Unemployment is accelerating. That is wage deflationary, even if the incomes of those employed remains static.

Municipalities are asking more from taxpayers (at least here in NY) in property, fees, tolls, public transportation. At the same time the public isn’t spending discretionary income as the fear exists there may be no job (hence no cash) for living expenses. That is deflationary.

Housing price decline. That too is deflationary, as it was a substitute for static/low rising wages. Home equity wealth was withdrawn and used for consumption (vacations, cars, flat scree TV’s). HEW is now gone, and the wealth effect from that era has been spent.

Other than praying that it becomes so, how would you expect a wage or price spiral in the shadow of falling job numbers, falling home prices, falling capital production utilization (currently at 65% IIRC, – apology but don’t have a link handy).

Unless Ben Bernanke launches his cash filled helicopters and begins dropping it in the publics hands, there will be no inflation. Japan has tried and has failed. I think they’re at 190% plus DEBT to GDP….

When the map (link to Slate.com article below – interactive map of vanishing employment across the country) begins to turn blue again, that’s when you’ll get your inflation. Don’t hold your breath.

http://www.slate.com/id/2216238/

The other aspect is that there was a “hidden” inflation created when Greenspan faked the CPI calculation to “fix” Social Security. From the shadowstats.com site it appears the “hidden” inflation has been 8% or more above the official CPI number for more than a decade.

In other words, if the government claims inflation is 3%, you expect wages to go up about 3% instead of the the 11% more likely inflation number. Then you can’t understand why you keep going in the hole and need to refinace your house to cover expenses. Instead or gaining in wealth with the appreciation in value of your home you are borrowing it and the finance sector gains income for lending to you.

Interest rates are kept low because the Fed does not increase it’s rates when the “official” CPI is 3%. Consider what interest rates would be if the official CPI was 11%. This is what is being referred to when the experts refer to the era of “easy money” or “cheap credit”.

The above process is what Simon Johnson was referring to when he stated:
“Excessive inflation is … an inefficient and regressive tax but it’s also often a transfer from poor to rich.”

Until this is corrected any inflation increase will mask the recession but also accelerate the transfer of wealth from the lowest 95% to the wealthiest 5%.

It is easy to see why the super-rich, the financial industry, and politicians are heavily invested in keeping this system going. It is intellectually dishonest and morally repugnant for any expert to discuss “inflation” without at least mentioning they are using intentionally falsified numbers to draw conclusions.

What am I missing?

DUSHANBE, Tajikistan (AP) — A chairman of Tajikistan’s Central Bank diverted more than $850 million to a company run by himself and his family, according to an independent audit posted on the bank’s Web site Monday.

The Ernst & Young audit said that under Murodali Alimardonov’s stewardship, from 1996 to 2008, the Central Bank paid about $856 million to his Credit-Invest company, a general purpose investment concern. According to the audit, a further $221.5 million allocated for investment in the cotton industry in 2004-2007 remains unaccounted for.

Gross financial irregularities are common in the former Soviet nation, which borders China and Afghanistan in central Asia. The International Monetary Fund last year demanded repayment of $47 million in loans amid charges that Tajik authorities doctored data on national reserves.

However, the sums of money allegedly appropriated by Alimardonov, who has served as deputy prime minister in charge of agriculture since leaving the Central Bank job last year, are enormous for the impoverished nation, whose economy has been wracked by severe power shortages and lack of investment.

According to Ernst & Young’s report, government loans were issued to Credit-Invest for the development of the cotton sector, but were later used for unrelated business initiatives. In one instance, $800,000 was spent on building a restaurant in the northern Tajik city of Istaravshan , the report said.

Tajik authorities agreed to the audit of the Central Bank and other major state enterprises in the wake of the IMF scandal. However, Ernst & Young said many of the documents needed for its investigation were destroyed prior to the audit.

Government officials refused on Monday to comment about the findings of the audit

Thanks for the comment. You are right if the current stock price of financial institutions correctly reflects the real value of these institutions.

However, I’m thinking it’s very likely that the value of ‘many’ of these financial institutions is much greater than what is reflected in their stock price.

If that is the case, then the kind of Govt intervention I suggest, instead of further depressing common stock prices, would help return them to a proper level.

Again, thanks for the comment.

Your conclusion is correct, but would your analysis change if you consider inflation is currently almost 8% when calculated in the same way as in 1980? See:
http://www.shadowstats.com/alternate_data
Read the August 2006 SGS newsletter linked there for the dry details of how and why it was falsified.

The falsification of the inflation number is the driving force behind your statement:

“Excessive inflation is a typical outcome in oligarchic situations when a weak (or pliant) government is unable to force the most powerful to take their losses – high inflation is, in many ways, an inefficient and regressive tax but it’s also often a transfer from poor to rich.”

Thanks for saying this – there isn’t much talk about demand for money these days, for some reason.

One point though: isn’t the balance between demand and supply for money a determinant inflation in all economies, emerging or otherwise?

And I think this is one measure the Fed likely studies. my guess is that the Fed will downplay concerns about accelerated inflation unless wage earners start to increase their expectations of inflation, after which they will (presumably) build those increases into expectations of future nominal wage increases.

where does this leave the swap and TIPS data? financial-market-based measures of expected inflation do tend to move around a lot more than survey responses. could the recent fluctuations in financial market measure be more noise than signal?