways to eliminate jobs and hand them over to machines.

Low inflation is no mystery at all.  Mystery is why we have not

HILLARY PLEASE GO AWAY!

I HAVE NOT READ HER BOOK...WILL NOT AND HAVE NO NEED TO.

 MY MESSAGE TO HILLARY:IT'S OVER HILLARCY--YOU LOST. ACCEPT IT.

 THE PUNDITS SAY YOU HAD "NO MESSAGE". BUT THAT IS NOT TRUE.

 YOUR MESSAGE WAS UNDERSTOOD CLEARLY BY ALL WHO WATCHED AND SUFFERED AND KNEW YOU OVER THESE MANY DECADES.

 HILLARY'S MESSAGE AS UNSERSTOOD BY THE VOTERS:

 "I WANT TO BE THE FIRST WOMAN PRESIDENT. I HAVE CHECKED ALL THE REQUIRED BOXES. I AM THE MOST QUALIFIED CANDIDATE EVER. I WAS SPURNED BY BILL. I STUCK IT OUT WITH BILL (WE HAD AN AGREEMENT). I GOT SCREWED AGAIN BY OBAMA (ANOTHER MAN).  I DESERVE THIS OFFICE.   IT IS MINE!

 AND OH YES..I DON'T HAVE AN IOTA OF CARE FOR THE "LITTLE PEOPLE"--THE DEPLORABLES"

 SO PLEASE HILLARY ACCEPT THE WISDOM OF OUR FOUNDERS WHO THANKFULLY GAVE THE POWER TO GOVERN TO THE LITTLE PEOPLE.

 THESE LITTLE PEOPLE HAVE REJECTED YOU AS A FAILED CANDIDATE--

YOUR ACTIONS SINCE THE ELECTION HAVE ONLY UNDERSCORED THE WISDOM OF THEIR SELECTION OF MR TRUMP THEIR ONLY OTHER POSSIBLE CHOICE.

 YOU GAVE THE ELECTION TO HIM WITH YOUR HUBRIS

 HE WON FAIR AND SQUARE.

 NOW LEAVE THE SCENE....PLEASE

HANDS TIED OVER NORTH KOREA? HIT CHINA ECONOMICALLY

WHAT CAN WE DO ABOUT NORTH KOREA ?

ANSWER: A "PEOPLE'S CAMPAIGN" AGAINST CHINESE. PRODUCTS!

FORGET SANCTIONS ON NORTH KOREA.  HIT CHINA WITH OUR BEST ECONOMIC WEAPON--AVOID BUYING THEIR PRODUCTS.

If every time we purchased a product we turned it over and determined its country of origin. If noting  it was from China and aware that the Chinese perisit in support of North Korea who threaten us by flying missiles over Japan and toward the western USA-- we must ask why should we aid them?  Buy something else. 

There has been a great deal of consternation about North Korea's missile tests and its rapid advancement in nuclear-bomb technology. That nation  has continued to thumb its nose expressed by the international community and from the USA.  It has continued with its plans and tests with abandon and impunity.   The so called "hermit kingdom" has made a mockery out of established international relations and norms.  It must be reined in. But how?

We know that the military options against that nation are not desirable, practicable or humane. Stringent sanctions imposed by the UN and the USA since  the early months of this year have had no effect.  In the fact the economy of North Korea has actually grown at an enviable rate of about 4% annually in 2016.  See: Bloomberg, "North Korea's Secret Weapon. Economic Growth" by David Volodzko September 14, 2017.

Bloomberg author Volodzko asks why rounds of more and ,more stringent sanctions imposed over the last decade failed to get NK to moderate its policies?  The reason, according to this author: the economy of NK is actually growing well (its GDP is now rated at about $28.5 billion) and altering its behavior will not work as long as that nation is prospering.  How can that be?  But the growing prosperity, brazen behavior and boldness of North Korea is directly related to  the Chinese.  That nation claims to support the rest of the world's concerns about NK---but quietly continue to supply the North with fuel, and raw materials and continue to buy their export products, providing them with the foreign exchange to purchase bomb and missile making materiel.    For example, although the Chinese agreed in February to ban NK coal imports, other NK  products (like iron) have surged in sales.  As a result, in the first half of this year exports to China have grown to $2.5 billion, making up for more than the decline in coal exports   It is this perfidious behavior of the Chinese which keeps the North's economy afloat.   The result  is that sanctions are not likely to have the effects that the Trump Administrations and the rest of the world would like to see.

So we face a determined enemy supported by one of our most priveleged trading partners.   In economic terms this is the situation. We buy Chinese vast quantities of goods and the Chinese use the vast sums from those transactions  to purchase North Korean coal and iron and sea food.   Money is fungible.  The funds from those transactions go into the coffers of the North Koreans.  In turn Kim Jung un and his underlings use that trade income to advance their nuclear and missile technology to threaten us.   So we are, in effect,  by our slavish purchasing of Chinese goods, helping to monetize a nuclear threat to our own nation!  That seems very stupid.

We can not solve the NK conundrum if the Chinese do not cooperate.  So  perhaps our best option is to put real pressure on the Chinese?  The message they understand best is an economic one.  Our trade is critical to their survival.

Mr. Trump, the Republicans, as well as the Democrats and every businessman in America may talk openly of "pressuring" the Chinese but that is all bluster and blather.  All our leaders  are adamantly against any economic sanctions or other punitive measure against  China.  It would cost them too dearly in income. But private citizens can act on their own intititivepowerfully in the market place.

If the Chinese will not put the screws to the North Koreans, the world's citizenry  need not aid them in their economic support of North Korea and its dangerous polices of nuclear blackmail.   .  Perhaps we as ordinary citizens should make our displeasure clear by beginning a citizen's disinvestment and /or citizen's sanction, boycott or ban of Chinese goods.  If every one of us rejected a sale of a Chinese manufactured product--the more expensive the better--the effects would be enormous and immediate.

In a very short time Mr Xi Jinping would be motivated to act to end his economic support of his wayward neighbor and end the terrible threat of a nuclear exchange.